What is the impact to business when company like Extreme Network moved its manufacturing from China to Taiwan?

Published Date: 2019/09/09

About Extreme Networks

Extreme Networks, Inc. engages in the development and sale of network infrastructure equipment. It designs and develops wired and wireless network infrastructure equipment and develops the software for network management, policy, analytics, security, and access controls. The company was founded by Gordon L. Stitt and Herb Schneider in May 1996 and is headquartered in San Jose, CA.

Intelligence from recent earnings call

"We estimate that tariffs had an adverse impact of 110 basis points to total company gross margin in Q4 and 150-basis point on product gross margin consistent with our estimate entering the quarter. The sequential improvements in our product gross margin can be attributed to the impact of lower standard cost due to our product refresh and procurement savings, a positive mix shift to the U.S. and better pricing offset by the impact of tariffs. "

"We estimate that tariffs will have an impact of about 60 basis points on our overall gross margin for fiscal Q1, mainly related to the transition of manufacturing to Taiwan. "

"Our tariff mitigation plans in the U.S. are on track. Today, we move 90% of our product manufacturing to Taiwan and other TAA compliant countries for products bound for the U.S. Our Taiwan standard costs are 4% to 5% higher than in China. We estimate that tariffs at a greater than a 1 percentage point headwind to gross margin following the increase from 10% to 25% in the quarter. We expect a 60 basis point decrease in our tariff impact next quarter owing to our move to TAA compliant countries. "

This article draws references from Earnings Intelligence, a service provided by SiteFocus