Samsung’s chip business is hot. Will China take a bite?

The South Korean technology giant said Thursday it expects revenue last quarter to have hit a record 77 trillion won, the equivalent of $63 billion, an 18% increase from a year earlier. Operating profit is also expected to rise 50% year-over-year. Both numbers are above consensus analyst estimates according to S&P Global Market Intelligence data. Samsung will report its full results later this month.

Solid demand for the company’s new flagship smartphones and memory chips likely helped. Production of NAND flash memory, used for storage, was disrupted at two factories belonging to Samsung rivals Western Digital and Japan’s Kioxia in February due to raw-material contamination.

NAND prices may remain elevated this quarter due to that incident. But overall, the fading stay-at-home effect as well as inflation and the Russia-Ukraine war could hurt sales of consumer electronics. That will dent demand for memory chips this year. Prices for DRAM memory, used as working memory, will likely be weaker.

Compared with previous downturns, global memory-chip makers will likely be more disciplined in controlling supply growth since the industry has become more consolidated. That could in theory mean a milder eventual fall in chip prices. But a wild card is emerging that could upset that dynamic: China.

China’s Yangtze Memory Technologies Co. is boosting production of its 128-layer NAND chips. It is still behind major memory makers, like Samsung, that are already mass producing 176-layer NAND chips but the gap is closing fast. A higher number of layers means more chips are stacked together and hence delivers higher storage density. According to a Bloomberg report last week, Apple is considering adding Yangtze Memory Technologies as a new supplier of NAND memory chips for its iPhones.

The immediate impact would be small. Leading manufacturers like Samsung also likely have a cost advantage given that it takes time to increase production yields. Memory-chip making is a scale game: bigger scale allows more spending, which helps lower costs. YMTC had a market share of less than 1% at the end of last year, according to Counterpoint Research, but the company has been increasing its production capacity.

But YMTC’s entry into the global market could still pose risks in the longer run. The top five NAND makers currently have more than 90% of the NAND market—adding another supplier would give consumers more bargaining power, damping prices of NAND chips. Chinese gadget makers will also happily use YMTC’s chips if they have become technologically competitive, given continually rising tensions with the U.S. and its allies. Chinese makers of DRAM chips are still way behind global leaders so risks there are less imminent.

The industry has been expecting memory-chip supply from China to disrupt the market for years—but there have been few concrete signs that might actually happen, until now. If the “China Price” really is coming to memory chips sometime soon, the pain for major chip makers like Samsung and Western Digital could be significant.