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Applied Materials, the leading semiconductor equipment producer in the US, is under criminal investigation for potentially circumventing export restrictions on China’s top chipmaker, Semiconductor Manufacturing International Corporation (SMIC). The Justice Department is probing allegations that Applied Materials sent equipment, worth hundreds of millions of dollars, to SMIC through South Korea, sidestepping the need for export licenses. These alleged actions took place in 2021 and 2022, after SMIC was added to the US Commerce Department’s Entity List due to perceived ties to the Chinese military. Applied Materials maintains its commitment to compliance and global laws, and is cooperating with the investigation.

  • Leading US semiconductor equipment producer, Applied Materials, faces a criminal probe for allegedly evading sanctions on China’s SMIC, sparking tensions amid global semiconductor supply chain challenges.
  • The investigation by the US Justice Department highlights the delicate balance tech companies navigate in the face of export controls, impacting global semiconductor dynamics and straining US-China relations.
  • Applied Materials’ case is part of a broader US strategy to counter China’s semiconductor self-reliance, fueling concerns of a tech industry backlash and global economic repercussions.

The probe into Applied Materials

The scrutiny of Applied Materials marks a significant moment in the ongoing tension between the US and China over technological supremacy. The company, a titan in the semiconductor industry, acknowledged receiving a subpoena from the US Department of Justice in October 2022, which sought information regarding certain shipments to Chinese customers. The investigation has raised questions about the legality of these shipments, particularly as they involve the transfer of sophisticated technology to a company that the US government has restricted due to national security concerns.

The probe is being led by the National Security Unit of the US Attorney’s office in Boston, a detail underscoring the gravity of the situation. With global semiconductor supply chains already under significant strain, the case against Applied Materials could have far-reaching implications, not only for the company itself but also for the broader geopolitical landscape.

Implications for the semiconductor industry

Applied Materials’ situation is a stark illustration of the delicate balance global tech companies must maintain in the face of stringent export controls. The US has been clear in its stance, as stated by the Commerce Department, that licenses for equipment capable of producing advanced technology chips are likely to be denied to prevent support for China’s military modernization efforts. This policy reflects broader concerns about China’s ambitions in the semiconductor sector and its implications for global security and the balance of technological power.

China’s Semiconductor Manufacturing International Corporation, despite its denials of military ties, became a focal point for these concerns when it was placed on the Entity List. SMIC’s addition to the list in December 2020, which restricts the company’s ability to procure certain US-made technology, coincided with the timeframe of the alleged shipments from Applied Materials via South Korea. The actions, if proven, could be interpreted as an attempt to navigate around the restrictions imposed by the US, complicating the already fraught relationship between the two economic powerhouses.

Broader context of US-China semiconductor tensions

The investigation into Applied Materials cannot be viewed in isolation. It reflects a broader strategy by the US to combat what it sees as a strategic challenge posed by China’s growing self-reliance in semiconductor production. Notably, China has more than doubled its semiconductor equipment localization rate to over 40% in just two years, a clear indicator of its determination to reduce dependency on foreign technology.

At the same time, this self-sufficiency drive has global repercussions. The US restrictions have led to concerns within the industry about a potential backlash against American firms. Companies like Nvidia have warned that the export restrictions could lead to a permanent loss of market opportunities in China, a significant contributor to their revenues. Moreover, the ripple effects of these policies have been felt in Europe, which struggles to balance economic ties with China against US pressure to restrict technology exports.