Apple has paused its plans to use storage chips from Chinese supplier Yangtze Memory Technologies (YMTC) due to mounting geopolitical pressure and criticism from US policymakers, sources told Nikkei Asia on Monday.

Why it matters: Apple’s reported move comes a week after the US announced sweeping export controls on China’s semiconductor industry, largely cutting the country off from accessing advanced chips and parts to make them. Apple’s decision to put the brakes on its deal with YMTC is a major blow to China’s most promising chip maker in NAND flash memory, as well as to Apple itself, which favored YMTC’s offering as it was 20% cheaper than that of its rivals. 

READ MORE: Chinese semiconductor firms bear heavy fallout of US chip sanctions

Details: Apple initially planned to use YMTC’s storage chips as early as this year and had already completed the process to verify the supplier’s 128-layer 3D NAND flash memory to use for iPhones, supply chain executives told Nikkei Asia.

  • In April this year, YMTC passed Apple’s verification process to become the American tech giant’s third storage chip supplier alongside US-based Kioxia and Korea-based SK Hynix, according to DigiTimes.
  • Apple was planning to use YMTC’s chip in iPhones sold in the Chinese market, Nikkei Asia’s report said, adding that the firm was originally considering buying up to 40% of the storage chips needed for all iPhones from YMTC.
  • Now, even if Apple was able to secure a license to use YMTC’s 128-layer storage chip, the Chinese firm may not be able to produce advanced chips due to the US’s newly-introduced export bans affecting its production process, analysts told Nikkei Asia.
  • Apple’s plans to work with YMTC were abruptly changed after US authorities announced comprehensive export bans on advanced chips in China Oct. 7. These measures included putting various Chinese firms on an Unverified List, which indicates that US officials cannot verify who the firms’ end users are; YMTC was one of those added to the list. US companies are barred from sharing any designs, technology, documents, or specifications with companies on the list without a license.
  • Apple first began talking to YMTC as early as 2018 for cheaper storage chips according to Nikkei Asia. 
  • The discussions between Apple and YMTC drew US officials’ attention in September of this year, when the US government reportedly began to consider putting YMTC on a blacklist and starting an investigation into the Chinese company, the Financial Times reported.

Context: Founded in 2016, YMTC is a leading Chinese semiconductor firm focusing on storage chips with self-developed Xtacking architecture. Storage chips are a critical component in devices such as smartphones and personal computers. 

  • The state-owned firm receives funds from China’s semiconductor “Big Fund,” according to the Chinese enterprise database Qichacha.
  • Since 2018, YMTC has seen significant advances in its storage chip technology, as it has skipped ahead twice in the critical field of nodes of chip layers – from 64 to 128 and from 128 to 232, according to the firm and Chinese state media Global Times.

Ward Zhou is a tech reporter based in Shanghai. He covers stories about industry of digital content, hardware, and anything geek. Reach him via ward.zhou[a] or Twitter @zhounanyu.