AI Memory Crisis in China: Chips Facing 70% Failure Rate

China is facing a significant challenge due to a global memory shortage driven by advancements in artificial intelligence (AI).

The nation’s leading dynamic random-access memory (DRAM) manufacturer is moving forward with plans to create cutting-edge memory chips, despite struggling with low production yields.

According to a report from Reuters, which cites anonymous sources, ChangXin Memory Technologies (CXMT) is set to commence limited production of HBM3E chips within the next two months.

HBM3E represents a sophisticated type of high-bandwidth memory (HBM) that works in tandem with AI processors. This technology stacks memory chips vertically, enabling rapid data transfer rates. manufacturing these chips is both technically challenging and costly.

Reports indicate that CXMT has already distributed samples to various Chinese AI chip developers. Nonetheless, only about 20% to 30% of the chips manufactured meet the required specifications and are functional.

In contrast, South Korea’s SK Hynix, which leads the global HBM market, boasts production yields around 70%. This disparity means CXMT must either discard or reprocess a significant majority of its chips, raising production costs and constraining supply.

In terms of performance, CXMT’s HBM3E chips reportedly have capabilities closer to SK Hynix’s earlier HBM3 offerings rather than its newer HBM3E versions. Meanwhile, Samsung has already begun to expand its sales of advanced HBM4 chips and has sent out samples of its upcoming HBM4E chips.

These advanced memory chips are essential for the high-performance AI processors that are utilized in training and executing sophisticated AI models.

The surge in AI technology has led to skyrocketing demand for memory, as technology firms invest billions into the establishment of new data centers. Earlier this year, Tom’s Hardware reported that extensive projects, such as OpenAI’s Stargate, require hundreds of thousands of additional DRAM wafers each month, representing approximately 40% of the global DRAM supply.

In response to this demand, memory manufacturers have increasingly focused on serving data center clients. Bloomberg has reported that SK Hynix, Samsung, Japan’s Kioxia Holdings, and CXMT together hold a market value exceeding $2 trillion and provide memory and storage components that account for nearly one-third of the expenditure on data centers by major technology firms.

Simultaneously, China is contending with U.S. export restrictions.

The U.S. has imposed limits on China’s access to advanced memory chips and chip manufacturing equipment, as both nations vie for dominance in the AI sector, which is increasingly regarded as vital for national and economic security.

These restrictions have complicated the ability of Chinese chip manufacturers to acquire the advanced memory necessary for their operations. Some manufacturers have resorted to costly unofficial suppliers, as reported by Reuters.

Despite these challenges, the Chinese government is actively promoting the development of domestic alternatives to Nvidia’s processors. This initiative demands a robust local supply of advanced memory chips, which explains CXMT’s determination to progress despite its low production yields.

CXMT has not responded promptly to requests for comment.