Roomba maker iRobot has seen its shares drop more than 13% after its top executive mentioned the high tariffs placed on imports into the US as a result of the US-China Trade War.
The company also lowered its full-year earnings range from between $3.15 and $3.40 down to $2.40 and $3.15 to take the new 15% tariff increase into account. US President Donald Trump has raised tariffs on Chinese products from 10% to 25%.
The rise in Chinese import prices comes as a direct result of the US in a dispute with China. The Trade War has escalated to the point that China’s very own Huawei Technologies Co. Ltd. has now become a casualty of the war. The Shenzhen-based corporation has been placed on the US Entity List and told that it cannot buy or sell in the country.
After US President Donald Trump and Chinese President Xi Jinping had some negotiation talks at the G20 summit in Osaka Japan some weeks ago, Trump agreed to allow American high-tech companies to sell their mobile components and goods and services to Huawei again. Jinping promised in Osaka that China would invest in American agriculture, one of the motivating factors for Trump’s “olive branch” in the Trade War.
Though Trump and Xinping are talking again, and trade talks are now getting the green light, Huawei is still on the Entity List and the tariffs, once promised to be implemented immediately, were put on hold — a concession Trump made at the G20 summit in Osaka. The 25% tariffs that have been implemented go against Trump claims that he would keep the high tariffs off the table for now.
The high tariffs affect not only Huawei, but also other companies from China whose goods and services are imported into the US each year. iRobot is a Chinese manufacturer of autonomous robotic vacuum cleaners, and even iRobot’s business will be impacted in the tariff implementation.
There is a strong possibility that Trump could decide to end the 25% tariffs and reduce them down to the original 10%, but Trump will have a hard time doing so with the current Congress. Trump’s decision to let American companies sell to Huawei, and to let American companies buy selling licenses for the Entity List company, go against standard Trade War protocol. Congress, fearful that Trump will give too much in negotiations, has decided to meet and introduce laws that force the President to have the approval of Congress if or when Huawei is removed from the Entity List.
Huawei also cannot profit off its patent royalties while it is under a ban, according to the new law called “Defending America’s 5G Future Act.” This means that Huawei’s attempts to sue Big Red carrier Verizon Wireless for $1 billion in patent royalties over 5G technology will fail.
Huawei, the No. 2 phone maker globally, is said to lose $30 billion over the next two years behind the Trade Ban, though the company’s smartphone sales forecast is pretty positive and the company’s revenue is up compared to 2018, not down. And even in the midst of what seems to be an “okay” time, Huawei has admitted that the ban has dampened its sales, with 40-60% smartphone sales decline in Europe, particularly Germany and Spain. Additionally, Huawei’s sales are down 9% from the first three months of 2019.
There are currently ten different types of vacuum series available from iRobot: original series, 400 & Discovery, Professional & 500, 600 series, 700 series, 800 series, e series, 900 series, i series, and “s” series robotic vacuums. Robotic vacuums are an important product of home automation that allows vacuum cleaners to clean house by themselves. Robotic vacuums such as the Roomba detect dirt, particles, and other objects in the way when traveling around the room or house and steer clear of those things to vacuum the floor.
iRobot’s shares are up 7% this year as of Tuesday, July 23rd, though there’s no telling what impact the current Trade War will have on the Chinese robotic vacuum maker.