Applied Materials Settles with US Commerce Department for $252M Over Illegal Shipments to China's SMIC

Applied Materials (AMAT) has reached a $252 million settlement with the US Department of Commerce to resolve allegations it illegally shipped semiconductor manufacturing equipment to China's Semiconductor Manufacturing International Corp (SMIC). The settlement, announced on February 11, 2026, concludes a multi-year investigation into whether the California-based company circumvented US export controls designed to limit China's access to advanced chipmaking technology.

The Commerce Department's Bureau of Industry and Security (BIS) investigation found Applied Materials shipped equipment valued at approximately $1.8 billion to SMIC without required licenses between 2019 and 2024. These shipments included advanced etching and deposition tools critical for producing sub-7nm chips. Under the settlement terms, $150 million constitutes a civil penalty, while $102 million funds enhanced compliance measures and third-party audits over three years. Applied Materials admitted no wrongdoing but acknowledged "significant compliance failures" in its statement.

This case occurs against heightened US-China tech tensions. Since 2022, the Commerce Department has progressively tightened restrictions on exporting advanced semiconductor technology to China, citing national security risks. SMIC, China's largest foundry, was added to the Entity List in 2020, prohibiting US companies from supplying it with equipment without special licenses. Applied Materials' alleged violations occurred after these restrictions took effect, suggesting deliberate supply chain evasion. Commerce Secretary Gina Raimondo stated the settlement "sends a clear message about enforcing export controls critical to protecting US technological leadership."

Financially, the penalty represents 4.3% of Applied Materials' $5.85 billion net income for fiscal 2025. While manageable for the $145 billion-market-cap company, it compounds challenges in China, which contributed 31% of its $25.8 billion 2025 revenue. Applied Materials must now navigate stricter compliance oversight while competing in a global semiconductor equipment market projected by Gartner to grow 12% annually through 2028. Competitors like ASML and Tokyo Electron face similar export constraints but haven't incurred comparable penalties.

The settlement underscores escalating enforcement of US semiconductor export controls. BIS has imposed over $1.2 billion in fines related to China technology transfers since 2022, including penalties against Seagate and Boeing. Industry analysts note this may accelerate supply chain decoupling, with US equipment manufacturers expected to lose 15-20% of Chinese revenue by 2027 according to Counterpoint Research estimates. Meanwhile, SMIC continues developing advanced nodes despite restrictions, announcing plans to mass-produce 5nm chips using non-US equipment by late 2026.

For investors, the resolution removes regulatory uncertainty but highlights geopolitical risks in semiconductor capital equipment. Applied Materials shares rose 1.7% following the announcement, though remain down 12% year-to-date amid broader chip sector volatility. Long-term implications include increased compliance costs industry-wide and potential market share shifts as Chinese foundries accelerate domestic equipment sourcing. The Commerce Department's ongoing focus suggests similar actions against other suppliers violating export controls could follow.

• Applied Materials
• U.S. Department of Commerce
• SMIC