U.S. semiconductor manufacturing equipment giant Applied Materials has reached a settlement with the U.S. Department of Commerce over allegations that it violated export control regulations in shipments ultimately destined for China.
Under the agreement with the Bureau of Industry and Security (BIS), the company will pay a $252.5 million civil penalty and conduct two independent audits of its export compliance program. Failure to comply with the settlement terms — including payment of the fine — could result in a three-year suspension of its export privileges.
The penalty marks the second-largest fine ever imposed by BIS. The largest remains the $300 million penalty paid by Seagate Technology in 2023 over hard drive shipments to Huawei.
In parallel, the U.S. Department of Justice and the Securities and Exchange Commission have closed their related investigations without pursuing additional enforcement action.
In a statement, Applied Materials said resolving the matter was “in the best interest of the company, its customers, employees and shareholders,” reaffirming that integrity and regulatory compliance remain central to its global operations.
⸻
Indirect Shipments to a Restricted Chinese Entity
According to the BIS charging letter, Applied Materials committed 56 regulatory violations involving shipments valued at approximately $126.3 million.
Between November 2020 and July 2022, the company shipped partially assembled ion implantation systems from its facility in Gloucester, Massachusetts, to its South Korean subsidiary. After final assembly, the equipment was transferred to Semiconductor Manufacturing International Corp. (SMIC) and its affiliated entities in China.
SMIC was added to the U.S. Entity List in December 2020 due to national security concerns tied to China’s long-term military modernization strategy.
Under U.S. Export Administration Regulations (EAR), companies must obtain licenses to export or re-export items listed on the Commerce Control List when those items may have military or strategic applications — particularly when the recipient appears on the Entity List. Semiconductor manufacturing equipment falls squarely within this controlled category.
The restrictions are designed to limit SMIC’s ability to access certain U.S.-origin technologies unless authorized through formal licensing procedures.
⸻
A Longstanding Commercial Relationship
Applied Materials has maintained commercial ties with SMIC since the Chinese foundry was founded in 2000. Between 2016 and 2020 alone, SMIC purchased approximately 180 semiconductor manufacturing systems from Applied Materials, totaling an estimated $1.4 billion in value.
Those systems were installed in SMIC’s production facilities in China and used to manufacture semiconductors for its customers.
Internal communications referenced in the settlement documents indicate that SMIC represented a significant source of revenue for Applied Materials. At one point, the company projected roughly $52 million in quarterly sales tied to SMIC-related business.
⸻
Compliance Under Intensified Global Scrutiny
Applied Materials maintains a formal export compliance program tailored to its operational risk profile and has reportedly applied for more than 1,100 export licenses over time, including over 100 related to SMIC between 2020 and 2022.
The case underscores the increasing complexity of export compliance in the semiconductor sector, where advanced manufacturing tools are viewed not only as commercial products but also as strategic technologies.
⸻
A Broader Signal to the Global Supply Chain
Beyond the financial penalty, the settlement reflects a broader shift in the global technology landscape. Semiconductor equipment, once treated primarily as industrial capital goods, now sits at the intersection of trade policy, national security, and geopolitical competition.
As tensions between Washington and Beijing continue to shape global technology flows, supply chain actors operating in high-tech sectors face mounting regulatory scrutiny. Compliance has become not merely an administrative obligation, but a strategic imperative.
For international logistics and supply chain professionals, the message is clear: when it comes to controlled technologies, regulatory oversight now extends deep into the structure of cross-border operations — including indirect shipment pathways and subsidiary involvement.
