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Exclusive: Applied Materials under US criminal investigation for shipments to Chinese minimum wage

A smartphone with a displayed Applied Materials logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File photo acquire license rights

Nov 16 (Reuters) – Semiconductor equipment maker Applied Materials (AMAT.O) is under U.S. criminal investigation for potentially circumventing export restrictions on top Chinese chipmaker SMIC , according to three people familiar with the matter.

The largest U.S. semiconductor equipment maker is under investigation by the Justice Department for sending SMIC equipment through South Korea without an export license, the sources said. Hundreds of millions of dollars of equipment are involved, one of the sources said. Reuters is reporting details of the investigation for the first time.

Shares of Applied Materials fell 7.3% after the news and the company reported its quarterly results.

The United States has limited shipments of advanced chips and chipmaking equipment to China over national security concerns, and the Departments of Justice and Commerce launched a task force earlier this year to investigate and prosecuting criminal violations of export controls. These rules aim to stem the flow of U.S. technology that could be used to bolster China’s military and intelligence capabilities.

Santa Clara, Calif.-based Applied Materials said Thursday it first disclosed in October 2022 that it had received a subpoena from the U.S. attorney’s office in Massachusetts for information about certain shipments from Chinese customers. “The company is cooperating with the government and remains committed to complying with global laws, including export controls and trade regulations,” it said in a statement.

The U.S. attorney’s office in Boston said: “We neither confirm nor deny the investigations.”

Prosecutors in the office’s national security unit are handling the ongoing investigation, two sources said.

Reuters could not determine whether Applied Materials violated the law, and it is unclear whether the investigation will result in charges.

The company produced semiconductor equipment in Massachusetts and then shipped it multiple times from its Gloucester factory to a subsidiary in South Korea, the sources said. From there, the equipment was sent to China’s Semiconductor Manufacturing International Corporation (SMIC), the people familiar with the matter said.

The shipments began after the U.S. Commerce Department added SMIC to its “entity list” in December 2020, which restricted exports of goods and technology to the company, two of the sources said, and took place in 2021 and 2022.

SMIC was placed on the list due to its apparent ties to the Chinese military. SMIC did not immediately respond to a request for comment on Applied Materials’ shipments. In 2020, SMIC denied any ties to the Chinese military, saying it manufactures chips and provides services “only for civilian and commercial end users and end uses.”

A spokesperson for the Commerce Department, which oversees export controls, declined to comment. A spokesperson for the Chinese Embassy in Washington did not immediately respond to a request for comment.


In adding SMIC to its trade blacklist in 2020, the Commerce Department said licenses for equipment only capable of producing chips on advanced technology nodes would likely be denied to “prevent such key technology from supporting manufacturing efforts.” China’s military modernization,” according to a report. 2020 publication in the Federal Register.

Licenses for other items are subject to review on a case-by-case basis, it adds.

In March 2021, Reuters reported that the US government was slow to approve licenses allowing US companies like Lam Research Corp and Applied Materials to sell at minimum wage.

“This matter is subject to uncertainties, and we cannot predict the outcome, nor reasonably estimate a range of losses or penalties, if any, related to this matter,” the company said in an August filing 2023 with the United States Securities and Exchange Commission. in reference to its receipt in 2022 of the subpoena relating to certain shipments from Chinese customers.

Reporting by Karen Freifeld; Editing by Anna Driver

Our Standards: The Thomson Reuters Trust Principles.

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