IRobot: Trade War Takes $8M Toll, Fuels Decision to Leave China

Xconomy Boston — 

Tariffs and uncertainty stemming from President Trump’s trade war with China forced iRobot to pay out $8 million to get its vacuum robots into the United States last year and have convinced the company to move some production out of China for the first time since 2002.

The Bedford, MA-based company explained its decision to contract with a manufacturer outside of China as a “matter of good corporate hygiene.”

“The pressure brought to bear by rising labor costs, forced technology transfers and intellectual-property theft, coupled with the imposition of tariffs and potential for them to increase, has changed our view and accelerated our plan for supply chain and manufacturing diversification,” iRobot chief executive and chairman Colin Angle said this morning during a conference call with analysts.

Angle and other executives did not say where the company would be relocating the manufacturing to make its Roomba products.

Angle stressed the difficulty of providing spot-on financial expectations for 2019, saying “the competitive landscape continued to change, and we are operating in an unprecedented environment with the imposition of tariffs for which there are no historical trends on which to base future growth.”

In October, iRobot (NASDAQ: IRBT) said it paid $5 million during the third quarter of 2018 in tariffs to import the Chinese-manufactured products into the U.S. instead of passing on the increase to customers. In the fourth quarter, the company paid $3 million. Trump imposed the 10 percent tariffs on $200 billion worth of goods from China starting Sept. 24.

The tariff rate was set to more than double to 25 percent on Jan. 1, 2019, but that increase was postponed to March 1.

For now, iRobot is boosting U.S. prices for its premium models to offset part of the tariff costs, and the company said it expects to pay $20 million to $25 million in tariff costs, assuming the duties remain at the current 10 percent levels instead of increasing.

IRobot would increase prices again if the 25 percent rate goes into effect, and it would cut prices if the tariffs are lifted altogether, the company said.

That optimism was in short supply among the central U.S. officials negotiating a deal with China. White House Advisor Larry Kudlow said this morning there was “a pretty sizable distance to go” toward any agreement.

Beating its financial expectation for 2018, iRobot reported $88 million in net income for the year, an increase from $51 million in 2017. Revenue of $1.1 billion for the year came in 24 percent higher than the $884 million reported in 2017.

The robot company, which shed its defense and other commercial businesses in 2016 to focus on the smart-home consumer market, announced last month it would launch a robotic lawnmower, Terra, in 2019. The mower will be available for sale in Germany and in the U.S. in a beta program.