The TD Cowen Insight
Reshoring in the mobile and PC supply chains remains topical due to U.S.-China trade and geopolitical tensions, supply chain resiliency, and national security interests. Taiwan ODMs invested ~$45B since 2018 to diversify production, with ~$7B into India and Vietnam. ~$9B of ODM investments in the U.S. and Mexico suggests an emerging hub for electronics and EV manufacturing, and aligns with semis’ foundry fab and OSAT buildouts in the U.S. This is positive for the IT Hardware sector in terms of supply chain risk and cost mitigation. However, limited non-China capacity and Original Design Manufacturer (ODM) options are impediments to reshoring progress.
We analyzed over 1,000 financial filings from four major Taiwan original design manufacturers to compile detailed investment flows across subsidiaries, geographies, and land purchases. This analysis helps us provide better contextual detail beyond broader capex disclosures. We also compare the electronics manufacturing incentives and policies for the significant countries that these ODMs currently operate from.
Reshoring Manufacturing to North America
Reshoring remains topical in the manufacturing space, with long-term implications for the electronics supply chain. Since 2018, ODM assets have been diversifying away from China to India and Vietnam and to a lesser extent Thailand and Malaysia. Recent investments in the US and Mexico suggest an emerging “North America hub” and align with new leading-edge foundry fabs under construction in Arizona, Texas, and Ohio.
Smart Phone, Tablet, and Computer Manufacturing Starting to Shift Out of China
The production of the iPhone is still captive to China, but India’s Tata Electronics has potential as a future iPhone exporter. Macs and iPads have growing output from hubs in Vietnam and Thailand, but qualified original design manufacturers are all Taiwan- or China-based. We view the migration thus far as helping to mitigate geographic concentration risks, but limited capacity to fully meet US consumption (~20% iPhone, ~40% Mac sufficiency) and even fewer non-China-based ODMs suggest reshoring is still in the early phase.
ODM Investments in North America and Asia
We estimate cumulative investments (excluding intra-company flows) by four major suppliers were ~$45B during 2018-2023E. Our analysis suggests China received the largest share at 41% or ~$19B of funds. India and Vietnam combined were 15% while the U.S. and Mexico were 20%. We estimate ODM investments over the past 5 years were up 50%+ vs. 2013-2017. We believe ODM reshoring has higher costs in the near-term. In the long-term it can benefit PC original equipment manufacturer margins once ex-China capacity is fully at scale.
Additional Investment Needed to Support U.S. Demand
Investments to date have improved the resiliency of supply chains to systemic shocks due to labor shortages or region-specific exogenous events. However, further spending on capacity in India and SE Asia is needed to fully support U.S. demand for the iPhone/Mac/iPad. Further, more ex-China suppliers are required to achieve the full vision of reshoring.
For the iPhone, India investments by Tata Electronics and Foxconn in 2024-25 could provide insights on when the majority of U.S. demand is sufficiently reshored. Similarly, future Vietnam funding can give clues as to when Mac/iPad can match U.S. demand levels.
Semiconductor Reshoring – The Next Phase?
reshoring. Much of the electronic component ecosystem still resides in Asia today. As new U.S. and German foundry fabs ramp starting in 2025, we expect new capacity for OSAT (outsourced semis assembly and test) services, electronics sub-components, and PCB assembly to follow thereafter in North America and in Eastern Europe.
Reshoring Benefits and Hurdles
For tech leaders, geographically diverse manufacturing helps reduce some operational concerns and could benefit valuation in the longer term. We believe risks associated with U.S.-China trade and geopolitics persist as new production capacity in SE Asia is insufficient to meet U.S. demand from the leading company. The scarcity of viable ODMs not domiciled in Taiwan/China is also a key hurdle to full reshoring.
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