The unveiling of the M2 chip at Apple’s World Wide Developers Conference overshadows a more significant and concerning development in the semiconductor space: Apple inking a deal for iPhone 14 memory chips with Yangtze Memory Technologies Corporation (YMTC), the Chinese military linked fab. A new report from China Tech Threat and the Coalition for a Prosperous America titled “Silicon Sellout: How Apple’s Partnership with Chinese Military Chipmaker YMTC Threatens National Security” describes how Apple could reshape the global memory chip market in China’s favor, endanger Americans’ security, and cost some 25,000 high paying US jobs.
Just as the Chinese government turned Huawei into a national champion that devoured the global telecom equipment sector, Beijing eyes YMTC to disrupt the global memory chip market. To reach this goal, it funneled at least $24 billion to the entity through state-owned slush funds designed to evade World Trade Organization rules against state aid. YMTC has grown from 1 percent of global market share for NAND memory chips in Q1 2020 to 5 percent today and is on track to reach 13 percent market share by 2027, according to Yole Development. Though it has fallen short on some its Made in China 2025 goals, China has made important progress on chips; it produces an estimated 37 percent of the chips it consumes, while the US share of global chip production has fallen into the single digits from earlier world preeminence.
US jobs and security at risk
While logic chips form the “brain” of an electronic device, memory chips are the “brawn” which store vast amounts of data and constitute an essential part of virtually every device. These two sectors comprise more than half of the total market for chips, with each accounting for some 28 percent of the market and more than $150 billion each in annual revenue. There were 25 memory chip companies in 1990, but only six major players remain today — Samsung Electronics, Toshiba, Western Digital, SK Hynix, Micron Technology, and Intel. Moreover the demand for memory chips is expected to double by 2030.
The existence of only one American-based memory chip producer today is a result of competition and price volatility in the memory market which drove other U.S. players out of the industry. While US chipmakers have exited the sector during extended period of low profits, foreign chipmakers, including those in Korea and Japan, have tapped government support to hold on through low-profit periods. In the last few years, the memory market has achieved a period of relative stability, due to growing demand for memory as cloud computing and video applications.
However, stable memory chip prices are not good news for Apple, as it prefers to reduce costs radically on components to maximize profits. This memory chip price stability likely prompted Apple to enter into talks with YMTC, and/or pressure from the Chinese government, as some analysts suggest.
Indeed Apple is growing its commitment to China despite crippled supply chains and revenue shortfalls of as much as $8 billion. Many Apple suppliers operate in China’s lockdown-hit areas, and workers have revolted in some factories where they are forced to sleep on the premises and other injustices. Executives have warned that curbs are likely to have global impact, disrupting logistics and denting company’s sales. In 2021, China leapfrogged Taiwan to become Apple’s largest source of suppliers, with 51 Chinese companies providing parts for the company’s products.
Although Apple touts its commitments to security and privacy, untrusted Chinese technology inside users’ iPhones makes a mockery of these statements. “There is little to stop YMTC from equipping its chips with various forms of spyware, or from funneling data collected on the world’s devices back to Beijing,” the report notes.
As Military intelligence expert James Mulvenon documented, YMTC executives and board members have led modernization in the Chinese military. Consistent with China’s policy of military-civil fusion, there’s little doubt that Beijing will try to strengthen China’s warfighting capabilities with US tech and information in YMTC’s hands.
BIS, the backstop to protect security
Most journalists are loath to cover negative news about the company and few US policymakers, save for Marco Rubio, dare to challenge Apple, one of the world’s richest and most powerful companies. While Congress has railed at Big Tech, Apple has escaped most of the fury, with but a proposal to trim the 30 percent commission developers must cough up in Apple’s AppStore.
Among the recommended policy measures to shore up security, the report details the role of the Commerce Department’s Bureau of Industry and Security (BIS) to administer America’s export control regime, keeping sensitive dual use items like chip making tools and software out of enemy hands. As Mulvenon explained recently in Lawfare, “Export controls can be effective in curbing the transmission of technology and arms to adverse actors, but only when they are strictly enforced.”
New BIS Under Secretary Alan Estevez, who describes himself as the “chief technology protection officer of the United States,” said his top priority is “China, China, China,” and that any entity violating the Foreign Direct Product Rule (which YMTC seems to have done with Huawei) will face severe penalties. Silicon Sellout affirms that BIS needs to act swiftly, blocking US technology exports to and imports from YMTC.