Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Locked Podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, this has come up on the podcast. But one
Speaker 2: of the things with the tariffs is I still think
Speaker 2: for the most part, people are talking about them from
Speaker 2: like a fiscal standpoint, which is, Okay, prices are going
Speaker 2: to go up, What is that due to inflation? What
Speaker 2: does that due to sales? What is that due to employment?
Speaker 2: And less about the potential for like actual economic chaos
Speaker 2: because something isn't getting to somewhere else that.
Speaker 4: It needs to be.
Speaker 3: You want to go more micro instead of the macro.
Speaker 4: Yeah, okay, I'm good with that.
Speaker 2: We can talk to economists all day and they all
Speaker 2: have their estimates, et cetera. But you know, there's a limit.
Speaker 3: To you know, I think we should so one of
Speaker 3: the things we obviously learned during the pandemic is like,
Speaker 3: real things exist in the world, and they have to
Speaker 3: come from someplace where they're made and be shipped over
Speaker 3: and if there are disruptions, then those can snowball in
Speaker 3: quite a big way. And there's one product in particular
Speaker 3: that I think kind of embodies a lot of what
Speaker 3: we talk about when it comes to tariffs and manufacturing
Speaker 3: and disruptions, and that's computers right totally. And if you
Speaker 3: look at one of those supply chain graphics for computers,
Speaker 3: it's just a bunch of lines crisscrossing the world, basically,
Speaker 3: like the raw materials coming from Africa or South America
Speaker 3: going over to China, and then chips being made in Taiwan,
Speaker 3: and then all of those components heading over to the
Speaker 3: US where they're put together. It is extremely complex, and again,
Speaker 3: like you look at it on a map, it just
Speaker 3: looks like a spider web.
Speaker 2: It's a total spider web, because then the chips get made,
Speaker 2: and then they go to Malaysia for packaging, and then
Speaker 2: they go back to somewhere I skipped up. I think
Speaker 2: a lot of people like this idea of reshoring more tech,
Speaker 2: and that's obvious. We saw it during the Biden administration
Speaker 2: and various efforts on chips et cetera. But it certainly
Speaker 2: can't be done overnight. Certainly, And you know again because
Speaker 2: as you say, it's this such intense spider web, you know,
Speaker 2: it's not even as simple as like, oh, let's move
Speaker 2: it from China to the US or something like that.
Speaker 4: It's just so.
Speaker 2: Many different links and parts of what's assembly and packaging
Speaker 2: and components and all that, et cetera, that you're going
Speaker 2: to announce a new set of tariffs one day and
Speaker 2: then an industry will just like digest those tariffs and
Speaker 2: then you.
Speaker 3: Know, put them up a US factory the next day, or.
Speaker 2: Put a little markup on it. It's like, okay, you
Speaker 2: know whatever, here's the tariff raid. It is twenty five percent.
Speaker 2: You know, add twenty five percent to what we sell,
Speaker 2: to the selling price. Like the idea that it could
Speaker 2: be that simple is uh kind of unrealistic.
Speaker 3: We should talk about it. Let's get granular, Okay.
Speaker 2: So I am very excited. We are going to be
Speaker 2: speaking with Steve Burke. He's the editor in chief of
Speaker 2: a publication YouTube channel, et cetera called Gamers Nexus. They
Speaker 2: do a lot of technical coverage of computer hardware, et cetera,
Speaker 2: which is a world that I basically know nothing about.
Speaker 4: I don't know much about gaming.
Speaker 2: I know that gamers, you know, they buy their own chairs,
Speaker 2: and they buy their own speakers, and they buy you know,
Speaker 2: decked out cooling towers. So that they could play, you know,
Speaker 2: super high speed. But I really don't know much about it.
Speaker 2: But Steve and his team at Gamers and Nexus about
Speaker 2: a week ago, actually two weeks ago, I think it
Speaker 2: was April fourteenth, put out an insane documentary, three hour
Speaker 2: long documentary on YouTube called the Death of Affordable Computing
Speaker 2: and the tariffs impact on the world of gaming Hardware.
Speaker 2: It's a truly extraordinary piece of journalism, and we wanted
Speaker 2: to talk to the creator behind it and what he
Speaker 2: did and what he learned. So Steve Burke, thank you
Speaker 2: so much for coming on Odd Lots.
Speaker 4: Oh thanks for having me. Yeah, I'm excited.
Speaker 2: When Tracy and I do an episode of the podcast
Speaker 2: talk about terriffs. We're worried that it's going to be
Speaker 2: out of date and irrelevant by the very next day.
Speaker 2: And that's just like a forty minute conversation sometimes with
Speaker 2: like one economist. Just tell us, how did you quickly,
Speaker 2: within basically twelve days of quote liberation day unquote, put
Speaker 2: together and what did you put together this three hour
Speaker 2: documentary about this world of computer hardware, gaming hardware? What
Speaker 2: is what was this project?
Speaker 4: It was fun, I mean, it was born from chaos
Speaker 4: and so for us, the moment we pulled the trigger
Speaker 4: on it was when the use the formal name, the
Speaker 4: reciprocal traps as they are called, were put in place.
Speaker 4: And so basically immediately as soon as that happened, I
Speaker 4: called a bunch of companies I worked with over the
Speaker 4: last sixteen years and everybody was ready to go on record,
Speaker 4: which is very rare, as I'm sure you all know,
Speaker 4: and we booked the flights for twelve hours from that moment.
Speaker 4: Wow got on the plane without a return flight and
Speaker 4: just went out and started talking to people. So it
Speaker 4: was a The underlying concern of this will all be
Speaker 4: out of date was definitely there. Our approach to that was,
Speaker 4: if we tackle this story in a way where it's
Speaker 4: partly about that, if it's about the uncertainty and about
Speaker 4: the story of getting the story, that resolves some of
Speaker 4: those concerns, because then what you're capturing at least is
Speaker 4: the sort of real feelings and the real decision making
Speaker 4: that these companies are doing at any given moment.
