Letters directing a halt to specific tool shipments destined for Hua Hong — China's second-largest chipmaker — were dispatched by the Commerce Department last week to multiple chip equipment firms, Reuters reported. Facilities operated by Hua Hong that Washington believes could be involved in producing the country's most advanced semiconductors are at the center of the new restrictions. Reuters, citing people familiar with the matter, reported that the list of recipients is thought to include Applied Materials $AMAT, Lam Research $LRCX, and KLA. The letters also cover shipments to Huali Microelectronics, the group's contract chipmaking unit, according to Reuters.
A Reuters report from March had disclosed that Huali's Shanghai facility was moving toward 7-nanometer production capability — an achievement that, among Chinese manufacturers, had until then belonged solely to SMIC, the country's largest contract chipmaker.
The action is the latest step by the Commerce Department to limit China's access to advanced chipmaking technology on national security grounds. With a Beijing summit between President Donald Trump and Chinese President Xi Jinping set for May, the move risks straining relations between the two countries, Reuters noted.
The financial toll on American chip equipment suppliers could reach into the billions, Reuters reported, with the steepest impact falling on those whose products were headed to facilities mid-construction or in the process of upgrading their production capabilities. Reuters noted that alternative suppliers — both from abroad and within China — could potentially fill the equipment gap for Hua Hong.
China represents a major revenue market for all three equipment makers — Applied Materials, Lam Research, and KLA. News of the Commerce Department letters sent shares of the three U.S. equipment makers down anywhere from 4% to 6%, while Hua Hong's stock declined 3.5%.