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TSMC reports that it is discussing with suppliers the use of equipment that is free of rare earth elements or contains fewer rare earth components to mitigate supply risks posed by China's export controls. The assessment is still in its early stages and has not yet been implemented on a large scale. The image shows a schematic of semiconductor manufacturing equipment.

TSMC, the world's largest contract chipmaker, is evaluating ways to reduce semiconductor-fab equipment's reliance on rare-earth components in an effort to limit the risk of supply disruptions stemming from possible Chinese export controls. The move highlights how supplies of rare earths and other critical minerals could affect not only electric vehicles and defense industries, but also the highly automated production of advanced chips.

According to an exclusive Reuters report published Oct. 22, TSMC has asked equipment suppliers whether rare-earth-free motors could be used or whether the amount of rare-earth components in equipment could be reduced. Citing three people familiar with the matter, the report said the effort is aimed primarily at reducing potential risks to fab operations from Chinese export restrictions.

Rare-earth magnets are commonly used in industrial equipment motors to drive moving parts in automated machinery. Advanced semiconductor fabs rely on large numbers of precision tools and automated systems. A shortage of specific magnetic materials or related components could affect chip production and, in turn, ripple through supply chains for smartphones, AI computing systems, data centers and defense.

Reuters said discussions at TSMC remain at an early stage and that rare-earth-free equipment has not been adopted on a large scale. TSMC declined to comment on the report. The evaluation therefore cannot be regarded as a completed equipment-conversion program, and it is not possible to determine from it how significantly short-term production could be affected.

China imposed export controls last year on certain rare-earth materials, magnets and related processing technologies, requiring licenses for some exports. Given China's important position in the global rare-earth supply chain, export reviews and licensing procedures could increase procurement uncertainty for downstream companies, prompting technology firms to seek alternative materials, suppliers and manufacturing approaches.

The government is also pursuing a strategy to develop critical-mineral technologies. The Ministry of Economic Affairs previously said it would support the Industrial Technology Research Institute in developing rare-earth-related technologies, with the goal of establishing a pilot production line within three years. The line is expected to meet about half of domestic demand. The United States has also said it is working with Taiwan and other partners to identify alternative sources of supply and expand processing capacity.

For Taiwan's semiconductor industry, rare-earth alternatives involve more than material costs. They also raise questions about equipment reliability, certification timelines and production stability. If substitute components pass validation for use in precision manufacturing equipment, they could help reduce reliance on a single source. But the practical benefits will take time to assess until the technology matures and supplier capacity is confirmed.