WEBVTT - The Tariff Buzzsaw Is Coming For Hardcore Gamers 0:00:02.720 --> 0:00:16.439 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.600 --> 0:00:22.360 Hello and welcome to another episode of the Odd Locked Podcast. 0:00:22.440 --> 0:00:24.759 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:25.400 --> 0:00:28.160 Tracy, this has come up on the podcast. But one 0:00:28.200 --> 0:00:30.760 of the things with the tariffs is I still think 0:00:30.800 --> 0:00:33.960 for the most part, people are talking about them from 0:00:33.960 --> 0:00:37.199 like a fiscal standpoint, which is, Okay, prices are going 0:00:37.240 --> 0:00:39.360 to go up, What is that due to inflation? What 0:00:39.400 --> 0:00:41.560 does that due to sales? What is that due to employment? 0:00:42.000 --> 0:00:46.199 And less about the potential for like actual economic chaos 0:00:46.240 --> 0:00:48.639 because something isn't getting to somewhere else that. 0:00:48.600 --> 0:00:49.279 It needs to be. 0:00:49.479 --> 0:00:51.680 You want to go more micro instead of the macro. 0:00:52.000 --> 0:00:53.280 Yeah, okay, I'm good with that. 0:00:53.320 --> 0:00:55.360 We can talk to economists all day and they all 0:00:55.400 --> 0:00:58.480 have their estimates, et cetera. But you know, there's a limit. 0:00:58.200 --> 0:01:01.160 To you know, I think we should so one of 0:01:01.200 --> 0:01:04.600 the things we obviously learned during the pandemic is like, 0:01:04.959 --> 0:01:07.720 real things exist in the world, and they have to 0:01:07.760 --> 0:01:10.759 come from someplace where they're made and be shipped over 0:01:11.040 --> 0:01:14.320 and if there are disruptions, then those can snowball in 0:01:14.440 --> 0:01:18.480 quite a big way. And there's one product in particular 0:01:18.520 --> 0:01:21.200 that I think kind of embodies a lot of what 0:01:21.240 --> 0:01:23.640 we talk about when it comes to tariffs and manufacturing 0:01:23.680 --> 0:01:27.520 and disruptions, and that's computers right totally. And if you 0:01:27.560 --> 0:01:31.400 look at one of those supply chain graphics for computers, 0:01:31.560 --> 0:01:35.240 it's just a bunch of lines crisscrossing the world, basically, 0:01:35.400 --> 0:01:39.160 like the raw materials coming from Africa or South America 0:01:39.200 --> 0:01:43.280 going over to China, and then chips being made in Taiwan, 0:01:43.400 --> 0:01:45.920 and then all of those components heading over to the 0:01:46.040 --> 0:01:50.280 US where they're put together. It is extremely complex, and again, 0:01:50.400 --> 0:01:52.280 like you look at it on a map, it just 0:01:52.320 --> 0:01:53.440 looks like a spider web. 0:01:53.880 --> 0:01:56.520 It's a total spider web, because then the chips get made, 0:01:56.520 --> 0:01:59.280 and then they go to Malaysia for packaging, and then 0:01:59.280 --> 0:02:02.960 they go back to somewhere I skipped up. I think 0:02:03.000 --> 0:02:07.640 a lot of people like this idea of reshoring more tech, 0:02:07.760 --> 0:02:10.279 and that's obvious. We saw it during the Biden administration 0:02:10.360 --> 0:02:13.560 and various efforts on chips et cetera. But it certainly 0:02:13.600 --> 0:02:17.880 can't be done overnight. Certainly, And you know again because 0:02:17.960 --> 0:02:20.920 as you say, it's this such intense spider web, you know, 0:02:20.960 --> 0:02:23.200 it's not even as simple as like, oh, let's move 0:02:23.240 --> 0:02:25.120 it from China to the US or something like that. 0:02:25.120 --> 0:02:25.920 It's just so. 0:02:25.800 --> 0:02:29.720 Many different links and parts of what's assembly and packaging 0:02:29.720 --> 0:02:32.000 and components and all that, et cetera, that you're going 0:02:32.080 --> 0:02:34.040 to announce a new set of tariffs one day and 0:02:34.080 --> 0:02:37.200 then an industry will just like digest those tariffs and 0:02:37.240 --> 0:02:37.680 then you. 0:02:37.600 --> 0:02:40.280 Know, put them up a US factory the next day, or. 0:02:40.280 --> 0:02:42.640 Put a little markup on it. It's like, okay, you 0:02:42.680 --> 0:02:44.919 know whatever, here's the tariff raid. It is twenty five percent. 