$200 billion of Chinese goods targeted
The latest round of tariffs targeting $200 billion worth of Chinese goods entering the US went into effect on September 24. The Trump administration imposed a tariff rate of 10% on those goods, and the rate is set to jump to 25% by the end of the year.
A few weeks before the tariffs took effect, Cisco Systems (CSCO) CEO Chuck Robbins warned in an interview with CNBC that the company may deal with the tariff shock by passing on the additional costs to customers. The executive also said that Cisco was in talks with Trump administration officials to make them understand the implications of the tariffs on its products. Before that interview, the Financial Times reported that Cisco, Hewlett Packard Enterprise (HPE), Dell, and Juniper Networks (JNPR) had written to the White House appealing for the protection of certain key products against tariffs.
Cisco hikes product prices
With attempts to avoid or minimize the impact of the tariffs failing to bear fruits, Cisco has begun raising prices of its products to survive the tariff shock. From switches to routers, Cisco has increased prices by as much as 25%, according to The Register. Cisco relies on components supplies from China to build its products. So tariffs on Chinese imports entering the US drive up its operating expenses.
Tariffs may slow down sales
The trouble for Cisco and other companies forced to hike prices as a result of the tariffs is that such price increases may slow down uptake of their products and thus damage the top line. Cisco’s revenue increased 5.9% YoY (year-over-year) to $12.8 billion in its fiscal fourth quarter, which ended in July. HPE, Arista Networks (ANET), and Palo Alto Networks (PANW) reported revenue increases of 3.5%, 28.3%, and 29.3% YoY, respectively, in their most recent quarters. Revenue was down 8.0% YoY for Juniper in the second quarter, which ended in June.