“If the tariffs continue for another month, we believe is it highly likely the supply chain will 'freeze up' given uncertainty, drastically lower order rates/inventory, and result in lower guidance across the board – similar to COVID,” Danely explained. However, there could be a “sharp rebound” once the supply chain and tariffs become more stable and predictable, also similar to COVID, he added.
Really? The semi supply chain may "freeze up" due to a 20% tariff (presumably levied on final products when imported into the USA). Does that make any sense?
Much of the supply chain goes to geographies other than the USA (lets say.....50%?), so there is no reason for that non-USA 50% to freeze up.
Then, if the 50% of the supply chain that is bound for the USA "freezes up" think of the collective losses which will occur due to that freeze up. Quite a lot of pontential income will be lost, as the supply chain wants as much throughput as possible to make money, and a "freeze up" leaves the supply chain with fixed expenses that don't have a corresponding profitable sale. It also significantly increases the chance of obsolete inventory as some older parts in the supply chain are constantly getting replaced by newer parts. Freezing up makes no sense from a supply chain or device maker perspective.
A vastly superior approach is to continue to have the supply chain pump out product as quickly as possible, pay the tariffs as they are incurred, determine whether to A) increase sales prices as a result of the tariff, B) decrease profits as a result of the manufacturer absorbing the tariff cost, or C) some combination of A and B.
Then, down the road, the supply chain can move product away from the USA, adjust end prices to account for the new tariffs, adjust volumes produced to account for decreased sales volumes if high prices slow sales, or something else.
The WORST option is just stop production altogether because because.....you're so confused. Stop production and boom you got expenses and no sales = you got losses. Keep production going, and deal with tariffs in real time sounds like a much smarter approach, and much more likely to be the choice of the supply chain. |