Speaker 3: Yeah, and at the very least people will learn about
Speaker 3: the supply chain of PCs, so you always have that
Speaker 3: aspect of it. It seemed like people and again you
Speaker 3: spoke to dozens of companies here, but it seemed like
Speaker 3: people really wanted to talk about all of this, and
Speaker 3: in fact, I think you got some like competitors all
Speaker 3: together in a room to have a conversation about how
Speaker 3: they were all thinking and dealing with potential tariffs.
Speaker 4: That's right.
Speaker 3: People want to come on and talk about this, which
Speaker 3: really highlights the urgency here.
Speaker 4: Yeah, So the biggest challenge that a lot of them
Speaker 4: are facing is I think they're concerned about what the
Speaker 4: consumer perception will be as prices go up or as
Speaker 4: stock drives out. And there's good reason for that. I mean,
Speaker 4: consumers absolutely are are kind of Number one coverage angle
Speaker 4: is his cynicism. You know, it's being really critical of
Speaker 4: what the companies are saying at a given point. This
Speaker 4: was an interesting scenario though, where the price increases are
Speaker 4: functionally guaranteed in this industry, and I think what the
Speaker 4: companies we're worried about is if we're not transparent right
Speaker 4: now when we have this opportunity, then people won't necessarily
Speaker 4: believe us when we explain why the prices went up.
Speaker 4: And you know, consumers, to be clear, should still remain
Speaker 4: cynical to a healthy degree, but but should also be
Speaker 4: aware that there are real world impacts you know, from
Speaker 4: these decisions that are much bigger than any of the companies.
Speaker 2: So no, that actually makes a ton of sense. Why
Speaker 2: it would be strategic for these companies to talk about
Speaker 2: the real impact so that when they raise the price
Speaker 2: of whatever, that people understand. Why but actually talk about this,
Speaker 2: setting aside the tariffs, what is this industry? Talk to
Speaker 2: us about the existing gamer hardware industry that you set
Speaker 2: out to describe.
Speaker 4: In this documentary.
Speaker 2: Oh sure, who are these players? And like where do
Speaker 2: they sit? And you know, what do they sell? What
Speaker 2: kind of products? You know, give us an overview of it.
Speaker 4: Yeah, So I think the most important thing for anyone
Speaker 4: who doesn't pay close attention to it is to be
Speaker 4: aware that computer gaming hardware is used in workstations and
Speaker 4: scientific computing around the world. So companies that everyone in
Speaker 4: your audience would already be aware of, like Nvidia, Intel,
Speaker 4: AMD so forth, all the stuff they make for scientific
Speaker 4: computing and AI and data center, a lot of that
Speaker 4: stuff also exists in some capacity in gaming, and it's
Speaker 4: it's potentially the same supply as in the same way
Speaker 4: for supply. If it's silicon or shares at least the
Speaker 4: architecture of whatever that generation of product is using. And
Speaker 4: so there's a lot of crossover. And what that means
Speaker 4: is that these multiple technology industries all sort of prop
Speaker 4: each other up. You get economies of scale across them.
Speaker 4: Because if you're making the wafer that can be used
Speaker 4: in a data center card and can also be used
Speaker 4: in a gaming card, right, the company has some more
Speaker 4: strategic levers to pull for where do they want this
Speaker 4: particular chip to go, Which market has demand, has one
Speaker 4: dried up, they can move that supply over to something
Speaker 4: else and market up more if it's has good yield.
Speaker 4: So it's a huge industry. And then as far as gaming,
Speaker 4: I don't have the exact numbers off the top of
Speaker 4: my head anymore, but not too long ago we received
Speaker 4: a press briefing from one of the big three, Intel
Speaker 4: and Video or AMD, I don't remember which, but talk
Speaker 4: about the sort of worldwide gaming audience PC gaming depend
Speaker 4: on who you look at, it's anywhere in the very
Speaker 4: high hundreds of millions to the low billions of individuals
Speaker 4: who do some form of PC gaming. So it's a
Speaker 4: huge industry.
Speaker 3: So you know, Joe's first question was about all the
Speaker 3: uncertainty over the tariffs themselves and the fact that we
Speaker 3: don't know what's going to happen tomorrow, maybe there's another announcement,
Speaker 3: and then maybe the day after there's some backtracking on it.
Speaker 3: It seems really difficult to plan for tariffs coming in
Speaker 3: when you don't even know what exactly they're going to
Speaker 3: look like, or you know when they might actually be
Speaker 3: phased in. What were companies actually saying about their plans
Speaker 3: for handling this so far?
Speaker 4: So the plans are interesting. The number one thing they
Speaker 4: were telling us is that it's difficult to plan when
Speaker 4: the plan potentially changes on a daily basis. So a
Speaker 4: number of the companies we spoke with, including an Austin,
Speaker 4: Texas based repair shop run by a guy named Lewis
Speaker 4: Rossman who's kind of well known for Right to Repair
Speaker 4: Course Air, which is a huge publicly traded company, so
Speaker 4: like you have this huge range, and generally speaking, the
Speaker 4: message we received was we can deal with a high tariff,
Speaker 4: what we can't deal with is uncertainty. So I don't
Speaker 4: know if the timelines are maybe interesting for people, but
Speaker 4: just to give an idea for things without even getting
Speaker 4: into the discussion of where is the thing made, The
Speaker 4: question of how long does it take to make the
Speaker 4: thing is maybe kind of colors you know, where their
Speaker 4: strategic decision making is coming from. So a silicon wafer
Speaker 4: takes maybe about three months to produce, assuming they don't
Speaker 4: run a hot lot, and so that's just to kind
Speaker 4: of make the wafer. It might be an EID or
Speaker 4: a twelve inch wafer that then contains all the silicon
Speaker 4: that eventually goes into a computer. So wafer is just
Speaker 4: a disc, right, It looks like a CD basically, and
Speaker 4: they pattern the silicon on it in a fab. So
Speaker 4: Intel has fabs they're building some of the US as
Speaker 4: an example, and they then dice that they send it
Speaker 4: out to packaging to test to eventually turn into a
Speaker 4: finished CPU or GPU that goes on a board and
Speaker 4: gets put in a computer. Just to make the wafer,
Speaker 4: it's about three months. And so when you're making decisions
Speaker 4: that involve macroeconomics, not that I'm not an expert on
Speaker 4: that part of it, but you could imagine that it
Speaker 4: would be very difficult right to plan how many of
Speaker 4: these things you might need. And that's just one part
Speaker 4: the computer cases are typically twelve to eighteen months counting
Speaker 4: the design stage to get through mass production. The actual
Speaker 4: mass production part of it, they might order about four
Speaker 4: to maybe six months in advance of when they need
Speaker 4: the parts, depending on where Chinese New Year falls in
Speaker 4: that window. And so these types of numbers I think
Speaker 4: probably you know, give a better indication as to why
Speaker 4: it's so difficult to project, because the decisions they're making
Speaker 4: now are based off of inventory they placed orders for
Speaker 4: at the end of last year.
