According to the Zhitong Finance APP, recently, JP Morgan released an in-depth research report on non-cyclical companies in the hardware and networking industry after tariff adjustments. Against the backdrop of changes in tariff policies, the operational and developmental trends of various companies in the industry have attracted significant market attention, and their response strategies and business performance profoundly influence investors' decision-making directions.
Ciena (CIEN.US) has implemented surcharge pricing to offset the impact of tariffs. Most of its supply chain is distributed across Mexico, Thailand, Canada, and India; most products related to Mexico and Canada comply with the United States-Mexico-Canada Agreement (USMCA) standards. Management emphasized that for products with increased costs due to tariffs, they have begun to charge all customers a surcharge, treating customers across all industries equally.
The business growth from January to March was not driven by demand pull-in. Management pointed out that its optical networking and switching and routing products contain a large number of software components, which means that the cost base of hardware is lower than investors expected. Furthermore, management believes that orders did not benefit from customers' advance purchases, and for most of 2024, after completing inventory digestion, most customers have returned to normal purchasing patterns.
Cisco (CSCO.US) has included relevant tariffs in its fiscal year gross margin guidance. The tariffs accounted for under the USMCA that have been included in the guidance may drive margin improvements. Since the announcement of tariffs, most companies have changed their understanding of certain product portfolios that comply with the USMCA, which helps address potential adverse factors related to the guidance.
Order trends are expected to remain relatively stable, with strong demand for campus networks. Historically, during periods of macroeconomic uncertainty, order trends have fluctuated significantly, with some customers potentially placing orders in advance while others may pause purchases to observe the market. However, given that order trends since the beginning of the 2024 calendar year are below seasonal levels, the company believes that based on the current order execution rate, there is limited room for order decline, as most of the current customer purchases are concentrated on critical system orders. In the campus network sector, Cisco believes that customers are upgrading their networks due to aging infrastructure, the trend of returning to work driving network demand growth, and the integration of artificial intelligence applications.
Dell Technologies (DELL.US) has limited disclosure regarding manufacturing-related information but expresses confidence in addressing tariff issues. The company's information on manufacturing layout is relatively opaque, emphasizing this as a competitive advantage compared to peers, but the company reiterates that the primary task in dealing with tariffs remains to reduce costs as much as possible and to implement price increases. Regarding price increases, Dell emphasizes that lessons learned during the pandemic have enabled it to adjust pricing quickly.
Flex (FLEX.US) brings positive trends in the consolidation of the supplier base among hyperscale customers. Like other hyperscale customers, this client is consolidating suppliers from about 5 to 2-3. Additionally, the company aims to increase its market share in the power and services sectors. North American capacity is used for manufacturing IT and automotive products. The profit drivers for various business segments differ slightly, with the reliability business having higher fixed costs and a lower proportion of services; while the agile business has higher variable costs and a higher proportion of services in the overall business
Hewlett Packard Enterprise (HPE.US) emphasizes the diversification of its manufacturing layout and that its factory in Mexico complies with the United States-Mexico-Canada Agreement (USMCA). HPE also lacks transparency regarding its manufacturing layout information but points out that despite variations due to different businesses, its layout has diversified characteristics.
The company states that the growth pace of annual revenue from artificial intelligence servers is less related to supply and more dependent on customer timing, expecting the peak revenue growth in the second half of the year to occur in the third fiscal quarter (ending in July). Additionally, the company is confident in the ongoing network upgrades, benefiting from enterprises undergoing a significant inventory digestion phase and increasingly focusing on upgrading outdated infrastructure against the backdrop of artificial intelligence investments.
Jabil (JBL.US) management emphasizes that approximately 17% of its manufacturing capacity is located in the United States, currently serving smart infrastructure and some healthcare customers, with a capacity utilization rate of about 85%. Similarly, the capacity utilization rate in Mexico is currently 75%, with 80-90% of the capacity compliant with the USMCA.
The strategic focus continues to reduce involvement in the consumer end market. The profit margins in the consumer end market are relatively low, and utilizing U.S. capacity services faces numerous challenges, such as the supplier ecosystem being concentrated in China, labor costs potentially being five times higher than in China, and issues with the supply of large-scale labor during peak periods.
Mexico is expected to benefit from the restructuring of the supply chain, although the supply situation is not as favorable as in China, it has the potential to meet the demands of large factories. Currently, there are no clear commitments from customers to shift production or capacity to the U.S. or Mexico, but the company has seen an increase in customer-related inquiries.
Mobileye Global (MBLY.US) has limited direct impacts from tariffs. The chips required for Mobileye's solutions are manufactured at STMicroelectronics' European factories and then shipped to automotive suppliers' factories, most of which conduct product assembly in the U.S. before shipping to original equipment manufacturer (OEM) factories in Mexico and other regions. Due to 1) limited direct handling of products; 2) most downstream product assembly occurring in the U.S.; and 3) the minimal proportion of products in the overall automotive bill of materials, the direct impact of tariffs is expected to be limited.
Automotive original equipment manufacturers are preparing for pre-orders for the second half of 2025. Although there are limited signs of customers purchasing components in advance in the first quarter, initial communications with customers at the end of the first quarter indicate that customers may be looking to procure components in advance for vehicles scheduled for delivery in the second half of 2025.
The average selling price (ASP) of Volkswagen's surround-view advanced driver-assistance systems (ADAS) may be at the lower end of the $150 - $200 range. Given that this product is being bid for the first time and competition in the lower levels of autonomous driving is more intense, the pricing of Volkswagen's surround-view ADAS products may be close to the lower end of the typical price range for this product

CSCO

JP Morgan released a report analyzing the response strategies of the hardware and networking industries after tariff adjustments. Ciena offsets the impact of tariffs through surcharge pricing, emphasizing that the costs of its optical networking products are lower than expected. Cisco has incorporated tariffs into its fiscal year gross margin guidance, expecting order trends to remain stable and strong demand for campus networking. Overall, the understanding and response measures of companies in the industry regarding tariff policies will influence investor decisions

- JPMorgan recently released an in-depth report on non-cyclical companies in the hardware and networking industry following tariff adjustments.  
- Companies like Ciena and Cisco are adapting their pricing strategies to mitigate tariff impacts, with Ciena implementing surcharges and Cisco incorporating tariff considerations into profit margin guidance.  
- The report highlights stable order trends and ongoing network upgrades driven by aging infrastructure and AI applications, despite macroeconomic uncertainties affecting purchasing behaviors.

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Cisco

Jabil

The tariff storm is sweeping in. How are hardware and network companies in the US stock market positioning themselves?