0:02:45.320 --> 0:02:47.640 You know, add twenty five percent to what we sell, 0:02:48.000 --> 0:02:50.160 to the selling price. Like the idea that it could 0:02:50.200 --> 0:02:53.800 be that simple is uh kind of unrealistic. 0:02:53.960 --> 0:02:56.520 We should talk about it. Let's get granular, Okay. 0:02:56.560 --> 0:02:59.240 So I am very excited. We are going to be 0:02:59.360 --> 0:03:02.560 speaking with Steve Burke. He's the editor in chief of 0:03:02.600 --> 0:03:06.280 a publication YouTube channel, et cetera called Gamers Nexus. They 0:03:06.320 --> 0:03:09.680 do a lot of technical coverage of computer hardware, et cetera, 0:03:09.760 --> 0:03:12.560 which is a world that I basically know nothing about. 0:03:12.639 --> 0:03:13.960 I don't know much about gaming. 0:03:14.480 --> 0:03:17.519 I know that gamers, you know, they buy their own chairs, 0:03:17.560 --> 0:03:19.880 and they buy their own speakers, and they buy you know, 0:03:20.960 --> 0:03:23.920 decked out cooling towers. So that they could play, you know, 0:03:24.040 --> 0:03:26.400 super high speed. But I really don't know much about it. 0:03:26.800 --> 0:03:30.000 But Steve and his team at Gamers and Nexus about 0:03:30.040 --> 0:03:31.600 a week ago, actually two weeks ago, I think it 0:03:31.639 --> 0:03:36.200 was April fourteenth, put out an insane documentary, three hour 0:03:36.240 --> 0:03:39.360 long documentary on YouTube called the Death of Affordable Computing 0:03:39.640 --> 0:03:43.400 and the tariffs impact on the world of gaming Hardware. 0:03:43.880 --> 0:03:47.760 It's a truly extraordinary piece of journalism, and we wanted 0:03:47.800 --> 0:03:50.160 to talk to the creator behind it and what he 0:03:50.240 --> 0:03:52.760 did and what he learned. So Steve Burke, thank you 0:03:52.800 --> 0:03:54.280 so much for coming on Odd Lots. 0:03:54.520 --> 0:03:57.000 Oh thanks for having me. Yeah, I'm excited. 0:03:57.080 --> 0:03:59.680 When Tracy and I do an episode of the podcast 0:04:00.000 --> 0:04:02.120 talk about terriffs. We're worried that it's going to be 0:04:02.240 --> 0:04:04.760 out of date and irrelevant by the very next day. 0:04:04.800 --> 0:04:07.040 And that's just like a forty minute conversation sometimes with 0:04:07.160 --> 0:04:11.080 like one economist. Just tell us, how did you quickly, 0:04:11.160 --> 0:04:15.920 within basically twelve days of quote liberation day unquote, put 0:04:15.960 --> 0:04:18.200 together and what did you put together this three hour 0:04:18.279 --> 0:04:22.760 documentary about this world of computer hardware, gaming hardware? What 0:04:22.839 --> 0:04:24.000 is what was this project? 0:04:24.279 --> 0:04:26.880 It was fun, I mean, it was born from chaos 0:04:27.040 --> 0:04:31.200 and so for us, the moment we pulled the trigger 0:04:31.240 --> 0:04:34.880 on it was when the use the formal name, the 0:04:34.920 --> 0:04:38.400 reciprocal traps as they are called, were put in place. 0:04:38.480 --> 0:04:41.159 And so basically immediately as soon as that happened, I 0:04:41.160 --> 0:04:42.600 called a bunch of companies I worked with over the 0:04:42.640 --> 0:04:46.320 last sixteen years and everybody was ready to go on record, 0:04:46.920 --> 0:04:49.080 which is very rare, as I'm sure you all know, 0:04:49.960 --> 0:04:53.320 and we booked the flights for twelve hours from that moment. 0:04:53.440 --> 0:04:56.000 Wow got on the plane without a return flight and 0:04:56.160 --> 0:04:59.480 just went out and started talking to people. So it 0:04:59.560 --> 0:05:03.000 was a The underlying concern of this will all be 0:05:03.040 --> 0:05:06.520 out of date was definitely there. Our approach to that was, 0:05:07.279 --> 0:05:10.560 if we tackle this story in a way where it's 0:05:10.640 --> 0:05:15.600 partly about that, if it's about the uncertainty and about 0:05:15.640 --> 0:05:18.359 the story of getting the story, that resolves some of 0:05:18.360 --> 0:05:21.800 those concerns, because then what you're capturing at least is 0:05:21.839 --> 0:05:25.320 the sort of real feelings and the real decision making 0:05:25.360 --> 0:05:27.279 that these companies are doing at any given moment. 