Malaysia Roomba Production Begins in ‘Limited Quantities,’ Says iRobot
IRobot began producing “limited quantities” of one Roomba 600 Series entry-level robotic-vacuum model in Malaysia to reduce its exposure to the 25 percent List 3 Section 301 tariffs on Chinese goods, said the company Thursday. It plans to “accelerate volume production” of that model in Malaysia beginning Q1, and may shift production of additional models there “over the coming quarters and into 2021.”
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Plans for moving entry-level robotic-vacuum production to Malaysia have been on iRobot’s books for months (see 1907240031). The company said products coming off the line in Malaysia at the start will be costlier than comparable goods produced in China because Malaysian management labor rates are higher. IRobot also will need to incur first-time logistics costs for shipping components to Malaysia from China for final assembly.
Shifting sourcing to Malaysia “is a fundamental component in our initiative to diversify iRobot's manufacturing and supply chain capabilities, while also mitigating our exposure to current and prospective tariffs,” said CEO Colin Angle. The company previously announced the plans to begin a production line in Malaysia (see 1910230027).
IRobot awaits a U.S. trade representative decision on its List 3 tariff-exclusion request on the robotic vacuums it continues sourcing from China, said Merrill Lynch analyst John Babcock in a report Thursday. The July 1 request is in a “Stage 2" hold at USTR where it has remained for months.
Tariff relief likely would give iRobot “the greatest benefit to earnings,” said Babcock. He estimates a List 3 exemption would add up to $80 million to iRobot’s bottom line, including through the tariff refunds it would be due on the Roomba, retroactive to August 2018, when List 3 took effect.
Babcock thinks iRobot “has a solid case supporting its exemption application,” he said. CEO Angle said much the same on a July earnings call, acknowledging then that USTR’s exclusions review is “not a fast process.” If tariffs “were to remain an obstacle,” expect iRobot to “likely accelerate the production of Roombas in Malaysia," said Babcock. IRobot didn’t comment Friday.