Speaker 2: You know, I've never been a PC gamer, or really
Speaker 2: a gamer of any sort. When I think about computers,
Speaker 2: you know, have a I have a Macus or you know,
Speaker 2: some laptop, I forget which one, and I run my
Speaker 2: Bloomberg terminal on a computer made by Hewlett Packard or
Speaker 2: and I think I have a webcam, probably made by Logitech.
Speaker 2: When we're talking about the world of the hardware that
Speaker 2: you cover, what does the constellation look like of different
Speaker 2: players and what the role that they play, Because yeah,
Speaker 2: again I'm familiar with Intel, AMD and Video and some
Speaker 2: of the popular consumer facing names. But who are the
Speaker 2: big names and what do they do that a hardcore
Speaker 2: PC gamer would.
Speaker 4: Be thinking about. Yeah, there's a ton of them, so
Speaker 4: as you've probably heard of. That's how I'm familiar, I think,
Speaker 4: so yeah, yeah, yeah. So there's companies like Asus as
Speaker 4: an example, which is one of the larger ones, and
Speaker 4: they did just about everything, so they all symbol computers.
Speaker 4: They also make motherboards. There's some scare quotes around that
Speaker 4: make I'll maybe come back to, and they make video
Speaker 4: cards all this sort of type of thing. Laptops. MSI
Speaker 4: is another one. Course, Seria is huge. So these three
Speaker 4: have just named they're all massive in the space. They're
Speaker 4: billion dollar companies. You also have hundreds of smaller ones.
Speaker 4: So just to ratle off a few, but Cooler Master,
Speaker 4: Height Crucial is actually larger, owned by Micron, and you
Speaker 4: get into peripherals like LG is probably well known, but
Speaker 4: then some of their competitors are probably less known in
Speaker 4: the space. So to list off a couple like internal
Speaker 4: component manufacturers. Just for cooling a loane, you have a
Speaker 4: company's named Thermal right, Thermal take, There's cooler Master. There's
Speaker 4: a company called be Quiet Deep Cool, which is no
Speaker 4: longer allowed to be sold in the US, which is
Speaker 4: a different interesting story. Nocta is another huge one. So
Speaker 4: they're all very important, but probably by and large the
Speaker 4: way people know about them, if at all, is because
Speaker 4: those parts that these companies make are put in the
Speaker 4: pre built machines from a company like CyberPower, Ibypower, Dell HP.
Speaker 4: And actually there's especially relating to the tariffs. There's something
Speaker 4: really interesting that I didn't put in that video, and
Speaker 4: I was thinking about it. So, factory relationships are an
Speaker 4: interesting web in this industry where a lot of the
Speaker 4: factories they're not owned by the manufacturers. So when we
Speaker 4: talk about a brand, yeah like Height, Yeah, so Height
Speaker 4: makes computer cases, coolers, keyboards. They don't actually own the factories,
Speaker 4: but they work with them. And so there's contract manufacturing,
Speaker 4: which is true in most industries. But what's interesting in
Speaker 4: this one is those contract factories often are self branded
Speaker 4: manufacturers as well, so they're competitors of their own customers.
Speaker 4: A great example of this would be deep Cool. Have
Speaker 4: you ever Did you ever hear Deep Cool? I don't
Speaker 4: think so. Okay, So long story short, Deep Cole got
Speaker 4: banned from the US, and that happened last year, but
Speaker 4: there's still a good example for this. Deep Cool owns
Speaker 4: factories in China. They do contract manufacturing, and they also
Speaker 4: are a self branded company and the US they're no
Speaker 4: longer sold that they were pretty big here. Deep Cool also,
Speaker 4: I haven't stated this publicly, but it's known. I've been
Speaker 4: in their factory, We've done videos. But what I haven't
Speaker 4: said publicly is that they make products for a company
Speaker 4: called be Quiet, which is a German based manufacturer. They
Speaker 4: designed cooling components and cases and things like that, and
Speaker 4: so some of their products in the past were made
Speaker 4: by Deep Cool. Deep Cool is a competitor to be Quiet.
Speaker 4: So these two companies that one sources from the other,
Speaker 4: but they fight each other in the marketplace. And to
Speaker 4: be clear, today I'm not sure if be Quiet so
Speaker 4: they use is Deep Cool because of the US band.
Speaker 4: But that's not important for this. What's important is that
Speaker 4: where we have these tariffs coming into play, the factories
Speaker 4: that are supplying their customers. I think the read I'm
Speaker 4: getting is that they have more room to cut margin
Speaker 4: or keep prices suppressed because there's not that middleman step.
Speaker 4: So I think you're going to see this really interesting
Speaker 4: thing to happen where some of these companies we spoke to,
Speaker 4: including Cooler Master in the documentary Cooler Master's bringing in
Speaker 4: four thousand pallets of computer hardware goods, which is an
Speaker 4: absurd amount of stuff. And if they bring those in,
Speaker 4: as other companies are kind of scared away from it,
Speaker 4: there's going to be a sort of a vacuum forming
Speaker 4: in the market, and depending on consumer confidence and purchasing,
Speaker 4: they either end up filling that void where people can't
Speaker 4: get other components, or if there's a price war later
Speaker 4: because there's too much stuff that people brought in, then
Speaker 4: the companies that are the factories I think would have
Speaker 4: more room to fight on price.
Speaker 2: By the way, Tracy, so it looks like Deep Cool.