0:05:27.920 --> 0:05:30.239 Yeah, and at the very least people will learn about 0:05:30.240 --> 0:05:33.479 the supply chain of PCs, so you always have that 0:05:33.560 --> 0:05:37.000 aspect of it. It seemed like people and again you 0:05:37.080 --> 0:05:39.960 spoke to dozens of companies here, but it seemed like 0:05:40.000 --> 0:05:42.760 people really wanted to talk about all of this, and 0:05:42.800 --> 0:05:45.960 in fact, I think you got some like competitors all 0:05:46.080 --> 0:05:49.440 together in a room to have a conversation about how 0:05:49.480 --> 0:05:53.200 they were all thinking and dealing with potential tariffs. 0:05:53.680 --> 0:05:54.159 That's right. 0:05:54.440 --> 0:05:56.640 People want to come on and talk about this, which 0:05:56.680 --> 0:05:59.080 really highlights the urgency here. 0:05:59.640 --> 0:06:02.400 Yeah, So the biggest challenge that a lot of them 0:06:02.440 --> 0:06:06.600 are facing is I think they're concerned about what the 0:06:06.600 --> 0:06:11.000 consumer perception will be as prices go up or as 0:06:11.040 --> 0:06:14.120 stock drives out. And there's good reason for that. I mean, 0:06:14.279 --> 0:06:18.000 consumers absolutely are are kind of Number one coverage angle 0:06:18.080 --> 0:06:22.240 is his cynicism. You know, it's being really critical of 0:06:22.240 --> 0:06:24.159 what the companies are saying at a given point. This 0:06:24.279 --> 0:06:28.760 was an interesting scenario though, where the price increases are 0:06:29.200 --> 0:06:33.960 functionally guaranteed in this industry, and I think what the 0:06:34.000 --> 0:06:37.800 companies we're worried about is if we're not transparent right 0:06:37.880 --> 0:06:42.440 now when we have this opportunity, then people won't necessarily 0:06:42.960 --> 0:06:45.520 believe us when we explain why the prices went up. 0:06:45.560 --> 0:06:48.120 And you know, consumers, to be clear, should still remain 0:06:48.200 --> 0:06:51.040 cynical to a healthy degree, but but should also be 0:06:51.200 --> 0:06:54.640 aware that there are real world impacts you know, from 0:06:54.760 --> 0:06:57.000 these decisions that are much bigger than any of the companies. 0:06:57.040 --> 0:06:59.520 So no, that actually makes a ton of sense. Why 0:06:59.560 --> 0:07:02.719 it would be strategic for these companies to talk about 0:07:02.720 --> 0:07:05.560 the real impact so that when they raise the price 0:07:05.600 --> 0:07:09.240 of whatever, that people understand. Why but actually talk about this, 0:07:09.560 --> 0:07:12.720 setting aside the tariffs, what is this industry? Talk to 0:07:12.800 --> 0:07:17.680 us about the existing gamer hardware industry that you set 0:07:17.680 --> 0:07:18.840 out to describe. 0:07:18.480 --> 0:07:19.320 In this documentary. 0:07:19.480 --> 0:07:21.600 Oh sure, who are these players? And like where do 0:07:21.640 --> 0:07:23.280 they sit? And you know, what do they sell? What 0:07:23.360 --> 0:07:25.520 kind of products? You know, give us an overview of it. 0:07:25.960 --> 0:07:28.360 Yeah, So I think the most important thing for anyone 0:07:28.400 --> 0:07:30.880 who doesn't pay close attention to it is to be 0:07:31.000 --> 0:07:36.160 aware that computer gaming hardware is used in workstations and 0:07:36.200 --> 0:07:39.760 scientific computing around the world. So companies that everyone in 0:07:39.800 --> 0:07:42.240 your audience would already be aware of, like Nvidia, Intel, 0:07:42.320 --> 0:07:47.920 AMD so forth, all the stuff they make for scientific 0:07:48.000 --> 0:07:51.640 computing and AI and data center, a lot of that 0:07:51.760 --> 0:07:55.080 stuff also exists in some capacity in gaming, and it's 0:07:55.160 --> 0:07:57.800 it's potentially the same supply as in the same way 0:07:57.800 --> 0:08:02.080 for supply. If it's silicon or shares at least the 0:08:02.200 --> 0:08:06.880 architecture of whatever that