The U.S. regulators have launched an investigation into leading semiconductor supplier Applied Materials (AMAT.O) for potential violations of export control regulations related to shipments to China’s largest chipmaker, Semiconductor Manufacturing International Corporation (SMIC).
According to the sources familiar with the matter, the Department of Justice (DOJ) is examining whether Applied Materials sent hundreds of millions of dollars of equipment to SMIC via South Korea without obtaining the necessary export licenses.
This alleged action would violate U.S. export control laws, as the U.S. government has taken action against the transfer of sensitive semiconductor technology to China, which potentially harms U.S. national security interests.
In response to the investigation news, Santa Clara, the company’s headquarters, said that it publicly disclosed in October 2022 that the U.S. Attorney’s Office in Massachusetts issued a subpoena for documents about certain Chinese customer shipments. Applied Materials stated that it is cooperating with the DOJ and asserted its commitment to complying with all export control laws.
The U.S. Attorney’s office in Boston remained tight-lipped on the matter, as reported by Reuters. A source revealed that Applied Materials produced semiconductor equipment in Massachusetts and then shipped it to its subsidiary in South Korea.
From there, the equipment was rerouted to SMIC in China. These alleged shipments occurred in 2021 and 2022 after the U.S. government decided to add SMIC to a restricted entity list, prohibiting the export of certain goods and technologies without prior authorization.
The China embassy spokesperson in Washington stated that they were not informed about the probe but expressed disapproval of imposed restrictions that disrupt market economy principles and fair competition.
The Chinese foreign ministry spokesperson urged the U.S. to cease disrupting the global semiconductor industry’s supply chain and emphasized that China would firmly protect its own rights and interests.
The outcome of the investigation is still unknown, but it could have serious consequences for Applied Materials. If the company is found to have violated export control laws, it could face fines, penalties, and even criminal charges. Additionally, the company’s reputation could be tarnished, and lose access to key markets.
The investigation was first publicly reported by Reuters in November 2023. Applied Materials shares dropped by 7.3% after the news surfaced.