Speaker 2: It's a Beijing based company and they got banned from
Speaker 2: the US for the business dealing various business dealings in Russia.
Speaker 3: So just a little thank you, thank you Joe for
Speaker 3: the context. Actually this reminds me so one thing I
Speaker 3: wanted to ask is did you observe, I guess, any
Speaker 3: differences between the larger companies that you spoke to and
Speaker 3: the smaller companies, because I imagine, just on the factory's point,
Speaker 3: the big guys probably have like solid relationships with their manufacturers,
Speaker 3: and they probably have some ability to set prices or
Speaker 3: negotiate prices with suppliers, whereas the little guys maybe they
Speaker 3: don't have you know, as much room or as much
Speaker 3: market power to try to negotiate on prices. Was there
Speaker 3: much difference between the big and the small here?
Speaker 4: Oh yeah, yeah, the biggest difference was the ability to
Speaker 4: move production all squere So some of these companies are
Speaker 4: moving production to Vietnam, Thailand and other countries, mostly in Asia.
Speaker 4: Sort of what we're seeing right now is that the
Speaker 4: largest of the companies that either can build their own
Speaker 4: factory or more likely just have a lot of leverage
Speaker 4: with their suppliers, maybe they're the biggest customer of the factory,
Speaker 4: they've been encouraging either existing factories that they work with
Speaker 4: to open in other countries or they've been going to
Speaker 4: factories in those other countries. So specifically in this industry, Vietnam, Thailand, Malaysia, Singapore,
Speaker 4: and Taiwan are all pretty well tooled up. They already
Speaker 4: have factories. They might be able to absorb some of
Speaker 4: the excess billing out of China if companies are trying
Speaker 4: to move their production. What wasn't on the list from
Speaker 4: anybody that I spoke to was the US. So not
Speaker 4: one of them said they're going to try and build
Speaker 4: a factory in the US. But what was interesting is
Speaker 4: that even those which can success, we move manufacturing out
Speaker 4: of China and to say Vietnam indicated and expected thirty
Speaker 4: to thirty five percent increase in their cost just from
Speaker 4: the inefficiency, meaning that the lack of skilled manufacturing engineers
Speaker 4: and the lack of pipeline maturity and the lack of
Speaker 4: supply chain in that area will add overhead and as before,
Speaker 4: potential tariffs on those countries. So the small companies, they
Speaker 4: don't have the negotiating power. It's very difficult to get
Speaker 4: a factory to make a highly complicated commodity product like
Speaker 4: a computer case with all these special bends and LCD
Speaker 4: panels and specially crafted fans and things like that. It's
Speaker 4: hard to get a factory to do already. But to
Speaker 4: then try and do it in a country where there
Speaker 4: isn't necessarily the existing know how to do it or
Speaker 4: the existing tooling to do it is basically an impossible
Speaker 4: ask for a smaller company where they just don't have
Speaker 4: the leverage, they don't have anything to offer, versus a
Speaker 4: large company.
Speaker 2: I have to mention also that like a large company
Speaker 2: presumably has customers outside of the US, and so many
Speaker 2: of them prior to some extent, large swaths of their
Speaker 2: business might not be affected by tariff. Square is like
Speaker 2: a small, specifically US based company, you know. That's that's
Speaker 2: the whole thing.
Speaker 4: Yeah, And that's an excellent point because one of the
Speaker 4: things we ran into. You're talking about competitors being in
Speaker 4: the room in the video we shot. Yeah, So one
Speaker 4: of them. There's two companies. There's CyberPower and iy Power.
Speaker 4: They're both in southern California, and they're actually basically on
Speaker 4: the same street. Despite both having power in the name,
Speaker 4: they are not related, and they both started around the
Speaker 4: same time in the late nineties. But one of them
Speaker 4: remained basically entirely focused on the US, and that's CyberPower PC.
Speaker 4: The other one Ibypower, although their pre built PCs are
Speaker 4: mostly focused on the US. They own a brand that's
Speaker 4: called Height, which makes computer cases. And so this brand,
Speaker 4: because it designs other components, it's successfully been able to
Speaker 4: get into other markets worldwide. And this is a story
Speaker 4: that's true for a lot of companies in the industry.
Speaker 4: And so what they were telling us they thought was
Speaker 4: really interesting was they're in this position where they don't
Speaker 4: need to ship into the US anymore, and in fact
Speaker 4: they decided not to and the reason for that was
Speaker 4: the cost is too high, so it made more sense
Speaker 4: for them to ship the goods elsewhere. So it might
Speaker 4: hit the port in la but they might instruct the
Speaker 4: forwarder to keep it on the vessel and send it
Speaker 4: around again somewhere else. So what they're doing right now
Speaker 4: is actually the product director in that video we spoke
Speaker 4: with Rob Teller. He flew out to some other countries
Speaker 4: and started trying to establish relationships to build the brand
Speaker 4: and retailers outside of the US, whereas CyberPower coming back
Speaker 4: to them. They really only sell to the US, but
Speaker 4: they also assemble one percent of their computers in the US,
Speaker 4: so they kind of get screwed in a way where
Speaker 4: they don't have these external markets like you're talking about,
Speaker 4: and they assemble it all here, but they don't make
Speaker 4: the stuff that they put in the computer, so they
Speaker 4: don't really have control over where it comes from. So
Speaker 4: getting back to the company size disparity, you can wish
Speaker 4: as much as you want that it comes from a
Speaker 4: country with a lower tariff, or maybe even comes from
Speaker 4: the same country you're in, but if you don't make it,
Speaker 4: you don't really have any control over that.
Speaker 3: Yeah, And of course there's an irony that the company
Speaker 3: which actually assembles stuff in the US is getting punished
Speaker 3: more than more than some other companies. There's another business
Speaker 3: that I wanted to ask you about specifically, and it
Speaker 3: is a logistics company that people use to actually, you know,
Speaker 3: transport stuff. It's called Straightforwarding, which is a great name
Speaker 3: for like a male company. But what are they see
Speaker 3: right now in terms of actual shipping volumes.
