Hardware Vendor Says Tariffs Raising Prices by Up to 10 Percent

(Image credit: William Potter/Shutterstock)

Tariffs the U.S. federal government imposed on certain products shipping from China in July and added to in August and September have left many wondering what this means for pricing of the myriad of PC components that ship to the U.S. from China. While there are hopes for a deal between the two countries, some in the IT industry, including custom hardware-maker MBX Systems, are already seeing an impact and preparing for even more fallout.

MBX is an international firm that makes hardware for a number of enterprise tech companies. It offers design engineering, manufacturing, imaging/testing, inventory management and global fulfillment services that help software companies, content delivery networks and cloud service providers (CSPs) deploy their tech on hardware. Its customers include AlienVault, Agilence, CA Technologies, FireEye, Masergy, ShoreTel, Unitrends and Vubiquity and others in cybersecurity, surveillance and storage, broadcast media streaming, flight simulation, medical equipment and more.

In October, MBX sent a letter to its ISV, OEM and CSP customers informing them of upcoming price increases announced by over 30 of MBX’s component suppliers, including Hewlett Packard Enterprise, Intel, Samsung, Seagate and Supermicro. Increases vary from supplier to supplier. But some are charging MBX an additional 10 percent. Others with components built partially in China are boosting prices by an average of six percent, and “some are burning through current inventory before charging us for the tariff,” MBX President Chris Tucker told Tom’s Hardware.

This, in turn, impacts what MBX must charge its own customers.

“A number of factors cause component pricing to fluctuate, for example, when new architecture is released or market conditions affect supply and demand. The tariffs are today’s factor influencing component prices and the main reason prices are increasing,” Tucker said.

While the tariffs relate to various server components including HDDs, SSDs, power supplies, CPU coolers, heat sinks, LED fans and chassis, Tucker told us MBX has seen the biggest impact on cables, video cards and desktop-grade motherboards, for which prices have increased approximately 10 percent.

“Some suppliers are not putting the squeeze on yet, but the proposed January 1 tariffs are wider reaching than the components currently affected. The potential consequences of the additional 15 percent, bumping the total burden of tariffs to 25 percent, will be of greater concern,” Tucker said.

MBX customers aren't just concerned about price increases, but also what this will do to their momentum.

“Renegotiating contracts and resetting pricing with their end users can take the wind out of the sails of their sales teams. In the current tariff situation, many of them are just absorbing the additional cost. However, that may change in January if the additional 15 percent tariff goes into effect,” he explained.

On MBX’s end, dealing with current and potential changes is eating up company time.

“The work has consumed hundreds of hours across many departments, including supply chain, engineering, finance and sales. There is no value-add to this, just lost opportunity where we could be focusing on other areas of the business,” Tucker said.

Managing Expectations

MBX isn’t increasing what it charges customers by a fixed amount. Instead, it is implementing price changes “gradually” and releasing them in batches to help minimize disruption, according to Tucker. In the meantime, it’s absorbing some of the increased costs on its own.

“Most customers knew what to expect and accepted it. Customers can see on their BOMs exactly what components are affected. Some global companies have supply chain policies regarding how price changes are presented and implemented, so those have required more advanced planning,” he said.

Another route MBX has taken is to look at transitioning some customers’ components to alternative products that are less impacted by the tariffs. Of course, that's only if doing so doesn’t take away from hardware or software performance.

In anticipation of the next potential tariff increase, MBX is also encouraging customers to forecast demand into January 2019 to procure inventory at current prices.

“For some of the U.S.-based suppliers we use with manufacturing in China, they can purchase and import their own products and resell them to us, reducing the tariff cost since the tariff is based on the original import cost. The tariff that’s passed through is lower than if we purchased direct,” he said.

Tucker noted that some large manufacturers with facilities in multiple countries, including Intel and Kingston, are shifting production away from China to alternate facilities to avoid the tariffs—and price increases—where they can.

Scharon Harding

Scharon Harding has a special affinity for gaming peripherals (especially monitors), laptops and virtual reality. Previously, she covered business technology, including hardware, software, cyber security, cloud and other IT happenings, at Channelnomics, with bylines at CRN UK.

  • elbert
    Sounds like a good time to switch vendors where possible. Many vendors are opening shop in other countries to offset costs so it shouldn't effect prices much.
  • frelledstl
    I guess this is what happens when you put a cheeto, who got his wealth by helping his Daddy commit tax fraud, in charge of the economy. I literally can't afford all this winning!!
  • ghostbit
    Liberals love taxes, so tariffs shouldn't be a big deal for most
  • Dark Lord of Tech
    Nice to see the tariffs , the USA has been getting ripped off for way too long.
  • frelledstl
    You two are funny and obviously don't understand economics. All these tariffs accomplish are hurting US consumers through higher priced goods, hurt US manufacturing by making parts and supply costs higher, and hurt our economic relationships with other countries causing them to align with our enemies. Having a trade deficit isn't necessary bad. In fact our trade deficit is driven more from the fact that the US is wealthy and we buy more goods because of that. Assuming that other countries are cheating us is simply letting xenophobic ideas drive economic decisions rather than numbers and facts. Assuming I am liberal because I think tariffs and the Orange Dictator are both stupid only shows that you are drinking the far right coolaid and are unable to reason for yourself not are you able to have adult conversation.
  • x_elusiv_x
    Whatever. The US is winning that trade war (look at the Yuan to US Dollar). The question is whether or not the Chinese can get over their pride and meet in the middle or whether or not they will just allow their economy to buckle. Im ok with higher costs. The job growth is the US is awesome...sorry, time for me to get back to work.
  • valeman2012
    21453258 said:
    Nice to see the tariffs , the USA has been getting ripped off for way too long.

    "Trumps Tariffs" going increase the prices on these computer parts (less users will buy) and small business (current and future) will not able to hold. Donald Trump will not succeed 2020 president term. Prepare for american to get less job openings.

    The Intel i9 9900K, currently cost around $575 and applying these unnecessary tariffs, the price probably going become more than $625.
  • USAFRet
    I understand this topic is partially politically related, but lets leave the personal political name calling out of it.

  • dudmont
    Wonder what the vendor would say about prices, if we take into account for the costs of China's IP theft!? Pretty sure that one hasn't been completely calculated. Perhaps it's not as sexy a topic(or doesn't paint a certain US President in a bad light and thus can be ignored).
  • Dark Lord of Tech
    Tariffs take awhile to bloom into their full positive result. A genius businessman leading this country knows this. It will eventually be a win \ win situation!!!!!!!!!!!