Apple's Achilles Heel
The majority of Apple's suppliers are in mainland China or Taiwan. 90% of Apple's products are made in China through contractors. The chips that Apple designs and the chips that Apple outsources from other fabless companies are all made in Taiwan via TSMC.

With a high possibility of war between China and Taiwan sometime soon, the ramifications of that war are much bigger for $AAPL than for $NFLX $META $GOOGL $AMZN, and $MSFT.

Sure, Apple has tried to diversify its manufacturing network to countries like Vietnam, India, the Philippines, Thailand, etc. but those developments are small and will need time to develop and scale. These manufacturing facilities in these countries can't just replace the capacity that Apple has in China because they're too small.

If China were to invade Taiwan, over 90% of the advanced chip production will go offline. The wave of sanctions that China will face as punishment for its invasion of Taiwan will most likely lockout corporations from accessing their factories in China and prevent companies from receiving parts that they source from China.

This looming geopolitical crisis will make will turn Apple's immense reliance on China from a good thing (because it cost less to build an iPhone in China than in America) to a bad thing because of the sanctions that could be imposed on China if China were to invade Taiwan. Apple will have to build most of its manufacturing network from scratch as a result of this.

For all the Apple investors out there, pay attention to the brewing tensions between China and Taiwan. Based on how things are going, there's a high chance that a war could start soon.
Fat Baby Funds's avatar
Do you really see a high probability of war in Taiwan?
Joshua Simka's avatar
I wonder if this is keeping Tim Cook up at night. I don't own shares but I'd think $AAPL shareholders would hope management has a contingency plan?
Dissecting the Markets's avatar
@tomato Apple has been slow in diversifying its manufacturing footprint to where they can become less reliant on China. Recently, it is said that Apple hopes to have 25% of its product made in India by 2025, but that's a long time. Now, tensions are so high and China's window of opportunity for taking Taiwan is winding down fast that anything can happen in October. I bet it is keeping him up at night, and I bet the situation is keeping the majority of semiconductor executives (except Intel) up at night. I'm glad that the majority of my holdings are in REITs and in a covered call index fund.

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