There is much interest and inquiry related to the recent tariff actions by the current U.S. administration, how they will impact technology pricing and what – if any – strategies are recommended.
To better assess the recent and possible future tariff impacts on the technology industry, we first need to acknowledge that due to the technology industry globalization, nothing is exclusively manufactured or hosted in the United States. Technology companies all have some dependent regional relationship with Asia, Mexico, and/or Canada, which is where the recent tariffs have been targeted. These tariffs, if put in place for the long term, will have an impact on hardware, cloud services, and to some degree, software costs.
Larger suppliers – including but not limited to – Microsoft, Google, Amazon, and IBM all have data centers in Asia, Canada, and Mexico. They also purchase large scale servers, storage and related components. Depending on how they are getting assembled and where they are getting shipped from and to, there would be varying tariff impacts to their component pricing. This likely means some of that pain will be passed on to their clients.
Hardware, including semi-conductors and related components, imbedded software used for PC’s, network & telecom hardware, smart phones, smart devices, large scale computers and storage, are all part of the technology component eco-system. Due to the current state of inflation, continuous improvements and advancements, like AI in hardware, there are always expectations of price increases through each enhanced model year.
If tariffs are in place long term, companies should brace for hardware increases anywhere from 9% to 45%. These increases go across various hardware platforms. Customers may not feel the related price impact immediately after tariffs have been announced as the effects on the supply chain typically take time to play out. IDC is now seeing tech companies in the hardware space already increasing prices to their clients.
Cloud services companies such as AWS and Microsoft have held prices steady so far and have not announced when and if price increases will occur. AWS is offering incentives to their long-term clients who continue to use and plan to purchase additional cloud services. AWS appears to be doing this to maintain a competitive advantage.
In the hardware space it is likely that most suppliers will look to hedge their bets and begin price increases sooner or press their customers to take early hardware inventory to avoid major price increases as the tariffs go full board. HPE and Dell have already begun increasing prices to their clients, yet Cisco and Apple have held off so far.
To address risk in this space companies may take hardware inventory earlier than planned which can create a delay or shortage of products in the supply chain. The likelihood is that many organizations having critical and productivity technology requirements will be scrambling to manage budget and infrastructure risk.
One choice that some companies are making already is to delay and/or reduce the volume of orders, filling only the most critical of needs. Another common practice that some companies are looking to consider is brokered hardware. This is mostly the purchase of used hardware from OEM’s and third parties such as resellers and other industry specific suppliers. The idea is that used hardware can mitigate the increased pricing of new hardware that is already in supplier inventory and immune to tariffs. The advice here is for organizations to be rigorous, disciplined, and have governance with how any used hardware brought into their infrastructure needs to be adapted into their ecosystem.
What we do not know with certainty is how the intended strategy for these tariffs will play out and resonate across the technology supply chain, hence the need to keep close to all available data sources. There appear to be specific tariff objectives regarding each country, meaning that these tariffs may have multiple intentions other than the traditional implementations. With Canada, the tariffs are being used to address the flow of illegal narcotics into the U.S. With Mexico the tariffs are being used to address the situation at the U.S. southern border. With China, the tariffs are being used to address the opioid supply chain situation. With parts of Southeast Asia tariffs are being used to address data privacy concerns.
Given the non-traditional and negotiation use of the tariffs, there is a real need to be vigilant with the ongoing activities, discussions, and announcements to avoid making poor decisions and/or taking unnecessary actions. It’s better to watch how this plays out day by day. There is a lot at stake here if companies begin to react too quickly. Of course, a concern could be that if timely decisions are not made in synch with the tariff actions occurring, companies could end up with unplanned, unmitigated risks and consequences.
Given the complexity of these tariffs and the ongoing shift of positioning it is very challenging to decide when and how to implement any plan. The good thing is that with the current White House administration we are getting transparency with continuous updates on the tariff situation from a variety of media sources. It would appear business leaders will at least have some reasonable time frame to execute a well-orchestrated plan. This helps with the decision-making tree organizations need to create and manage. Creating these critical decision planning mechanisms helps to make informed decisions rather than uninformed rash decisions, especially in this current fluid situation.
Keep in mind that in 2022 the CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act was put into place to help reduce the United States dependency on other countries for designing and building technology components and infrastructure. There is still a way to go before the goal is reached. However, there are estimations that the United States will triple its current semiconductor production by 2032. The CHIPS and Science Act was not initially planned to eliminate global technology trade but more to reduce its current global technology supply chain dependency. Most recently the new administration has been threatening to terminate the funding of the CHIPS act but as of now, it doesn’t look like it will be supported.
Here are a set of recommendations for what you can do now to plan and help address possible impacts to your technology supply chain.
- Create and/or appoint someone to provide daily briefings to your technology and C-Suite executives on the ongoing tariff activities. This will increase your chances of making more informed decisions.
- Create an internal site and/or email thread that captures these briefings and updates.
- Add this Legislation Watchlist link for monitoring current trade actions: https://insideidc.sharepoint.com/:x:/t/WorldwideMacroTechProgram/ERh2FyoMP3NGkHXkgPd7fTUBEwRmgioPhQ19H-6hCGC_KA
- Take full inventory of your short- and long-term critical technology purchase plans and rank them in importance.
- Have your category sourcing managers, especially those assigned to larger suppliers keep a close eye on multiple public information resources related to tariff impact.
- Discuss and review possible purchase impacts and strategies for reducing and/or eliminating tariff-related cost impacts with your suppliers, including resellers.
- Assess whether any planned technology purchases made ahead of existing plans will have any long-term repercussions to your technology roadmap and/or fiscal plans to your organization.
- Consider whether brokered hardware can be a partial mitigation to price increases.
- Confirm whether any orders currently in play and already contracted will have any price impact. This might be complicated if the inventory has not been built yet.
- Talk to your partners, including resellers, consultants, research firms, and others about what they are seeing with customers in terms of impact and how they are addressing the issue.
- Execute your well-planned risk-based and flexible strategy with the awareness that any of these early political stage acts will likely have many unpredictable moments.
