US orders chip equipment makers to halt shipments to China’s Hua Hong

The US Commerce Department has ordered several semiconductor equipment manufacturers to halt specific shipments to Hua Hong, China’s second-largest chipmaker, marking the latest escalation in Washington’s efforts to constrain Beijing’s development of advanced semiconductors.

Sources familiar with the matter told Reuters that the Department issued letters to at least several firms informing them of new restrictions on tools and materials destined for two Hua Hong facilities. US officials believe these sites are capable of producing China’s most sophisticated chips.

Major US equipment providers with significant exposure to the Chinese market, including Lam Research, Applied Materials, and KLA, are believed to be among the recipients of the directives.

In March, Reuters reported that Hua Hong Group was developing advanced manufacturing technologies suitable for artificial intelligence chips—a milestone in Beijing’s drive for technological self-reliance.

Huali Microelectronics, the group’s contract manufacturing arm, was reportedly preparing a 7-nanometer (nm) production process at its Shanghai plant. Currently, SMIC, China’s largest contract chipmaker, is the only domestic entity capable of producing chips at the 7nm node.

Sources stated the Commerce Department’s letters were specifically intended to block shipments to Huali.

Market reaction was immediate following the news. Shares of Lam Research closed Tuesday down 3.1%, while KLA fell 4.7% and Applied Materials dropped 5.8%.

US aims to preserve leadership in AI semiconductors

In recent years, the Commerce Department has restricted the export of US equipment to Chinese factories producing advanced chips, citing national security and the need to protect the US technological lead in AI and other high-end sectors.

While these latest letters advance that policy, they risk heightening tensions with Beijing ahead of a scheduled meeting in May between President Donald Trump and Chinese President Xi Jinping.

One source noted that US equipment manufacturers and other suppliers could lose billions of dollars in sales, particularly if they are supplying facilities currently under construction or being retooled for advanced production. While the restrictions may slow China’s domestic chip-making efforts, Hua Hong could potentially replace US tools with those from foreign or domestic competitors.

A Commerce Department spokesperson declined to comment. Hua Hong, Lam Research, Applied Materials, and KLA did not immediately respond to requests for comment.

Chris McGuire, a senior fellow for China and emerging technologies at the Council on Foreign Relations, described the move as a “belated and welcome first step from the Trump administration.” He added, however, that “for it to have any impact, it must cover all shipments from US toolmakers, including those from their overseas subsidiaries.”

Identifying exactly which facilities are producing advanced chips remains a challenge.

Huawei Technologies, the Chinese tech giant currently on a US trade blacklist, is reportedly collaborating with Hua Hong and plans to shift some of its AI chip production from SMIC to the firm. Reuters reported last month that 7nm R&D at Huali’s Hua Hong Fab 6 site began last year with support from Huawei-backed SiCarrier. Huali reportedly aims for an initial capacity of several thousand 7nm wafers per month by the end of 2026.

The “is-informed” letters used by the Commerce Department allow the US to bypass lengthy rulemaking procedures and rapidly impose new licensing requirements on specific companies.

In 2022, similar letters were sent to Nvidia and AMD to restrict exports of high-end AI chips, and to Lam Research, Applied Materials, and KLA regarding shipments to advanced Chinese plants. Those restrictions were later codified into broader industry regulations.

While “is-informed” letters have been used frequently under the Trump administration, the restrictions they contain have not always been converted into permanent regulations.