US threatened, Apple backed down – Apple to U-turn on using Chinese memory chips

Last month, Apple announced that it would be using a Chinese company for memory chips in its upcoming products, but the US government decided to flex and put Apple in its place. Why did Apple consider using Chinese-sourced memory chips, why did the US government flex, and what does this mean for tech companies in general?

Why did Apple consider using Chinese-sourced chips?

A few months ago, it was revealed that Apple decided to add a new semiconductor source to its supply chain. The Chinese company, Yangtze Memory Technologies Co., was chosen to supply 3D NAND flash chips for upcoming Apple products, and while Apple utilises numerous manufacturers for memory chips (including Samsung, SKJ Hynix, and Western Digital), it was planned that Apple would use the Chinese company for as much as 40% of their supply.

Considering that the US and its allies are actively trying to establish semiconductor independence, the announcement that Apple was planning to use Chinese memory chips shocked both the tech world and the US government. But why exactly was Apple planning to use the new manufacturer?

In all likelihood, the desire to switch to YMTC is driven by a profit incentive. Memory chips are not cheap, and Apple charges consumers a premium for memory upgrades, so sourcing lower-priced chips can greatly help improve profits. At the same time, the performance of these devices is near or on-par with memory solutions coming out of other suppliers, so using YMTC minimises performance impact while offering more space. 

While there are those that are concerned with security surrounding Chinese-sourced parts, Apple did make it clear that the components would only be used in products sold in China. Furthermore, Apple also stressed that as the contents of flash memory are encrypted, it is difficult for data on the device to be stolen.

US Government flexes, and Apple backs down

When news of Apple’s intention to use Chinese-sourced chips hit the news, the US government was not happy in all senses of the word (more like livid). In response to this decision, the US government didn’t just make a passing suggestion that Apple should reconsider, it made borderline threats and suggested that action would be taken against the tech company as well as claiming that Apple was “playing with fire”.

Recently, the US government decided to flex its muscles and imposed further bans on US companiesˇ working with Chinese companies of particular interest, and in this case, YMTC was one of the targeted companies. Furthermore, the new legislation adds more restrictions to Chinese companies attempting to access US technology. As a result, not only have numerous American board members of Chinese companies fled China, but even Apple has backed down to the US government and quickly proceeded to cancel all plans with YMTC. One motivation behind the restrictions against YMTC is due to the inability to verify if YMTC is supporting Huawei, while another motivation comes from the inability to verify if YMTC is violating patent law with the use of illegally obtained designs from other memory manufacturers.

What does this mean for tech companies in general?

What makes the recent restrictions by the US government interesting is that they are not blindly targeting Chinese companies at random, but attacking those that cannot be verified as not providing parts to Huawei. As such, this type of “unverified list” could result in a traffic light system whereby all companies are automatically on amber until they either fall into the red or green categories. This would then allow the US to outright ban all Chinese parts except for the few verified manufacturers that have proven to not work with the CCP or Huawei and other military-involved businesses.

By limiting access of US manufacturers to unverified Chinese manufacturers, not only does the US government help to protect its own supply chain, but it also helps to limit the abilities of the Chinese government and its military. However, this also has the challenge of putting price pressures on western manufacturers who rely on low-cost parts available in China, and if these restrictions hurt China too much, it could see industrial retaliation in the form of ignoring patent laws, forming new internal industries, and increasing amounts of isolationism.