Silicon Sellout Report: Why Apple is Making a Deal with Chinese Semiconductor Manufacturer YMTC

Today, the Coalition for a Prosperous America and China Tech Threat have released Silicon Sellout, a new report detailing how Apple’s decision to use chips made by Chinese semiconductor manufacturer YMTC threatens to harm Americans’ security and privacy and reshape the global semiconductor market in China’s favor. 

To recap: Right now Apple has entered into an agreement with YMTC to source YMTC chips for the iPhone. This deal will have serious negative consequences for both Americans and the world:

  • It will concentrate more chip production inside China at a time when supply chains are already vulnerable to Chinese lockdowns and government diktats.
  • It will create major security and privacy risks to Apple users all over the world.
  • It will increase the risk of a western tech leader providing material support to the Chinese military, which has already used American semiconductor technology to advance its capabilities.
  • It will likely force the exit of at least one memory chip supplier based in a democratic country from the global market.
  • It will confer legitimacy on YMTC at a time when the global demand for chips – one China is intent to be the world leader in satisfying – will only continue to grow.

Why would Apple consummate such a deal, in spite of the risks? Two reasons are likely:

First, Apple is probably improving its profit margins by sourcing chips from a company that thrives on state subsidies. YMTC has received $24 billion in subsidies from the Chinese government since its creation in 2016. Those subsidies allow YMTC to sell its products at lower price, undercutting other memory chip suppliers such as in the process.

Second, some observers of the tech world have speculated that the Chinese government is leaning on Apple to use YMTC chips. Apple’s growing sales inside China incentivize the company to do so. As Silicon Sellout states, “For Apple, as for many U.S. companies, the opportunity to increase sales is an irresistible feature of the Chinese market. China has one billion consumers—and a government that conditions foreign companies’ ability to sell on their willingness to play by its rulebook.” Last year, Apple reported sales of $68 billion from China and revenues up 70 percent. Those figures translate into leverage for Beijing.

Whatever the reason for Apple’s agreement with YMTC, it creates technological, economic, and supply chain risk for the American people. China Tech Threat will elaborate on those risks in our next blog post.