Trump’s tariff threat may speed cloud adoption

posted in: Cloud/SAAS | 0

By:  Patrick Thibodeau

President-elect Donald Trump’s threat to impose tariffs on goods manufactured in Mexico and offshore may accelerate the movement to cloud computing, analysts said.

IT managers may seek to protect their companies from higher hardware or capital expenditure costs by shifting more of their IT spending to services. This shift is well underway, and the new administration may push it along, even before Trump takes office next month.

At this point, industry analysts are uncertain as to what Trump has planned. His statements regarding tariffs are short, vague and sometimes delivered by tweets.

Throughout the campaign and since the election, Trump has said he intends to impose a 35% tariff on goods made by any company that leaves the U.S., fires its employees and then sells its products back in the U.S.

If Trump’s threatened tariff only applies to industries that shift work to Mexico or offshore after the new president takes office, then it won’t affect the IT industry all that much, said John Lovelock, an analyst at Gartner.

Many companies that sell servers here are not U.S. companies, such as Fujitsu, Hitachi, Lenovo, NCR, NEC and Huawei, among others. U.S.-based companies, notably Hewlett-Packard Enterprise and Dell, have been making hardware overseas for years.

Then there are the tech vendors, for both enterprise and consumer markets, that have never manufactured their products in the U.S., but instead have contracted with manufacturers in China and elsewhere. These products include Apple’s iPhones, which are assembled in China.

In a speech in January, Trump said: “We’re going to get Apple to start building their damn computers and things in this country instead of in other countries.” Trump has not said how he plans to accomplish this.

But if the cost of hardware increases because of Trump’s policies, buyers will respond.

“We’re already seeing a shift from ownership to service, from [capital expenditure to operating expense], the world has been pushing us that way,” Lovelock said. Instead of buying a new server, for example, a company might use a cloud platform provider or move to a software-as-a-service vendor.

“Even if the tariff doesn’t come in, businesses have to operate as though it might,” Lovelock said.

David Wagner, vice president of research at Computer Economics, sees a number of impacts resulting from tariffs, such as slower PC refresh rates. Today, at the median, companies are refreshing their PCs about every four years, he said.

“Virtual desktops, SaaS and other cloud options that take some of the heavy lifting from PCs might allow those refresh rates to extend,” Wagner said.

“The biggest thing I think you’d see would be more adoption of cloud,” he said.

Computer Economics, in its latest IT Outlook study, found that for the fourth straight year, IT organizations aren’t expecting any increase in capital budgets, which it attributes to a growing movement toward the cloud, Wagner said.

“Obviously, cloud companies will still have to pay the tariff like an IT organization, but the inherent efficiency in cloud provider setups should allow them to absorb the cost better than other organizations,” he said.

Another potential problem may be the cost of big data programs. “Cheap storage is one of the leading factors in big data,” Wagner said. “Remove it from the equation and some companies might feel a need to scale back on what they choose to keep.”

Trump reiterated his tariff plan in a series of tweets this month that, when combined, made this statement: “The U.S. is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S., without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies,” Trump tweeted.

But beyond that statement, Trump appears ready to leave companies guessing about his strategy until after he is sworn into office