China has narrowed the technological gap with South Korea in HBM, reducing the leading advantage to only 3 years.

China is rapidly narrowing its gap with South Korea in HBM technology, and the surging DRAM profits are expected to accelerate this process.

Data released by the Korea Semiconductor Industry Association on Sunday shows that the technology gap between South Korea and China in the memory chip sector has narrowed to three years for HBM, two years for DRAM, and one year for NAND flash. The gap that was previously estimated to exceed five years has now shrunk to one generation or less of technological level.

Signs of this progress have already emerged. ChangXin Memory Technologies (CXMT) is cooperating with a number of local fabless chip companies, including T-Head, an affiliate of Alibaba, to test its fifth-generation HBM chip HBM3E. CXMT plans to launch information technology products equipped with this chip as early as next year. HBM3E is only one generation behind the HBM4 chips produced by Samsung Electronics, SK Hynix and Micron Technology of the United States.

"The development speed of China's semiconductor technology is far faster than expected," said BAE Seo-in, a professor of Chinese Studies and Robotics at Hanyang University ERICA Campus. "It has effectively compressed two to three years of development achievements into one year. Government support, a huge domestic market and a strong scientific research ecosystem have jointly driven the rapid technological development."

China has made remarkable progress in HBM, and this growth has been achieved amid US restrictions.

Extreme Ultraviolet (EUV) lithography equipment, which is required to manufacture the ultra-fine circuit patterns for advanced chips, is critical for producing advanced HBM chips. However, due to US restrictions on the export of advanced chip manufacturing technology to China, China has been unable to obtain EUV equipment.

China has instead focused on developing back-end processes, especially advanced packaging and heterogeneous integration technologies, which involve stacking and connecting chips. Advanced packaging encapsulates multiple chips in a single package to improve performance and efficiency; heterogeneous integration connects different types of chips into one system.

According to DigiTimes, CXMT has applied X-Stacking, the 3D NAND flash bonding technology developed by Yangtze Memory Technologies, to its HBM design. This technology can directly bond two wafers to shorten the distance between circuits, thus achieving higher bandwidth and lower heat generation without the need for EUV lithography equipment.

CXMT is also cooperating with major domestic back-end enterprises. Wuhan Xinxin Semiconductor Manufacturing Co., Ltd. is responsible for wafer packaging, and Tongfu Microelectronics is in charge of the assembly and testing of HBM production.

At the same time, Huawei has set a goal of achieving the 1.4-nanometer process by 2031 without EUV lithography technology, adopting a "logic folding" method that folds memory instead of stacking it.

Samsung Electronics and SK Hynix are focusing on high-margin premium products such as HBM and server memory, which may in turn open the door to opportunities for their Chinese competitors. Chinese enterprises have begun to gain profits from the mainstream memory market and reinvest these profits in the R&D of next-generation production capacity and HBM, thus forming a virtuous cycle.

The supply shortage of mainstream DRAM, including DDR5 commonly used in global personal computers and smartphones, is becoming increasingly severe, leading its price to surge 98% quarter-on-quarter in the first quarter. YMTC and CXMT have taken swift action to fill the supply gap and expand their share in the mainstream memory market.

CXMT accounted for 10% of the global DRAM market in the second quarter, more than doubling its 4% share in the same period last year. According to Counterpoint Research, a market research firm, this puts it in fourth place, behind Samsung Electronics (38%), SK Hynix (25%) and Micron (24%).

YMTC held a 14% share of the NAND flash market in the second quarter, up from 9% in the same period last year. Samsung Electronics topped the list with a 28% market share, followed by SK Hynix (19%) and Micron (15%).

According to a report by the Financial Times on August 26, YMTC's ambitions go far beyond that. The company told investors and stakeholders at a recent IPO preparation meeting that it "aims to seize the leading position in the global NAND flash market as soon as by the end of 2027".

The growth in market share has also translated into a surge in earnings.

CXMT's revenue in the first half of the year rose 873.6% year-on-year to 150.31 billion yuan. Of this total, 95.8 billion yuan, accounting for 64% of the total revenue, came from regions outside mainland China, indicating that the company has occupied an important position in the global supply chain.

CXMT also turned a profit in the first half of the year, recording a net profit of 77.6 billion yuan, compared with a net loss of 2.33 billion yuan in the same period last year.

Its profitability has also increased significantly. CXMT's operating profit margin in the second quarter reached as high as 82%, surpassing the 76% of SK Hynix and the 70% of Samsung Electronics' semiconductor business. These figures show that Chinese chip manufacturers no longer rely on the low-profit, high-volume strategy adopted in the early stage of expansion.

Chinese semiconductor companies, which have been producing chips while making losses for many years, are now benefiting from the semiconductor super cycle, achieving profitability after a decade and accumulating cash to fund further R&D.

"Chinese enterprises are coping with US export restrictions on advanced chips and equipment by finding alternative ways to procure key components and developing their own technologies," said Yongsuk Kim, a lead professor at the School of Semiconductor of Gachon University. "As China vigorously advances HBM technology relying on its huge domestic market and growing financial resources, the South Korean chip industry needs to speed up its response."

Even greater threats may be lurking ahead. CXMT recently raised more than 13 trillion won, equivalent to about 65 billion yuan, through its listing on the Shanghai Stock Exchange, and is currently accelerating the expansion of its production bases in Hefei and Shanghai.

According to reports from media including the Wall Street Journal, Apple has tested CXMT's memory for use in its products exported from China. CXMT has also filed a lawsuit against the US Department of Defense, demanding that it be removed from the list of Chinese military-linked enterprises to lower the threshold for entering the global supply chain.

This article is sourced from the WeChat public account "Tech Business" and is republished with authorization from 36Kr.