Applied Materials (AMAT) Settles $252 Million China Export Violation Case

Posted on by

TLDR

  • Applied Materials will pay $252 million to settle allegations of illegally exporting chip-making equipment to China’s SMIC from 2020 to 2023.
  • The firm carried out 56 unlawful shipments valued at $126 million by channeling ion implanters through its South Korean affiliate to circumvent export restrictions.
  • SMIC was included in the U.S. Entity List in December 2020 due to its purported connections to the Chinese military, necessitating special export licenses.
  • The penalty amounts to twice the transaction value, which is the maximum permitted under Commerce Department regulations.
  • Both the Department of Justice and the SEC concluded their respective investigations without taking action against the company.

Applied Materials consented to pay $252 million on Wednesday to settle claims that it illegally shipped semiconductor manufacturing equipment to China’s largest chipmaker. This settlement resolves a multi-year probe into export control breaches.

AMAT Stock Card

The U.S. Department of Commerce’s Bureau of Industry and Security accused the company of 56 violations that took place between 2020 and 2023. The Santa Clara-based equipment manufacturer shipped ion implanters to Semiconductor Manufacturing International Corp without proper authorization.

Ion implanters are crucial pieces of equipment used in chip manufacturing. They alter silicon wafers during the production process.

Applied Materials employed a workaround to evade export restrictions. The company manufactured the equipment in Massachusetts, then shipped the gear to its subsidiary in South Korea for assembly, after which the equipment was sent to SMIC in China.

The Export Restriction Background

The Commerce Department added SMIC to its Entity List in December 2020 because of the Chinese company’s alleged ties to the military. Companies on the Entity List need special export licenses for U.S. technology and goods.

Applied Materials never applied for or obtained the necessary licenses. The company made illegal shipments worth approximately $126 million to SMIC in 2021 and 2022.

Reuters was the first to report the criminal investigation in 2023. The news outlet described how Applied Materials channeled equipment through South Korea to reach China.

Maximum Penalty Imposed

The $252 million fine equals twice the transaction value, which is the maximum penalty permitted under Commerce Department law. It is the second-highest export violation penalty ever imposed by the Bureau of Industry and Security.

Seagate Technology was fined $300 million in 2023 for selling hard disks to Huawei, which remains the largest recorded export control penalty.

Applied Materials stated it was glad to reach a settlement. The company mentioned that both the Department of Justice and the Securities and Exchange Commission concluded their investigations without taking action.

The Justice Department did not respond to requests for comment. The SEC declined to comment on the issue.

Applied Materials had previously cautioned investors that strict U.S. export controls on China would impact sales. Both the Biden and Trump administrations imposed strict restrictions on chip technology exports to China, aiming to slow Beijing’s development of artificial intelligence capabilities.

This settlement resolves all ongoing federal investigations into the export violations. Applied Materials can now proceed without the legal uncertainty that has loomed over the company since the investigation started.