Applied Materials halts work for red-flagged Chinese chipmaker
US supplier pulls staff from San’an Optoelectronics following government listing
California-based Applied Materials, the world’s top chip and display equipment maker, has ordered staff to halt all deliveries and servicing for China’s biggest LED chipmaker, which was named on a red-flag list recently issued by the US government.
Xiamen San’an Optoelectronics is one of at least three Chinese customers of Applied Materials that were identified on the US government’s “unverified list”, people with knowledge of the situation told Nikkei Asian Review. While the list does not embargo dealings with these entities, it requires US companies to treat them with caution. US suppliers can no longer use existing licences to sell them products or to service installed equipment, but must reapply for new ones. San’an Optoelectronics is also the world’s biggest LED chipmaker by revenue and is listed in Shanghai.
Xi’an Jiaotong University, one of China’s top 15 universities and a unit of the Chinese Academy of Sciences, the country’s top research agency, is another Applied Materials customer named on the list, which was published on April 11, according to a supply chain source familiar with the situation. Some 37 Chinese companies and research institutions were named on the list, as well as seven organisations in Hong Kong, four in the United Arab Emirates, two in Malaysia and one in Indonesia.
The US government’s move marks another setback to companies and research institutions that are crucial to China’s ambitions to become a global tech superpower.
Applied Materials supplies almost all the world’s leading semiconductor and panel manufacturers. Market leaders such as Intel, Samsung Electronics, Taiwan Semiconductor Manufacturing Co and China’s national display champion BOE Technology Group could not make their products without the company’s tools and services.
As an industry leader in advanced tools for the critical semiconductor industry, Applied Materials’ decision to immediately stop all business with those on the list could influence other US vendors, as well as others outside the country, industry sources told Nikkei.
On April 12, Applied Materials sent a notice, obtained by Nikkei, to all staff involved with the named companies telling them to “immediately stop all pending and future equipment delivery, and cease all service activities at their sites”. It also demanded that staff, contractors and other personnel immediately leave the sites of those companies.
It warned that failure to follow its instructions could lead to significant violations of US trade law.
The company’s actions come just weeks after Gary Dickerson, chief executive of Applied Materials, travelled to China in late March to attend SEMICON China, one of the industry’s biggest events and an important showcase for Chinese technology since Beijing made development of the chip industry a top policy priority in 2014.
At the event, Mr Dickerson made his first clear and public statement about the US-China trade tensions that have hit the chip industry hard. “The strained relationship between China and the US can put decades of economic growth at risk,” he said. He also warned it would be “a lose-lose proposition” if the world’s two biggest economic powers were unable to get along.
Applied Materials generated some 26 per cent of its revenue from China, its biggest market, in the most recent quarter ending January 27. The US company did not immediately respond to a request for comments. San’an also did not respond to a request for comments.
Gao Feng, China’s commerce ministry spokesman, hit back at the new unverified list, saying the US move could damage the reputations of Chinese companies and disrupt normal trade activities. Beijing said it objected to the abuse of national security and export control rules and demanded that the US withdraw the new curbs as soon as possible.
Akin Gump, an international law firm, warned companies in a research note that they would have to respond to the requirements of the unverified list. “As a result of this development, US and non-US companies and others should update their internal control program screens to ensure compliance with the new requirements,” the note said.
Harry Clark, a partner with law firm Orrick, Herrington & Sutcliffe in Washington, told Nikkei that being added to the unverified list did not mean a broad ban on US exports and re-exports to a named entity, but companies would need to obtain extra licences and file additional reports if dealing with such entities. It also applied to foreign persons.
“My firm advises clients to be especially careful to ensure that any export or re-export involving an unverified list entity is scrupulously compliant with the regulation,” Mr Clark said.