Suppliers are feeling one of the deepest profit squeezes in years, according to many.
Raw material prices have gone up. There are shortages on materials from silicone to carbide; and prices of copper, aluminum, steel and iron are up by double digits. Additionally, memory such as DRAM has risen in price and supply is tight. And devaluation of the US dollar against the Chinese Yuan is causing problems for Chinese factories who sell to the US (who are paid in US dollars)
As one supplier noted, “Normally we’d have a margin squeeze once a year, now it’s once a month. There’s some relief and then there’s another squeeze. It’s much worse than it’s ever been.”
Some suppliers say they have adjusted to the tariffs of the past. Others did not raise prices, and have tried to absorb tariffs in order to keep prices competitive, tariffs that could have amounted to 25 to 45 percent by some estimates (the higher estimate includes harbor fees).
For suppliers who absorbed most of the tariffs, the market has been particularly challenging. “It’s eroded the profit margin and that affects our ability to do promotions and to have promotional stuff to give away, and to do social media advertising. You’ve got tot take it from somewhere. That’s what we did. That’s the ugly reality of it all.”
Other suppliers said they passed on costs to consumers and found workarounds to tariffs. We plan to report more on the topic in the future.
Raw Materials are the New Challenge
More than one supplier said the real squeeze now is in raw materials.
In their recent year end earnings reports JVCKENWOOD and Alps Alpine both cited increases in raw material pricing as a challenge for the coming months. Alps Alpine also cited “soaring memory costs.”
Reuters reported that printed circuit board prices surged 40 percent in April due to AI server demand and material shortages. Over the past 12 months, prices of aluminum rose 40 to 45 percent, copper climbed 35 to 40 percent and iron increased 9 to 15 percent.
Tom Heath of Kicker also noted the rise in raw material pricing as a challenge, “We’re watching and we’ll be cautious on how we approach our pricing as we always do and try to keep as it as favorable as possible to the dealers and consumers,” he said.
Still another supplier whose inventory includes memory-intensive motorcycle radios, said, ” We now have a 150 day lead time on memory that used to be readily available. I somehow have to forecast 150 days in advance and have to be locked in at that price. This is like an airline trying to buy futures on fuel. There’s a lot of moving parts. To keep this reasonable, there will price raises on the motorcycle side. I just can’t help it, simply because of the chips.”
Additionally, more than one vendor questioned whether some overseas factories may be using the closure of the Strait of Hormuz and rising oil prices as an excuse to raise prices. “A lot of these things are global excuses. Does the manufacturer really feel the impact? There’s no regulation in China,” said one vendor.
Top chart by Counterpoint
