“He and His Company Should Clearly Commit Not to Proceed” – the New York Times Spotlights Apple’s Dangerous Dance with YMTC

Ever since reporting on an Apple-YMTC deal first emerged earlier this year, national security-focused experts and legislators alike have sounded the alarm on the grave damage such a partnership would hold (see CTT’s extensive report on how the Chinese government was poised to infiltrate iPhones with YMTC chips). Now the New York Times is paying attention, too.

On November 8th, the Times’ Apple beat reporter, Tripp Mickle, published an article detailing cracks in Apple’s foundation in China. Besides China’s COVID-related lockdowns that have snagged supply chains hurting its business, Apple is now under fire from lawmakers who see the YMTC threat for what it is. That’s in large part due to the work of James Mulvenon. As the Times reports:

…YMTC’s importance to China made it a target of U.S. national security researchers. In late 2020, a team led by James Mulvenon, a Chinese linguist and researcher at the U.S. defense contractor SOS International, issued a 17-page report that detailed YMTC’s connections, through its parent company, Tsinghua Unigroup, to entities that sold products to China’s military.

In February 2021, Mr. Mulvenon presented his findings to about two dozen Republican and Democratic staff members on Capitol Hill. He outlined the risks that he believed YMTC posed, because its government subsidies could empower it to undercut competitors on price. “It never made sense to cluster the entire supply chain inside a country that was the most potent cyberthreat to the United States,” Mr. Mulvenon said.

That briefing and other efforts that stemmed from it galvanized bipartisan pressure on the Commerce Department to put YMTC on the Entity List. While the latest round of export controls issued on October 7 did not include an Entity Listing for the company, the clock is ticking down and pressure is mounting on Commerce to take the next steps by December 6th (see China Tech Threat’s memo on this crucial 60-day period here). Presumably, YMTC would be a prime target to be moved from the Unverified List to the Entity List.

Mickle also addresses the other major threat posed by YMTC: its intention to use the Chinese government subsidies it feasts on to lower costs, sell product below market prices, and put competitors out of business, thus giving China the upper hand as the world’s NAND memory supplier. The story paraphrases Walter Coon of the Yole Group: “Because it would offer lower prices to gain market share, YMTC could help Apple pressure its current Western suppliers to lower their costs.”  But it’s unlikely that competitors will ever be able to underprice YMTC, no matter how low their costs go, because YMTC doesn’t ultimately care about profitability. As one industry executive has said, “Making profits and going public…are not the priority…” The company’s true goal is “building the country’s own chips and realizing the Chinese dream.” 

Mickle reports that Apple “declined to comment” on whether the Apple-YMTC deal is still alive. Perhaps Apple’s reticence stems from the fact that they know that moving ahead presents both national security and political risks. Senator Marco Rubio summed up the prevailing bipartisan approach to an Apple-YTMC partnership by telling the Times, “If Tim Cook understands the risks that YMTC and the rest of the Chinese Communist Party’s chip-making efforts pose to U.S. national security and that of our allies, then he and his company should clearly commit not to proceed.”

The risks from YMTC are abundantly clear by now. So what’s stopping Apple from publicly declaring that it is walking away from YMTC for good? That subject would be ripe for exploration in a follow-up piece.