YMTC making progress in producing advanced 3D NAND chips

Chinese chip maker Yangtze Memory Technologies Corp (YMTC) is planning to use domestically sourced equipment to make advanced flash memory products after it was put on a US trade blacklist last year, according to industry sources.

If successful, the strategy would represent a breakthrough in China’s efforts to become self-sufficient in semiconductor production after the country was denied access to advanced chip making tools over Washington’s concerns that the technology would end up in the hands of the Chinese military.

Last year, Wuhan-based YMTC had been on track to challenge memory chip leaders Samsung Electronics, SK Hynix and Micron Technology with its flagship 232-layer X3-9070 3D NAND flash chip, but its prospects for mass production were thrown into doubt after US equipment suppliers KLA and Lam Research had to halt sales and service to YMTC in compliance with Washington’s updated export controls.

Industry sources in China’s chip equipment industry, who declined to be named due to sensitivity of the matter, told the South China Morning Post that YMTC has doubled down on efforts to work with Chinese suppliers to help manufacture its Xtacking 3.0 architecture-based chips, and that progress has been made in a top secret project code-named Wudangshan, after a sacred Taoist mountain in the company’s home province of Hubei. YMTC has a tradition of naming its chips after famous Chinese mountains.

One source said the project intended to use Chinese equipment only and that YMTC has placed big orders with domestic equipment suppliers, including Beijing-based Naura Technology Group, a leading Chinese maker of etching tools, which are also the primary product line of US-based Lam Research.

The source added that YMTC has even asked its domestic suppliers to remove logos and other identifying marks from equipment, to mitigate risks of sanctions by the US on its suppliers. Washington has also accused YMTC of providing electronics components to Huawei Technologies Co, the Chinese telecoms giant that is also under US sanctions.

YMTC and Naura did not respond to a request for comment. State-backed YMTC, which is not listed publicly, is not obliged to disclose its financial results or business performance.

Industry experts point out that there are still “choke points” in China’s chip manufacturing supply chain. For example, no viable domestic Chinese alternatives exist for the metrology tools supplied by US equipment maker KLA, or for lithography systems available from Dutch company ASML and Japanese vendors such as Nikon and Canon. It is not immediately clear whether the new project is based in Wuhan, YMTC’s home city, or how the company will deal with equipment supply choke points.

“We are trying to find choke-point solution companies [to invest in],” said a Beijing-based investor at a recent venture capital event focusing on new-energy vehicles and semiconductor-related companies. “China is trying to solve these choke points one by one.”

The ramped up sourcing of Chinese equipment comes after YMTC received fresh funding to the tune of US$7 billion from its state-backed investors, including the National Integrated Circuit Industry Investment Fund, known as the “Big Fund”.

The Financial Times first reported in late March that YMTC would begin chip production next year at a new plant equipped with the locally-sourced tools.

YMTC is China’s best hope of competing in the global market for 3D NAND chips, a type of non-volatile flash memory where the memory cells are stacked vertically to increase storage density. YMTC’s global market share in the NAND sector is estimated to be about 6 per cent, according to a note published by Bernstein last October.

In October last year, the US Bureau of Industry and Security expanded the scope of its export control rules to further restrict Chinese chip makers’ access to tools, software and even US talent, in a bid to cap China’s advanced chipmaking abilities, including 3D NAND chips at 128 layers. Two months later, YMTC was added to the so-called Entity List, which restricts procurement of US products and services without Washington’s approval.

“We are trying to find choke-point solution companies [to invest in],” said a Beijing-based investor at a recent venture capital event focusing on new-energy vehicles and semiconductor-related companies. “China is trying to solve these choke points one by one.”

The ramped up sourcing of Chinese equipment comes after YMTC received fresh funding to the tune of US$7 billion from its state-backed investors, including the National Integrated Circuit Industry Investment Fund, known as the “Big Fund”.

The Financial Times first reported in late March that YMTC would begin chip production next year at a new plant equipped with the locally-sourced tools.

YMTC is China’s best hope of competing in the global market for 3D NAND chips, a type of non-volatile flash memory where the memory cells are stacked vertically to increase storage density. YMTC’s global market share in the NAND sector is estimated to be about 6 per cent, according to a note published by Bernstein last October.

In October last year, the US Bureau of Industry and Security expanded the scope of its export control rules to further restrict Chinese chip makers’ access to tools, software and even US talent, in a bid to cap China’s advanced chipmaking abilities, including 3D NAND chips at 128 layers. Two months later, YMTC was added to the so-called Entity List, which restricts procurement of US products and services without Washington’s approval.

Lu Chenyi, a senior credit officer at Moody’s, said during a webinar on Wednesday that China is accelerating development of its domestic semiconductor industry in the face of US restrictions. “Chinese companies [need] to first obtain the equipment and technology to manufacture advanced chips and then expand production,” Lu said, adding that China needs at least five years to catch up with global leaders in advanced chip manufacturing.

Erica Su, head of strategy and transactions at EY China, said that in China “the market sentiment for semiconductors is high” as businesses, investors and the government are on the same page when it comes to boosting chip production. The rise of China’s new energy vehicles market and other smart industries has created strong local demand for chips, Su added. SCMP