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Chinese memory chip king’s rapid growth, Musk’s China challenges

Hi all, this is Lauly writing from the heat of Taipei. I’m sending this week’s #techAsia from a traditional breakfast restaurant with no air conditioning. It’s across the street from one of iPhone assembler Foxconn’s factories in New Taipei City, where I just attended the annual general meeting of an Apple component supplier.

The AGM season has been a great opportunity to cushion the rising temperatures of Taiwan’s hundreds of tech suppliers as they grapple with the global economic turmoil. My colleague Cheng Ting-Fang and I have attended dozens of such gatherings in the past month and we have always heard one big fear: global economic slowdown fueled by inflation, China’s Covid lockdowns and their aftermath, and war in Ukraine.

Economic problems have weakened consumer demand, leaving the PC industry with piles of unsold inventory. Chinese smartphone makers Xiaomi, Oppo and Vivo have also lowered their production forecasts. Samsung, the world’s largest smartphone and TV maker, has asked suppliers to halt shipments while it assesses its growing inventories, as Nikkei Asia exclusively reported last week.

Below we highlight how companies in the tech industry are facing rising production costs due to rising prices of materials, metals, chemicals and labor costs.

We’ll be working through the blistering summer in Taipei to give you the answers to the question that’s on everyone’s mind: which will be the next big hit tech companies?

Yangtze blasts down the rapids

China’s Yangtze memory closes the technology gap with international rivals as it sparks the build-up of a domestic semiconductor industry and ends its dependence on foreign chips, writes Nikkei Asia’s Cheng Ting Fang.

The Wuhan-based company has already reached full capacity at its first factory that now produces 100,000 wafers per month. About two-fifths of these are on 128-layer 3D NAND flash memories – only about one generation behind global leaders Samsung and Micron.

NAND flash memories are important storage components in electronic devices, including smartphones, PCs, servers and connected cars.

The ramp-up has put Yangtze Memory on the world map of chip manufacturing hitherto dominated by Samsung, Micron, SK Hynix, Kioxia and Western Digital.

The Chinese company now plans to bring production at a second factory online as early as the end of 2022 to further increase its global market share. That has more than tripled from 1.3 percent in 2019 to nearly five percent in 2021, data from Counterpoint Research shows.

Yangtze Memory could soon even become an Apple supplier, in what would be a major diversification from a customer base still dominated by local storage manufacturers. Apple has been testing Yangtze’s flash memories and could place an initial order in “small quantities” as soon as possible this year, sources told Nikkei Asia.

“Believe me, Yangtze Memory is doing better than most outsiders think,” an experienced chip industry executive who has worked with Samsung, Intel and Micron told Nikkei Asia. “It is the best example that after many years China can really build a viable player, even under the threat of geopolitical tensions. It’s still small. † † but it could become someone in years to come.”

The Chinese chipmaker was founded in 2016 and has received a lot of support from Beijing. It has also strived to maintain a low international profile to avoid becoming a target of the sort of US sanctions that have hit Chinese counterparts, including Semiconductor Manufacturing International Co. and Huawei.

Chipmakers battered

Every material you can think of in the semiconductor industry has become much more expensive these days.

The costs of wafers, chemicals, metals and gases have skyrocketed due to supply shortages and logistical difficulties caused by the Covid-19 pandemic and the war in Ukraine. Growing demand for chips for applications such as 5G connectivity and electric vehicles has further fueled the trend.

Some essential materials have more than doubled in price in the past two years, according to a detailed analysis by Nikkei Asia’s Cheng Ting Fang and Lauly Li.

Vincent Liu, an industry veteran and president of Taiwan’s LCY Chemical, a supplier to global chipmakers, warned of the impact of the rise in input costs: “That could eventually be passed on to consumers.”

Musk’s China Reversal

American tech titans have always had a love-hate relationship with the Chinese Communist Party, the Financial Times. Edward White and Eleanor Olcott to write.

