After all these years, businesses and governments have begun to see the downside of outsourcing.
Anything taken too far can be bad and outsourcing has been taken to its extreme over a long time. I see it all the time. Covid has brought this “chink in the US’s armor” front and center.
The glaring problem with outsourcing is the company loses their knowledge and abilities to do the outsourced processes. If the company or group who took over the process screws up, taking the process back will most likely be a long arduous process. Why? The people who did the process are gone. The assets used for the process are gone. More importantly, the internal knowledge of those processes has evaporated from the company's knowledge base. Basically, the company has to start almost at ground zero.
The manufacture of microprocessors has been recently identified as a potential national security threat. A great deal of microprocessor production is done in China or in China's back yard. If someone decides to cut the US off from that production "The US is up the creek without a paddle."
So like many things (acquisitions/divestitures, etc.), the cycle (fad) is reversing and the US will be bringing microprocessor manufacturing capability back on shore.
One of the few companies who makes the equipment for producing microprocessors is Applied Materials (AMAT). AMAT has been returning over 30% on ROE for the last four years and their fundamentals are very strong.
AMAT is ready and willing to provide resources to microprocessor designers to “on shore” microprocessor production again. Given what is going on with international politics and economics, I’m betting that AMAT is set to reap the bounty of “on shoring” for years to come.
Be smart, be well-read, be aware and be successful.
