A tariff storm is sweeping in, how will hardware and networking companies in the US position themselves?

Recently, JPMorgan Chase released a deep research report on non-cyclical companies in the hardware and networking industry after tariff adjustments. With the backdrop of changes in tariff policies, the operations and development trends of companies in the industry have attracted market attention, and their response strategies and business performance deeply influence investors' decision-making. Ciena (CIEN.US) has implemented surcharge pricing to offset tariff impacts. Most of its supply chain is spread across Mexico, Thailand, Canada, and India; most products related to Mexico and Canada conform to the USMCA standards. Management emphasizes that for products with increased costs due to tariffs, they have started charging surcharges for all customers, treating all industry customers equally. The business growth from January to March was not driven by advanced demand. Management pointed out that a large amount of software components are embedded in its optical networks and switching/routing products, meaning that the cost basis of hardware is lower than investors expected. In addition, management believes that orders did not benefit from customers' early purchases, and in 2024, after completing inventory digestion, most customers have returned to normal purchasing patterns. Cisco Systems, Inc. (CSCO.US) has included tariff-related gross margin guidance. Tariffs included in the guidance based on compliance with the USMCA may drive profit margin improvement. Since the announcement of tariffs, most companies' understanding of products that comply with the USMCA has changed, helping to address potential adverse factors related to guidance. Order trends are expected to remain relatively stable, with strong demand for campus networks. During periods of macroeconomic uncertainty in the past, order trends fluctuated significantly, with some customers placing orders early, while others paused purchases to observe the market. However, considering that order trends have been below seasonal levels since 2024, the company believes that there is limited downside to order declines from the current order execution rate, as most of the current customers' purchases are focused on critical system orders. In the field of campus networks, Cisco Systems, Inc. believes that customers are upgrading their networks due to aging infrastructure, the trend of returning to work driving network demand growth, and the integration of artificial intelligence applications. Dell Technologies, Inc. Class C technology (DELL.US) has limited manufacturing-related disclosures, but claims to have confidence in addressing tariff issues. The company's information on manufacturing layout is relatively opaque, emphasizing this as a competitive advantage compared to peers, but the company reiterates that reducing costs and implementing price increases remain the primary tasks to address tariffs. In terms of price increases, Dell Technologies, Inc. Class C emphasizes that the experience gained during the pandemic allows them to adjust pricing quickly. Flextronics, Inc. (FLEX.US) brings positive trends from the streamlining of suppliers in its large-scale customer base. Like other large-scale customers, this customer is consolidating suppliers, reducing from about 5 to 2-3. In addition, the company aims to increase its business share in the power and service sectors. North American capacity is used to manufacture IT and automotive products. The profit drivers of each business sector are slightly different, with the reliability business having higher fixed costs and a lower proportion of services; while the agile business has higher variable costs and a higher proportion of services in the overall business. Hewlett Packard Enterprise Co. technology (HPE.US) emphasizes diversity in manufacturing layout and its Mexican factories complying with the USMCA. There is also a lack of transparency in Hewlett Packard Enterprise Co.'s manufacturing layout information, but it is pointed out that its layout is diversified despite variations due to different businesses. The company states that the growth pace of AI servers throughout the year is relatively small, depending more on customer timing, and the peak of revenue growth in the second half is expected to occur in the third fiscal quarter (ending in July). In addition, the company is confident about the continued progress of network upgrades, benefiting from enterprises going through a period of inventory digestion and an increased emphasis on upgrading outdated infrastructure in the backdrop of AI investments. Jabil (JBL.US) management emphasizes that about 17% of manufacturing capacity is located in the United States in terms of revenue. Currently serving smart infrastructure and some healthcare customers, the capacity utilization rate is around 85%. Similarly, the capacity utilization rate in Mexico is currently 75%, with 80-90% of the capacity complying with the USMCA. The strategic focus continues to reduce involvement in the consumer end market. The profit margin of the consumer end market is relatively low, and using US capacity to serve faces several challenges: such as the concentration of the supply chain ecosystem in China; labor costs are five times higher than in China; and the supply of large-scale labor during peak periods presents challenges. Mexico is expected to benefit from supply chain restructuring, although the supply situation is not as competitive as China, there is potential to meet the needs of large factories. Currently, no customers have explicitly committed to transferring production or capacity to the US or Mexico, but the company has seen an increase in customer-related inquiries. The direct impact of tariffs on Mobileye Global (MBLY.US.US) is limited. The chips needed for Mobileye's solutions are manufactured in STMicroelectronics NV ADR RegS (ST Microelectronics) European factories, then shipped to automotive supplier factories, most of which are in the US for overall product assembly, before being shipped to OEM factories in regions like Mexico. Due to 1) limited direct processing steps for the product; 2.) most downstream product assemblies are done in the US; 3.) the product accounts for a very small proportion in the entire car bill of materials, the direct impact of tariffs is expected to be limited. Automotive OEMs are gearing up for pre-purchases in the second half of 2025. Although there are limited signs of customers purchasing components early in the first quarter, communication with customers at the end of the first quarter suggests that they will begin pre-purchasing components.The guidelines indicate the possibility that customers may purchase components in advance for cars to be delivered in the second half of 2025.The average selling price (ASP) of the mass-market project's surround ADAS system may be at the lower end of the $150-200 range. Given that the product has won its first bid and faces intense competition in the market for lower levels of autonomous driving, the pricing of the mass-market project's surround ADAS product may be close to the lower end of the typical price range for such products.