Why Apple Can't Survive Without Taiwan
And What That Means For The Tech Industry
How many parts do you think are inside an iPhone?
This beautifully designed product requires 1,500 different components to make it work.
But that’s not the most interesting fact about it.
It’s this …
Even though the iPhone is one of the most iconic American products in history, more than half of its components are sourced and manufactured out of Taiwan and China.
That includes core processors, 5G modems, and camera lenses.
But why does that matter? Well, lately there’s been a lot of tension because of a potential conflict between China and Taiwan (and even the US).
The interdependencies among the US, Taiwan, and China are becoming more and more complex when it comes to technology. We’ll cover that in a minute.
So, what would the impact be on Apple if China decided to invade Taiwan?
Let’s get into it.
Why China Thinks Taiwan Is Theirs
Let’s go back in time to get some context.
To 1945.
China and Taiwan have been in a complicated and tense situation since the end of World War II.
When Japan lost the war, China took over the island.
But in a short period of time, civil war erupted between the communists under Mao and the nationalists under Chiang Kai-shek.
The communists won and took over Beijing. What was left of the nationalists went to Taiwan and established a government that would go on for decades.
The People’s Republic of China claims that Taiwan is a province that needs to be annexed.
Because of this, there’s a chance that China might utilize military force to annex Taiwan to mainland China. In which case, Taiwan could only do so much given that China dwarfs Taiwan when it comes to military resources and defense spending.
OK, but why does it matter if the Chinese government annexes Taiwan?
Why Is Taiwan So Important For The Technology Industry
Well, Taiwan is a critical piece of the supply chain for the technology industry.
Not just for Apple. But Google, Meta, Amazon, and many more.
A lot of the electronic devices you use on a daily basis are powered by technology that is manufactured in Taiwan.
From cars to medical equipment, all these goods contain a semiconductor of some sort.
Taiwan dominates the computer chip industry so much, that one single company, TSMC (or Taiwan Semiconductor Manufacturing Company) claims more than 50% of the world’s market.
This means that if China were to use military force or a blockade on Taiwan, the disruption in the production of computer chips could cost trillions of dollars in revenue to customers of Taiwanese semiconductor manufacturers.
And the trickle-down effects in the economy would likely be catastrophic.
Shortages. Inflation. Stock drops.
And one of the most affected companies would be Apple.
Imagine for a second that a big chunk of the orders on the new iPhones and MacBook Pros with M3 chips can’t be fulfilled.
Yes, the famous M3s that were announced in November are being produced by TSMC.
That would create a massive customer experience problem for Apple.
Which would result in reputational damage beyond repair and an unavoidable stock dip.
Some hedge fund managers are even going as far as saying that the stock would be cut in half. At its current valuation, Apple would lose over a trillion dollars in market capitalization.
But …
Is Apple REALLY Going To Let That Happen?
Apple, with its massive influence, would not let that happen.
As you know, tech companies have massive influence in geopolitics. If you want to know more about how this works, I wrote another article about why companies are as powerful as nations. Check it out.
Apple has been lobbying TSMC to move production out of Taiwan. And they succeeded. TSMC has been working on opening up a plant in Phoenix, Arizona in 2024.
This reflects the urgency that Tim Cook has on reducing the dependencies the company has on Taiwan’s manufacturing footprint.
To put it in perspective, as of the latest supplier report, Apple has more than 70 suppliers in Taiwan working on its products. And 270 in China.
One thing I’m sure is keeping Tim Cook awake at night is how to shift production capabilities outside of Asia
.
This way of thinking was exacerbated by Nancy Pelosi’s visit to Taiwan in 2022. A lot of customers of Taiwanese suppliers were asking them to move production outside of Taiwan in case war would happen at some point.
However, it is easier said than done. Most of the supply chains are in Taiwan and China. Therefore, pulling this off would take decades.
What Else Could Go Wrong?
Another important consideration is the fact that if China were to take over Taiwan, a lot of the contracts under these Taiwanese companies are of military nature. This type of company is known as a foundry. And it’s a vast industry. Almost 100 billion in 2021.
Just think of Nvidia making the semiconductors that will be used for AI technology that will be used in military and public sector applications.
If the Chinese government were to take over that, that would represent a massive risk for US companies and the US government.
Just think about the new Apple vision pro. It’s perfect for military contracts. They could use this technology (just like Microsoft intends to) to train soldiers in virtual simulations where they need to rescue people or improve stealth tactics.
A stretch maybe. But who knows.
As you can see, there’s a lot of skin in the game for Apple. Taiwan and its companies are a key component of the supply chain of the company. Or in other words, the stock.
Therefore, Apple will do everything necessary to make sure that is not disrupted.
Whether that means lobbying the US government to protect American interests via protecting Taiwan using military support, or helping them with investments to move out production to other countries.
Right now , the situation is tense. Let’s see how it unfolds.
Hope you enjoyed this week’s issue! I’ve been a bit MIA dealing with a few personal things, but coming back strong.
Please share it with your friends and family if you found it useful.
On a personal note, I was in New York this week for a Google offsite and it was amazing.
Wishing everyone a fantastic weekend ahead!
Until next time,
Antonio.
Thanks for the write up, Antonio! I think the tension between China and Taiwan as been going on for a while now, I hope won’t end in a war.