Applied Materials Fined $252M for Illegal Chip Exports to China
The U.S. Department of Commerce has levied a $252 million civil penalty against Applied Materials, a leading supplier of equipment used in semiconductor manufacturing, for illegally exporting technology to Chinese firms linked to Semiconductor Manufacturing International Corp (SMIC). The settlement, announced Friday, resolves allegations that Applied Materials violated export control regulations by shipping sensitive equipment to SMIC subsidiaries despite restrictions imposed by the U.S. Government.
According to the Bureau of Industry and Security (BIS), the violations involved 56 exports and attempted exports of ion implanter systems and related modules between November 2020 and July 2022. These systems, valued at approximately $126 million, are critical for doping silicon wafers – a fundamental step in the creation of transistors – and are essential for both advanced and mature chipmaking processes. The penalty imposed is double the value of the transactions, representing the statutory maximum allowed.
The Commerce Department’s action stems from concerns that SMIC, China’s largest contract chipmaker, was seeking to advance its capabilities with U.S. Technology despite being placed on the U.S. Entity List due to alleged ties to the Chinese military. The “is-informed” letter sent by the Commerce Department on September 25, 2020, notified Applied Materials that a license was required for exports related to SMIC, but the BIS alleges the company continued shipments regardless.
The BIS investigation uncovered a complex “dual-build” process. Equipment was initially partially manufactured in Gloucester, Massachusetts, then shipped to South Korea for final assembly and testing before being exported to SMIC facilities in China via Applied Materials Korea. In some instances, crucial components, specifically factory interface enclosures, were shipped separately from Singapore. This process appears to have been designed to obscure the final destination of the technology.
Internal communications obtained by the BIS, included in a proposed charging letter, reveal a sense of urgency within Applied Materials following the issuance of the “is-informed” letter. One senior executive reportedly urged the company to accelerate operations in Korea. Discussions also referenced competitive pressures and the potential loss of business with SMIC if shipments were delayed while awaiting license approvals.
As part of the settlement, Applied Materials faces a three-year suspended denial of export privileges, which could be activated if the company fails to meet the payment and audit requirements outlined in the order. The company is also required to undergo multiple external audits and provide annual compliance certifications to the BIS.
Reuters reported that the U.S. Department of Justice and the Securities and Exchange Commission had conducted parallel investigations but ultimately closed their cases without taking further action. Applied Materials has not admitted to any criminal wrongdoing as part of the civil settlement. This case represents one of the largest standalone export control penalties ever imposed by the BIS, underscoring the U.S. Government’s commitment to enforcing restrictions on the flow of sensitive technology to China.