Applied Materials Faces Subpoenas Over China Shipments

The semiconductor industry, already grappling with supply chain disruptions and geopolitical tensions, faces a new challenge as Applied Materials, the largest producer of chipmaking equipment in the U.S., finds itself entangled in a web of regulatory scrutiny. The company disclosed in a filing with the U.S. Securities and Exchange Commission (SEC) that it has received multiple subpoenas from various government agencies regarding shipments of its products to certain customers in China, including at least one subpoena related to shipments to Semiconductor Manufacturing International Corporation (SMIC), a major China-based foundry blacklisted by the U.S. government.

Unveiling the Subpoenas

In its filing, Applied Materials revealed that it received subpoenas from the U.S. Attorney’s Office for the District of Massachusetts in August 2022 and February 2024, from the U.S. Commerce Department’s Bureau of Industry and Security in November 2023, and from the U.S. Securities and Exchange Commission in February 2024. The company emphasized its full cooperation with government authorities in these matters while acknowledging the uncertainties surrounding the outcomes and potential implications of these investigations.

Allegations of Export Control Violations

One of the investigations spearheaded by the U.S. Justice Department is reportedly centered on allegations that Applied Materials circumvented required U.S. export licenses by directing shipments of its equipment to SMIC through South Korea. This alleged maneuvering, involving tools valued in the hundreds of millions of dollars, occurred after SMIC was added to the U.S. Commerce Department’s Entity List in December 2020 due to national security concerns. The specifics of these shipments, including the types of Wafer Fabrication Equipment (WFE) and their timing, remain undisclosed.

Escalating Regulatory Scrutiny

Applied Materials’ encounter with regulatory inquiries dates back to October 2022 when it confirmed receiving a subpoena from the Massachusetts U.S. Attorney’s Office related to its shipments to Chinese customers. Since then, the company has faced additional subpoenas as various government agencies delve into its business dealings with entities in China. The tightening of export controls by the U.S. government, citing national security imperatives, has further intensified scrutiny on shipments of high-performance processors and advanced semiconductor manufacturing equipment to China.

Navigating Export Restrictions

The stringent export controls introduced in October 2023 mandate U.S. fab tool manufacturers to obtain licenses for exporting equipment capable of producing cutting-edge semiconductor chips to Chinese firms. SMIC, positioned as the only contract chipmaker in China capable of manufacturing 14nm-class chips, has long been on the U.S. Department of Commerce’s Entity List, necessitating stringent compliance measures for companies like Applied Materials engaging in transactions with the Chinese semiconductor giant.

Future Implications and Compliance Measures

As Applied Materials navigates the complexities of regulatory scrutiny, the semiconductor industry braces for potential ramifications amid escalating tensions between the U.S. and China. Compliance with export controls and adherence to stringent regulatory requirements emerge as imperative priorities for companies operating in the semiconductor ecosystem. The outcomes of ongoing investigations and the evolving regulatory landscape are poised to shape the trajectory of semiconductor trade relations and underscore the critical importance of regulatory compliance and risk management in fostering a resilient and sustainable semiconductor industry.