The Tariff Buzzsaw Is Coming For Hardcore Gamers

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1:23Hello and welcome to another episode of the Odd Lot podcast. I'm Joe Weisenthal. And I'm Tracy Allaway. Tracy, this has come up on the podcast, but one of the things with the tariffs is I still think for the most part people are talking about them from like a fiscal standpoint, which is, okay, prices are going to go up. What does that do to inflation? What does that do to sales? What does that do to employment? And less about the potential for like actual economic chaos because something isn't getting to somewhere else that it needs to be. You want to go more micro instead of the macro? Yeah. Okay, I'm good with that.

1:59We can talk to economists all day and they all have their estimates, et cetera. But, you know, there's a limit to, you know. I think we should. So one of the things we obviously learned during the pandemic is like real things exist in the world and they have to come from someplace where they're made and be shipped over. And if there are disruptions, then those can snowball in quite a big way. and there's one product in particular that I think kind of embodies a lot of what we talk about when it comes to tariffs and manufacturing and disruptions and that's computers right totally and if you look at one of those supply chain graphics for computers it's just a bunch of lines crisscrossing the world basically like the raw materials coming from Africa or South America going over to China, and then chips being made in Taiwan, and then all of those components heading over to the US where they're put together.

2:53It is extremely complex. And again, you look at it on a map, it just looks like a spider web. It's a total spider web because then the chips get made and then they go to Malaysia for packaging and then they go back to somewhere else. No, I skipped a bunch of steps. I think a lot of people like this idea of reshoring more tech. And that's obvious. We saw it during the Biden administration, various efforts on chips, et cetera. But it certainly can't be done overnight, certainly. And, you know, again, because, as you say, it's this such intense spider web, you know, it's not even as simple as like, oh, let's move it from China to the U.S.

3:30or something like that. There's just so many different links and parts of what's assembly and packaging and components and all that, et cetera, that you're going to announce a new set of tariffs one day and then an industry will just digest those tariffs. Open up a U.S. factory the next day. Or put a little markup on it. It's like, OK, here's the tariff rate. It's 25%. Add 25 % to what we sell, to the selling price. The idea that it could be that simple is kind of unrealistic. We should talk about it. Let's get granular. Okay, so I am very excited. We are going to be speaking with Steve Burke.

4:06He is the editor-in-chief of a publication, YouTube channel, et cetera, called Gamers Nexus. They do a lot of technical coverage of computer hardware, et cetera, which is a world that I basically know nothing about. I don't know much about gaming. I know that gamers, you know, they buy their own chairs and they buy their own speakers and they buy decked out cooling towers so that they could play at super high speed. But I really don't know much about it. But Steve and his team at Gamers Nexus about a week ago, actually two weeks ago, I think it was April 14th, put out an insane documentary, three-hour-long documentary on YouTube called The Death of Affordable Computing and the Tariff's Impact on the World of Gaming Hardware.

4:49It's a truly extraordinary piece of journalism. and we wanted to talk to the creator behind it and what he did and what he learned. So, Steve Burke, thank you so much for coming on Odd Lots. Oh, thanks for having me. Yeah, I'm excited. When Tracy and I do an episode of the podcast, we talk about tariffs, we're worried that it's going to be out of date and irrelevant by the very next day. That's just like a 40-minute conversation sometimes with like one economist. Just tell us, how did you quickly, within basically 12 days of quote liberation day unquote put together and what did you put to get this three-hour documentary about this world of computer hardware gaming hardware what is what was this project it was fun i mean it was born from chaos and so for us the moment we pulled the trigger on it was when the i'll use the formal name the reciprocal tariffs as they're called were put in place.

5:44And so basically immediately, as soon as that happened, I called a bunch of companies I've worked with over the last 16 years and everybody was ready to go on record, which is very rare, as I'm sure you all know. And we booked the flights for 12 hours from that moment, got on the plane without a return flight and just went out and started talking to people. So it was the underlying concern of this will all be out of date was definitely there. our approach to that was if we tackle this story in a way where it's partly about that if it's about the uncertainty and about the story of getting the story that resolves some of those concerns because then what you're capturing at least is the sort of real feelings and the the real decision making that these companies are doing at any given moment yeah and at the very least people will learn about the supply chain of PCs.

6:38So you always have that aspect of it. It seemed like people, and again, you spoke to dozens of companies here, but it seemed like people really wanted to talk about all of this. And in fact, I think you got some competitors all together in a room to have a conversation about how they were all thinking and dealing with potential tariffs. That's right. People want to come on and talk about this, which really highlights the urgency here. Yeah. So the biggest challenge that a lot of them are facing is I think they're concerned about what the consumer perception will be as prices go up or as stock dries out.