generation of product is using. And 0:08:06.920 --> 0:08:09.800 so there's a lot of crossover. And what that means 0:08:09.920 --> 0:08:13.640 is that these multiple technology industries all sort of prop 0:08:13.640 --> 0:08:16.360 each other up. You get economies of scale across them. 0:08:16.400 --> 0:08:18.920 Because if you're making the wafer that can be used 0:08:18.960 --> 0:08:21.880 in a data center card and can also be used 0:08:21.920 --> 0:08:24.280 in a gaming card, right, the company has some more 0:08:24.280 --> 0:08:27.880 strategic levers to pull for where do they want this 0:08:28.000 --> 0:08:31.280 particular chip to go, Which market has demand, has one 0:08:31.360 --> 0:08:33.400 dried up, they can move that supply over to something 0:08:33.400 --> 0:08:35.880 else and market up more if it's has good yield. 0:08:36.360 --> 0:08:39.160 So it's a huge industry. And then as far as gaming, 0:08:39.200 --> 0:08:40.760 I don't have the exact numbers off the top of 0:08:40.760 --> 0:08:43.840 my head anymore, but not too long ago we received 0:08:43.840 --> 0:08:46.559 a press briefing from one of the big three, Intel 0:08:46.640 --> 0:08:48.960 and Video or AMD, I don't remember which, but talk 0:08:49.000 --> 0:08:53.520 about the sort of worldwide gaming audience PC gaming depend 0:08:53.600 --> 0:08:55.439 on who you look at, it's anywhere in the very 0:08:55.480 --> 0:08:59.479 high hundreds of millions to the low billions of individuals 0:08:59.760 --> 0:09:02.120 who do some form of PC gaming. So it's a 0:09:02.200 --> 0:09:03.000 huge industry. 0:09:04.000 --> 0:09:06.600 So you know, Joe's first question was about all the 0:09:06.720 --> 0:09:09.960 uncertainty over the tariffs themselves and the fact that we 0:09:10.000 --> 0:09:13.000 don't know what's going to happen tomorrow, maybe there's another announcement, 0:09:13.040 --> 0:09:16.800 and then maybe the day after there's some backtracking on it. 0:09:16.800 --> 0:09:21.199 It seems really difficult to plan for tariffs coming in 0:09:21.280 --> 0:09:23.760 when you don't even know what exactly they're going to 0:09:23.840 --> 0:09:26.000 look like, or you know when they might actually be 0:09:26.080 --> 0:09:30.120 phased in. What were companies actually saying about their plans 0:09:30.400 --> 0:09:31.840 for handling this so far? 0:09:32.920 --> 0:09:35.880 So the plans are interesting. The number one thing they 0:09:35.920 --> 0:09:39.720 were telling us is that it's difficult to plan when 0:09:39.880 --> 0:09:43.200 the plan potentially changes on a daily basis. So a 0:09:43.280 --> 0:09:46.040 number of the companies we spoke with, including an Austin, 0:09:46.080 --> 0:09:49.360 Texas based repair shop run by a guy named Lewis 0:09:49.440 --> 0:09:51.720 Rossman who's kind of well known for Right to Repair 0:09:52.480 --> 0:09:54.920 Course Air, which is a huge publicly traded company, so 0:09:54.960 --> 0:10:00.080 like you have this huge range, and generally speaking, the 0:10:00.080 --> 0:10:04.240 message we received was we can deal with a high tariff, 0:10:04.679 --> 0:10:09.120 what we can't deal with is uncertainty. So I don't 0:10:09.120 --> 0:10:11.800 know if the timelines are maybe interesting for people, but 0:10:12.640 --> 0:10:16.400 just to give an idea for things without even getting 0:10:16.400 --> 0:10:18.960 into the discussion of where is the thing made, The 0:10:19.040 --> 0:10:20.800 question of how long does it take to make the 0:10:20.840 --> 0:10:24.600 thing is maybe kind of colors you know, where their 0:10:24.679 --> 0:10:27.920 strategic decision making is coming from. So a silicon wafer 0:10:28.520 --> 0:10:31.280 takes maybe about three months to produce, assuming they don't 0:10:31.320 --> 0:10:34.360 run a hot lot, and so that's just to kind 0:10:34.360 --> 0:10:36.640 of make the wafer. It might be an EID or 0:10:36.679 --> 0:10:40.960 a twelve inch wafer that then contains all the silicon 0:10:41.840 --> 0:10:44.160 that eventually goes into a computer. So wafer is just 0:10:44.200 --> 0:10:47.360 a disc, right, It