US firms eye Chinese memory chips as prices soar, but experts warn of supply chain trap

As the AI boom drives memory chip prices sharply higher, US companies are exploring Chinese-made memory chips as an alternative. Analysts warn that while such a shift could cut costs in the short term, it risks deepening dependence on China and amplifying supply chain vulnerabilities over time.

Writing in the Financial Times on Friday, Chris Miller, a Tufts University professor and author of "Chip War," argued that China is not the answer to America's "chip inflation" problem and that choosing Chinese memory chips based on price alone could prove a strategically dangerous decision.

Memory chips are facing an unprecedented supply shortage as investment in AI data centers surges. Demand has exploded because large-capacity DRAM has become an essential component for training and running generative AI models.

The Financial Times projected that global memory chip purchases this year will reach roughly 0.7 percent of world GDP — about six times the average of the past two decades. The world is expected to spend more on memory chips this year than on beverages, footwear and smartphones combined.

Total semiconductor investment is forecast to exceed 1.25 percent of global GDP this year and surpass 1.5 percent next year — roughly three times the level of just three years ago. More than half of that investment is expected to flow to memory chipmakers.

Memory chipmakers are enjoying an earnings boom. SK Hynix and US-based Micron recently posted gross margins above 80 percent, while Samsung Electronics is undertaking a large-scale production expansion. Samsung is adding new production lines in South Korea, SK Hynix is scaling up its next-generation HBM capacity, and Micron is investing billions of dollars to expand facilities in the United States and Taiwan.

The current price surge stems from a combination of the race to build AI infrastructure and a supply shortage. Memory chipmakers posted losses as recently as 2023 due to oversupply, but the AI investment boom has flipped the market into a supply deficit, significantly strengthening their pricing power.

High memory prices are also weighing on downstream industries. Apple has cited rising memory chip costs as one of the main reasons behind recent price increases for MacBooks and iPads, while General Motors and other automakers have flagged higher memory costs as a drag on profitability.

Chinese chipmaker Changxin Memory Technologies (CXMT). [Reuters]

Against this backdrop, US companies are turning their attention to Changxin Memory Technologies (CXMT), China's largest DRAM maker.

Once regarded as a late entrant in the global memory market, CXMT has rapidly expanded its production capacity with extensive backing from the Chinese government and grown into the world's fourth-largest DRAM maker. The company recently completed an initial public offering. It does not yet produce HBM for AI servers, but it is quickly ramping up output of conventional DRAM and growing its market presence.

The Trump administration moved last year to add CXMT to the Entity List of export control targets but dropped the effort during tariff and rare-earth negotiations with China.

More recently, reports emerged that Apple had asked the White House to approve the use of CXMT products as the memory supply crunch deepened. US companies squeezed by rising costs have begun treating Chinese-made memory chips as a realistic alternative.

The Financial Times, however, described this as little more than a short-term fix.

Miller said some companies view CXMT as a solution to rising memory prices, but called that a shortsighted approach. "If a company in which Chinese government-linked entities hold significant stakes aggressively expands production capacity regardless of profitability, global buyers risk becoming dependent on Chinese supply chains," he said.

Chinese memory chips may look attractive on price, but control of the supply chain could shift to China over the long term. Turning to Chinese suppliers to bring down memory prices could ultimately prove far more costly — weakening future negotiating leverage and introducing greater supply chain instability.

"The question is not simply the price of memory, but who controls the supply chain of the most strategically important industry," Miller said. "Increasing dependence on China to reduce chip inflation could end up costing far more."

sjy@heraldcorp.com