This is a dark day for the world's largest pure play foundryTSMC, the largestsilicon supplier to NVIDIA and AMD. The manufacturer reportedly fell subject to a major trade secret theft yesterday. A former engineer at theTaiwanese Semiconductor Manufacturing Company was arrested and charged with stealing technology secrets from theTaiwanese foundryreports Digitimes.

Former TSMC engineer, Hsu is accused of stealing proprietary information and other materials related to the foundry's 28nm process technology and passing them to China-based Shanghai Huali Microelectronics (HLMC), according to the Hsinchu District Prosecutors Office.

TSMC served as the sole supplier of all of NVIDIA's 28nm graphics chips, including Kepler and Maxwell based GTX 600, 700 and 900 graphics products. The company was also the primary supplier of AMD's 28nm gaming console and HD 7000, R 200 and R 300 graphics chips.

TSMC continues to supply NVIDIA with 16nm wafers for its Pascal GTX 1000 series products. However, AMD chose to take its FinFET business to its long time strategic partner GlobalFoundries who's currently supplying the company with 14nm wafers for its RX 400 series and 500 series Polaris graphics processors as well asRyzen CPUs.

Foundry Business Climate Continues To Be Turbulent In Taiwan

Aggressive attempts from Chinese manufacturers to compete with the government subsidized Taiwanese pure play foundry TSMC have escalated over the past several months culminating in yesterday's event. The former TSMC engineer who's been arrested had reportedly accepted a job offer at one of the company's main rivals in mainland China, HLMC. The engineer was arrested before starting his new job at Shanghai Huali Microelectronics.

Digitimes reports that HLMC had been aggressively headhunting for talent to kick start its 28nm manufacturing process. US based memory makers including Micron Technology also reportedly fell victims of technology theft and have since taken legal action against some of their former employees in Taiwan.

It's not clear how this will affect US based tech companies like NVIDIA, AMD, Qualcomm and Apple who continue to be the largest clients of TSMC. The great danger is if a production mask of a specific product is compromised. At which point a competing manufacturer can start producing a carbon copy of the product and undercut the original which could prove financially devastating for TSMC and its clients.