Applied Materials Faces Criminal Probe Over China Shipments

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Chips Giant Under Scrutiny: Applied Materials, a leading US chipmaker, is in the spotlight as it faces a criminal investigation for allegedly violating export restrictions to China. The Justice Department is specifically looking into the company’s dealings with Semiconductor Manufacturing International Corp. (SMIC), China’s largest chipmaker.

Violation Allegations: According to a Reuters report, Applied Materials is accused of bypassing US export bans by sending hundreds of millions of dollars worth of equipment to SMIC through South Korea. The investigation will determine whether the company conducted these transactions without the required licenses.

Market Impact: The news has triggered a market response, with Applied Materials shares falling by approximately 7%. The company, which has been a beneficiary of the booming chip market, now faces uncertainties about its future dealings and market opportunities, especially in the context of US-China relations.

Potential Consequences: The alleged violation raises concerns about potential fines and regulatory actions. Citi analysts suggest a worst-case scenario similar to Seagate, with a $300 million fine for shipping to Huawei. The extent of government restrictions and the final implications on Applied Materials’ revenue from its exposure to China remain uncertain.

Industry Reflections: The incident reflects broader challenges faced by Western chipmakers in navigating geopolitical tensions and export regulations. The AI trade, which has been a driving force for chip-related stocks, now encounters heightened scrutiny, and investors are closely monitoring how this incident might impact the industry’s future.

Company Response: Applied Materials responded by pointing out that it had disclosed the matter last year. The company, however, remains cautious in its comments, given the legal implications. The market awaits further developments as the investigation unfolds and potential consequences become clearer.

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