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Tariff Threats Hit IT: IBM Raises Prices As Gigabyte Sees Possible Hike

As the Trump administration moves towards implementing tariffs on imports from China following investigations under Section 301 of the Trade Act of 1974, U.S. IT firms are already preparing their own actions while the channel watches closely.

Two IT vendors are already warning their channel partners about supply chain price increases or the potential for such increases due to planned tariff actions by the Trump administration.

IBM in late July told its business partners that it raised the prices for a wide range of its tape drives and related products by 25 percent due specifically to tariffs put in place on certain imports from China.

And Gigabyte, the Taiwan-based manufacturer of a wide range of IT products from keyboards and mouse pads to servers and PCs, told its solution provider and system builder clients that it may raise prices by 10 percent this month depending on the outcome of talks between U.S. and Chinese officials.

[Related: Silicon Valley: One Earthquake Away From IT Disaster?]

IBM storage executives did not provide any further information about its price increase to CRN by press time. Gigabyte spokespeople did not reply to a CRN request for more information by press time.

IBM last month sent a memo to its business partners entitled "Price Change(s): China Tariff Increase Resulting In Price Increase on Selected Tape Products." The memo, which was examined by CRN, said that new prices for tape automation and related products ordered starting July 24 were raised by at least 25 percent.

The memo included a list of 137 products affected by the price rise -- ranging from $19 power cords to tape drives such as the IBM TS1155 model 3592 FFE Ethernet-based tape drives, which list at $65,125. The prices for these two products are the post-tariff-related prices.

For most products on the IBM list, the price increase was 25 percent. However, for a few products, the price increase was 26 percent or 27 percent. In particular, all the products originally priced at $15, including the power cords, are now priced at $19, an 27-percent increase.

Prices were not raised for products ordered before July 24, or for products covered by existing IBM volume commitments or special bids.

Gigabyte, with U.S. headquarters in City of Industry, Calif., warned channel partners that a number of its products may be heading towards a 10-percent price increase, depending on the outcome of the final actions of the U.S. Trade Representative, or USTR, on Section 301 action.

According to the USTR, the organization initiated an investigation under Section 301 of the Trade Act of 1974 into China's trade policies.

"However, please note that the tariffs will not go into effect immediately, but will be under a two-months review process, with hearings on August 20-23 by USTR," Gigabyte wrote in its memo.

Gigabyte said its motherboards, graphics cards, SSDs, mouses, keyboard/mouse bundles, CPU coolers, power supplies, and chairs are subject to a potential 10-percent tariff. However, its PCs, servers, notebooks, keyboards, memory, headsets, PC cases, and mouse pads are not subject to the price increase.

Solution providers and system builders are watching the tariff situation closely, hoping that nothing will come of it but preparing for the possibility of price rises.

One U.S.-based IBM solution provider told CRN on condition of anonymity that the IBM price increases will likely delay purchases at the worst.

"My gut feel is the people believe that this tariff fight is a temporary situation that will return to normal within the next couple of months," said the solution provider, who did not want to be named as to not jeopardize any relationship with IBM. "Only time will tell."

Bruce Geier, president and CEO of Technology Integration Group, a San Diego-based solution provider, said his company is not expecting price increases from tariffs.

"Most [high-end systems] manufacturing is done in the U.S., but component prices may change depending on where they are sourced," Geier told CRN. "We're still hopeful things will work out."

It's hard to predict how the price increases from potential tariffs might impact channel partners given that they would all be susceptible to the same increases, Geier said.

"For us, the price is the price," he said. "We don't really get hurt."

One system builder who partners with Gigabyte told CRN on condition of anonymity that Gigabyte is the first components manufacturer to warn of potential higher prices from trade actions.

However, the system builder said, it is still too early to know what will happen.

"A lot of companies are moving manufacturing out of China," the system builder said. "I think the tier-one manufacturers are impacted the most. A lot of manufacturing is done in China. But a lot of the smaller guys are having parts made in multiple locations in Taiwan, China, and Europe, and so they can shift manufacturing to other countries. One motherboard maker I know is looking at moving manufacturing back from China back to Taiwan."

If the tariff actions go on long enough, there will be issues, another system builder told CRN under condition of anonymity.

That system builder said the impact has not yet materialized. "But we're putting in a new furnace at home," the system builder said. "We talked with three dealers, and all of them talked about furnace sheet metal costs going up. The same metal is going into computer cabinets."

While prices may rise for all solution providers because of tariffs, the impact may differ according to market, the system builder said.

"In education, budgets are extremely tight," the system builder said. "There could be a big impact to sales there. But then again, that's a seasonal business. Selection for bids won't come until next year."

The price increases from tariff actions could dampen demand across the board, the system builder said. "However, not all prices are heading north," the system builder said. "AMD is back, helping moderate Intel prices. And Intel has joined Mellanox in the high-performance fabric business, helping moderate prices there."

Channel-focused companies last week were peppered with investor questions about how tariffs could hurt business during their financial analyst conference calls.

Thomas Richards, chairman, president, and CEO of Vernon Hills, Ill.-based CDW, said Thursday that CDW has yet to see a business impact on its own business or that of its partners from any tariff actions.

However, on Thursday in response to an investor question during CDW's second fiscal quarter 2018 earnings conference call, Richards said that tariffs are one of the unknowns that could hurt its outlook for the remainder of the fiscal year.

"If you look at our results, it would suggest that while there clearly is a lot of rhetoric out there and everyday it seems like a new bit of news, people seem to continue to focus on their business. … We haven't seen what I would call meaningful impact as a result of the tariffs at this point," he said.

Mike Long, CEO of Centennial, Colo.-based components distributor Arrow Electronics, said Thursday in response to investor questions at the company's second fiscal quarter 2018 earnings call that tariffs are "crazy" and hurt all US businesses across the board.

"None of us like tariffs," Long said. "None of these businesses like tariffs. These tariffs that are coming in and I'll tell you the same thing I told the senators, all they do is they hurt American businessmen. They're not doing anything to the Chinese right now. So that's the only message I wanted to get across. So I think they're crazy."

Long said customers so far are not buying ahead of the tariffs or otherwise changing purchasing behavior to adapt to what he called a "pretty ludicrous" foreign trade policy.

"These tariffs are not material to the electronics industry at this point," he said. "I think virtually every supplier that came out said the same thing I do. … Right now, we're not seeing a slowness in demand."

Long also hinted at a workaround he would consider in the event tariffs became too onerous to business: "If they want to start something up, we can redirect [our] supply chain completely out of the U.S. in a moment's notice and totally eliminate the tariffs. So I'm not worried."

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