SINGAPORE, July 24 (Reuters) – Chinese chipmaker ChangXin Memory Technologies (CXMT) had been increasing prices for Huawei, one of the country’s largest technology companies, for months. The chipmaker acted decisively when Huawei demanded relief from rising costs, according to two people familiar with the matter.
The dispute came to a head at CXMT’s factory site in June. A group of engineers from a chip manufacturing equipment vendor with deep strategic ties to Huawei were working in clean rooms at CXMT’s main research and development site in Hefei, Anhui province. Two sources said CXMT, without warning, ordered engineers who were helping maintain equipment to pack up their tools and leave the factory immediately.
Executives at SiCarrier, a Huawei-linked equipment vendor, concluded that the conflict was the result of a power struggle between CXMT and Huawei, sources told Reuters. The companies are still doing business, but engineers are not allowed back into the R&D area, two people said.
CXMT, Huawei and SiCarrier did not respond to questions about the incident.
The conflict demonstrates the changing dynamics of China’s semiconductor industry. CXMT has become the world’s fourth-largest producer of memory, including the DRAM variety used in smartphones, laptops and servers. Now the company is powerful enough to charge prices that even Huawei can’t handle.
Memory chips that help devices run apps and store files were once a low-margin business. CXMT and its flash memory counterpart, Yangtze Memory Technologies Corp, or YMTC, have spent years relying on government funding and enduring losses.
However, global structuring artificial intelligence Data centers have turned humble components into one of the world’s most sought-after products, sparking pricing wars and supply scrambles. Chinese memory makers now choose customers and dictate prices, four people familiar with the matter told Reuters. In some cases, they charge more than South Korean rivals Samsung and SK Hynix, as skyrocketing demand for memory chips forces Chinese buyers to pay even higher prices.
CXMT this month signed a five-year deal worth more than $7 billion with ByteDance, the Chinese owner of TikTok, three people familiar with the deal told Reuters. ByteDance did not respond to a request for comment on the previously unreported deal.
This account of how CXMT and YMTC wielded their newfound influence is based on interviews with more than a dozen people, including executives, engineers, suppliers and U.S. officials, and a Reuters review of 50 Chinese government policy documents and company statements. Both companies, known as the “twin stars” of memory in China, are revealing new details about their pricing power, strategies and deal-making processes as they race towards blockbuster IPOs.
None of the chipmakers responded to requests for comment about their pricing, strategies and increased U.S. scrutiny of their market power.
Chinese companies’ control over chip supplies puts them on a collision course with Washington. The Pentagon has identified both firms as Chinese military companies for their role in assisting China’s military-civil fusion strategy, a charge they deny. YMTC is currently on the US Entity List, a designation that restricts its access to US-based suppliers, software and tools used in memory chip production.
Congress is discussing restrictions that would further restrict both companies’ access to chip manufacturing equipment. But the Trump administration is divided on whether to take action against them, according to four people familiar with the discussions.
Apple argued that it needed Chinese memory and wanted assurances that CXMT would not be added to the Entity List, two of the people said. CXMT was approved by a U.S. interagency committee last year to be added to a trading blacklist overseen by the Commerce Department, but officials delayed that decision, Reuters reported last month.
The Chinese firms’ main Western rival, Micron, has pushed US lawmakers to impose further restrictions on CXMT and YMTC, including restricting their access to chip manufacturing equipment.
Apple and Micron did not respond to questions about the discussions. The White House and the departments of Commerce, Defense and State also did not respond to requests for comment.
WE ARE PREPARING TO GO PUBLIC
Geopolitical strife hasn’t slowed Chinese chipmakers’ march toward IPOs.
CXMT, which will launch its $8.6 billion IPO in Shanghai on Monday, erased a decade of losses in six months and recorded revenue of $7.5 billion for the first quarter, up 719% from a year earlier.
As YMTC prepares for its own IPO, some executives are pushing for a 1 trillion yuan ($148 billion) valuation target within the company, according to two sources.
Both companies are backed by the Big Fund, a Chinese state-backed semiconductor investment vehicle. They also received support from local and provincial governments, including Anhui province for CXMT and Hubei province for YMTC. County officials and the investment fund did not respond to requests for comment.
