Taiwan Semiconductor Manufacturing Co. (TSMC) is phasing out the use of Chinese-made equipment in its most advanced chip production lines to avoid potential disruptions from future U.S. restrictions, the Nikkei reported, citing people familiar with the matter.

The decision means that TSMC's upcoming 2-nanometer fabs in Hsinchu and Kaohsiung, scheduled to begin mass production later this year, will not use tools from mainland Chinese suppliers. TSMC's planned third fab in Arizona, which will also produce 2nm chips, is expected to follow the same approach.

According to three sources, the move was influenced by potential U.S. legislation that could bar chipmakers receiving federal subsidies or tax incentives from using equipment made by "countries of concern," a category seen to include Chinese suppliers. The proposed "CHIPS Equipment Act," introduced by Senator Mark Kelly, seeks to formalize such restrictions.

Industry executives note that replacing even non-critical tools requires extensive time, testing, and resources, with possible risks to yield and quality. TSMC previously began reducing its reliance on Chinese equipment at the 3nm level to ensure smooth expansion into the U.S., but has accelerated efforts at the 2nm node as volume production nears.

Two Chinese suppliers are believed to be affected: Advanced Micro-Fabrication Equipment Inc. (AMEC), whose etching tools were reportedly used in TSMC's 3nm lines, and Mattson Technology, a U.S.-founded company acquired in 2016 by China's Etown Holdings.

Beyond equipment, TSMC is also reviewing its materials sourcing strategy. The company has increased local procurement of raw materials and components in Taiwan, with plans to raise domestic sourcing targets further by 2030. At the same time, it is seeking closer ties with suppliers in mainland China to meet regulatory priorities while ensuring supply chain resilience.

Former U.S. officials and analysts warn that Chinese semiconductor equipment makers are rapidly advancing in several fields, though lithography remains dominated by Dutch supplier ASML. AMEC has already become the world's sixth-largest equipment vendor, trailing only ASML, Applied Materials, Tokyo Electron, Lam Research, and KLA.

TSMC declined to comment on specific suppliers but said its global procurement strategy emphasizes "strong risk management systems and close collaboration with suppliers" to diversify and secure its supply chain.