American chip equipment makers are cutting off China

As the U.S. continues to strengthen restrictions on advanced technology in China, U.S.-based chip equipment manufacturers are reportedly telling suppliers to find alternatives to Chinese-made components.

Chip equipment makers, including California-based Applied Materials (HUGE-0.83%) and Lam Research (LRCX-0.80%), have told suppliers they worry risking their vendor status for using certain components supplied by China, the Wall Street Journal reported, citing unnamed people familiar with the matter. The companies have also told suppliers not to have Chinese investors or shareholders, people told the Journal.

Both companies verbally told suppliers to find alternatives, but did not communicate so through official guidelines or agreements, the Journal reported. Finding alternatives to China could raise costs, industry executives told the Journal, because prices would likely be incomparable.

Applied Materials told the Journal it looks for alternative suppliers to ensure components are available.

“Lam Research diligently adheres to U.S export controls, which also apply to the companies in the supply chain that support chip manufacturing,” a spokesperson for Lam Research said in a statement shared with Quartz. “To facilitate compliance with these rules, and strengthen the resilience of our global supply network, Lam routinely shares information with our suppliers to promote their awareness of and compliance with current and updated trade restrictions.”

Applied Materials did not respond to a request for comment from Quartz.

Earlier this year, sources told Bloomberg that Chinese tech giant Huawei and its chipmaking partner Semiconductor Manufacturing International Corp. used tech from Applied Materials and Lam Research to make its advanced 7-nanometer chip for the Mate 60 Pro smartphone. SMIC was already in possession of the U.S. tech before the U.S. Department of Commerce barred U.S. companies from supplying Chinese companies with advanced chips and chipmaking equipment in October 2022, sources told Bloomberg.

In October, the head of Dutch chipmaking equipment company ASML (ASML-0.52%) said he expects more pressure on U.S. allies to curb chip sales to China. Christophe Fouquet, chief executive of ASML, said most of its business in China is focused “on mainstream semiconductors,” which “is very different from AI,” during the Bloomberg Tech Summit. Existing U.S. restrictions on China are holding it “10 to 15 years behind when it comes to advanced technology,” Fouquet said.

Late last month, the U.S. finalized restrictions on investments in sensitive technologies in China by U.S. individuals and companies. The rules cover three categories of technology: semiconductors, quantum computing, and artificial intelligence. Some investments are banned, while others require notice to the U.S. government.

This story has been updated to include a statement from Lam Research.