Price increase postponement by Advantech due to lingering confusion over tariffs
Fresh Article:
Let's take a closer look at Advantech Co, a company known for its embedded computer modules and industrial motherboards. They recently announced a surprise move regarding the price hike on their US-bound products.
In a surprising turn of events, Advantech has decided to postpone its plan to increase product prices for shipments to the US, citing the uncertainties surrounding US tariff policies as the main reason[1]. This change of heart comes after a 90-day tariff truce, which was instigated by US President Donald Trump's proposed 32 percent "reciprocal" tariff on Taiwanese goods[1].
Highlighting the company's commitment to their customers, Advantech's CFO, Eric Chen, shared during an earnings conference in Taipei that about 93 percent of their shipments to the US originate from Taiwan, with the remaining 6 percent coming from China and 1 percent from Europe[1]. The company is currently engaged in discussions with major customers to find strategies to lessen the impact of the tariffs, such as shipping products directly to them, bypassing US customs[1].
Advantech operates several assembly plants in the US, focusing on high-value peripherals that are locally assembled and directly shipped to customers to minimize the effects of tariffs[1]. Approximately 40 percent of Advantech's US customers bear the tariffs themselves, while the company initially covers the remaining 60 percent, later passing on the costs to customers[1]. As of yet, none of the North American customers have requested Advantech to take on the tariff expenses, as the levies are imposed by the US government[1].
However, Advantech would absorb part of the expenses, while the customers would bear the majority[1]. Despite these challenges, the company maintains a positive outlook for its revenue in the second quarter, with no signs of customers front-loading or shifting orders at present[1].
If the US still imposes steep tariffs on Taiwan after the 90-day pause, Advantech fears customers might postpone their shipments in the second half of this year[1]. Regarding their production bases worldwide, Taiwan and China each account for 45 percent of their total capacity, followed by Japan at 8 percent and Malaysia at 2 percent[1].
Expansion plans are on the horizon for Advantech, with the possibility of building a new production base, either in Southeast Asia or the US, as they anticipate growth in revenue from 2028 to 2032[1]. Last year, Advantech's board approved the establishment of a second system assembly plant in northern California, set to be completed by the end of this year, with operations commencing next year[1]. This venture will double the company's assembly and testing capacity in the US.
About 70 percent of Advantech's US sales come from system products, and if customers require local production, they could potentially shift part of their assembly to the US[1]. Additionally, Advantech is considering setting up a surface-mount technology line, possibly in cooperation with local US firms[1].
In the first quarter of the year, Advantech reported a 25 percent year-on-year increase in revenue to NT$17.35 billion (US$541.9 million)[1], with net profit growing 37 percent to NT$2.73 billion and earnings per share rising to NT$3.17 from NT$2.32[1]. These positive figures were driven by rising demand for embedded computer products and intelligent systems[1]. Gross margin also experienced a 0.5 percentage point year-on-year increase to 40.5 percent, while operating margin improved to 16.9 percent from 13.8 percent[1]. For the current quarter, Advantech expects revenue to total US$530 million to US$550 million, with a gross margin within the range of 39 percent to 41 percent and an operating margin from 16 percent to 18 percent[1].
[1]Source: FocusTaiwan (2019)
- Advantech, in light of the uncertainties regarding US tariff policies, has decided to postpone their plan to increase product prices for shipments to the US.
- The company is currently engaged in discussions with major customers, potentially exploring strategies such as shipping products directly to them to lessen the impact of the tariffs.
- Expansion plans for Advantech include the possibility of building a new production base, possibly in Southeast Asia or the US, in anticipation of growth in revenue from 2028 to 2032.
