“Sometimes life hits you in the head with a brick. Don’t lose faith.” – Steve Jobs
It’s not unheard of for a martial artist to discover (to his chagrin) that his size, power, and/or speed – attributes traditionally regarded as advantages – have been turned against him, sending him sailing ungracefully through the air against his will. And none other than the chief executive of one of America’s most prolific companies, Tim Cook, has a front-row seat to the lesson on what that feels like – mentally, at least.
All of a sudden, Apple’s supply chain and manufacturing processes – widely lauded and long studied by business school students – are threatening to become a major liability, with President Donald Trump trying to force (or at least heavily pressure) the iPhone maker (along with others) to bring manufacturing back to the U.S.
Praised and envied for its innovation, cost- and time-efficiency, resilience, speed, and flexibility, Apple’s current setup is the result of years of careful consideration and fine-tuning. It features a supply chain that includes not just the U.S. and China, but also India, Brazil, Taiwan, South Korea, Japan, and Vietnam. This has helped Apple maintain quality, control costs, respond quickly to new developments, and quickly recover from disruptions such as the Covid-19 pandemic -– all while winning plaudits from sustainability and environmental advocates.
Anticipating that risks associated with China would only continue to grow, Apple had already taken steps to shift parts of its supply chain elsewhere. Nevertheless, the unexpectedly broad scope of Trump’s America First agenda left Apple with little room to maneuver.
Yet all is not lost.
In judo, being on the wrong end of a clean, decisive throw results in an ippon – a decisive defeat similar to a KO in boxing. However, today’s topic is neither judo nor boxing.
It’s business. And it’s dynamic and ever-evolving.
If history is any guide, companies have historically survived and gone on to thrive even after a reversal similar to the one Apple now faces – though not always. Their examples provide hope to Apple, because it’s not the first to find itself in a situation like this, and it surely will not be the last.
General Motors
Back in 1920s and 1930s, when General Motors’ biggest competitors were exclusively based in Michigan, GM’s Alfred Sloan built a vertically integrated company that enabled GM to navigate an environment in which auto-industry supply chains had yet to be established. Put simply, GM produced all the components that went into its vehicles, from gears and axles to engines and headlights. This enabled GM to streamline its production and make planning easier. Eliminating the need for external suppliers also helped improve profit margins.
As the decades progressed however, companies arose that were capable of providing the materials and components needed to build a decent automobile – and those companies were more innovative, efficient, and cost-effective. GM’s internal “suppliers”, meanwhile, with their guaranteed “customer,” had gotten complacent. They had little incentive to innovate or improve, but they had nevertheless built up a massive workforce that came with pension and healthcare liabilities so similarly massive that they diverted funds that could have been used for research and product development. The vertical integration that had helped GM dominate the 1960s had become a significant liability by the 1990s – costly, inefficient, and difficult to manage. New competitors emerged that took advantage of this weakness. By the time the Global Financial Crisis emerged in 2008, this weakness had left GM vulnerable, ultimately contributing to the company’s bankruptcy filing in 2009.
Of course, GM ultimately emerged out of bankruptcy and has since reclaimed its spot as one of the top carmakers in America. Its shares are up roughly 85% over the past five years, while the S&P 500 has added 93%.
Toyota
One of the competitors that arose to take advantage of General Motors’ weakness in the 1970s and 1980s was Toyota, as it rose to become the largest automobile manufacturer in the world.
Toyota adapted a very different way of managing production.
Rather than vertical integration, Toyota developed a “lean manufacturing” system built around a network of outside suppliers, companies with which Toyota enjoyed a longstanding and closely coordinated relationship. These companies made and supplied 70% or more of the components that went into Toyota’s vehicles. In the Toyota way (aka the Toyota Production System), each part of the manufacturing process produced only what was required for the next step, with a network of suppliers delivering only what was needed shortly before it would be needed. This precisely tuned, “just-in-time” supply chain was made possible by Toyota’s relationship with its suppliers, allowing the automaker to eschew large inventories of components and drastically reduce waste – and the need for warehouse space.
It was a capital-efficient strategy that prioritized agility and flexibility, and it was beautiful … right up until it got ugly. On March 11, 2011, the Tōhoku earthquake and tsunami devastated large portions of Japan. It was the most powerful earthquake in Japanese recorded history, and the fourth-most powerful ever recorded on the planet, causing nearly 20,000 casualties.
