Apple: Plans to use chips from China on hold

• Just weeks ago, reports surfaced that Apple has plans to procure 3D NAND memory chips from China state-owned Yangtze Memory Technologies Co.
• With mounting political pressure, Apple has put on hold plans to use memory chips from YTMC altogether, although the initial plans were meant for iPhones sold in China only

Last month, there were reports indicating that US tech giant Apple Inc was considering using chips from the top chipmaker in China, Yangtze Memory Technologies Company (YMTC), for its iPhone 14 lineup. The news, though unsubstantiated, triggered US lawmakers to threaten Apple with increased scrutiny from Congress. At that point, Apple was quick to point out in a statement that it has no plans to sell iPhones with YMTC chips outside of China.

Fast forward to this week, a report by Nikkei Asia highlighted that the plan altogether is for now due to mounting political pressure. “Apple had already completed the months-long process to certify YMTC’s 128-layer 3D NAND flash memory for use in iPhones when the US government unveiled the tighter export restrictions against China early this month,” the report said, citing multiple sources.

NAND flash memory is a key component found in most electronic devices, from smartphones and personal computers to servers. YMTC’S 128-layer chips in particular are by far the most advanced produced by a Chinese chipmaker, Nikkei said, though still one or two generations behind market leaders like Samsung Electronics and Micron Technologies.

YMTC has grown from 1% of global market share for NAND memory chips in Q1 2020 to 5% as of the middle of 2022 — and is on track to reach 13% market share by 2027, according to Yole Development. Last year, the Biden administration even described YMTC as China’s “national champion memory chip producer.” For Apple, the initial plan is to start using the government-funded YMTC’s chips as early as this year, as they are at least 20% cheaper than those of its leading rivals, Nikkei stated.

Unfortunately, mounting geopolitical pressure and criticism from US policymakers led Apple to change course, according to several sources. Even prior to this, despite assurance from Apple that the use of those chips are only limited for its iPhones sold in China, senators from both political parties in the US asked the nation’s top intelligence official to lead a review of the security threat posed by the reported plan. 

The main concern with YMTC is the fact that there are reports that claim the company has close ties to the People’s Liberation Army (PLA). According to the White House, YMTC has even received around US$24 billion in subsidies from Chinese government sources, which was purported to be essential to the firm’s rapid development. Following that, four senators and other colleagues urged Commerce Secretary Gina Raimondo in July to place YMTC on the Department’s export blacklist, on the grounds that it was supplying companies under US sanctions.

Currently, Apple sources NAND flash memory from Korean giants Samsung and SK hynix, as well as Japanese producer Kioxia. It also buys RAM from SK hynix and Samsung, making its supply chain heavily reliant on Korea. That being said, two Republican lawmakers have said Apple is “playing with fire” should it source 3D NAND flash from YMTC in China

“We write to convey our extreme concern about the possibility that Apple Inc. will soon procure 3D NAND memory chips from the People’s Republic of China state-owned manufacturer YMTC,” the lawmakers, led by Sen. Marco Rubio, wrote in a letter to Director of National Intelligence Avril Haines. The senators also want Haines to look at what they said was YMTC’s role in aiding other Chinese firms, including the telecom equipment manufacturer Huawei, which is under strict US export controls. 

They even want Haines to examine YMTC’s alleged links to the Chinese military. The same letter also claimed that if Apple proceeded with “its plans,” (which is to say the plans the senators thought Apple had, irrespective of objective reality), it “would introduce significant privacy and security vulnerabilities to the global digital supply chain that Apple helps shape.” This is not the first time China’s top NAND flash manufacturer has been talked about as an additional storage supplier for the iPhone.

There are rumors that Apple was considering diversifying its memory chip supply chain, with Bloomberg sources already claiming that China was in the mix, have been circulating since March this year. The March reports came shortly after a contamination disruption at Kioxia, based in Japan, exposed the risks to Apple’s global supply.

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