7:17And there's good reason for that. I mean, consumers absolutely are kind of number one coverage angle is cynicism. It's being really critical of what the companies are saying at a given point. This was an interesting scenario, though, where the price increases are functionally guaranteed in this industry. And I think what the companies were worried about is if we're not transparent right now when we have this opportunity, then people won't necessarily believe us when we explain why the prices went up. And consumers, to be clear, should still remain cynical to a healthy degree, but should also be aware that there are real world impacts from these decisions that are much bigger than any of the companies.

8:02No, that actually makes a ton of sense why it would be strategic for these companies to talk about the real impact so that when they raise the price of whatever, that people understand why. But actually talk about this, setting aside the tariffs. What is this industry? talk to us about the existing gamer hardware industry that you set out to describe in this documentary oh sure who are these players and like where do they sit and you know what do they sell what kind of products and what you know give us an overview of it yeah so i think the most important thing for anyone who doesn't pay close attention to it is to be aware that computer gaming hardware is used in workstations and scientific computing around the world so So companies that everyone in your audience would already be aware of, like NVIDIA, Intel, AMD, so forth, all the stuff they make for scientific computing and AI and data center, a lot of that stuff also exists in some capacity in gaming.

9:00And it's potentially the same supply as in the same wafer supply, if it's silicon, or shares at least the architecture of whatever that generation of product is using. And so there's a lot of crossover. And what that means is that these multiple technology industries all sort of prop each other up. You get economies of scale across them, because if you're making the wafer that can be used in a data center card and can also be used in a gaming card, right? The company has some more strategic levers to pull for where do they want this particular chip to go, which market has demand, has one dried up, they can move that supply over to something else and market up more if it has good yield.

9:41So it's a huge industry. And then as far as gaming, I don't have the exact numbers off the top of my head anymore, but not too long ago, we received a press briefing from one of the big three, Intel, NVIDIA, or AMD, I don't remember which, but talking about the sort of worldwide gaming audience, PC gaming, depending on who you look at, it's anywhere in the very high hundreds of millions to the low billions of individuals who do some form of PC gaming. So it's a huge industry. So, you know, Joe's first question was about all the uncertainty over the tariffs themselves and the fact that we don't know what's going to happen tomorrow.

10:17Maybe there's another announcement and then maybe the day after there's some backtracking on it. It seems really difficult to plan for tariffs coming in when you don't even know what exactly they're going to look like or, you know, when they might actually be phased in. What were companies actually saying about their plans for handling this so far? So the plans are interesting. The number one thing they were telling us is that it's difficult to plan when the plan potentially changes on a daily basis. So a number of the companies we spoke with, including an Austin, Texas-based repair shop run by a guy named Louis Rossman, who's kind of well-known for right to repair.

10:58Corsair, which is a huge publicly traded company. So you have this huge range. and generally speaking the message we received was we can deal with a high tariff what we can't deal with is uncertainty so that i don't know if the timelines are maybe interesting for people but just to give an idea for things um without even getting into the discussion of where is the thing made the question of how long does it take to make the thing is um maybe kind of colors you know where their strategic decision making is coming from. So a silicon wafer takes maybe about three months to produce, assuming they don't run a hot lot.

11:37And so that's just to kind of make the wafer. It might be an eight or a 12 inch wafer that then contains all of the silicon that eventually goes into a computer. So a wafer is just a disc, right? It looks like a CD basically. And they pattern the silicon on it in a fab. So Intel has fabs. They're building some of the US as an example. And they then dice that. They send it out to packaging, to test, to eventually turn into a finished CPU or GPU that goes on a board and gets put in a computer just to make the wafer. It's about three months. And so when you're making decisions that involve macroeconomics, I'm not an expert on that part of it, but you could imagine that it would be very difficult to plan how many of these things you might need.

12:28And that's just one part. The computer cases are typically 12 to 18 months counting the design stage to get through mass production. The actual mass production part of it, they might order about four to maybe six months in advance of when they need the parts, depending on where Chinese New Year falls in that window. And so these types of numbers, I think, probably give a better indication as to why it's so difficult to project. because the decisions they're making now are based off of inventory they placed orders for at the end of last year.