looks like a CD basically, and 0:10:47.800 --> 0:10:51.120 they pattern the silicon on it in a fab. So 0:10:51.600 --> 0:10:54.440 Intel has fabs they're building some of the US as 0:10:54.440 --> 0:10:58.200 an example, and they then dice that they send it 0:10:58.200 --> 0:11:02.200 out to packaging to test to eventually turn into a 0:11:02.280 --> 0:11:05.319 finished CPU or GPU that goes on a board and 0:11:05.360 --> 0:11:07.880 gets put in a computer. Just to make the wafer, 0:11:07.960 --> 0:11:11.760 it's about three months. And so when you're making decisions 0:11:12.520 --> 0:11:16.440 that involve macroeconomics, not that I'm not an expert on 0:11:16.480 --> 0:11:19.160 that part of it, but you could imagine that it 0:11:19.160 --> 0:11:21.319 would be very difficult right to plan how many of 0:11:21.400 --> 0:11:25.520 these things you might need. And that's just one part 0:11:25.840 --> 0:11:28.880 the computer cases are typically twelve to eighteen months counting 0:11:28.880 --> 0:11:33.079 the design stage to get through mass production. The actual 0:11:33.160 --> 0:11:35.400 mass production part of it, they might order about four 0:11:35.480 --> 0:11:37.480 to maybe six months in advance of when they need 0:11:37.480 --> 0:11:40.240 the parts, depending on where Chinese New Year falls in 0:11:40.280 --> 0:11:43.400 that window. And so these types of numbers I think 0:11:43.400 --> 0:11:47.120 probably you know, give a better indication as to why 0:11:47.160 --> 0:11:50.559 it's so difficult to project, because the decisions they're making 0:11:50.679 --> 0:11:54.000 now are based off of inventory they placed orders for 0:11:54.440 --> 0:11:55.600 at the end of last year. 0:12:10.760 --> 0:12:13.680 You know, I've never been a PC gamer, or really 0:12:13.720 --> 0:12:16.920 a gamer of any sort. When I think about computers, 0:12:16.960 --> 0:12:19.800 you know, have a I have a Macus or you know, 0:12:20.040 --> 0:12:22.720 some laptop, I forget which one, and I run my 0:12:22.720 --> 0:12:26.040 Bloomberg terminal on a computer made by Hewlett Packard or 0:12:26.080 --> 0:12:28.520 and I think I have a webcam, probably made by Logitech. 0:12:29.000 --> 0:12:31.840 When we're talking about the world of the hardware that 0:12:31.920 --> 0:12:35.560 you cover, what does the constellation look like of different 0:12:35.600 --> 0:12:38.560 players and what the role that they play, Because yeah, 0:12:38.559 --> 0:12:40.920 again I'm familiar with Intel, AMD and Video and some 0:12:40.960 --> 0:12:43.800 of the popular consumer facing names. But who are the 0:12:43.800 --> 0:12:46.000 big names and what do they do that a hardcore 0:12:46.160 --> 0:12:47.280 PC gamer would. 0:12:47.080 --> 0:12:50.080 Be thinking about. Yeah, there's a ton of them, so 0:12:50.559 --> 0:12:53.160 as you've probably heard of. That's how I'm familiar, I think, 0:12:53.160 --> 0:12:55.800 so yeah, yeah, yeah. So there's companies like Asus as 0:12:55.800 --> 0:12:58.080 an example, which is one of the larger ones, and 0:12:58.120 --> 0:13:00.959 they did just about everything, so they all symbol computers. 0:13:01.080 --> 0:13:04.760 They also make motherboards. There's some scare quotes around that 0:13:04.840 --> 0:13:08.600 make I'll maybe come back to, and they make video 0:13:08.679 --> 0:13:12.600 cards all this sort of type of thing. Laptops. MSI 0:13:12.760 --> 0:13:15.200 is another one. Course, Seria is huge. So these three 0:13:15.240 --> 0:13:17.560 have just named they're all massive in the space. They're 0:13:17.600 --> 0:13:20.959 billion dollar companies. You also have hundreds of smaller ones. 0:13:21.000 --> 0:13:23.920 So just to ratle off a few, but Cooler Master, 0:13:24.200 --> 0:13:30.200 Height Crucial is actually larger, owned by Micron, and you 0:13:30.240 --> 0:13:33.680 get into peripherals like LG is probably well known, but 0:13:33.720 --> 0:13:36.839 then some of their competitors are probably less known in 0:13:36.880 --> 0:13:39.960 the space. So to list off a couple like internal 0:13:40.480 --> 0:13:44.360 