US considers crackdown on memory chip manufacturers in China

By Alexandra Alper and Karen Freifeld

WASHINGTON (Reuters) – The United States is considering restricting shipments of US chip-making equipment to memory chip manufacturers in China, including Yangtze Memory Technologies Co Ltd (YMTC), according to four people familiar with the matter, as part of an effort to halt China’s semiconductor industry progress and protect US companies.

If President Joe Biden’s administration goes through with the move, it could also harm South Korean memory chip juggernauts Samsung Electronics Co Ltd and SK Hynix Inc, the sources said, speaking on condition of anonymity. Samsung has two major factories in China, while SK Hynix Inc is buying Intel Corp’s NAND flash memory chip manufacturing operations in China.

The crackdown, if approved, would block shipments of U.S. chip-making equipment to factories in China that produce advanced NAND chips.

It would be the first US bid through export controls to target Chinese production of memory chips without specialized military applications, which export control experts say represents a broader picture of US national security.

The move would also be intended to protect the sole US memory chip makers, Western Digital Corp and Micron Technology Inc, which together represent about a quarter of the NAND chip market.

NAND chips store data in devices such as smartphones and PCs and in data centers for Amazon, Facebook and Google. How many gigabytes of data a phone or laptop can hold is determined by the number of NAND chips in it and how advanced they are.

Under the action being considered, US officials would ban the export to China of tools used to make NAND chips with more than 128 layers, according to two of the sources. LAM Research Corp and Applied Materials, both based in Silicon Valley, are the main suppliers of such tools.

All sources described the administration’s handling of the case as being in the early stages, with no proposed regulations yet in place.

Asked to comment on the potential move, a spokesman for the Commerce Department, which oversees export controls, did not discuss possible restrictions, but noted that “the Biden administration is focused on hindering (China’s) efforts to secure advanced produce semiconductors to address significant national security risks. to the United States.”

FAST GROWING BUSINESS

Founded in 2016, YMTC is an emerging power in NAND chip manufacturing. Micron and Western Digital are under pressure from YMTC’s low prices, as the White House wrote in a June 2021 report https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day -supply-chain- review-report.pdf. YMTC’s expansion and low-cost offerings pose a “direct threat” to Micron and Western Digital, that report said. The report described YMTC as China’s “national champion” and the recipient of approximately $24 billion in Chinese subsidies.

YMTC, which is already under investigation by the Commerce Department over whether it violated US export controls by selling chips to Chinese telecom company Huawei, is in talks with Apple Inc to provide the top US smartphone maker with flash memory chips, according to a Bloomberg -report.

LAM Research Corp, SK Hynix and Micron declined to comment on US policy. Samsung, Applied Materials Inc, YMTC and Western Digital Corp did not immediately respond to requests for comment.

CONGRESS ACTS

Tensions between China and the United States over the tech sector increased under Biden’s predecessor Donald Trump and have persisted ever since. Reuters reported on July 8 that the Biden administration is also considering restrictions on shipments to China of tools to make advanced logic chips, in an effort to hinder China’s largest chipmaker, SMIC.

The US Congress last week passed legislation to help the United States compete with China by investing billions of dollars in domestic chip production.

Chipmakers who take money under the measure would not be allowed to build or expand production in China, among others, for certain advanced chips, including advanced memory chips at a level to be determined by the government.

According to Walt Coon of the consultancy Yole Intelligence, YMTC accounts for about 5% of global NAND flash memory chip production, nearly double what it was a year ago. Western Digital is at about 13% and Micron 11%. Coon said YMTC would be greatly harmed by restrictions like those the Biden administration is considering.

“If they’re stuck at 128, I don’t know how they would really have a way forward,” Coon said.

Production of NAND chips in China has grown this year to more than 23% of the global total from less than 14% in 2019, while production in the United States fell from 2.3% to 1.6 in the same period. %, Yole data shows. For the American companies, almost all their chip production takes place abroad.

It was unclear what impact the potential restrictions might have on other players in China. Intel, which retains a contract to manage operations at the plant it sells to SK Hynix in China, is already producing 144-layer memory chips at its Chinese site, according to an Intel press release.

(Reporting by Alexandra Alper and Karen Freifeld; additional reporting by Stephen Nellis; editing by Chris Sanders and Will Dunham)

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