Semiconductor equipment manufacturer Applied Materials is currently under investigation by the U.S. Justice Department over potential violations of export restrictions in its dealings with China’s top chipmaker, SMIC, according to sources familiar with the situation.
Applied Materials, the largest semiconductor equipment maker in the U.S., is being examined for allegedly sending equipment worth hundreds of millions of dollars to SMIC without obtaining the necessary export licenses, as reported by one of the sources, who requested anonymity due to the investigation’s sensitivity. This report by Reuters marks the first public disclosure of the probe.
The United States has implemented strict controls on shipments of advanced chips and chipmaking equipment to China in the interest of national security. Earlier this year, both the Justice and Commerce Departments established a task force to investigate and prosecute potential criminal violations of export controls. These measures are designed to prevent the transfer of U.S. technology that could enhance China’s military and intelligence capabilities.
Applied Materials, headquartered in Santa Clara, California, stated on Thursday that it initially disclosed the receipt of a subpoena from the U.S. Attorney’s Office in Massachusetts in October 2022, requesting information about certain shipments to Chinese customers. In a statement, the company emphasized its cooperation with the government and its commitment to adhering to global laws, including export controls and trade regulations.
The U.S. Attorney’s Office in Boston has not confirmed or denied the existence of an investigation, but sources familiar with the matter have indicated that prosecutors from the office’s National Security Unit are overseeing the ongoing probe.
At this stage, it remains uncertain whether Applied Materials violated any laws, and the potential for charges resulting from the investigation is unclear.
Following the news, shares of Applied Materials declined by over 6% during after-hours trading on Thursday. The company also reported earnings that exceeded expectations of LSEG analysts on both revenue and profit.
The investigation centers on Applied Materials’ production of semiconductor equipment in Massachusetts, which was subsequently shipped from its Gloucester plant to a subsidiary in South Korea. From there, the equipment made its way to China’s Semiconductor Manufacturing International Corporation (SMIC), according to sources familiar with the probe.
These shipments began after SMIC was added to the U.S. Commerce Department’s “Entity List” in December 2020, effectively imposing restrictions on the export of goods and technology to the company. The shipments took place in 2021 and 2022.
SMIC was placed on the list due to alleged connections with the Chinese military. SMIC has not yet responded to inquiries regarding the shipments from Applied Materials. In 2020, SMIC denied any links to the Chinese military and asserted that it solely served civilian and commercial purposes in its chip manufacturing and services.
The U.S. Commerce Department, responsible for overseeing export controls, declined to comment on the matter. Similarly, there has been no immediate response from China’s embassy in Washington to requests for comment.
In 2020, when SMIC was added to the trade blacklist, the Commerce Department indicated that licenses for equipment capable of producing advanced technology node chips would likely be denied to prevent support for China’s military modernization. Licensing for other items was to be considered on a case-by-case basis.
A Reuters report from March 2021 highlighted the slow approval of licenses by the U.S. government for American companies like Lam Research Corp and Applied Materials to sell to SMIC.
Applied Materials addressed the issue in an August 2023 filing with the U.S. Securities and Exchange Commission, stating, “This matter is subject to uncertainties, and we cannot predict the outcome, nor reasonably estimate a range of loss or penalties, if any, relating to this matter,” in reference to the 2022 subpoena concerning specific shipments to China.
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