The US is considering action against memory chip manufacturers in China

WASHINGTON, Aug 1 (Reuters) – The United States is considering limiting shipments of U.S. chip-making equipment to memory chip makers 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 sector is advancing and protecting American companies.

If President Joe Biden’s administration goes ahead with the move, it could also hurt South Korean memory chipmakers Samsung Electronics Co Ltd ( 005930.KS ) and SK Hynix Inc ( 000660.KS ), the sources said, speaking on condition of anonymity. Samsung has two major factories in China, while SK Hynix Inc is buying Intel Corp’s ( INTC.O ) China-based NAND flash memory chip maker.

The measure, if passed, would ban shipments of U.S. chip manufacturing equipment to factories in China that make advanced NAND chips.

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It would mark the first U.S. bid through export controls to target Chinese manufacturing of memory chips without specialized military applications, representing a broader view of U.S. national security, according to export control experts.

The move would also seek to protect the only U.S. makers of memory chips, 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 such as smartphones and PCs and in data centers such as Amazon ( AMZN.O ), Facebook and Google ( GOOGL.O ). How many gigabytes of data a phone or laptop can store depends on how many NAND chips it contains and how advanced they are.

Under the measures being considered, US officials would ban exports to China of tools 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 such tools.

All sources described the government’s consideration of the issue as being at an early stage, but no regulatory proposals have been drawn up.

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

A fast growing company

Memory chips from South Korean semiconductor maker SK Hynix are seen on a computer circuit board in this photo taken February 25, 2022. REUTERS/Florence Lo/Illustration/File Photo

Founded in 2016, YMTC is a rising force 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. YMTC’s expansion and low-cost offerings are a “direct threat” to Micron and Western Digital, the report said. The report described YMTC as China’s “national champion” and the recipient of about $24 billion in Chinese subsidies.

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

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

PARLIAMENT PROCEEDINGS

Tensions between China and the United States over the technology sector deepened under Biden’s predecessor, Donald Trump, and have continued 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 hammer China’s biggest chipmaker, SMIC ( 0981.HK ). Read more

The US Congress last week passed legislation aimed at helping the US compete with China by investing billions of dollars in domestic chip manufacturing. Read more

Chipmakers that take money under the measure would be barred from building or ramping up production for certain advanced chips, including advanced memory chips at levels determined by the government, in countries including 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 stands at around 13% and Micron at 11%. Coon said the YMTC would be greatly hurt by restrictions like the one the Biden administration is considering.

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

Production of NAND chips in China has grown to more than 23% of the worldwide total this year from less than 14% in 2019, while production in the US has declined from 2.3% to 1.6% over the same period, it showed Yole data. For the US companies, almost 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 at the factory it sells to SK Hynix in China, is already producing 144-layer memory chips at the Chinese site, according to an Intel press release.

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

Our standards: Thomson Reuters Trust Principles.

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