Speaker 4: So when we were talking to them, it would have
Speaker 4: been probably second week of April, I think, and what
Speaker 4: they were starting to see is that customers were indicating
Speaker 4: concern of the tariff. So this is just to put
Speaker 4: into perspective. The time I spoke to them, it was
Speaker 4: one day before the exemptions were announced, and therefore two
Speaker 4: days before the exemptions were kind of unannounced.
Speaker 2: I remember that weekend, yeah, yeah.
Speaker 4: Yeah, yeah, And then it was a day or two
Speaker 4: after the most recent round of tariffs, and so that
Speaker 4: at that time the highest general tariff. Of course, it's
Speaker 4: different depending on the classification of the good. The highest
Speaker 4: general I think they quoted at one hundred and seventy
Speaker 4: percent depending on how you count the previous administration. So
Speaker 4: what they were seeing was a lot of customer I mean,
Speaker 4: he just confirmed panic was the word I used, and
Speaker 4: he confirmed that word where they're customers were panicked about
Speaker 4: the pricing and about the uncertainty of what's the tariff
Speaker 4: going to be and if it goes away, can we
Speaker 4: get a refund? As far as shipment volume. In the
Speaker 4: time since talking to them, there's been a reduction of
Speaker 4: volume into the port in LA in particular. I think
Speaker 4: I actually saw a Bloomberg report about that, So you're
Speaker 4: probably more informed than I am on the specifics of it,
Speaker 4: but I think I read there was a year over
Speaker 4: year reduction anticipated for next week of correct me if
Speaker 4: I'm wrong with something like thirty five percent. Does that
Speaker 4: sound right?
Speaker 2: It sounds yeah.
Speaker 4: Yeah, So I think that's the number I read this morning. Anyway,
Speaker 4: what they're seeing is potential reduction and import which means
Speaker 4: reduction need for people who do that job, and you know, couriers,
Speaker 4: anyone in that whole chain warehousing. There's a ton of
Speaker 4: warehousing in City of Industry in California, and they're going
Speaker 4: to be impacted for.
Speaker 2: Sure, stepping back, even sitting aside the tariffs, what are
Speaker 2: gamers looking for when they buy, Whether it's say a tower,
Speaker 2: like you know, I know, there's some part of its design,
Speaker 2: and then cooling I imagine sort of keeps it alive
Speaker 2: and healthy. For high quality cooling keeps it alive. And
Speaker 2: then there's purely you know, high performance gear for the
Speaker 2: best gaming experience. Like what does your viewer, what do
Speaker 2: they want and what are they benchmarking various options against
Speaker 2: each other on what specs?
Speaker 1: Sure?
Speaker 4: Yeah, so our viewers tend to build their own computers,
Speaker 4: so you call it DIY right through it yourself PC
Speaker 4: building and for anyone who hasn't done it, it's really fun.
Speaker 4: It's pretty easy. It's like putting together legos, except with
Speaker 4: way fewer pieces. But typically a shop first, based you
Speaker 4: say your budget, you have an idea of what you
Speaker 4: might want to spend. The first two components people are
Speaker 4: pricing out are normally the CPU and the GPU. Those
Speaker 4: drive the performance of the computer. So a lot of
Speaker 4: people in our audience will work on the same computer
Speaker 4: they game on. So those users might be using something
Speaker 4: like Adobe Audition, which I just learned you all use
Speaker 4: for this podcast or Adobe premiere or a photoshop and
Speaker 4: so like just these three Adobe solutions alone depend which
Speaker 4: one it is, they could be very CPU or very
Speaker 4: GPU intensive, and the same is true for gaming, so
Speaker 4: people tend to speck out the GPU and the CPU first,
Speaker 4: something like cooling. I guess to name the components. There's
Speaker 4: cooling for the CPU, there's a case, power supply, motherboard, RAM,
Speaker 4: and typically a solid state storage device or an SSD.
Speaker 4: And so these are the core components. The ones that
Speaker 4: are more commodities would include the case potentially the cooling
Speaker 4: or what people are starting to go for if they
Speaker 4: have a little more budget is some kind of looks focus.
Speaker 4: So I mean, you can make computers look really cool
Speaker 4: these days, and yeah, and so there's a lot of
Speaker 4: that too, where it's it's all I mean, it's really
Speaker 4: not that different in concept from car customization, where there's
Speaker 4: people who want performance and there's people who want fashion, right,
Speaker 4: and then there's people who want both, and there's the
Speaker 4: ones who spend the most money on it. But yeah,
Speaker 4: generally speaking, what they're looking for is a high frame
Speaker 4: rate to make the gaming experience feel fluid. They want
Speaker 4: to be able to render the graphics at the highest
Speaker 4: quality settings with the most polygons and geometry and the graphics.
Speaker 4: And if they do work on the side, then they're
Speaker 4: trying to balance the parts within the system, meaning they
Speaker 4: want to evenly distribute the money in a way that
Speaker 4: optimizes for what each application wants so that they can
Speaker 4: run those outside applications that might be core intensive versus
Speaker 4: say memory intensive or something.
Speaker 3: Joe, do you remember that old show Pimped My Ride, Yeah,
Speaker 3: where they did make yeah, we need to like pimp
Speaker 3: my computer kind of thing where the Yeah, I would
Speaker 3: I would actually watch.
Speaker 4: Yeah, I could watch. There was. There is a another
Speaker 4: YouTuber in the space, Jay's two Cents, who basically did
Speaker 4: that for Terry Crews. Actually hasn't the actor? Yeah, yeah,
Speaker 4: it built them a game in PC.
Speaker 3: Very cool. Talk to us a little bit more about pricing,
Speaker 3: because it sounds like everyone agrees that the tariffs are
Speaker 3: going to be the cost is going to be borne
Speaker 3: by the American consumer, and so prices are going to
Speaker 3: have to come up. But also when we're talking about
Speaker 3: tariffs that are almost you know, two hundred percent in
Speaker 3: some cases, it feels like that is such a significant
Speaker 3: increase that You're also going to see volumes fall and
Speaker 3: demand destruction, which normally would pull prices down, but I
Speaker 3: guess everything is just so different this time. It's it's
Speaker 3: kind of hard to gauge what's actually going to happen
Speaker 3: to prices and how companies are actually dealing with that.
