Apple is extending its chip-supply agreement with Broadcom in a multiyear, multibillion-dollar deal, despite its ongoing efforts to bring more chip production in-house.
The iPhone maker has been working to replace chips made by other companies with its designs, a strategy that has seen it replace Intel as a supplier of chips for its laptops and desktop computers.
Apple has faced challenges in developing its cellular modem chips, currently supplied by Qualcomm. As part of the extended deal with Broadcom, the chip maker will provide Apple with 5G radio-frequency and wireless-connectivity components. The exact value of the agreement has not been disclosed.
The 5G radio-frequency components will be manufactured in several hubs around the U.S., including Fort Collins, Colorado. Apple CEO Tim Cook stated that the company will continue to deepen its investments in the U.S. economy, reflecting its belief in America's future.
Apple has previously sourced components from Broadcom made in the U.S., including from Colorado. The companies had signed multiyear agreements that Broadcom said would generate a combined $15 billion in revenue, set to expire this year.
UBS analysts estimate the new deal will run through 2026 and is likely valued at over $15 billion.
This deal comes when Apple has faced political pressure to increase manufacturing in the U.S., a concern amplified by supply-chain disruptions during the pandemic. The company has been working to do more manufacturing outside of China, ramping up operations in Vietnam and India.
Remaking its supply network to be more American-made presents challenges. Only 12% of the world's chips are produced in the U.S., although government incentives aim to change this reality.
Chip makers, including Apple's leading supplier of advanced chips, Taiwan Semiconductor Manufacturing Co., have announced significant new projects in the U.S. and are applying for federal grants to help finance them.
This development provides a valuable lesson for CEOs across industries. It underscores the importance of strategic partnerships in overcoming operational challenges and achieving business goals. Despite Apple's ambition to bring more chip production in-house, the extended deal with Broadcom shows that collaboration remains a viable strategy, especially when dealing with complex technologies like 5G components.
CEOs should consider how strategic partnerships can help their companies navigate operational challenges, accelerate innovation, and achieve growth. This is particularly relevant in the tech industry, where rapid advancements and complex supply chains pose significant challenges.
Apple's commitment to investing in U.S. manufacturing and diversifying its supply chain outside of China highlights the importance of supply chain resilience and the potential benefits of geographical diversification. CEOs should consider how their companies can enhance supply chain resilience and respond to political and economic pressures to localize manufacturing.
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