The Tariff Buzzsaw Is Coming For Hardcore Gamers

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. It is extremely complex, and again, like you look at it on a map, it just looks like a spider web.

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 US or something like that.

But Steve and his team at Gamers and Nexus about a week ago, actually two weeks ago, I think it was April fourteenth, put out an insane documentary, three hour long documentary on YouTube called the Death of Affordable Computing and the tariffs impact on the world of gaming Hardware. It'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.

Wow got on the plane without a return flight and just went out and started talking to people. So it was a 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out of date was definitely there.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 real decision making that these companies are doing at any given moment.

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 we're 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 you know, consumers, to be clear, should still remain cynical to a healthy degree, but but should also be aware that there are real world impacts you know, from these decisions that are much bigger than any of the companies.

scientific computing around the world. 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, and it's it's potentially the same supply as in the same way for 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's has good yield.

So 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 and Video or AMD, I don't remember which, but talk about the sort of worldwide gaming audience PC gaming depend 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.

phased in. What were companies actually saying about their plans for handling this so far?

what we can't deal with is uncertainty. So I don't know if the timelines are maybe interesting for people, but just to give an idea for things 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 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, and so that's just to kind

of make the wafer. It might be an EID or a twelve inch wafer that then contains all the silicon that eventually goes into a computer. So 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, not that I'm not an expert on that part of it, but you could imagine that it would be very difficult right to plan how many of these things you might need. And that's just one part the computer cases are typically twelve to eighteen 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 you know, 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.

When we're talking about the world of the hardware that you cover, what does the constellation look like of different players and what the role that they play, Because yeah, again I'm familiar with Intel, AMD and Video 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.

is another one. Course, Seria is huge. So these three have just named they're all massive in the space. They're billion dollar companies. You also have hundreds of smaller ones. So just to ratle off a few, but Cooler Master, Height Crucial is actually larger, 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. So to list off a couple like internal

component manufacturers. Just for cooling a loane, you have a company's 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 US, which is

a different interesting story. Nocta 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 CyberPower, Ibypower, Dell HP. And actually there's especially relating to the tariffs. There's something really interesting that I didn't put in that video, and

I was thinking about it. So, 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, yeah 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 deep Cool. Have you ever Did you ever hear Deep Cool? I don't think so. Okay, So long story short, Deep Cole got banned from the US, and that happened last year, but there's still a good example for this. Deep Cool owns

factories in China. They do contract manufacturing, and they also are a self branded company and the US they're no longer sold that they were pretty big here. Deep Cool also, I haven't stated this publicly, but 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 designed cooling components and cases and things like that, and so some of their products in the past were made by Deep Cool. Deep Cool is a competitor to be Quiet. So these two companies that one sources from the other, but they fight each other in the marketplace. And to be clear, today I'm not sure if be Quiet so they use is Deep Cool because of the US band.

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 to happen where some of these companies we spoke to, including Cooler Master in the documentary Cooler Master's bringing in four thousand pallets of computer hardware goods, which is an

absurd amount of stuff. And 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.

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 factory's 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 you know, 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?

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. They already have factories. They might be able to absorb some of the excess billing 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 success, we move manufacturing out of China and to say Vietnam indicated and expected thirty to thirty five percent 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 and as 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.

same time in the late nineties. But one of them remained basically entirely focused on the US, and that's CyberPower PC. The other one Ibypower, although their pre built PCs are mostly focused on the US. 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. And this is a story that's true for a lot of companies in the industry.

And so what they were telling us they 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, whereas CyberPower coming back

to them. They really only sell to the US, but they also assemble one percent 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.

percent 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 they're 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? As 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 with something like thirty five percent. Does that sound right?

drive the performance of the computer. So a lot of people in our audience will work on the same computer they game on. So those users might be using something like Adobe Audition, which I just learned you all use for this podcast or Adobe premiere or a photoshop and so like just these three Adobe solutions alone depend which one it is, they could be very CPU or very GPU intensive, and the same is true for gaming, so people tend to speck out the GPU and the CPU first,

something like cooling. I guess to name the components. There's cooling for the CPU, there's a case, power supply, motherboard, RAM, and typically a solid state storage device or an SSD. And so these are the core components. The ones that are more commodities would include the case potentially the cooling or what people are starting to go for if they have a little more budget is some kind of looks focus.

