Shifting away from a focus in China, the global supply chain will likely change rapidly over the next decade, Loup Funds’ Gene Munster expects. Apple saw it coming in 2018 and will be aggressively investing a projected $430 billion in U.S. tech infrastructure over the next five years, along with investing to a lesser extent in Malaysia, Vietnam, and Thailand.
Over the years in knowing Apple, I’ve witnessed the company navigate a spectrum of pressure points. Would the iPod trigger growth in Mac sales? Will consumers pay up for an expensive phone? Can production scale while maintaining profitability? Will US tariffs on China prevent the import of Apple products? Will the App Store take rate be impacted by regulation?
Over the past three years, the latest pressure point has emerged… How to navigate China? I believe this is one that keeps Tim Cook up at night.
While Cook often gets the credit for Apple’s success in the supply chain given his operational roots, the substance of the diversification efforts over the past three years and the plan going forward has been led by Sabih Khan (in charge of Apple’s global supply chain) along with Jeff Williams (COO). That team will continue to shift production investments away from China. Of course, Apple is not alone in navigating this dynamic. BlackRock CEO and Chairman Larry Fink said in his 2022 annual letter: “The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.”
I can rest well at night knowing that Apple has seen this coming. In 2018, the company outlined a five-year goal to invest $350B in the US including next-generation silicon development and 5G innovation across nine US states. In April 2021, the company increased that investment target by 20% to total $430 billion. That size of investment goes a long way. For example, Intel is expected to spend $20B on its Ohio chip factory. Using that data point as a measuring stick, Apple is allocating enough capital to build 20 fabs in the US. In the years to come, I expect more investment will be committed to the initiative.
MacDailyNews Take: It’ll cost a mint for Apple to extricate itself from the hole it’s dug to China, but it’ll be well worth it in the long run.
Cook will keep publicly playing nice with China while Williams, Khan & Co. work furiously in the background to diversify Apple’s supply chain.
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[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]