How Google Is Attempting to Protect Its Hardware Profit Margins
Moving production out of China
Google (GOOGL) is shifting the manufacturing of some of its hardware products outside China in an attempt to avoid tariffs and protect profit margin in its hardware business. According to a Bloomberg report, Google has accelerated shifting production of its Nest thermostats from China to Taiwan and Malaysia.
The American government has imposed import taxes of up to 25% on Chinese goods, thereby increasing costs and hurting margins for companies that produce America-bound goods in China.
Companies seeking to avert tariffs on Chinese goods
Besides Google, the other companies shifting production out of China because of the American tariffs on Chinese goods include action camera maker GoPro (GPRO) and videogame consoles maker Nintendo (NTDOF). GoPro has said it is moving production of America-bound cameras from China to Mexico with the company saying that the shift will insulate it from tariffs and allow it to make some cost-savings. As for Nintendo, the Wall Street Journal reported that the company is moving the manufacturing of its Switch videogame console from China to countries in Southeast Asia in an attempt to avert tariffs on Chinese goods entering the United States.
Nintendo is making the Switch production shift at a time when it anticipates increased competition from Microsoft (MSFT) and Sony (SNE), which are preparing to release new generations of their Xbox and PlayStation consoles, respectively.
Hardware revenue rose 23%
Google’s hardware business comprises the manufacture of smart thermostats, smart speakers, smartphones, and more. Google’s hardware sales are reported under the other revenues segment, which recorded a 23% YoY increase in revenue to $5.4 billion in the first quarter.