Apple Could Break Tradition And Order Memory Chips From Chinese Firm

Cupertino, California-based Apple is holding discussions with Chinese state-backed firm, Yangtze Memory Technologies, with a view to purchasing NAND flash chips. If the talks are successful this will be Apple’s first time to buy components from a memory chipmaker based in China. Such a deal would generate massive publicity for the little-known Yangtze Memory irrespective of the size of the order.

It is not clear whether Apple is making the decision to order from Yangtze due to state pressure. If so it would not be the first time for China to push foreign tech firms to source components from locally suppliers in order to be allowed to access the Chinese market. Regardless of the facts the move is expected to assist Apple in growing its business in the world’s second-biggest economy.

China’s first

No Chinese firm has produced memory chips before and Yangtze is scheduled to start production later this year. This means that 2019 would be the earliest that any order Apple could make will be filled. Per sources the chips that Apple could order from Yangtze will be for upcoming iPhone models as well as other products meant to be sold in China.

Currently Apple gets it NAND chips from various suppliers including South Korea’s Samsung Electronics and SK Hynix, U.S.-based Western Digital and Japan’s Toshiba. Of the all the NAND memory chips produced in the world, Apple takes up around 15% of the overall production making the iPhone maker the largest buyer of these particular chips according to CINNO, a research firm based in Shanghai, China.

Share buybacks

Apple’s talks with Yangtze comes in the wake of a report by UBS indicating that the earnings of the consumer technology goods giant could increase by up to 30% if the firm maintains its strategy of buying back 10% of outstanding shares annually for the next couple of years. According to Steven Milunovich, an analyst at UBS, the iPhone maker is likely to use up its cash on buying back shares, a move that will raise yields in the next five years.

Besides share buybacks there has been speculation that Apple might spend its huge cash reserves on a blockbuster acquisition. Milunovich is however not convinced that will be the case.

“On the M&A front we expect Apple to continue its strategy of filling technology or personnel gaps with small tuck-in acquisitions. Transformational M&A would result in a collision of different cultures and priorities, which Apple has thus far avoided,” wrote Milunovich in the client note.