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14:01In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. You know, I've never been a PC gamer or really a gamer of any sort. When I think about computers, you know, I have a Mac, some laptop, I forget which one, and I run my Bloomberg terminal on a computer made by Hewlett Packard, and I think I have a webcam probably made by Logitech. When we're talking about the world of the hardware that you cover, what is the constellation look like of different players and what the role that they play because yeah again i'm familiar with intel amd nvidia and some of the popular consumer facing names but who are the big names and what do they do that a hardcore pc gamer would be thinking about yeah there's a ton of them so asus you've probably heard of does that sound familiar i think so yeah yeah yeah so there's companies like asus as an example which is one of the larger ones and they do just about everything.

15:10So they'll assemble computers. They also make motherboards. There's some scare quotes around that make I'll maybe come back to. And they make video cards, all this sort of type of thing, laptops. MSI is another one. Corsair is huge. So these three I've just named, they're all massive in the space. They're billion dollar companies. You also have hundreds of smaller ones. So just to rattle off a few, but Cooler Master, Height, Crucial is actually large. that are owned by Micron. And you get into peripherals like LG is probably well-known, but then some of their competitors are probably less known in the space.

15:48So to list off a couple of internal component manufacturers just for cooling alone, you have companies named Thermal Right, Thermal Take. There's Cooler Master. There's a company called Be Quiet, Deep Cool, which is no longer allowed to be sold in the U.S., which is a different interesting story. noctua is another huge one so they're all very important but probably by and large the way people know about them if at all is because those parts that these companies make are put in the pre-built machines from a company like cyber power iway power dell hp got it and actually there's especially relating to the tariffs there's something really interesting that i didn't put in that video when I was thinking about it.

16:35So factory relationships are an interesting web in this industry where a lot of the factories, they're not owned by the manufacturers. So when we talk about a brand like Height, yeah, so Height makes computer cases, coolers, keyboards. They don't actually own the factories, but they work with them. And so there's contract manufacturing, which is true in most industries. But what's interesting in this one is those contract factories often are self-branded manufacturers as well. So they're competitors of their own customers. A great example of this would be Deepcool. Did you ever hear about Deepcool?

17:12I don't think so. Okay. So long story short, Deepcool got banned from the US and that happened last year, but there's still a good example for this. Deepcool owns factories in China. They do contract manufacturing and they also are a self-branded company and in the u.s they're no longer sold but they were pretty big here deep cool also i haven't stated this publicly but i it's known i've been in their factory we've done videos but what i haven't said publicly is that they make products for a company called be quiet which is a german-based manufacturer they um design cooling components and uh cases and things like that and so some of their products in the past were made by Deepcool.

17:56Deepcool is a competitor to BeQuiet. So these two companies, one sources from the other, but they fight each other in the marketplace. And to be clear today, I'm not sure if BeQuiet still uses Deepcool because the US banned, but that's not important for this. What's important is that where we have these tariffs coming into play, the factories that are supplying their customers, I think the read I'm getting is that they have more room to cut margin or keep prices suppressed because there's not that middleman step. So I think you're going to see this really interesting thing happen where some of these companies we spoke to, including Cooler Master in the documentary, Cooler Master is bringing in 4 ,000 pallets of computer hardware goods, which is an absurd amount of stuff.

18:43And if they bring those in as other companies are kind of scared away from it, there's going to be a sort of a vacuum forming in the market and depending on consumer confidence and purchasing they either end up filling that void where people can't get other components or if there's a price war later because there's too much stuff that people brought in then the companies that are the factories i think would have more room to fight on price by the way tracy so it looks like deep cool it's a beijing-based company and they got banned from the u.s for the business dealing various business dealings in Russia.

19:23So just a little context there. Thank you. Thank you, Joe, for the context. Actually, this reminds me. So one thing I wanted to ask is, did you observe, I guess, any differences between the larger companies that you spoke to and the smaller companies? Because I imagine just on the factories point, the big guys probably have like solid relationships with their manufacturers, and they probably have some ability to set prices or negotiate prices with suppliers, whereas the little guys, maybe they don't have as much room or as much market power to try to negotiate on prices. Was there much difference between the big and the small here?

20:04Oh, yeah. Yeah. The biggest difference was the ability to move production elsewhere. So some of these companies are moving production to Vietnam Thailand and other countries, mostly in Asia. Sort of what we're seeing right now is that the largest of the companies that either can build their own factory or more likely just have a lot of leverage with their suppliers, maybe they're the biggest customer of the factory, they've been encouraging either existing factories that they work with to open in other countries, or they've been going to factories in those other countries. So specifically in this industry, Vietnam, Thailand, Malaysia, Singapore, and Taiwan are all pretty well tooled up.