component manufacturers. Just for cooling a loane, you have a 0:13:44.400 --> 0:13:49.240 company's named Thermal right, Thermal take, There's cooler Master. There's 0:13:49.240 --> 0:13:51.880 a company called be Quiet Deep Cool, which is no 0:13:52.000 --> 0:13:54.240 longer allowed to be sold in the US, which is 0:13:54.280 --> 0:13:58.000 a different interesting story. Nocta is another huge one. So 0:13:58.160 --> 0:14:02.320 they're all very important, but probably by and large the 0:14:02.360 --> 0:14:05.840 way people know about them, if at all, is because 0:14:06.080 --> 0:14:09.520 those parts that these companies make are put in the 0:14:09.559 --> 0:14:15.040 pre built machines from a company like CyberPower, Ibypower, Dell HP. 0:14:16.120 --> 0:14:20.200 And actually there's especially relating to the tariffs. There's something 0:14:20.240 --> 0:14:22.320 really interesting that I didn't put in that video, and 0:14:22.400 --> 0:14:26.640 I was thinking about it. So, factory relationships are an 0:14:26.680 --> 0:14:29.080 interesting web in this industry where a lot of the 0:14:29.240 --> 0:14:33.640 factories they're not owned by the manufacturers. So when we 0:14:33.680 --> 0:14:36.800 talk about a brand, yeah like Height, Yeah, so Height 0:14:36.840 --> 0:14:41.280 makes computer cases, coolers, keyboards. They don't actually own the factories, 0:14:41.760 --> 0:14:44.000 but they work with them. And so there's contract manufacturing, 0:14:44.000 --> 0:14:46.280 which is true in most industries. But what's interesting in 0:14:46.280 --> 0:14:51.640 this one is those contract factories often are self branded 0:14:52.240 --> 0:14:55.200 manufacturers as well, so they're competitors of their own customers. 0:14:55.800 --> 0:14:58.920 A great example of this would be deep Cool. Have 0:14:58.960 --> 0:15:01.440 you ever Did you ever hear Deep Cool? I don't 0:15:01.480 --> 0:15:05.000 think so. Okay, So long story short, Deep Cole got 0:15:05.000 --> 0:15:08.480 banned from the US, and that happened last year, but 0:15:08.600 --> 0:15:11.640 there's still a good example for this. Deep Cool owns 0:15:11.760 --> 0:15:17.040 factories in China. They do contract manufacturing, and they also 0:15:17.120 --> 0:15:19.160 are a self branded company and the US they're no 0:15:19.240 --> 0:15:22.160 longer sold that they were pretty big here. Deep Cool also, 0:15:22.640 --> 0:15:25.240 I haven't stated this publicly, but it's known. I've been 0:15:25.240 --> 0:15:26.880 in their factory, We've done videos. But what I haven't 0:15:26.880 --> 0:15:31.720 said publicly is that they make products for a company 0:15:31.760 --> 0:15:35.840 called be Quiet, which is a German based manufacturer. They 0:15:36.640 --> 0:15:40.360 designed cooling components and cases and things like that, and 0:15:40.400 --> 0:15:43.160 so some of their products in the past were made 0:15:43.160 --> 0:15:48.800 by Deep Cool. Deep Cool is a competitor to be Quiet. 0:15:48.840 --> 0:15:51.240 So these two companies that one sources from the other, 0:15:51.520 --> 0:15:54.480 but they fight each other in the marketplace. And to 0:15:54.480 --> 0:15:55.920 be clear, today I'm not sure if be Quiet so 0:15:55.920 --> 0:15:57.360 they use is Deep Cool because of the US band. 0:15:57.400 --> 0:15:59.800 But that's not important for this. What's important is that 0:16:00.760 --> 0:16:04.520 where we have these tariffs coming into play, the factories 0:16:04.560 --> 0:16:08.800 that are supplying their customers. I think the read I'm 0:16:08.840 --> 0:16:12.840 getting is that they have more room to cut margin 0:16:12.920 --> 0:16:16.480 or keep prices suppressed because there's not that middleman step. 0:16:17.400 --> 0:16:18.920 So I think you're going to see this really interesting 0:16:18.920 --> 0:16:20.840 thing to happen where some of these companies we spoke to, 0:16:20.880 --> 0:16:24.480 including Cooler Master in the documentary Cooler Master's bringing in 0:16:24.520 --> 0:16:29.240 four thousand pallets of computer hardware goods, which is an 0:16:29.280 --> 0:16:34.160 absurd amount of stuff. And if they bring those in, 0:16:34.960 --> 0:16:37.120 as other companies are kind of scared away from it, 0:16:38.040 --> 0:16:41.320 there's going to be a sort of a vacuum forming 0:16:41.320 --> 0:16:44.760 in the market, and depending on consumer confidence and purchasing, 0:16:45.320 --> 0:16:48.480 they either end up filling that void where people can't 0:16:48.520 --> 0:16:51.640 get other components, or if there's a price war later 0:16:52.280 --> 0:16:55.840 because there's too much stuff that people brought in, then 0:16:55.920 --> 0:16:58.240 the companies that are the factories I think would have 0:16:58.280 --> 0:17:00.440 more room to fight on price. 0:17:01.280 --> 0:17:03.440 By the way, Tracy, so it looks like Deep Cool. 0:17:03.560 --> 0:17:06.440 It's a Beijing based company and they got banned from 0:17:06.440 --> 0:17:11.080 the US for the business dealing various business dealings in Russia. 0:17:11.840 --> 0:17:15.280 So just a little thank you, thank you Joe for 0:17:15.320 --> 0:17:19.119 the context. Actually this reminds me so one thing I 0:17:19.200 --> 0:17:21.720 wanted to ask is did you observe, I guess, any 0:17:21.720 --> 0:17:25.479 differences between the larger companies that you spoke to and 0:17:25.520 --> 0:17:29.000 the smaller companies, because I imagine, just on the factory's point, 0:17:29.480 --> 0:17:34.960 the big guys probably have like solid relationships with their manufacturers, 0:17:34.960 --> 0:17:39.120 and they probably have some ability to set prices or 0:17:39.160 --> 0:17:43.760 negotiate prices with suppliers, whereas the little guys maybe they 0:17:43.800 --> 0:17:46.440 don't have you know, as much room or as much 0:17:46.840 --> 0:17:51.000 market power to try to negotiate on prices. Was there 0:17:51.080 --> 0:17:53.120 much difference between the big and the small here? 0:17:53.960 --> 0:17:57.919 Oh yeah, yeah, the biggest difference was the ability to 0:17:59.119 --> 0:18:03.560 move production all squere So some of these companies are 0:18:05.160 --> 0:18:10.399 moving production to Vietnam, Thailand and other countries, mostly in Asia. 0:18:11.119 --> 0:18:14.400 Sort of what we're seeing right now is that the 0:18:14.480 --> 0:18:17.520 largest of the companies that either can build their own 0:18:17.520 --> 0:18:19.840 factory or more likely just have a lot of leverage 0:18:19.880 --> 0:18:22.600 with their suppliers, maybe they're the biggest customer of the factory, 0:18:23.359 --> 0:18:26.600 they've been encouraging either existing factories that they work with 0:18:26.640 --> 0:18:28.920 to open in other countries or they've been going to 0:18:29.080 --> 0:18:34.240 factories in those other countries. So specifically in this industry, Vietnam, Thailand, Malaysia, Singapore, 0:18:34.320 --> 0:18:38.200 and Taiwan are all pretty well tooled up. They already 0:18:38.240 --> 0:18:41.439 have factories. They might be able to absorb some of 0:18:41.440 --> 0:18:44.160 the excess billing out of China if companies are trying 0:18:44.200 --> 0:18:46.920 to move their production. What wasn't on the list from 0:18:46.960 --> 0:18:50.719 anybody that I spoke to was the US. So not 0:18:50.760 --> 0:18:53.000 one of them said they're going to try and build 0:18:53.000 --> 0:18:57.320 a factory in the US. But what was interesting is 0:18:57.400 --> 0:19:01.280 that even those which can success, we move manufacturing out 0:19:01.320 --> 0:19:05.440 of China and to say Vietnam indicated and expected thirty 0:19:05.480 --> 0:19:08.600 to thirty five percent increase in their cost just from 0:19:08.640 --> 0:19:13.639 the inefficiency, meaning that the lack of skilled manufacturing engineers 0:19:14.080 --> 0:19:16.679 and the lack of pipeline maturity and the lack of 0:19:16.680 --> 0:19:20.560 supply chain in that area will add overhead and as before, 0:19:20.560 --> 0:19:24.199 potential tariffs on those countries. So the small companies, they 0:19:24.240 --> 0:19:27.520 don't have the negotiating power. It's very difficult to get 