EXCLUSIVE-US orders chip equipment companies to halt some shipments to Hua Hong, China's second-largest chipmaker

The U.S. Department of Commerce last week ordered numerous chip equipment companies to halt certain tool shipments to China's ‌second-largest chipmaker Hua Hong, according to two people familiar with the matter. The department sent letters to at least a handful of companies informing them of the new restrictions on tools and other materials destined for Hua Hong facilities that U.S. officials believe will make China's most ‌sophisticated chips, the people said. Top U.S. chip equipment companies Lam Research, Applied Materials and KLA, each of which has significant business ‌supplying China, were among those believed to have received a letter, the sources added. Reuters exclusively reported in March that Hua Hong Group had developed advanced chip manufacturing technologies that could be used to produce artificial intelligence chips, a milestone in Beijing's efforts to boost tech self-sufficiency. The group's contract chipmaking business, Huali Microelectronics, was preparing a ⁠7-nanometer chipmaking ​process at its Shanghai plant, sources ⁠said. SMIC, China's largest contract chipmaker, is the only domestic company that can currently make chips with 7-nm technologies, the report said. The letters from the Commerce ⁠Department also aim to prevent shipments to Huali, sources said.

U.S. AIMS TO PROTECT LEAD ON AI CHIPS In recent years, the Commerce Department has ​restricted U.S. companies from shipping equipment to Chinese factories producing advanced chips as part of an effort to safeguard the U.S.' technological ⁠lead in making AI and other advanced chips on national security grounds. The recent letters carry this policy forward, but could increase tension with China ahead of President ⁠Donald ​Trump's scheduled meeting with Chinese President Xi Jinping in Beijing in May. U.S. chip equipment companies and other suppliers could lose billions of dollars in sales, one of the people said, especially if they were supplying a chipmaking plant that is under construction, ⁠or one that is retooling to begin making more advanced chips. The restrictions could slow China's domestic chipmaking drive, though Hua Hong ⁠may be able to replace ⁠the tools with ones from foreign or Chinese companies.

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

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