So I mean, you can make computers look really cool these days, and yeah, and so there's a lot of that too, where it's it's all I mean, it's really not that different in concept from car customization, where there's people who want performance and there's people who want fashion, right, and then there's people who want both, and there's the ones who spend the most money on it. But yeah, generally speaking, what they're looking for is a high frame

rate to make the gaming experience feel fluid. They want to be able to render the graphics at the highest quality settings with the most polygons and geometry and the graphics. And if they do work on the side, then they're trying to balance the parts within the system, meaning they want to evenly distribute the money in a way that optimizes for what each application wants so that they can run those outside applications that might be core intensive versus say memory intensive or something.

guess everything is just so different this time. It's it's kind of hard to gauge what's actually going to happen to prices and how companies are actually dealing with that.

go up. They've told us as much, most of these companies, and yeah, I think what we're going to see happen is an initially increasing price for the companies that are still bringing products to the US, because not all of them are, and as the tariffs change, I mean, if

they come down. This is a personal opinion, but I don't think the prices are going to come down in step with a tariff's production, at least not without some kind of really severe market force, such as people just stop buying stuff because I just don't see a reason the companies would do that. They're going to have inventory where they already paid import costs. Maybe they can get

a government refund, maybe they can't. They are worried about the decrease and the value of their money, and they may also just feel like they need to shore up more profit, you know, to be a little safer. So I really don't see pricing coming down anytime soon unless there's just there's zero demand left and they get desperate. But in terms of increases, so it's not linear. So this is pretty interesting where one of the things I learned talking to the companies was about the retail side.

I knew nothing about how this worked before. And retailers, so one of the biggest ones in the US is Microcenter, and they are like a highly specialized best buy. I mean, if you do DIYPC building, they're your number one physical choice.

The etailers would be like New Egg or Amazon. And what we learned is that some of these retailers, like Microcenter, have very rigid margin demand, and so for computer cases, for some of the companies we spoke to, the margin demand is about twenty five percent and that means these case manufacturers are often making less than just in terms of percentage or even dollar amount, especially if they want to get microcenter shelf space. Correct. Yeah, okay, yeah, so

that secures the shelf space. And I think under typical conditions. I've had companies bad mouth retailers to me privately before and ask us to keep it off record or not share it at all. I've never had them on camera just straight up say you know, the retailers are making more money than us, and then express their discontent at

retailers being unwilling to budge on their own margin requirements. Interestingly, what they told us was that Amazon was a little more willing to have some flexibility, which maybe they're just big enough, right, they have enough categories where they can it might be an opportunity for Amazon to try and

soak some of that supply from these smaller retailers. But the question is if a three hundred and sixty dollars computer case that has all these bells and whistles now has to be sold for six hundred to seven hundred dollars, which is what the companies were telling us as an example, will a consumer actually pay for that? And when they don't what happens at retail, is it? You know, I've seen plenty of headlines about empty shelves. I really don't

think that's just hyperbole. I think there's real chance of that, especially in niche industries like this one.

like you're saying pricing. I mean, if someone really as reviewers, our recommendation right now to the consumer very focused on sort of consumer first, And to me it's like, I wouldn't buy unless I know I really want the upgrade or need it, maybe for work or just the computers on its last legs. And if I were going to buy,

it would probably be now. But I think the greater thing to consider there, at least in our recommendations, is trying to remind people of hey, you know, if you're not so sure about your job prospects, then it and you really don't need it, then maybe hold onto the money, which none of the companies want to hear us say, but you know that's I think that's probably the responsible thing to say. For Christmas or holidays. Yeah, I I would imagine there'll be some pain, I think the lower end.

