Pay close attention. While we heard the term “Trade War” a lot during the Trump Administration and associated it with tariffs, quotas, and subsidies, the more dramatic part is just starting to lift off the ground. Last week, Apple announced a multi-billion-dollar deal with Broadcom to manufacture 5G radio frequency chips in the United States. For those of us who have known Broadcom and its predecessor company Avago, this announcement caught us off guard. Traditionally, Broadcom has been thought of as a “fabless semiconductor” company. Fabless means that they design the chips, and someone else manufactures them. In Broadcom’s case, Taiwan Semiconductor has historically been their manufacturing partner. But what most folks don’t know is that while Broadcom was rolling up assets to become the powerhouse they are, they were also accumulating some relatively small and geographically diverse manufacturing capacity. Traditionally, Apple has been trying to get away from working with Broadcom because their chip designs came at a premium and they’d rather keep high margins in house. But as the US and many other global technology players pull away from China, these little manufacturing facilities made Broadcom a far more important partner. Apple is going to have a very difficult time pulling back from all activity in China, but the more they can keep some of the more advanced chips closer to home, the better they can feel about the integrity of their IP and availability of supply.
So why should you care? We’ve been talking about nearshoring and reshoring for months now and the benefits that this activity can have for local economies. Frankly, there are many skeptics as to how far these trends will go, but for those of us inside the beltway, it is hard to imagine a world in which these practices don’t have a long runway. While globalization can be amazing, we have seen IP theft at alarming rates. We have also seen technology that was invented here used against our military and intelligence communities. These trends put pressure on US companies to rethink their supply chains long before Covid disrupted them completely. Reshoring will continue for a long time and this offers many potential investment opportunities. In this case, there will be a lot of capital equipment, materials, people and real estate that are all directly effected by this agreement. The people portion is where we get most excited. These fabs will need high end manufacturing talent and those people are going to come from all over. Broadcom has facilities in Fort Collins, CO, Allentown, PA, Charlotte, NC and Durham, NC just to name a few. Paying attention to company moves like this can help us get ahead of capital projects and predict where populations will increase. We applaud this move by Apple and congratulate the staff at Broadcom. This is a major step forward.