Tech companies connected to China’s semiconductor industry have been re-evaluating operations in China ever since the U.S. Commerce Department imposed a new round of export controls targeting Chinese chipmakers. Now Nikkei reports that Apple – which had a dangerous deal in the works to buy flash memory chips from YMTC – is hitting pause on that plan due to the new regulations.
The news comes not a moment too soon. Apple had already certified YMTC’s chips and planned to start using them as early as this year for the iPhone, at least in China to start. But as Tom’s Hardware pointed out last month, Apple could eventually use YMTC chips for other products too. Other markets, such as the U.S., wouldn’t be out of the question either. Brent Fredberg, Director of Investments at Brandes Investment Partners in San Diego, observed more recently: “Apple may continue wanting to use YMTC in the local market for China. But the way the regulations are set up currently, it’s very unlikely that YMTC will even be able to supply the kind of NAND chips in a couple of years that Apple would want.”
Nikkei’s reporting also showed how YMTC’s strategy of underpricing competitors through subsidies almost delivered a major win. According to Nikkei, YMTC’s chips are 20% cheaper than those of their rivals. One source said, “YMTC is government-subsidized so they can really outprice competitors.” As China Tech Threat highlighted in a report earlier this year, YMTC has been the beneficiary of some $24 billion in subsidies from the Chinese government. That money allows YMTC to obtain market share and put competitors out of business. CTT and the Coalition for a Prosperous America predicted that an Apple-YMTC deal could lead to the loss of some 24,000 American jobs.
There is also likely more pain coming for YMTC. The Commerce Department has placed the company on the “Unverified List” as part of the regulations. If the company cannot comply with U.S. government end-user checks (and there is little reason to think it will comply), then the company will almost certainly end up on the Entity List. The Financial Times quotes two industry experts on the prospect of an entity listing:
“Being added to the unverified list used to be a nuisance. Now it should be terrifying,” said Gregory Allen, a technology expert at Washington-based think-tank CSIS.
Kit Conklin, a former U.S. intelligence official and China expert at the Atlantic Council, estimated the chances of YMTC being added to the “entity list” at 99 per cent.
The Commerce Department’s new rules have created a significant of turmoil for YMTC, with likely more to come if and when the company is put on the Entity List. In related recent news:
- YMTC Stockpiled Equipment: The Financial Times quotes a senior YMTC engineer in saying, “We’ve been doing everything possible beforehand to support existing production lines, such as stockpiling all kinds of equipment.” However, another employee said, “YMTC had enough stock of materials such as wafers and components for equipment repairs to last a year. But that would only be only if ‘there aren’t any huge issues that can only be fixed by tech staff from foreign companies’.”
- YMTC Wooing Local Grads: The South China Morning Post reports that YMTC is scrambling to hire Chinese technology graduates and laying out generous packages as a way of fortifying itself against export controls that will limit the ability of Americans to work with the company.
- Chinese Chip Companies Loosing American Executives, Workers: The Wall Street Journal is also reporting that Chinese semiconductor companies will also have problems because of the loss of American citizens who are now prohibited from working for them under the new rules. The Journal’s research indicated that at least 43 senior executives working with 16 publicly listed Chinese semiconductor companies are American citizens. That’s not to mention many working-level engineers and other technologists. Said commentator Dane Chammoro, “The technology is nothing without the people there to make it work.”