Speaker maker Sonos Inc. is working with suppliers to boost production capacity in Malaysia to lower its tariff costs, but the company’s efforts have been hampered by coronavirus restrictions and a shortage of semiconductors.
Santa Barbara, Calif.-based Sonos, which sells voice-activated, internet-connected speakers and other audio electronics, plans to source all of its U.S.-bound products from Malaysia by the fall, Chief Financial Officer Brittany Bagley said. The U.S. is the company’s core market, generating more than half of its revenue.
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“It has taken longer than we thought it would, but we’re still very much on track with our Malaysia strategy,” said Ms. Bagley, who became the company’s CFO in 2019.
That year, Sonos began relocating orders with Chinese suppliers to Malaysia in an effort to diversify its supply chain. Its tariff costs have since come down, but the company wants to reduce them further, as tariffs remain in place between the U.S. and China. Sonos declined to provide a percentage for its U.S.-bound products currently made in China.
The company said it would continue to source products for sale in Europe, the Middle East, Africa and the Asia-Pacific region from China, which made up about 42% of revenue during the quarter ended April 3. Sonos doesn’t own or operate any plants.
Its plans to increase orders from Malaysia have been met with obstacles. Manufacturing plants in the country had to shut down temporarily because of pandemic-related restrictions and Sonos faced challenges in hiring workers. The company declined to say how many suppliers it has or how much it will cost to boost orders from manufacturing partners in Malaysia.
“What we pay in tariffs has come down materially,” Ms. Bagley said, referring to the shift to Malaysia and a reduced tariff rate for imports from China last year. The tariff rate fell to 7.5% in February 2020 from 15% previously as part of a trade agreement between the U.S. and China. Ms. Bagley declined to provide figures on how much Sonos pays in tariffs.
Source: WSJ
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