US mulls crackdown on memory chip makers in China

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US mulls crackdown on memory chip makers in China

The United States is considering limiting shipments of American chipmaking equipment to memory chip makers in China including Yangtze Memory Technologies (YMTC), according to four people familiar with the matter.

Limiting shipments of chipmaking equipment would be part of the US bid to halt China's semiconductor sector advances and protect American companies.

If President Joe Biden's administration proceeds with the move, it could also hurt South Korean memory chip juggernauts Samsung Electronics and SK Hynix, the sources said, speaking on condition of anonymity.

Samsung has two big factories in China while SK Hynix is buying Intel's NAND flash memory chips manufacturing business in China.

The crackdown, if approved, would involve barring the shipment of US chipmaking equipment to factories in China that manufacture advanced NAND chips.

It would mark the first US bid through export controls to target Chinese production of memory chips without specialised military applications.

The move represents a more expansive view of American national security, according to export control experts.

Such export controls would also serve to protect the only US memory chip producers, Western Digital and Micron Technology, which together represent about a quarter of the NAND chips market.

Under the action being considered, US officials would ban the export of tools to China used to make NAND chips with more than 128 layers, according to two of the sources.

LAM Research and Applied Materials, both based in Silicon Valley, are the primary suppliers of such tools.

All the sources described the administration's consideration of the matter as in the early stages, with no proposed regulations yet drafted.

Asked to comment on the possible move, a spokesperson for the Commerce Department, which oversees export controls, did not discuss potential restrictions but noted that "the Biden administration is focused on impairing (China's) efforts to manufacture advanced semiconductors to address significant national security risks to the United States."

Fast growing memory maker subsidised by Chinese government

YMTC, founded in 2016, is a rising power in manufacturing NAND chips.

Micron and Western Digital are under pressure from YMTC's low prices, as the White House wrote in a June 2021 report [pdf] .

The Chinese memory maker's expansion and low-price offerings present "a direct threat" to Micron and Western Digital, that report said.

It described YMTC as China's "national champion" and the recipient of some US$24 billion in Chinese subsidies.

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

LAM Research, SK Hynix and Micron declined comment on the US policy.

Samsung, Applied Materials Inc, YMTC and Western Digital Corp did not immediately respond to requests for comment.

SMIC next?

Tensions between China and the United States over the tech sector deepened under Biden's predecessor Donald Trump and have continued since.

Reuters reported earlier in July that Biden's administration is also considering restrictions on shipments to China of tools to make advanced logic chips, seeking to hamstring the country's largest chipmaker SMIC.

The US Congress last week approved legislation aimed at helping the United States compete with China by investing billions of dollars in domestic chip production.

Chipmakers that take money under the measure would be prohibited from building or expanding manufacturing for certain advanced chips, including advanced memory chips at a level to be determined by the administration, in countries including China.

According to Walt Coon of the consulting firm Yole Intelligence, YMTC accounts for about 5 per cent of worldwide NAND flash memory chip production, almost double from a year ago.

Western Digital stands at about 13 per cent and Micron at 11 per cent.

Coon said YMTC would be greatly hurt by restrictions like those that Biden's administration is contemplating.

"If they were stuck at 128, I don't know how they would really have a path forward," Coon said.

Production of NAND chips in China has grown to more than 23 per cent of the worldwide total this year from under 14 per cent in 2019, while production in the United States has decreased from 2.3 per cent to 1.6 per cent over the same period, Yole data showed.

For the American companies, nearly all of their chip production is done overseas.

It was unclear what impact the potential restrictions might have on other players in China.

Intel, which retains a contract to manage operations in the factory it is selling to SK Hynix in China, is already producing memory chips with 144 layers at the Chinese site, according to an Intel press release.



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