Apple-Broadcom deal: Impact on investors, China

TECHnalysis Research President and Chief Analyst Bob O'Donnell joins Yahoo Finance Live to discuss Apple's multi-billion dollar chip deal with Broadcom and its impact on the semiconductor manufacturing market in the U.S. and China.

Video Transcript

- Another tech story in focus today, Apple's multibillion deal with Broadcom. Now the partnership will focus on developing 5G radio frequency components in the US. Apple saying that this is part of its plan to invest more than $400 billion in the US economy, and the latest move to shift production away from China. Joining us now, I want to bring in Bob O'Donnell, TECHnalysis Research President and chief analyst here. Bob it's great to see you. So talk to us just about the significance, how big of a moment this is for Apple given the fact that it's pivoting once again further away from Asia and investing in manufacturing here in the US?

BOB O'DONNELL: Well, obviously the move to manufacture more in the US is a good thing. Let's remember, some of these components have been manufactured in the US. Apple has been working with Broadcom, and some of their manufacturing of course, is here in the US. Nevertheless, it's still an important move. We want to see more semiconductor work done here in the US. And this is just another part of that puzzle. RF components are really hard to build. They're these analog things that help make 5G signals work. And there's not that many companies who are able to do that.

So this is obviously, it's a great win for Broadcom here in the near term, and it's a feel good kind of statement for Apple. I will say, longer term, there are some questions though, because Apple is of course rumored to be building, or trying to build a lot of these components. Of course, they're working on their own 5G modems, right now they're using Qualcomm. But the plan is to do their own. These RF components go alongside those modems. They're also at some point planning to do those.

So we'll see what happens. But what it says is look, Apple needs help with some of these things. They're working with these US companies. They're going to probably bring 5G to more of their devices. Right now it's really just the iPhone, we'll start to see it in the iPad. Maybe in the headset at some point, if and when that does come out. Eventually we'll have a 5G Apple Watch. So and then I think we'll see 5G in the Mac at some point as well. So all of it is I think, is generally positive moving forward.

- Bob you read my mind on that, because Apple's made quite a few pivots when it comes to chips and moving away from Intel, then making that announcement about building internally. And then now we've got what's happening with Broadcom. What does this mean for what they're trying to do internally and build more of their stack?

BOB O'DONNELL: Yeah, I mean really, you're seeing Apple move to trying to be almost a completely vertically integrated company. Which the old school IBM, and you think about the really older tech companies, that's what they used to do. And then everything all of a sudden went horizontal. And now increasingly, Apple is trying to go sort of more vertical. Because they want to control their own destiny on this front. And they are big enough, and one of the only companies big enough to support this. Because they make so many devices they can use these components in a lot of different places.

So I think you're going to continue to see Apple do this. But these things don't happen overnight, right. This stuff, this kind of technology in particular is very hard to do. The RF sort of signaling. And so it's going to take them a while to get that expertise. They're already having a hard time with the modem. They were, initially there was a thought that they would have their 5G modem ready this year. Clearly, they're not going to. So these things take a while, but it does reflect that long term Apple perspective of wanting to control their own destiny.

- Bob, you talked about the broader move that we've seen. Tech companies trying to reduce their-- well, not just tech companies, multinational companies trying to reduce their reliance on China. You could argue among the tech names, Apple is among the most vulnerable and reliant on China from a parts and components perspective, as well as assembly, manufacturing. Even with today's announcement, can Apple really reduce their reliance on China to the point where they won't necessarily be disrupted? Whether it's an economic disruption, or God forbid something that's more militarily related.

BOB O'DONNELL: Yeah, no. Akiko, it's a good point. I mean, look, the reality is Apple has seen the issues. They're working to try and diversify manufacturing in particular. The final production of phones and all kinds of devices is still very, very reliant on China. And while they're making moves, again, they are so big, they can't do it all at once. And it's going to take a long time. So yeah, if God forbid there was a military sort of issue that required them to shut things down, that would be really bad for Apple. Clearly. I mean, it would be bad for the tech industry in general, let's be clear.

But Apple in particular is there. The one thing is, it does seem Apple has a special place in China. They seem to be sort of-- they get extra special treatment. And I think they know how-- they're handling China with kid gloves in terms of how they interact and work with the Chinese government in order to make certain things happen. And the truth is, there's a lot of very loyal Apple users in China.

So frankly, the Chinese government has this challenge of, you cut off Apple stuff in China, you're going to get a lot of people very upset. So it's a careful walk that they have to take. But yes, clearly, I think you're going to see them try to diversify more geographically on individual components as well as manufacturing.

- And Bob, when it comes to diversifying geographically, there's been lots of talk and lots of emphasis here on India. Whether or not India can become the new China for Apple. What do you think?

BOB O'DONNELL: Well, I mean, look. Again, I think you are going to see them invest in India, but you're also going to see a lot more in Southeast Asia, right. There's a lot of manufacturing going to Vietnam. Some companies going to Malaysia. There's a lot of movement in that direction. And so I think you're going to see India get propped up, and there will be a lot of focus there. But again, it's a couple percentage of the market. And the difference with India versus China, for example, is that they're not as many Apple users in India. It's a much smaller percentage in terms of the share. So not that necessarily matters where they do the manufacturing, but it has some degree of influence, I think.

- Yeah. The argument for years has been the higher price point, right, that Apple competes on. And whether that matches where the Indian market is. You talked about reducing the reliance on China. But when you think about where things are right now, I wonder if you can talk about how we have seen the reshaping of the landscape when it comes to chipmakers, and how much of that has been spurred on by the CHIPS Act that was passed last year? Because it feels like there have been so many announcements of investments coming into the US.

BOB O'DONNELL: Well there definitely have, Akiko. And I do think some of it is CHIPS act related. But I think there's also just this recognition that people in the tech industry have known for a long time, but sort of the general world really discovered during the pandemic of, the devices we couldn't get, and we couldn't get them because of chips. You couldn't get a car because of some of these chips. And it turns out they were being manufactured almost entirely in China, or in Taiwan actually, where a lot of it is being done.

And so I think there is this sense of, yeah, we really do need to do it. But again, I mean, unfortunately, you know, Intel is building all these fabs. It's three, four years before you start to see any production out of them. You've got other companies. GlobalFoundries is another US chip company that's been built-- you know, they've been building here in the US for a long time. A couple other factories around the world as well. You're going to see a lot more of these commitments. You've got TSMC saying they're going to build more in Arizona. Samsung in Texas.

So there's definitely motion, but unfortunately these things-- the market likes to see things happen fast, these are not fast moving changes. So it's going to take a while. I think it's absolutely essential that it happened, and the CHIPS Act became sort of the rallying flag for all this stuff. So I think that's how we're going to continue to see it over the next couple of years.

- All right. And we of course, we'll continue following this story. Bob O'Donnell, thanks so much.