Applied Materials and Lam Research Shift Supply Chains Away from China to Meet New US Guidelines

The U.S. semiconductor industry is intensifying efforts to exclude Chinese firms from its supply chains, following Washington’s directives to reduce China’s involvement in critical next-generation technologies.

Prominent chip equipment makers, such as Applied Materials Inc AMAT and Lam Research Inc LRCX, have informed suppliers that they must find non-Chinese alternatives for specific components or risk losing their supplier status.

This requirement also extends to barring suppliers with Chinese investors or shareholders from continuing business partnerships with these companies, the Wall Street Journal reports.

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Industry experts indicate that shifting to non-Chinese suppliers will likely increase chipmakers’ costs, as alternatives may be limited or more expensive.

While Lam Research confirmed that it complies with U.S. export restrictions for chip-related supply chains, Applied Materials highlighted its efforts to source alternative components to ensure stable supply, especially as China remains one of its biggest markets.

The U.S. government has tightened its stance on Chinese imports, with both leading presidential candidates pledging stricter trade policies. The semiconductor industry is central to national security, and lawmakers have blocked China’s access to advanced chips and equipment made in U.S.-friendly regions such as Taiwan, South Korea, and Japan.

Further, recent Commerce Department rules require U.S. companies to obtain licenses before disclosing technical information to Chinese suppliers, limiting the scope of Chinese involvement in sensitive chip technology.

BofA Securities analyst Vivek Arya and Goldman Sachs analyst Toshiya Hari flagged Lam Research’s strategic positioning in key tech areas, including its role in the recovering NAND market and its consistent free cash flow, as factors supporting his outlook.

Arya pointed out that while China’s share will likely stabilize at 30% by December, export control risks remain, and gains in gross and operating margins appear constrained.

Hari also noted that the market could positively perceive Lam Research’s reduced revenue share from China in the Systems business.

Needham’s Charles Shi highlighted a notable drop in Applied Material’s China revenue to 32%, below the typical 40% industry share, which he believes could set the stock up well if China wafer fab equipment (WFE) declines into 2025.

Cantor Fitzgerald’s C.J. Muse flagged Applied Materials’s strength in Silicon revenues, leading-edge Foundry, and DRAM, alongside solid margin performance and optimistic WFE share gains for 2025.

Price Actions: At last check on Monday, AMAT stock was down 0.44% at $182.57. LRCX was down 0.70% at $74.28.

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