So here's where it gets interesting. The lower end components would typically be where people would be directed in a time like that, if prices are coming up, you go for lower end. A percent increase on a cheaper product doesn't feel as bad as a percent increase on an expensive product just by the math of it. The problem is right now, there's not a lot of cheap products silicon in the gaming or the consumer space, So if you want.

it feels like they're losing money, and they might well be. Unfortunately, they are not well established yet and they're the only ones who offer a cheap ish video card for gaming, And so you're left with this price creep where all the video cards have pretty much moved up towards these higher price classes. They've cut down what you get for

the dollar, which's lower memory capacity. Part of that is product segmentation where companies like ndvideo recognize, like you said, if I have a user who wants thirty two gigabytes of memory, on the video card, they probably want to use it to make money, and so if I'm on video, I should make money because they're going to make money, right, So you segment that, and then the consumer is left

with things that are less viable. They have less longevity, so they won't age as well with the gaming graphics improvements, and causes kind of a circle of buying hardware sooner because it's gotten too unobtainable to go up to the high end where you might have that longer, that better longevity.

for some light manufacturing, and so they've done that. They're the only ones who've kind of gone that direction, but they were already going that direction. And their whole business model is speed, So if you need something, they can turn it around a couple days, whereas if you need a lot of something, you might be waiting months. Everyone else basically said that it's it is not feasible to bring manufacturing into the US for the products that they sell,

and a lot of that comes from supply chain. So the best way for me to contextualize it as a motherboard. A motherboard is roughly a one foot by one foot board that goes right in the middle of your computer. The CPU sockets into it, the GPU sockets into it, the RAM goes in it. You can think of it kind of like the brains down of the computer, and

a high end motherboard for a workstation or whatever. High end gaming PC has somewhere between eighteen hundred and three thousand individual components on it, so these are they get really small? Yeah, And so these components come from all over the place. So a motherboard factory is a service mount technology line, it's called an SMT line to mostly automatically pick and place components onto the board, and it's pulling those from normally reels like drums, almost like a

film reel of components. And those reels of components come from other companies, which come from other companies, And so you have a factory supply chain to make one part of one computer that might go, depending on how you want to count it, one hundred factories deep, or if you look at just sort of the big components after they've come from raw materials and things like this, you're still at maybe ten to thirty factories. And that's just

to make one part of one computer. Incredible, and so the challenge that all the companies enumerated to us was, you can bring the SMT line to the US and you can stamp these components down on it. You're gonna buy those components from somewhere else, and it's gonna be Vietnam, Thailand, China, mostly China, Taiwan and so forth. But if there's tariffs

on those parts which are about us. You know, they're not literal raw materials, but they're pretty close in the computer world, then you still face all the same challenges as before. So those would also have to come over to America. And then now you're bringing in capacitor supply or metal supply or rare earth metals, and pretty much no matter where you look, you're bringing something in from someone.

And and so I think it's just the challenge of what was stated to us was there needs to be a plan with kind of hard timelines of here's our target to move this industry's manufacturing by this date, and just flipping a switch it just seems to cost too much chaos there. You know, people would be timid to invest in a factory in the US that might take several years to build if they're not sure what's going to change tomorrow.

long difference versus if you played it locally. The other issue is the concern on the consumer side of you own nothing, right, and the more you own nothing I think kind of the more uncomfortable, certainly, and I think most of our audience gets with the product in general. And then the last concern is just that customization, where it may be a somewhat equivalent would be why if you can rent a car for about the same price as buying a car, why would you buy a car.

There's a lot of reasons. One is external forces. You have no control over that car. What if they want it back, what do you do right? You like car, they take it back. Or in the gaming world, if they just decide this game is not going to be available anymore, kill the license. It's gone, and you're talking about something that people have a very deep emotional connection with. It can just be snapped out of existence. So plus the customization, I mean, it's really fun to build a computer.

So that's my quick version.

kind of absorb the costs. And so it was really interesting when Steve was talking about microcenter and margin demand of twenty five percent and the frustration of people that actually make things that the retailers aren't necessarily budgeting on the margins that they want to see at their stores. That's really interesting, And I guess the question is if things get really bad, do the retailers start to move on that.

was like incredibly interesting. It's also sort of interesting this industry. I think part of the reason I was curious. You know, one of the stories in politics, of course, is the incredible success or the surprising success that Trump had with sort of young men in particular. And so when I think about an industry in which my guess is that many of the people in this space have drifted more towards that side of the aisle over the last several years.

And then now, you know, I don't know for sure how the gamer audience voted, but I suspect that there's a pretty solid Trump contingent in there. And so this is just going to be, you know, it's gonna be interesting to see the reaction.