20:49They already have factories. They might be able to absorb some of the excess spilling out of China if companies are trying to move their production. What wasn't on the list from anybody that I spoke to was the US. So not one of them said they're going to try and build a factory in the US. But what was interesting is that even those which can successfully move manufacturing out of China and to, say, Vietnam, indicated an expected 30 % to 35 % increase in their cost just from the inefficiency, meaning that the lack of skilled manufacturing engineers and the lack of pipeline maturity and the lack of supply chain in that area will add overhead.

21:31And that's before potential tariffs on those countries. So the small companies, they don't have the negotiating power. It's very difficult to get a factory to make a highly complicated commodity product like a computer case with all these special bends and LCD panels and specially crafted fans and things like that. It's hard to get a factory to do already. But to then try and do it in a country where there isn't necessarily the existing know-how to do it or the existing tooling to do it is basically an impossible ask for a smaller company where they just don't have the leverage. They don't have anything to offer versus a large company.

22:12I have to imagine also that a large company presumably has customers outside of the U.S. And so many of them probably, to some extent, large swathes of their business might not be affected by tariffs, whereas like a small, specifically U.S.-based company, that's the whole thing. Yeah, and that's an excellent point because one of the things we ran into, you're talking about competitors being in the room in the video we shot. Yeah, so one of them, there's two companies. There's CyberPower and iBipower. They're both in Southern California, and they're actually basically on the same street. despite both having power in the name they are not related and they both started around the same time in the late 90s but one of them remained basically entirely focused on the u.s and that cyber power pc the other one i by power although their pre-built pcs are mostly focused on the u.s they own a brand that's called height which makes computer cases and so this brand because it designs other components, it's successfully been able to get into other markets worldwide.

23:22And this is a story that's true for a lot of companies in the industry. And so what they were telling us that I thought was really interesting was they're in this position where they don't need to ship into the US anymore. And in fact, they decided not to. And the reason for that was the cost is too high. So it made more sense for them to ship the goods elsewhere. So it might hit the port in LA, but they might instruct the forwarder to keep it on the vessel and send it around again somewhere else. So what they're doing right now is actually the product director in that video we spoke with, Rob Teller, he flew out to some other countries and started trying to establish relationships to build the brand and retailers outside of the US.

24:06Whereas CyberPower, coming back to them, they really only sell to the US. but they also assemble 100 % of their computers in the US. So they kind of get screwed in a way where they don't have these external markets like you're talking about and they assemble it all here, but they don't make the stuff that they put in the computer. So they don't really have control over where it comes from. So getting back to the company size disparity, you can wish as much as you want that it comes from a country with a lower tariff or maybe even comes from the same country you're in. But if you don't make it, you don't really have any control over that.

24:45Yeah. And of course, there's an irony that the company which actually assembles stuff in the U.S. is getting punished more than some other companies. There's another business that I wanted to ask you about specifically, and it is a logistics company that people use to actually transport stuff. It's called Straight Forwarding, which is a great name. Yeah. For like a mail company. But what are they seeing right now in terms of actual shipping volumes? So when we were talking to them, it would have been probably second week of April, I think. And what they were starting to see is that customers were indicating concern of the tariff.

25:30So this, just to put into perspective, the time I spoke to them, it was one day before the exemptions were announced and therefore two days before the exemptions were kind of unannounced. I remember that weekend. Yeah. Yeah. Yeah. Yeah. And then it was a day or two after the most recent round of tariffs. And so at that time, the highest general tariff, of course, it's different depending on the classification of the goods. The highest general, I think they quoted that 170%, depending on how you count the previous administration. So what they were seeing was a lot of customer, I mean, he just confirmed panic was the word I used, and he confirmed that word, where their customers were panicked about the pricing and about the uncertainty of what's the tariff going to be and if it goes away, can we get a refund?

26:21As far as shipment volume, in the time since talking to them, there's been a reduction of volume into the port in LA in particular. I think I actually saw a Bloomberg report about that, so you're probably more informed than I am on the specifics of it, But I think I read there was a year-over-year reduction anticipated for next week of, correct me if I'm wrong, something like 35%. Does that sound right? It sounds right. It's more or less. Sounds possible for sure. Yeah. Yeah. So I think that's the number I read this morning. Anyway, what they're seeing is potential reduction in import, which means reduction need for people who do that job.

26:59And couriers, anyone in that whole chain, warehousing. There's a ton of warehousing in City of Industry in California. and they're going to be impacted for sure.

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