Applied Materials reached a deal with the U.S. Department of Commerce on Wednesday to settle allegations that it illegally exported semiconductor manufacturing equipment to China.
As part of the resolution with the agency’s Bureau of Industry and Security, the company agreed to pay a $252.5 million penalty and complete two internal audits of its export controls compliance program, according to BIS’ proposed charging letter and agreement dated Feb. 11. If Applied Materials does not comply with the terms, including paying the penalty, the company may be denied export privileges for three years.
Applied Materials’ penalty is the second-highest ever imposed by BIS, the agency said in the release. The highest penalty went to Seagate Technology, which paid $300 million in 2023 for shipping hard disk drives to China-based Huawei Technologies
Additionally, the U.S. Department of Justice and the U.S. Securities and Exchange Commission closed their related investigations without action, per the company’s press release.
“Applied believes that resolving this matter is in the best interest of the company, its customers, employees and shareholders,” the company said in a statement. “Integrity and compliance are core to how Applied operates, and the company remains fully committed to maintaining strong export-control and trade-compliance practices across its global operations.”
Per the letter, Applied Materials is charged with 56 regulatory violations, shipping products valued at $126.3 million, per the agreement. The BIS and the Department of Homeland Security found that between Nov. 8, 2020, and July 18, 2022, Applied Materials shipped partially assembled ion implanting equipment from its facility in Gloucester, Massachusetts, to its South Korea subsidiary’s facility to complete the production.
From there, the equipment was sent to Semiconductor Manufacturing International Corp. and its subsidiaries in China. SMIC and its subsidiaries were added to the federal government’s entity list in December 2020 due to the Chinese Communist Party’s national strategy to strengthen its military by 2049.
Under the U.S. Export Administration Regulations, companies must apply for licenses to ship or re-export items on BIS’ commercial control list that may have a military or proliferation use to countries under the entity list. Semiconductor manufacturing equipment falls under the commercial control list.
Thus, the federal government limits SMIC’s ability to acquire certain domestically produced technology by requiring U.S. manufacturers to obtain a license to sell to SMIC.
Applied Materials has an export compliance program customized to its risk profile and has applied for more than 1,100 licenses from the BIS, according to the settlement agreement. For SMIC, the company applied for over 100 licenses between 2020 and 2022.
The semiconductor manufacturing equipment maker has sold products to SMIC since the Shanghai-based company was founded in 2000. Between 2016 and 2020, SMIC purchased 180 semiconductor manufacturing tools from Applied Materials for approximately $1.4 billion. All of the tools were installed in SMIC’s foundries in China and used exclusively for manufacturing semiconductors for its customers.
SMIC said in September 2020 that it has considered Applied Materials to be its “most important business partner and ally in the semiconductor industry,” according to the agreement. Likewise, Applied Materials viewed SMIC as a major customer, saying in an email that SMIC had a “significant revenue impact” across its product lines, and expected $52 million in sales to SMIC in the fourth quarter of 2020.
Despite SMIC being placed on the entity list, Applied Materials continued to ship and re-export products to SMIC. The company’s global trade group at the time assumed that if an item was modified in a foreign country, it would qualify as foreign-made and would not be subject to the Export Administration Regulations.
BIS said Applied Materials’ understanding that it did not need a license for reexports from South Korea to SMIC was incorrect, according to the agreement. The regulations would have concluded that the ion implanting equipment originated in the United States, as the company began production at its Gloucester facility. Moreover, all U.S.- and foreign-made parts needed to complete production in South Korea were exported solely for the manufacture of ion implanting equipment for SMIC.
“[Applied Materials] admits committing the alleged conduct,” according to the agreement. The compliance and global trade and production employees involved in the shipments are no longer employed by Applied Materials, per BIS’ press release.
“The Bureau of Industry and Security is strongly committed to safeguarding sensitive American technologies and deterring wrongdoers,” Jeffrey Kessler, the Commerce Department’s undersecretary of industry and security, said in a Feb. 11 statement. “When companies export their products around the world, they must follow the law or face stiff penalties.”
Other U.S.-based semiconductor companies have faced penalties for exporting products to SMIC and their subsidiaries in China. In 2024, GlobalFoundries was fined $500,000 for shipping $17.1 million worth of semiconductor wafers to SMIC subsidiary SJ Semiconductor in China.
