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February 14, 2018 9:29 pm JST

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Apple in talks for first order with a Chinese chipmaker

A deal with Yangtze Memory will mark milestone in China's tech development

CHENG TING-FANG, Nikkei staff writer

Customers check out products at an Apple store in Beijing. (Photo by Akira Kodaka)





TAIPEI -- Apple is in talks with state-backed Yangtze Memory Technologies to buy NAND flash chips from it, a move that will mark the U.S. giant's first purchase from a Chinese memory chipmaker and a huge boost to the local sector.



The deal will be a big coup for Yangtze Memory and China if it goes through. For Yangtze Memory, a little known technology company, securing a deal with a global entity such as Apple will be a big deal even if the initial orders are small. For China, a deal with Apple will go some way toward its ambition to cut dependence on foreign chip supply, area in which Beijing has shown it is willing to invest heavily.

Whether Apple is under any pressure to buy from Chinese makers is unclear. Afterall, China has been known to apply pressure on foreign technology companies that want to operate within the country. One thing is for sure, Chinese deals will help Apple grow its business there, according to an industry executive.

For now, no Chinese company has yet to produce memory chips and Yangtze Memory's first factory lines, worth some $24 billion, in the city of Wuhan is set to start production only sometime in 2018.

As such, the earliest that the deal could come into fruition will be 2019 but industry sources say it is more likely to be after 2020 before Yangtze Memory can produce enough of the components at a standard that Apple requires. Apple will use these chips in new iPhone models and other products for sale in the Chinese domestic market specifically, according to two people familiar with the matter.

Apple now buys NAND flash memory chips for its iPhones from Toshiba of Japan, Western Digital of the U.S., SK Hynix and Samsung Electronics of South Korea. It is the world's biggest consumer of these chips, taking roughly 15% of overall global demand of 160 million gigabytes in 2017, according to Sean Yang, an analyst at Shanghai-based research company CINNO.

NAND flash memory stores information and is essential but also one of the most expensive components to go into almost every electronic device. For instance, the iPhone X comes in 64 and 256 gigabyte versions and is priced accordingly.

CINNO's Yang said that as Apple will only use components that meet its high standards, supplying to the U.S. giant will help a manufacturer finetune the quality of its products; it will raise its capability for mass production and help it grow quickly into an international player.

Yangtze Memory, previously known as Yangtze River Storage Technology or Changjiang Storage, is an affiliate of state-supported tech conglomerate Tsinghua Unigroup. The company is viewed as China's hope to play catch-up in the sector and to challenge market leaders such as Samsung Electronics, Toshiba, SK Hynix, Micron and Intel that together control the global NAND flash market in 2017.

Yangtze Memory's key shareholders include China Integrated Circuit Industry Investment Fund, a high-profile investment vehicle in China's chip sector, Tsinghua Unigroup, and the local Hubei government.

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