Companies should expect to pay more for networking gear as a result of the latest round of tariffs the Trump administration...
plans to impose on Chinese imports. The higher prices could cause as much as a 2% reduction in the growth of the U.S. network equipment market.
This week, President Donald Trump announced a 10% tariff, starting Sept. 24, on $200 billion in Chinese imports, including networking components and hardware. If the first duty isn't enough to draw a trade agreement from China, then the administration said it would raise the tax to 25% on Jan. 1.
Market analysts expect the Trump tariffs on China to spark a trade war that would increase the cost of supplies for U.S. networking manufacturers. As a result, "they will have to increase their average selling prices," said Rohit Mehra, an analyst at IDC.
Cisco, Juniper prepared to raise prices following Trump tariffs on China
Indeed, Cisco and Juniper Networks have already said tariffs on Chinese goods would lead to higher prices. In a Sept. 10 interview on CNBC, Cisco CEO Chuck Robbins said the company would have to adjust to the higher cost "through our pricing."
"If you look at what's happened with [higher] memory prices in technology, everybody passes those through. And I think this is the way most companies are going to have to deal with it," Robbins said.
In a Sept. 12 blog post, Juniper CFO Ken Miller said the company was "aggressively implementing mitigation measures to minimize the impact of such tariffs as much as possible."
"However, we intend to pass along any unmitigable portion of such tariff burden as additional import taxes to our customers for shipments into the U.S.," Miller said.
A spokesperson for each of the companies said this week their plans had not changed.
Ken MillerCFO, Juniper Networks
Since 2012, the Chinese network equipment manufacturing industry has grown 12% annually, according to market research firm IBISWorld, based in Los Angeles. This year, it is expected to reach $64 billion.
Higher prices for products headed to U.S. networking vendors will lead enterprises to buy less hardware and search for ways to get more out of the equipment they have. As a result, the tariffs could reduce growth in the U.S. network equipment market by as much as 2% in 2019, Mehra said.
However, Mehra cautioned that IDC won't know the actual impact of the Trump tariffs on China until they are in effect for a while.
"At this point, it's too early to know," he said.
Tariff mitigation through the supply chain
Experts are certain networking companies won't be able to make significant changes to their supply chains quickly to lessen the damage from the tariffs. Very few suppliers in other countries have the capacity of those in China, said Kamala Raman, a research director at Gartner.
To increase output, companies in other countries would have to hire and train staff and buy and install additional equipment -- processes that would take a year to 18 months, Raman said.
"China is definitely going to be dominant [in manufacturing] for the foreseeable future, simply because they are in such a dominant place today," she said.
Given the uncertainty over how long the tariffs will last, suppliers and networking vendors are likely to adjust gradually as the trade war unfolds.
"They probably won't implement anything very drastic too quickly, because we don't know if it will get worse or if it will actually go away," Raman said.