Corporate filings and policy documents show that Chinese officials view these companies as strategic infrastructure central to Beijing’s push for technological self-reliance.
Chip manufacturers are now taking the fight to their competitors’ doorsteps.
YMTC entered the South Korean market in June, launching its consumer memory storage brand and taking advantage of the gap left by US companies Samsung, SK Hynix and Micron, which are moving away from that segment and focusing on more advanced chips.
According to three sources, CXMT aims to enter the United States in the long term, but its capacity is strained by heavy domestic demand.
Three other people told Reuters that Chinese officials have asked CXMT and YMTC to give priority in supplying domestic firms. But chipmakers also plan to expand production capacity, which will allow them to serve both China and overseas markets by 2027, when new production facilities will come online.
CXMT is building two new facilities in Shanghai and Hefei and is in talks with local officials elsewhere about a third, according to three sources. These projects will more than double production capacity to more than 600,000 wafers per month. If all goes as planned, CXMT’s capacity will surpass Micron’s by 2030, one of the sources said.
Reuters reported in April that YMTC was planning two more factories in addition to one to be completed this year.
Despite their growing dominance, Chinese memory makers face restrictions. Both companies rely on Dutch giant ASML’s deep ultraviolet lithography machines, which are used to print small circuits that produce chips. The Dutch government has faced US pressure to restrict the sale of advanced lithography equipment to “Chinese companies” due to the importance of the machines in the production of cutting-edge semiconductors with potential military applications and because the machines contain US technology.
Korean and American rivals of Chinese memory manufacturers produce DRAM chips using ASML’s more advanced ultraviolet lithography machines. China has been banned from buying these machines since the Dutch government began suspending export licenses in 2019. While CXMT produces its own high-bandwidth memory, an ultrafast format crucial for artificial intelligence, five sources said it is two generations or a few years behind rivals.
“If more restrictions are placed on lithography equipment, that will be the biggest challenge for Chinese memory manufacturers,” said Ray Wang, an analyst who focuses on memory and AI supply chains at research firm SemiAnalysis. “China is lagging far behind in this part of the equipment supply chain compared to other tooling segments.”
ASML declined to comment on the potential impact of future export regulations.
YMTC is more insulated from such a scenario than CXMT. Since its addition to the U.S. Entity List in 2022, YMTC has replaced about half of its equipment with domestic machines and developed new techniques for stacking memory layers using less advanced tools, according to the two people.
PRICE PRINT
Chinese memory chips have long been viewed by foreign executives as cheaper alternatives to Western and South Korean products. But six people told Reuters that was no longer the case. Two of these people said that in recent weeks, CXMT has been charging more than Samsung’s unit price of about $1,240 for similar 64-gigabyte DDR5 server memory modules. They did not disclose the exact CXMT price.
Samsung did not respond to questions. SK Hynix also declined to comment.
According to two sources, several Chinese electronics and technology companies complained to China’s Ministry of Industry and Information Technology this year about price increases of CXMT and YMTC, blaming them for delayed product launches. The sources declined to identify the companies that filed the complaints.
The ministry, which did not respond to questions about this story, announced in April that it would put an end to memory chip hoarding aimed at increasing prices.
The government also redirected demand to domestic chip suppliers. According to two sources, Chinese state-owned companies are restricted from purchasing from foreign memory manufacturers.
The supply agreement between CXMT and ByteDance follows a deal between the chipmaker and Tencent in June worth more than $3 billion. Tencent did not respond to a request for comment.
At YMTC, President Chen Nanxiang had predicted this moment. In 2024, he told Chinese state media that “even though the industry has not yet reached explosive growth, that day will come in three to five years.”
Chen and his leadership team were celebrating when the company first started recruiting customers earlier this year, according to two sources. The explosion he predicted had come.
($1 = 6.7697 Chinese yuan renminbi)
(Reporting by Fanny Potkin in Singapore. Additional reporting by Karen Freifeld in New York. Editing by Kenneth Li and David Crawshaw.)
