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Created through a merger with a government-run chip factory in 2016, Yangtze Memory is regarded as China’s best shot at designing and developing homegrown 3D NAND flash memory, widely used for storing data in smartphones, laptops, servers and future gadgets such as electric vehicles. Beijing regards the crucial component as one of the bottlenecks that could endanger its economy, because of a heavy reliance on imports.

The testing and discussions are no guarantee Yangtze chips will ultimately ship. It’s unclear if the Chinese firm can convince Apple of its dependability, the people said. Yangtze Memory technology is at least one generation behind and could at best be a backup choice to Apple’s main suppliers like Korea’s Hynix and Samsung, they said. Even if Apple qualifies Yangtze’s components, it will need to gauge its reliability in terms of yields and quality. It took years for Beijing-based BOE Technology Group Co., another prominent Chinese Apple supplier, to reach high-volume production of iPhone displays.

Yet because memory chips are largely commoditized, Apple could conceivably decide to use Yangtze’s product in lower-end devices such as the iPhone SE, the people said. Representatives for Yangtze Memory and Apple declined to comment.

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Component shortages and Covid-triggered logistics issues have plagued the world’s biggest consumer electronics brands for the past two years, prompting a rethink of supply chains that once relied on just-in-time inventory and global networks. In February, Kioxia halted production at two plants in Japan due to material contamination, highlighting the risks of over-reliance on a particular supplier. That could help push flash memory chip prices up 5% to 10% in the June quarter, industry tracker Trendforce estimated.

Apple’s iPhones are put together primarily in China by Foxconn Technology Group and Pegatron Corp., which take components like memory chips from scores of different providers before assembling them into the final device. Yangtze Memory could offer an attractive source of cheaper chips close to their plants, while potentially winning points with the government in the world’s largest smartphone market.

“Yangtze memory will supply about 5% of memory for iPhone SE, and 3% to 5% of memory for the upcoming iPhone 14. Apple is using its product because it offers competitive pricing,” projected Jeff Pu, an analyst with Haitong International Securities, working off theoretical estimates.

Yangtze Memory’s product relies on a self-developed technology known as Xtacking, which integrates memory cell wafers with supportive circuits for higher performance in some cases compared with traditional technologies, one of the people said. While its parent Tsinghua Unigroup — affiliated with the alma mater of Chinese President Xi Jinping — is undergoing a government-led restructuring because of a series of bond defaults, the memory chipmaker is operating normally and unaffected by its parent’s financial woes, the person said.