Speaker 4: Yeah, I think it could pull prices down eventually in
Speaker 4: the short term, though, I mean, if their options are
Speaker 4: losing hundreds of dollars per device or letting it sit
Speaker 4: on a shelf, I think right now there's not enough
Speaker 4: pain to well for most of them anyway to take
Speaker 4: that hit just to liquidate whatever they can. So pricing,
Speaker 4: I think it's pretty safe to say it's going to
Speaker 4: go up. They've told us as much, most of these companies,
Speaker 4: and yeah, I think what we're going to see happen
Speaker 4: is an initially increasing price for the companies that are
Speaker 4: still bringing products to the US, because not all of
Speaker 4: them are, and as the tariffs change, I mean, if
Speaker 4: they come down. This is a personal opinion, but I
Speaker 4: don't think the prices are going to come down in
Speaker 4: step with a tariff's production, at least not without some
Speaker 4: kind of really severe market force, such as people just
Speaker 4: stop buying stuff because I just don't see a reason
Speaker 4: the companies would do that. They're going to have inventory
Speaker 4: where they already paid import costs. Maybe they can get
Speaker 4: a government refund, maybe they can't. They are worried about
Speaker 4: the decrease and the value of their money, and they
Speaker 4: may also just feel like they need to shore up
Speaker 4: more profit, you know, to be a little safer. So
Speaker 4: I really don't see pricing coming down anytime soon unless
Speaker 4: there's just there's zero demand left and they get desperate.
Speaker 4: But in terms of increases, so it's not linear. So
Speaker 4: this is pretty interesting where one of the things I
Speaker 4: learned talking to the companies was about the retail side.
Speaker 4: I knew nothing about how this worked before. And retailers,
Speaker 4: so one of the biggest ones in the US is Microcenter,
Speaker 4: and they are like a highly specialized best buy. I mean,
Speaker 4: if you do DIYPC building, they're your number one physical choice.
Speaker 4: The etailers would be like New Egg or Amazon. And
Speaker 4: what we learned is that some of these retailers, like Microcenter,
Speaker 4: have very rigid margin demand, and so for computer cases,
Speaker 4: for some of the companies we spoke to, the margin
Speaker 4: demand is about twenty five percent and that means these
Speaker 4: case manufacturers are often making less than just in terms
Speaker 4: of percentage or even dollar amount, especially if they want
Speaker 4: to get microcenter shelf space. Correct. Yeah, okay, yeah, so
Speaker 4: that secures the shelf space. And I think under typical conditions.
Speaker 4: I've had companies bad mouth retailers to me privately before
Speaker 4: and ask us to keep it off record or not
Speaker 4: share it at all. I've never had them on camera
Speaker 4: just straight up say you know, the retailers are making
Speaker 4: more money than us, and then express their discontent at
Speaker 4: retailers being unwilling to budge on their own margin requirements. Interestingly,
Speaker 4: what they told us was that Amazon was a little
Speaker 4: more willing to have some flexibility, which maybe they're just
Speaker 4: big enough, right, they have enough categories where they can
Speaker 4: it might be an opportunity for Amazon to try and
Speaker 4: soak some of that supply from these smaller retailers. But
Speaker 4: the question is if a three hundred and sixty dollars
Speaker 4: computer case that has all these bells and whistles now
Speaker 4: has to be sold for six hundred to seven hundred dollars,
Speaker 4: which is what the companies were telling us as an example,
Speaker 4: will a consumer actually pay for that? And when they
Speaker 4: don't what happens at retail, is it? You know, I've
Speaker 4: seen plenty of headlines about empty shelves. I really don't
Speaker 4: think that's just hyperbole. I think there's real chance of that,
Speaker 4: especially in niche industries like this one.
Speaker 2: Yeah, so get you know, Let's say, you know, my
Speaker 2: son isn't old enough yet, thankfully to be a hardcore gamer,
Speaker 2: but it's probably a matter of years because I see
Speaker 2: how much he like screens of all sorts.
Speaker 3: I wonder where he gets that from.
Speaker 4: Yeah, right, right, it's my It is my fault.
Speaker 2: But let's say, you know, I you know, it's later
Speaker 2: in the year and I'm like, okay, I want to
Speaker 2: buy him a Christmas present for the gamer in your
Speaker 2: family or in anyone's family. What do you think this
Speaker 2: Christmas looks like in terms of higher prices and diminished
Speaker 2: variety of options?
Speaker 4: Yeah, the reduced variety is a big one, because if
Speaker 4: you're consolidating your order volume, you're reducing your order volume,
Speaker 4: you might have to consolidate the skews, right, so suddenly
Speaker 4: the fifteen hundred units of red become fifteen hundred more
Speaker 4: units of black computer cases, and so that definitely would
Speaker 4: reduce I think the choice, or at least the variety,
Speaker 4: like you're saying pricing. I mean, if someone really as reviewers,
Speaker 4: our recommendation right now to the consumer very focused on
Speaker 4: sort of consumer first, And to me it's like, I
Speaker 4: wouldn't buy unless I know I really want the upgrade
Speaker 4: or need it, maybe for work or just the computers
Speaker 4: on its last legs. And if I were going to buy,
Speaker 4: it would probably be now. But I think the greater
Speaker 4: thing to consider there, at least in our recommendations, is
Speaker 4: trying to remind people of hey, you know, if you're
Speaker 4: not so sure about your job prospects, then it and
Speaker 4: you really don't need it, then maybe hold onto the money,
Speaker 4: which none of the companies want to hear us say,
Speaker 4: but you know that's I think that's probably the responsible
Speaker 4: thing to say. For Christmas or holidays. Yeah, I I
Speaker 4: would imagine there'll be some pain, I think the lower end.
Speaker 4: So here's where it gets interesting. The lower end components
Speaker 4: would typically be where people would be directed in a
Speaker 4: time like that, if prices are coming up, you go
Speaker 4: for lower end. A percent increase on a cheaper product
Speaker 4: doesn't feel as bad as a percent increase on an
Speaker 4: expensive product just by the math of it. The problem
Speaker 4: is right now, there's not a lot of cheap products
Speaker 4: silicon in the gaming or the consumer space, So if
Speaker 4: you want.