0:19:27.520 --> 0:19:32.679 a factory to make a highly complicated commodity product like 0:19:32.720 --> 0:19:35.439 a computer case with all these special bends and LCD 0:19:35.520 --> 0:19:39.320 panels and specially crafted fans and things like that. It's 0:19:39.320 --> 0:19:42.600 hard to get a factory to do already. But to 0:19:42.600 --> 0:19:45.720 then try and do it in a country where there 0:19:45.880 --> 0:19:50.879 isn't necessarily the existing know how to do it or 0:19:50.920 --> 0:19:54.240 the existing tooling to do it is basically an impossible 0:19:54.280 --> 0:19:56.879 ask for a smaller company where they just don't have 0:19:56.960 --> 0:20:00.119 the leverage, they don't have anything to offer, versus a 0:20:00.200 --> 0:20:00.840 large company. 0:20:01.119 --> 0:20:04.560 I have to mention also that like a large company 0:20:04.840 --> 0:20:09.520 presumably has customers outside of the US, and so many 0:20:09.600 --> 0:20:12.080 of them prior to some extent, large swaths of their 0:20:12.119 --> 0:20:15.480 business might not be affected by tariff. Square is like 0:20:15.480 --> 0:20:20.160 a small, specifically US based company, you know. That's that's 0:20:20.160 --> 0:20:20.720 the whole thing. 0:20:20.960 --> 0:20:24.480 Yeah, And that's an excellent point because one of the 0:20:24.520 --> 0:20:26.560 things we ran into. You're talking about competitors being in 0:20:26.600 --> 0:20:29.160 the room in the video we shot. Yeah, So one 0:20:29.160 --> 0:20:32.359 of them. There's two companies. There's CyberPower and iy Power. 0:20:32.359 --> 0:20:35.159 They're both in southern California, and they're actually basically on 0:20:35.200 --> 0:20:39.600 the same street. Despite both having power in the name, 0:20:39.680 --> 0:20:43.200 they are not related, and they both started around the 0:20:43.240 --> 0:20:46.560 same time in the late nineties. But one of them 0:20:46.960 --> 0:20:51.000 remained basically entirely focused on the US, and that's CyberPower PC. 0:20:52.359 --> 0:20:55.760 The other one Ibypower, although their pre built PCs are 0:20:55.760 --> 0:21:00.000 mostly focused on the US. They own a brand that's 0:21:00.080 --> 0:21:04.480 called Height, which makes computer cases. And so this brand, 0:21:04.520 --> 0:21:08.840 because it designs other components, it's successfully been able to 0:21:08.840 --> 0:21:11.639 get into other markets worldwide. And this is a story 0:21:11.680 --> 0:21:13.680 that's true for a lot of companies in the industry. 0:21:14.320 --> 0:21:15.879 And so what they were telling us they thought was 0:21:15.920 --> 0:21:20.080 really interesting was they're in this position where they don't 0:21:20.080 --> 0:21:22.240 need to ship into the US anymore, and in fact 0:21:22.240 --> 0:21:25.879 they decided not to and the reason for that was 0:21:26.359 --> 0:21:28.920 the cost is too high, so it made more sense 0:21:28.960 --> 0:21:31.560 for them to ship the goods elsewhere. So it might 0:21:31.640 --> 0:21:35.240 hit the port in la but they might instruct the 0:21:35.320 --> 0:21:37.840 forwarder to keep it on the vessel and send it 0:21:37.880 --> 0:21:40.920 around again somewhere else. So what they're doing right now 0:21:41.000 --> 0:21:43.840 is actually the product director in that video we spoke 0:21:43.880 --> 0:21:48.720 with Rob Teller. He flew out to some other countries 0:21:48.760 --> 0:21:52.879 and started trying to establish relationships to build the brand 0:21:52.880 --> 0:21:56.479 and retailers outside of the US, whereas CyberPower coming back 0:21:56.480 --> 0:21:59.840 to them. They really only sell to the US, but 0:22:00.080 --> 0:22:04.480 they also assemble one percent of their computers in the US, 0:22:05.520 --> 0:22:07.720 so they kind of get screwed in a way where 0:22:08.280 --> 0:22:12.080 they don't have these external markets like you're talking about, 0:22:13.240 --> 0:22:15.800 and they assemble it all here, but they don't make 0:22:15.840 --> 0:22:18.479 the stuff that they put in the computer, so they 0:22:18.480 --> 0:22:21.479