When Apple had to ask for permission to violate the US embargo

"I think everything needs to be on the table," Tim Cook told the Wall Street Journal last week, when asked whether restrictions on buying memory chips from China should be eased. That is a remarkable answer from a CEO who is famous for being careful with every word he speaks to the press, especially when the question is directly related to America's national security policy. And just a few days later, the Financial Times revealed that Apple was actually lobbying the Trump administration to be allowed to buy memory chips from CXMT, a Chinese company that is on the Pentagon's military blacklist.

Price crisis forces Apple to increase Mac and iPad prices

This story does not appear in a vacuum. Last Thursday, Apple increased the prices of a series of Mac and iPad products, an increase ranging from 17-25% depending on the model, with the official reason being the skyrocketing price of memory chips and storage. According to data from Counterpoint Research, memory prices have quadrupled in just the last three quarters, mainly due to the huge demand from data centers serving AI, when companies like Meta, Microsoft or Google are all purchasing high bandwidth memory (HBM) in unprecedented quantities to train models.

Apple is not the only victim, but one of the biggest victims because of its huge production scale. And when Tim Cook said "everything needs to be on the table", he was referring to a specific solution: buying memory chips directly from domestic Chinese manufacturers, where prices are significantly cheaper than Samsung, SK Hynix or Micron.

Who is CXMT, and why is the name sensitive?

CXMT, full name ChangXin Memory Technologies, is one of the few Chinese companies with the capacity to produce DRAM memory chips on an industrial scale, along with YMTC which specializes in flash memory chips. The problem is that both of these names are on list 1260H, a list published by the Pentagon as required by the National Defense Authorization Act (NDAA) for fiscal year 2021, listing Chinese companies allegedly directly or indirectly linked to the country's military through a mechanism called "civil-military integration".

It is worth mentioning that technically, Apple is not prohibited from purchasing goods from CXMT. The 1260H list itself is not a sanction, but was initially just a "name-calling" for US companies to consider their own risks. But the regulations have changed rapidly in the past few years: according to the latest NDAA terms, since the end of June this year, the US Department of Defense is officially prohibited from signing new or renewing contracts to purchase products and services directly from companies on the list. And by June 2027, this ban will extend to indirect purchases, that is, purchases of third-party products containing components from listed companies.

The real risk is not in the purchase, but in losing the customer

This is the part that makes Apple's situation interesting to analyze. If Apple uses CXMT memory chips in Mac, iPad or even iPhone products, it will not immediately violate the law. But starting in mid-2027, the US Department of Defense, one of Apple's major corporate customers through contracts to purchase iPhones, iPads and MacBooks for federal employees, will be forced to stop purchasing any Apple products containing components from companies within 1260H. In other words, Apple is facing a very specific trade-off: saving parts costs on the scale of billions of dollars versus maintaining its status as a qualified supplier to the federal government.

This is also the reason why Apple does not arbitrarily buy CXMT chips and think about it later, but has to go around and ask for permission from the Trump administration first. According to the Financial Times, Apple contacted the US Department of Commerce about a month ago, then expanded its lobbying campaign to the White House and many other stakeholders in Washington, but so far has not received any nod.

A bet that even Apple is unlikely to win

More broadly, this is a rather rare slice of an American corporation having to publicly lobby its own government to relax a national security policy, just to solve the problem of production costs. Meanwhile, on the other side of the chessboard, South Korea has just announced a $576 billion investment plan for Samsung and SK Hynix to double DRAM output in the next 5 years, partly to catch up with customers like Apple who are struggling due to lack of supply. If that investment can create an alternative supply source before Apple obtains a license from Washington, the pressure on the company to take risks with CXMT may naturally ease.