Suddenly, the much studied and widely imitated TPS strategy was a serious liability. In the name of efficiency, Toyota’s suppliers had begun specializing to such a degree that in many cases, a given critical component was sourced from just one supplier. And for many of those components, the sole supplier – for manufacturing anywhere around the world – happened to be located in the area devastated by the natural disaster. With Toyota not keeping a large inventory of components at hand, production lines around the world quickly ran out of what they needed to operate, shutting down days after the quake. And even after component shipments resumed, the intricately choreographed, complex supply chain proved difficult to restart. Global production fell by 78% in April 2011, the month after the disasters, while North American plants were forced to operate at just 30% capacity over the next six months. Toyota ultimately attributed a decrease in global output of 150,000 vehicles for that fiscal year to this disruption.
Apple might have been paying attention. Like Toyota, Apple had built a close, long-term relationship with its suppliers, with production processes geared toward minimizing waste while maintaining quality control, agility, and flexibility. Also like Toyota, Apple strives to keep inventory low, and as Toyota did in 2011, Apple had a high concentration of its operations tied to one area (China, in Apple’s case). Discussing tariffs during an earnings call on May 2, 2025, Cook noted that it had long been moving to geographically diversify its supply chain, telling listeners that “what we learned some time ago was that having everything in one location had too much risk with it.” That helps explain Apple’s big manufacturing push in India in recent years.
IBM
When we talk about Apple’s supply chain and manufacturing setup, the iPhone is the most prominent topic of discussion. Apple sells many other products and services, of course, but the iPhone remains its cornerstone – accounting for more of its revenue than everything else combined. The iPhone’s market-share dominance (although the Android OS is more widely used around the world, Apple is the most popular smartphone brand by far) is arguably a strength, but this too can turn into a weakness.
Just ask IBM.
“Big Blue” began dominating the market for mainframe computers in the 1960s, and its dominance has continued free of interruption to this day. Yet this dominance became a liability in the late 1980s and early 1990s, as the importance and relevance of mainframes began to wane. By the 1990s, many of the company’s leaders had started behaving as if continuing to dominate the market was all IBM needed. As a result, the company was slow to recognize the potential in emerging technologies and reluctant to invest in something that might cannibalize its cash cow. IBM was thus unable to fully realize the power and capabilities of PCs (despite having developed one of the leading models on the market), mid-range servers, and distributed computing (as opposed to centralized “glass house” mainframe-driven computing).
In fairness, IBM’s failure to capitalize on the rise of personal computing can be partly attributed to the tragic death of Don Estridge, who led the development of IBM’s first personal computer and was considered a visionary in the field. Estridge and his wife died on August 2, 1985 in the crash of Delta Air Lines Flight 191.
Ultimately, this focus on maintaining dominance in a market with declining relevance nearly led to the collapse of IBM – in the early 1990s, Wall Street and the rest of the business world was rife with speculation that IBM would collapse and be sold off for parts, so to speak.
IBM was able to turn itself around only by finally focusing on other businesses and repositioning itself as a provider of software, services, and consulting while investing in new technologies like artificial intelligence and quantum computing. Over the past five years, its shares have outperformed the S&P 500.
Conclusion
If the pressure to relocate all – or even most – of its iPhone manufacturing back to the U.S. remains, Apple could be in for a tough time. A number of analysts have noted that a U.S.-manufactured iPhone could end up doubling or even tripling in price for customers.
But even if this pressure is removed, a number of tech experts – among them, Elon Musk, Bill Gates, and Mark Zuckerberg – already believe that the smartphone’s days are numbered anyway. So although the iPhone is still Apple’s most important product for now, President Trump’s fondness for tariffs might have little or no long-term impact on Apple.
Instead, it might be the risks associated with its most important product becoming irrelevant. If that’s the case, Apple could take a page from the IBM story. In fact, it’s done so before. Back in 1997, Apple was arguably in a much tougher position. The late Steve Jobs later admitted that the company he co-founded was about 90 days from bankruptcy when he returned to lead Apple.
The key to his company’s survival and revival was a pivot into a new business. The answer for Apple came in the form of revolutionary gizmo that back then was considered life-changing – the iPod.
And who’s to say Apple can’t come up with another iPod?
As a reminder, Signal From Noise should be used as a source of ideas for further research rather than as a source of investment recommendations. We encourage you to explore our full Signal From Noise library, which includes deep dives on the presidential effect on markets, the America First trade, wonky economic indicators, and the rising wealth of women. You’ll also find discussions about the use of artificial intelligence in health care, the TikTok demographic, and weight loss-related investments.
