US plans to crack down on memory chip makers in China

WASHINGTON, Aug 1 (Reuters) – The United States is considering limiting shipments of U.S. chipmaking equipment to memory chipmakers in China, including Yangtze Memory Technologies Co Ltd (YMTC), according to four people familiar with the matter. as part of a bid to stop China’s semiconductor industry from advancing and protecting American companies.

If President Joe Biden’s administration makes the move, it could also hurt South Korea’s memory chip behemoths Samsung Electronics Co Ltd. (005930.KS) and SK Hynix Inc. (000660.KS), the sources said, speaking on condition of anonymity. Samsung has two big factories in China while SK Hynix Inc buys Intel Corp (INTC.O) NAND flash memory chip manufacturing company in China.

The crackdown, if approved, would involve banning the shipment of U.S. chipmaking equipment to factories in China that make advanced NAND chips.

It would be the first U.S. offer through export controls to target Chinese production of memory chips without specialized military applications, representing a broader view of U.S. national security, export control experts say.

The move would also aim to protect the only U.S. memory chip producers, Western Digital Corp. (WDC.O) and Micron Technology Inc. (MU.O)which together account for about a quarter of the NAND chip market.

NAND chips store data in devices like smartphones and personal computers and in data centers like Amazon (AMZN.O)Facebook and Google (GOOGL.O). The number of gigabytes of data a phone or laptop can hold is determined by how many NAND chips it includes and how advanced they are.

As part of the proposed action, 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 Corp. (LRCX.O) and applied materials (AMAT.O)both based in Silicon Valley, are the main suppliers of these tools.

All sources described the administration’s consideration of the issue as in its infancy, with no proposed settlement yet drafted.

Asked to comment on the potential 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 hampering (China’s) efforts to manufacture advanced semiconductors to address significant national security risks.” in the USA.”

FAST GROWING COMPANY

YMTC, founded in 2016, is a rising power in NAND chip manufacturing. Micron and Western Digital are under pressure from low YMTC prices, as the White House wrote in a June 2021 Report. YMTC’s expansion and low-cost offerings pose “a direct threat” to Micron and Western Digital, according to this report. The report describes YMTC as China’s “national champion” and the recipient of some $24 billion in Chinese subsidies.

YMTC, already under investigation by the Commerce Department over whether it violated U.S. export controls by selling chips to Chinese telecommunications company Huawei, is in talks with Apple Inc. (AAPL.O) to supply the top U.S. 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.

PROCEEDINGS OF THE CONGRESS

Tensions between China and the United States over the tech sector deepened under Biden’s predecessor, Donald Trump, and have continued 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, seeking to cripple China’s largest chipmaker, SMIC. (0981.HK). Read more

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

Chipmakers taking money under the measure would be prohibited from building or expanding manufacturing of certain advanced chips, including advanced memory chips at a level to be determined by the administration, in countries like China. Read more

According to Walt Coon of consulting firm Yole Intelligence, YMTC accounts for about 5% of global NAND flash memory chip production, nearly double from a year ago. Western Digital is around 13% and Micron is around 11%. Coon said the YMTC would be greatly affected by restrictions like those being considered by the Biden administration.

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

NAND chip production in China has risen to more than 23% of the global total this year, from less than 14% in 2019, while production in the United States has fallen from 2.3% to 1.6% over the past year. of the same period, according to data from Yole. For US companies, almost all of their chip production is done overseas.

What impact the potential restrictions might have on other players in China was unclear. Intel, which retains a contract to manage the operations of the factory it sells to SK Hynix in China, already produces 144-layer memory chips at the Chinese site, according to an Intel statement.

Reporting by Alexandra Alper and Karen Freifeld; Additional reporting by Stephen Nellis; Editing by Chris Sanders and Will Dunham

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