Applied Materials (AMAT) Stock: $252M Settlement Ends China Export Probe

TLDR

• Applied Materials faces $252 million settlement for illegally exporting semiconductor equipment to Chinese chipmaker SMIC.
• The company made 56 unauthorized shipments worth $126 million by routing equipment through South Korea from 2020-2023.
• SMIC was placed on U.S. Entity List in December 2020 due to military connections, requiring special export approvals.
• The penalty represents the maximum allowed and is the second-largest export violation fine in BIS history.
• Federal agencies DOJ and SEC closed their investigations without pursuing additional charges against the company.

Applied Materials reached a $252 million settlement with the U.S. Department of Commerce on Wednesday. The agreement resolves allegations the company illegally exported chipmaking equipment to China.

Applied Materials, Inc., AMAT

The Commerce Department’s Bureau of Industry and Security charged Applied Materials with 56 export violations. These shipments occurred between 2020 and 2023.

The California-based semiconductor equipment manufacturer sent ion implanters to Semiconductor Manufacturing International Corp. SMIC operates as China’s largest chipmaker. Applied Materials never obtained required export licenses for these transactions.

Routing Scheme Through South Korea

Applied Materials developed a multi-step process to ship the equipment. The company built ion implanters at its Massachusetts facilities. It then sent them to Applied Materials Korea for assembly. The final destination was SMIC in China.

Ion implanters are essential tools in semiconductor production. They alter silicon wafers during the manufacturing process.

The scheme allowed Applied Materials to avoid direct exports to China. But the Commerce Department determined this still violated export control laws.

SMIC appeared on the Entity List in December 2020. The designation came from the company’s suspected ties to China’s military. Any U.S. company must secure special licenses before shipping technology or goods to Entity List companies.

Investigation and Penalties

Reuters broke the story in 2023 about the criminal investigation. The news organization detailed how Applied Materials used its Korean subsidiary as a waypoint.

The total value of illegal shipments reached approximately $126 million. Most occurred during 2021 and 2022.

The $252 million fine equals double the transaction value. This represents the maximum penalty under Commerce Department rules. Only one larger export control fine exists in BIS history.

Seagate Technology paid $300 million in 2023 for selling hard drives to Huawei. That case set the record for export violation penalties.

Investigations Closed

Applied Materials released a statement expressing satisfaction with the settlement. The company highlighted that two other federal agencies dropped their probes.

The Department of Justice notified Applied Materials it closed its investigation without action. The Securities and Exchange Commission made the same decision.

Neither the DOJ nor SEC provided public comments. The Commerce Department confirmed the settlement amount and violation count.

Applied Materials had previously warned shareholders about China export restrictions. The company stated these controls would impact revenue. Both recent administrations tightened chip technology exports to China.

The restrictions target China’s artificial intelligence development. Washington aims to prevent Beijing from accessing cutting-edge semiconductor manufacturing capabilities.

The settlement eliminates legal uncertainty for Applied Materials. The company faced potential criminal charges and additional civil penalties before reaching this agreement. All federal investigations into these export violations are now resolved.

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