HSINCHU/TAIPEI, Taiwan (Reuters) -Taiwanese contract chipmaker TSMC, whose major clients include Nvidia and Apple, said on Tuesday it had held talks with some customers about moving its chip plants off the island as tensions mounted with China but such a move would be impossible.

Tensions between China and Taiwan have increased sharply since Beijing launched war games around the democratically governed island last month following inauguration of Taiwan President Lai Ching-te, who Beijing denounces as a "separatist".

"Instability across the Taiwan Straits is indeed a consideration for supply chain, but I want to say that we certainly do not want wars to happen," Taiwan Semiconductor Manufacturing Co (TSMC) Chairman C.C. Wei told reporters after the company's annual general meeting.

He said it would be impossible to move chip factories out of the island, given that 80-90% of its production capacity is in Taiwan.

Wei did not name the customers with whom TSMC had held talks on the potential shift out of Taiwan.

TSMC, which is grappling with surging orders for high-end chips used to offer generative artificial intelligence tools and services, had discussions with ChatGPT creator OpenAI over AI chip supplies, which the Taiwanese firm considered "too aggressive", Wei said, without elaborating.

"He is very aggressive, too aggressive for me to believe," Wei said, referring to OpenAI CEO Sam Altman.

Altman held talks with TSMC last year to discuss a potential partnership to build roughly three dozen factories in order to ensure that the company would be able to acquire enough silicon to meet their steadily growing need, according to a source familiar with the matter.

The talks were cordial, but TSMC officials made clear that the number of fabs Altman was proposing was too many, and TSMC feared it would not be able to operate the factories at the needed 80% or greater capacity, the source said.

TSMC's projections at the time did not forecast enough demand for more than 30 new fabs.

It was not clear if TSMC and Altman talked about building its fabs outside of Taiwan.

"NOBODY IS WORRIED"

Despite the China tensions, the topic of a possible war and its impact on chip supply chains has barely featured at the annual Computex technology trade show this week in Taipei, unless brought up by reporters to executives on the sidelines.

"Nobody is worried about this yet," Frank Huang, chairman of Powerchip Semiconductor Manufacturing, told reporters at the event, when asked whether foreign customers were putting pressure on Taiwan firms not to produce there given the tensions.

"I think of course always there is military activity, or showdowns, but again Taiwan is so important to AI - even the Chinese know that. We are OK, no problem," he said.

Advanced Micro Devices CEO Lisa Su also reiterated the importance of Taiwan in the global chip supply chain, when asked about how tensions with China and its war games could affect the industry.

"We do a lot of our manufacturing here with key suppliers like TSMC... And then we also have a number of partners that help us build out the ecosystem here in Taiwan," she had told reporters at the show on Monday.

"The bottom line from our perspective is it's really important to have a global ecosystem."