US Extends Probe Into Applied Materials Over Alleged China Shipments

US chip manufacturing equipment maker Applied Materials said it received a new subpoena from the US Department of Commerce in May as US authorities continue a criminal investigation into allegations the Massachusetts-based firm supplied equipment to sanctioned Chinese chip maker Semiconductor Manufacturing International Corp (SMIC).

In February Applied Materials received a subpoena from the US Securities and Exchange Commission and two from the US Attorney’s Office for the District of Massachusetts, following a Commerce Department subpoena last November.

The probe involves criminal allegations that Applied Materials potentially evaded export restrictions in sending equipment to SMIC via South Korea without export licences, according to a Reuters report last November citing unnamed sources.

The company allegedly sent hundreds of millions of dollars’ worth of equipment from its plant in Gloucester, Massachusetts, to a subsidiary in South Korea and from there to SMIC, the report said.

SMIC growth

SMIC is China’s largest chipmaker and its ability to continue to thrive and to produce relatively high-end chips in spite of increasingly strict US sanctions has become a thorny issue in the US in an election year.

The company, which manufactures chips for US-sanctioned Huawei, became the world’s third-biggest contract chipmaker in the first quarter, with a market share of 6 percent, up from 5 percent in the same quarter a year ago, Counterpoint Research said in a study published last week.

SMIC overtook GlobalFoundries and Taiwan’s United Microelectronics Corp and stands behind only Taiwan Semiconductor Manufacturing Company and South Korea’s Samsung Foundry, with respectively 62 percent and 13 percent of the market, the study found.

“SMIC’s quarterly results surpassed market expectations, and the company secured the No. 3 position in foundry revenue market share in Q1 2024 for the first time, as demand recovery begins in China, including CIS, PMIC, IoT, and DDIC applications,” Counterpoint said.

Sanctions

SMIC makes chips used in automobiles, smartphones, computers and embedded devices, with more than 80 percent of its revenues for the quarter from customers in China.

In March a senior US Commerce Department official told a congressional hearing that SMIC may have violated US laws in manufacturing a high-end 7 nanometre chip for Huawei’s flagship Mate 60 Pro smartphone last year.

SMIC is a major recipient of investments from China’s “Big Fund”, formed to move the country toward semiconductor self-sufficiency.

A third phase of the fund was launched on Monday worth 344 billion yuan, or roughly $47.5bn (£37bn).