Apple’s decision to consider Chinese manufacturers as an alternative to the problems in global memory supply was met with objection from the US administration. According to The Wall Street Journal, US Secretary of Commerce Howard Lutnick clearly stated that the Trump administration does not support Apple’s purchase of memory chips from China-based CXMT and YMTC. Apple, on the other hand, does not hide that it has been evaluating different options to expand its memory supply network in recent months. It is stated that the company wants to increase its supplier diversity, especially for the memory components it uses in high-volume products such as iPhone. However, the trade and security restrictions that Chinese manufacturers are subject to in the US significantly narrow Apple’s options.
It has been on the agenda for a while that Apple is trying to get the Trump administration’s approval to work with CXMT and YMTC. This initiative faces objections not only from the administration but also from Republican and Democratic politicians. YMTC is currently on the US Department of Commerce’s trade restriction list, called the Entity List. In addition, the Pentagon classifies both YMTC and CXMT among Chinese military companies with alleged ties to the Chinese military. Another dimension of the discussions in Washington is concerns that Chinese manufacturers receiving state support may gain a competitive advantage over US companies.
Apple is considering CXMT and YMTC options for memory supply
The technical picture facing Apple on the memory side looks slightly different than it does for the company’s other components. Apple Chief Operating Officer Sabih Khan told the WSJ that many components in the iPhone were customized to the company’s needs, while there was not much customization on the memory side. This could theoretically pave the way for Apple to more easily use standard memory products produced by CXMT or YMTC. In such a scenario, the company’s need to share detailed product information with Chinese manufacturers may also be limited. However, if Apple needs a specially developed memory solution, the process will become much more complicated.
For customized chip production, Apple may be required to share certain product information with CXMT or YMTC. Current US export control regulations restrict such information and technology transfers and, in some cases, require a Department of Commerce license. Therefore, the issue is not limited to which company Apple will purchase memory from; The technical specifications of the part to be used and the information that needs to be shared with the manufacturer can also directly affect the regulatory process. Although the use of standard memory products may offer an easier way for Apple, political objections make this option uncertain. For this reason, in addition to price, capacity and technical suitability, the US trade policy towards China is one of the determining factors in Apple’s supply decision.
Apple CEO Tim Cook had previously argued that all resources should be evaluated when it comes to memory supply. Aside from reports that the company was discussing the issue directly with the Trump administration, Cook said in Apple’s last financial results call that the company was “exploring all options.” Previously published news also claimed that Apple was testing memories produced by CXMT and exploring a possible agreement with YMTC. Following this, a group of both Republican and Democratic senators called on Apple to abandon its plans to supply memory from two Chinese companies. Thus, a commercial decision regarding Apple’s supply chain has become one of the agenda items of the technology competition between Washington and Beijing.
Howard Lutnick clarified the administration’s approach in an interview with the WSJ. US Secretary of Commerce said that the Trump administration does not want Apple to buy memory chips from China and that other solutions must be found for the problem in memory supply. Lutnick also stated that it is not considered appropriate for American companies to use Chinese-made memory from a management perspective. Moreover, these statements came just a day after Lutnick visited Apple’s new Advanced Manufacturing Center facility in Houston, Texas, with Tim Cook. Senator Ted Cruz, as well as federal and local officials, also attended the visit.
The facility in Houston is within the scope of the $600 billion investment program announced by Apple for its production activities in the USA. While the company has recently highlighted its projects to increase its production and supply capacity in the USA, global supply conditions on the memory side cause the need for a larger supplier pool. However, Washington’s security and competition concerns about Chinese semiconductor manufacturers may limit Apple’s room for action. When the WSJ asked Lutnick whether he had conveyed the administration’s objection directly to Apple, the secretary said he had made that view clear to the company. The current picture suggests that it will not be easy for Apple to strike a balance between its need to diversify its memory supply and US technology restrictions on China.
For Apple, evaluating Chinese memory manufacturers offers an option that can provide additional capacity against global supply shortages. On the other hand, YMTC’s presence on the Entity List, the two companies’ designation by the Pentagon among companies linked to the Chinese military, and bipartisan political objections in Washington make it difficult to implement this option. The need for limited customization of standard memory components may make Apple’s job easier from a technical standpoint, but regulatory and political hurdles remain. Lutnick’s statements also reveal that the Trump administration is not keen on granting Apple an exception on this issue. Therefore, Apple has options such as giving up on Chinese suppliers, trying to provide more capacity from existing manufacturers, or making agreements with different memory manufacturers.
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