Speaker 2: Why allocate silicon capacity when you could be selling to
Speaker 2: AI data centers anyway? Sorry, keep going.
Speaker 4: Exactly No, I mean that's exactly right. Yeah, it's and
Speaker 4: like Intel, for example, with its GPUs, they have a
Speaker 4: small GPU effort and consumer they've been pushing. One of
Speaker 4: the people at Intel stated to me in the past,
Speaker 4: we should be wrapping these and dollar bills when we
Speaker 4: shift them out the door, because they're fighting so much
Speaker 4: on the pricing with n video and am D that
Speaker 4: it feels like they're losing money, and they might well be. Unfortunately,
Speaker 4: they are not well established yet and they're the only
Speaker 4: ones who offer a cheap ish video card for gaming,
Speaker 4: And so you're left with this price creep where all
Speaker 4: the video cards have pretty much moved up towards these
Speaker 4: higher price classes. They've cut down what you get for
Speaker 4: the dollar, which's lower memory capacity. Part of that is
Speaker 4: product segmentation where companies like ndvideo recognize, like you said,
Speaker 4: if I have a user who wants thirty two gigabytes
Speaker 4: of memory, on the video card, they probably want to
Speaker 4: use it to make money, and so if I'm on video,
Speaker 4: I should make money because they're going to make money, right,
Speaker 4: So you segment that, and then the consumer is left
Speaker 4: with things that are less viable. They have less longevity,
Speaker 4: so they won't age as well with the gaming graphics improvements,
Speaker 4: and causes kind of a circle of buying hardware sooner
Speaker 4: because it's gotten too unobtainable to go up to the
Speaker 4: high end where you might have that longer, that better longevity.
Speaker 3: So I just have one last question. Obviously, the stated
Speaker 3: goal of the tariffs is to move manufacturing production to
Speaker 3: the States. Did any of the companies that you actually
Speaker 3: spoke to talk about this as a possibility, and what
Speaker 3: are the sticking points other than the time frame of
Speaker 3: building a new factory, what are the sticking points or
Speaker 3: the challenges in actually making more stuff in the US.
Speaker 4: Almost all of them indicated that this is not a
Speaker 4: possibility anytime in the near future. There's one exception, which
Speaker 4: is a company we spoke to called Proto Case, and
Speaker 4: proto Case is part of a another company that makes
Speaker 4: enterprise and server equipment called forty five drives, And so
Speaker 4: these companies. They are headquartered in Canada, and for the
Speaker 4: last twelve years, the owner was telling us or the
Speaker 4: co founder, I should say, they were looking at it
Speaker 4: opening a plant somewhere in the US for assembly and
Speaker 4: for some light manufacturing, and so they've done that. They're
Speaker 4: the only ones who've kind of gone that direction, but
Speaker 4: they were already going that direction. And their whole business
Speaker 4: model is speed, So if you need something, they can
Speaker 4: turn it around a couple days, whereas if you need
Speaker 4: a lot of something, you might be waiting months. Everyone
Speaker 4: else basically said that it's it is not feasible to
Speaker 4: bring manufacturing into the US for the products that they sell,
Speaker 4: and a lot of that comes from supply chain. So
Speaker 4: the best way for me to contextualize it as a motherboard.
Speaker 4: A motherboard is roughly a one foot by one foot
Speaker 4: board that goes right in the middle of your computer.
Speaker 4: The CPU sockets into it, the GPU sockets into it,
Speaker 4: the RAM goes in it. You can think of it
Speaker 4: kind of like the brains down of the computer, and
Speaker 4: a high end motherboard for a workstation or whatever. High
Speaker 4: end gaming PC has somewhere between eighteen hundred and three
Speaker 4: thousand individual components on it, so these are they get
Speaker 4: really small? Yeah, And so these components come from all
Speaker 4: over the place. So a motherboard factory is a service
Speaker 4: mount technology line, it's called an SMT line to mostly
Speaker 4: automatically pick and place components onto the board, and it's
Speaker 4: pulling those from normally reels like drums, almost like a
Speaker 4: film reel of components. And those reels of components come
Speaker 4: from other companies, which come from other companies, And so
Speaker 4: you have a factory supply chain to make one part
Speaker 4: of one computer that might go, depending on how you
Speaker 4: want to count it, one hundred factories deep, or if
Speaker 4: you look at just sort of the big components after
Speaker 4: they've come from raw materials and things like this, you're
Speaker 4: still at maybe ten to thirty factories. And that's just
Speaker 4: to make one part of one computer. Incredible, and so
Speaker 4: the challenge that all the companies enumerated to us was,
Speaker 4: you can bring the SMT line to the US and
Speaker 4: you can stamp these components down on it. You're gonna
Speaker 4: buy those components from somewhere else, and it's gonna be Vietnam, Thailand, China,
Speaker 4: mostly China, Taiwan and so forth. But if there's tariffs
Speaker 4: on those parts which are about us. You know, they're
Speaker 4: not literal raw materials, but they're pretty close in the
Speaker 4: computer world, then you still face all the same challenges
Speaker 4: as before. So those would also have to come over
Speaker 4: to America. And then now you're bringing in capacitor supply
Speaker 4: or metal supply or rare earth metals, and pretty much
Speaker 4: no matter where you look, you're bringing something in from someone.
Speaker 4: And and so I think it's just the challenge of
Speaker 4: what was stated to us was there needs to be
Speaker 4: a plan with kind of hard timelines of here's our
Speaker 4: target to move this industry's manufacturing by this date, and
Speaker 4: just flipping a switch it just seems to cost too
Speaker 4: much chaos there. You know, people would be timid to
Speaker 4: invest in a factory in the US that might take
Speaker 4: several years to build if they're not sure what's going
Speaker 4: to change tomorrow.
Speaker 2: I just have one last question too, And I sort
Speaker 2: of have this nagging feeling that I might be stepping
Speaker 2: into a gamer landmine.
Speaker 4: But I literally don't know at all.
