Reuters, citing two people familiar with the matter, reported that the U.S. Department of Commerce has recently instructed several semiconductor equipment companies to suspend certain shipments to Huahong Semiconductor, China’s second-largest chip manufacturer. The move marks Washington’s latest effort to slow China’s advancement in cutting-edge chip technology.
The sources said the Commerce Department sent letters last week to at least several companies, imposing new restrictions on equipment and other materials destined for Huahong facilities. U.S. officials believe these facilities could be used to produce China’s most advanced chips.
According to the sources, major U.S. chip equipment makers Lam Research, Applied Materials, and KLA have received the letters. All three have significant business supplying Chinese customers.
Reuters previously reported in March that Shanghai-based Huahong Group had developed advanced manufacturing technology capable of producing artificial intelligence (AI) chips, marking an important milestone in Beijing’s push for technological self-reliance. Its foundry subsidiary, Shanghai Huahong Grace Semiconductor Manufacturing, is preparing to produce 7-nanometer chips.
China’s largest contract chipmaker, SMIC, is currently the only Chinese company capable of producing 7-nanometer chips. SMIC did not immediately respond to a request for comment by Reuters.
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The sources also said the Commerce Department’s letters were intended to prevent equipment from being supplied to Huahong Grace Semiconductor as well.
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Following the report, shares of KLA, Lam Research, and Applied Materials fell between four percent and six percent in after-hours trading, while Huahong Semiconductor closed down 3.5 percent on the day.
In recent years, the Commerce Department has increasingly restricted U.S. companies from supplying equipment to China’s advanced chip industry on national security grounds, aiming to maintain U.S. leadership in AI and semiconductor technology. The latest letters continue that policy, but could further heighten tensions between the U.S. and China ahead of a potential meeting between President Donald Trump and Chinese President Xi Jinping expected in May.
One of the sources said the move could cost chip equipment makers and other suppliers billions of dollars in lost sales, particularly those supplying equipment for new fabs or upgrades aimed at more advanced manufacturing processes.
A Commerce Department spokesperson declined to comment. Lam Research, Applied Materials, KLA, and Huahong Semiconductor also did not immediately respond to Reuters’ requests for comment.
These Commerce Department notices, known as “is-informed letters,” allow the U.S. government to quickly impose new licensing requirements on specific companies without going through lengthy legislative processes. They were frequently used during the Trump administration, though the restrictions outlined in such letters do not always become formal law.
