iRobot, the vacuum cleaner company, has split off from its Chinese manufacturing partner which relied on the US company for 55% of its revenue last year, the move is believed to be due to tensions between China and the states -United.
Kin Yat Holdings said in a pre-market briefing Tuesday that a “major customer … which is a leading US technology company specializing in robotic floor care products” was terminating its service contract.
Kin Yat said the termination stemmed from his client’s desire for greater geographic diversification of production and increased production costs in China, where Kin Yat’s factories are concentrated.
According to Nikki Asia, Kin Yat’s stock then fell on the Hong Kong Stock Exchange, ending down 16.8% to 94 cents Hong Kong.
iRobot has gradually shifted its production from China to Malaysia, amid growing tensions between Washington and Beijing.
âOur plan to dramatically increase our production in Malaysia during this year is progressing well, even with a tight labor market,â Julie Zeiler, executive vice president and chief financial officer, told analysts during an earnings call at first trimester.
She said in a previous earnings call in mid-February that “by the end of 2021, we estimate that the manufacturing sector in Malaysia will have sufficient capacity to meet the vast majority of our volume needs in 2022 in North America “.
In making the change, the company said in its annual report also released in February, “We believe we will significantly reduce and potentially eliminate our exposure to current US tariffs, and mitigate the geopolitical risks associated with concentrating production solely by China.
In her comments, Zeiler noted that Washington reinstated a 25% tariff on Roombas imported from China earlier this year, which she said increased costs by $ 3.4 million over the three first months. The gross margin would have been 1.1 percentage points higher if there were no tariffs, she said.
IRobot’s reference to geopolitical risks suggests security may have factored in its production shift amid concerns in the United States and allied countries over the possibility of Chinese-made gadgets being used to transmit. secretly sensitive data.
Based on figures from Kin Yat’s disclosure on Tuesday, its reliance on iRobot peaked in the fiscal year ended March 2019, when its largest US customer accounted for 65% of total revenue, or 2.66 billion Hong Kong dollars (342.47 million dollars). That amount fell to HK $ 1.7 billion the following year.
Kin Yat, who started as a toy maker in 1981, began moving production from Hong Kong to the adjacent mainland city of Shenzhen in 1985. According to his website, he began collaborating with iRobot on the development of Roomba in 2007.
While Kin Yat has moved some of its manufacturing operations further inland to China due to rising factory wages – first in Shaoguan, which, like Shenzhen, is in Guangdong Province, then in the interior province of Guizhou – the production of remained in Shenzhen.
About the author of the article