Speaker 2: Why not just you know, all this stuff. It feels
Speaker 2: the idea of having to worry so much about the
Speaker 2: specs on your own computer sort of feels retro I
Speaker 2: just do every all my work in a browser. Why not,
Speaker 2: just like the whole industry, go to cloud gaming and
Speaker 2: not have to worry about the spinning disk in your home?
Speaker 4: Oh you're hurting me?
Speaker 2: Yeah, in one minute or less. No, let's tell like,
Speaker 2: could there be a shift to cloud gaming? I don't
Speaker 2: know say about that? What are the constraints? Why not
Speaker 2: on Netflix for gaming or whatever?
Speaker 4: Sure? The shortest possible answer I have is latency and
Speaker 4: control or customization so as quickly as possible. I mean
Speaker 4: latency is the responsiveness between your input and what happens
Speaker 4: on the screen, and going through networking infrastructure, you might
Speaker 4: be at two times longer three times longer latency, meaning
Speaker 4: that when you push the button on the controller or
Speaker 4: the keyboard, you don't see that action until a perceptibly
Speaker 4: long difference versus if you played it locally. The other
Speaker 4: issue is the concern on the consumer side of you
Speaker 4: own nothing, right, and the more you own nothing I
Speaker 4: think kind of the more uncomfortable, certainly, and I think
Speaker 4: most of our audience gets with the product in general.
Speaker 4: And then the last concern is just that customization, where
Speaker 4: it may be a somewhat equivalent would be why if
Speaker 4: you can rent a car for about the same price
Speaker 4: as buying a car, why would you buy a car.
Speaker 4: There's a lot of reasons. One is external forces. You
Speaker 4: have no control over that car. What if they want
Speaker 4: it back, what do you do right? You like car,
Speaker 4: they take it back. Or in the gaming world, if
Speaker 4: they just decide this game is not going to be
Speaker 4: available anymore, kill the license. It's gone, and you're talking
Speaker 4: about something that people have a very deep emotional connection with.
Speaker 4: It can just be snapped out of existence. So plus
Speaker 4: the customization, I mean, it's really fun to build a computer.
Speaker 4: So that's my quick version.
Speaker 2: Our producer Dash says, I asked a new question there,
Speaker 2: Steve Burger gamers next is it's a really phenomenal work
Speaker 2: that you put together. I really would encourage all the
Speaker 2: listeners to go check it out. And thank you so
Speaker 2: much for coming on off off.
Speaker 4: Thank you it was fun. Tracy.
Speaker 2: I think it was one point in my life, maybe,
Speaker 2: like I don't know, twenty ten, i'd gotten my idea
Speaker 2: I should build a computer.
Speaker 4: I never did it, but.
Speaker 3: You were going to say you should get into gaming.
Speaker 4: No, I should not get into gaming.
Speaker 5: I thought it might be fun, and there's like, I
Speaker 5: don't know, but it does seem it does seem cool
Speaker 5: to build your own computer. I imagine, yes, the thing
Speaker 5: is all I do is tweet an email, and I
Speaker 5: really cannot.
Speaker 3: Justify, Like you want to get your hands dirty.
Speaker 4: No, I do.
Speaker 2: Kind of it seems cool, but I can't really justify
Speaker 2: it because I don't do anything this particularly computing intensive.
Speaker 3: All right, well, let me know if you decide to,
Speaker 3: you could do like a pie or something like that.
Speaker 3: There's so many interesting things to actually pull out of
Speaker 3: that episode, But I guess the big one for me
Speaker 3: is the question of where does the pain of tariffs
Speaker 3: actually land. And I know everyone's expecting higher prices at
Speaker 3: this point for consumers, but there are still all these
Speaker 3: additional layers where you could see companies or other entities
Speaker 3: kind of absorb the costs. And so it was really
Speaker 3: interesting when Steve was talking about microcenter and margin demand
Speaker 3: of twenty five percent and the frustration of people that
Speaker 3: actually make things that the retailers aren't necessarily budgeting on
Speaker 3: the margins that they want to see at their stores.
Speaker 3: That's really interesting, And I guess the question is if
Speaker 3: things get really bad, do the retailers start to move
Speaker 3: on that.
Speaker 2: There's so many interesting micro and macroeconomic stories that you
Speaker 2: could take out of this one industry, including who bears
Speaker 2: the pain, who eats the margin? The question you asked
Speaker 2: about the difference between large and small companies and the
Speaker 2: risks that they can take. Obviously, you know, the web
Speaker 2: of supply chain just extraordinary complex, and the uncertainty and
Speaker 2: how even one piece of moving manufacturing back would require
Speaker 2: like multiple different kinds of factories. I just thought that
Speaker 2: was like incredibly interesting. It's also sort of interesting this industry.
Speaker 2: I think part of the reason I was curious. You know,
Speaker 2: one of the stories in politics, of course, is the
Speaker 2: incredible success or the surprising success that Trump had with
Speaker 2: sort of young men in particular. And so when I
Speaker 2: think about an industry in which my guess is that
Speaker 2: many of the people in this space have drifted more
Speaker 2: towards that side of the aisle over the last several years.
Speaker 2: And then now, you know, I don't know for sure
Speaker 2: how the gamer audience voted, but I suspect that there's
Speaker 2: a pretty solid Trump contingent in there. And so this
Speaker 2: is just going to be, you know, it's gonna be
Speaker 2: interesting to see the reaction.
Speaker 3: I imagine there's going to be a lot of coverage of
Speaker 3: this issue in the gaming community, so we'll have to
Speaker 3: watch out for it. Maybe have Steve back on the show.
Speaker 4: Yeah. Absolutely.
Speaker 3: Shall we leave it there for now?
Speaker 4: Let's leave it there.
Speaker 3: This has been another episode of the aud Thoughts podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow Steve Burk's coverage at gamers Nexus. Follow our producers
Speaker 2: Carmen Rodriguez at Carman armand dash El Bennett at Dashbot
Speaker 2: and Kilbrooks at Kilbrooks. For more Odd Lots content, go
Speaker 2: to Bloomberg dot com slash odd Lots. We have a
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