If You're Planning to Build a PC, You'd Best Build Soon

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Life for PC manufacturers and channel customers (aka, those who build their own hardware) is going to get uglier in the next few months, in ways that could harm overall sales in the entire semiconductor industry. The ongoing trade war between the US and China has already resulted in 10 percent price increases to a number of goods, but those rates are temporary. If the Trump Administration and the Chinese government don’t settle these issues, the price increases will go up a further 25 percent.

In a recent interview with PCMag, NZXT VP Jim Carlton told the publication he has no choice but to pass the costs on to consumers. The tariffs cover motherboards, GPUs, and CPU coolers manufactured in that country, as well as cases and various other peripherals. “If it’s a $2,000 purchase on 25 percent tariffs, it’s going to be a $2,500 purchase,” Carlton said. “So we are very concerned with the direction of where this is going.”

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“I don’t have a 10 percent [profit] margin I can just throw away and absorb the tariffs,” he added. “And certainly no one has a margin for 25 percent.”

This behavior has led to US retailers stockpiling components in an attempt to defray the impact, which is why you may not have seen the 10 percent price increase, and why the immediate impact of the 25 percent increase may not be felt as quickly. Smart companies with sufficient resources will roll the increases in gradually, possibly by raising price over a series of weeks rather than slapping customers in the face with a sudden one-time sticker shock. Companies begin building inventory for holiday sales as early as July, so we’re not claiming you’ll see a January 1 25% price leap. Some manufacturers are moving production to other facilities outside China, but not every company has this option and not for every product. The degree to which this approach will work varies by company and where its existing manufacturing centers are.

Tariffs Don’t Apply Equally

One of the problems with tariffs is that they can have outsized economic impacts and change the balance of power between companies. For example, these tariffs don’t touch companies that import finished PCs and laptops into the country, just component manufacturers. That’s good news if you want to buy a laptop, but it’s terrible news if you’re a white-box builder who builds machines here and sells them. The US-based Cyberpower, for example, has already stated that these tariffs represent a fundamental threat to its business model. “In our company’s 20-year history, the proposed Section 301 Tariff Action is the greatest threat to our company’s survivability to ever arise,” Cyberpower said in a public letter to US trade authorities.

“As a small business, we are already facing tremendous pressure from large global manufacturers like HP/Dell/Apple, which has a greater capacity to absorb these increased costs from the new tariffs,” company CEO Eric Chang wrote.

This is one of the counterintuitive ways that tariffs can bite US companies badly, even when the stated goal of the tariffs is to make US manufacturing more competitive. By taxing the PC components that US resellers use in their own systems but not the preassembled systems built in China by the likes of Dell and HP, the US government has chosen a punishment strategy that lands squarely on a group of US companies whose only crime is buying products from the only companies that manufacture them. You can’t buy a US-manufactured GPU. There are no motherboard manufacturers still building hardware in the United States for the mainstream consumer market. And a laptop or desktop built by Dell and fully assembled in China still contains the same components that the small whitebox owners are going to pay a premium on. While I have absolutely no reason to believe that POTUS or anyone in his cabinet has anything against the PC retail channel market (I doubt they know it exists), they couldn’t have throat-punched it must better if they’d been trying. And it’s not like white box vendors haven’t already had the stuffing kicked out of them — most of the PC sales lost in the last 7 years were lost in the white box market to start with.

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PC sales by vendor through Q1 2018. A tiny bump in Q2 2018 isn’t exactly going to change the decline.

It’s still possible that President Trump and Chinese President Xi Jinping will reach an agreement when they sit down at the G20 summit in Argentina later this month. But the Trump Administration has also let it be known that it’s considering tariffs on everything China manufacturers and sells in the US, totalling an additional $257B in goods. That’s separate and distinct from the 10% tariff already applied and the 25 percent tariff scheduled to go into effect on $200B in goods in January. While it’s possible that these tariffs could lead to increased employment and manufacturing in some US sectors, any long-term attempt to shift manufacturing capabilities back to the United States from overseas would intrinsically be a long-term effort. Even under the best of conditions, it takes years to secure land, build facilities, and then ramp those factories into full production. Semiconductor foundries can take 2-3 years to build and an additional year to ramp to full production. Other manufacturing facilities can sometimes be brought online more quickly, but that depends on a host of factors, including finding good production sites and negotiating with state and local government. If the tariff situation with China continues to worsen, American consumers could be looking at years of higher prices before any US manufacturing begins picking up the slack, even in the best case. And while we’re not predicting that prices will rise by some uniform 25 percent, you’d be foolish not to plan your purchases with an eye towards the geopolitical situation that could make your next PC build much more expensive than you’d like.

Now Read: Trump’s Trade War With China Will Drive Up GPU Prices Again, Tariff War Casualty? America’s Largest Car Exporter Shifts Some Production to China, and SSD Prices Could Collapse in 2019