From Bill Gates to Larry Page and Steve Jobs to Mark Zuckerberg, they’ve all faced awkward compromises, unpopular concessions, or moments of uncontrollable crisis as they tried to conquer parts of the world’s factory floor and largest consumer market.

Now Elon Musk, the richest man on Earth and boss of Tesla and SpaceX, has fallen into the crosshairs of Beijing’s national security and data hawks.

Since Russia’s invasion of Ukraine in late February, Musk’s commercial rocket and satellite company SpaceX has sent Starlink satellites to support the besieged country.

But Chinese military and security experts have attacked the Starlink program over its alleged links to the US military. Chinese officials fear a scenario in which thousands of Musk satellites will be deployed to monitor China – or, more sensitively, support Taiwan. SpaceX has not responded to the concerns.

Data collection is also a major problem for Musk. Tesla has been successful in China. But Beijing is addressing cross-border data flows and data collection from individuals and locations near military or politically sensitive sites.

Tesla has already pledged to store information collected in China in local data centers — a blow to the global effort to collect data essential to the company’s research and development.

The challenges mark a stunning shift in favor in China for 50-year-old Musk, where he has inspired a cult following as the “Silicon Valley Iron Man”.

Shanghai’s lockdown nightmare

The Chinese government finally lifted its draconian two-month Covid lockdown in Shanghai a few weeks ago, but the scars on citizens and businesses alike will last much longer, writes Nikkei Asia’s Cissy Zhoulauly li, Cheng Ting-Fang and CK Tan

The Greater Shanghai region, which includes the nearby cities of Kunshan and Suzhou in Jiangsu Province, is one of the world’s largest electronics manufacturing hubs. Half of Apple’s top 200 suppliers have manufacturing facilities in the region, where hundreds of thousands of employees keep the industry running.

But China’s status as a supply chain hub is being severely tested by Beijing’s “zero-covid” policy. The management and well-being of tens of thousands of employees who suffered the psychological trauma of isolation became a huge challenge for many companies.

An executive at an Apple supplier, who asked to be known under the pseudonym Tony Tseng, told Nikkei Asia: “The most terrifying thing about this Omicron [variant] wave is not the virus, but the fearful atmosphere that is spreading among our employees and workers.”

He said more than 40 of the company’s 25,000 employees showed signs of mental illness during the lockdown. One of them even started claiming he was President Xi Jinping, breaking equipment at the factory and becoming aggressive towards nurses, he added.

Tseng said his top priority was not restarting production, but the psychological health of the workers. “We have to take care of them, and the bottom line is that we can’t let anyone die from this pressure.”

It’s a stark reminder that the cost of “zero-Covid” runs much deeper than the disruption during the lockdown in Shanghai itself.

Suggested Reads

  1. TSMC says it will make ultra-advanced 2nm chips by 2025 (Nikei Asia)

  2. Alibaba tries to crack South Asia on its way to global expansion (FT)

  3. ‘Let it rot’: Chinese tech workers struggle to find jobs (FT)

  4. Robot boats gobble up plastic waste from Vietnam to Malaysia (Nikei Asia)

  5. NetEase Shares Drop After China Nationalist Response Over Winnie the Pooh Post (FT)

  6. Tencent opens third data center in Japan at the request of gaming (Nikei Asia)

  7. Employees of controversial crypto operator Terraform Labs on South Korea’s no-fly list (FT)

  8. Influencers leave TikTok Shop in final blow for UK e-commerce venture (FT)

  9. Sony steps up image sensor technology and targets 60% market share (Nikei Asia)

  10. ByteDance closes game development studio in Shanghai (Nikei Asia)

#techAsia is coordinated by Nikkei Asia’s Katherine Creel in Tokyo, with help from the FT tech desk in London.

Sign Up here at Nikkei Asia to receive #techAsia every week. The editors can be reached at: techasia@nex.nikkei.co.jp

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