The Financial Times reports that the U.S. government is examining whether YMTC, a Chinese state-owned semiconductor manufacturer with deep ties to the Chinese military, is supplying Chinese telecom giant Huawei with chips for its 20e phone. If true, that relationship poses enormous legal risk for American companies currently doing or hoping to do business with YMTC, including Apple. For more, visit China’s Army to infiltrate iPhones with YMTC Chips.
To recap: Huawei is currently subject to U.S. export controls over concerns its technologies will be used to surreptitiously collect user data and feed it back to the Chinese government. If YMTC is in fact found to be supplying Huawei with chips made with help from American tech firms like Lam Research, Applied Materials, and KLA, all of which are acknowledged suppliers of YMTC, then those companies can be held legally responsible for running afoul of U.S. export control law.
The discovery of this apparent relationship would also seem to have implications for Apple, which, according to a report from Credit Suisse, is reportedly preparing to use YMTC chips in the iPhone. The presence of millions of YMTC chips in the world’s iPhones would create a massive opportunity for Chinese state-backed hacking and data theft operations. CTT Co-founder Roslyn Layton, in a filing submitted to the Federal Communications Commission in 2021, also has stated that “among other dangers, YMTC chips can be enabled with kill switch features for illicit and remote shut down for the device if not the larger network.”
As CTT has noted before, “Apple moving forward with this controversial company would threaten Americans’ privacy and security, undermine semiconductor jobs in democratic countries, give YMTC undeserved credibility on the world stage, and help China advance its goal to upset and ultimately dominate the global chip market.”
This revelation of the YMTC-Huawei relationship should also give a boost to the effort of American legislators like House Foreign Affairs Committee Chairman Michael McCaul and Senate Foreign Relations Committee members Marco Rubio and Bill Hagerty, all of whom have called for the Commerce Department’s Bureau of Industry and Security to add YMTC to the Entity List, given its deep ties to the Chinese military. Enterprising lawmakers and investigators would do well to inquire whether American components are going into YMTC chips used for surveillance gear manufactured by Hikvision, another Chinese firm on the Commerce Department’s Entity List for being part of the digital architecture Beijing uses to carry out genocide of Uyghur Muslims in Xinjiang.
The Commerce Department likely hasn’t added YMTC to the Entity List yet because doing so would put a major dent in the revenues of American semiconductor equipment manufacturers, who also employ scores of Americans. As Iain Morris has explained, “Last year, Applied Materials generated about a third of its total sales in China, while Lam Research has become increasingly dependent on the country. For the quarter ending in December last year, it derived 26% of revenues from Chinese business. That percentage had risen to 31% the subsequent quarter. It is a similar story at KLA, which booked 28% of sales from China in the second half of 2021.” Similarly, adding YMTC to the Entity List could deal a blow to Apple’s bottom line.
Separating world-leading American companies from a major business partner won’t be an easy call for Department of Commerce leaders. But given the demands of U.S. law and YMTC’s mission to dominate the global semiconductor market to benefit of Chinese geopolitical power, it’s simply the right thing to do.