The Tariff Buzzsaw Is Coming For Hardcore Gamers

Every industry is going to be affected by the trade war in different ways. In many cases, we don't know how it's going to play out. Other industries are seeing an immediate impact. Companies that specialize in computer gaming are highly reliant on inputs from China and other East Asian countries. These companies assemble customized gaming rigs and other peripherals (cameras, chairs, controllers, speakers etc.). On this episode, we're joined by Stephen Burke, the founder of Gamers Nexus, a publication and YouTube channel that primarily exists to review products in this space. When the tariffs were announced in early April, he immediately set out to film a documentary titled The Death of Affordable Computing. In that 3-hour video, he talked to numerous players in the space on their profit margins, and how they will be hurt by the changing trade policy. We speak to Steve about this industry, and what he learned about what tariffs will do to both their profitability, or even their viability as ongoing businesses. Read more:Microsoft Raises Xbox and Game Prices, Citing Rising CostsAmazon, Apple Earnings Show Tariffs Are Coming for Big Tech, Too Only http://Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 0:58Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:41Speaker 02

  Bloomberg Audio Studios. Podcasts, radio, news.

• 1:57Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lot Podcast. I'm Joe Weisenthal.

• 2:03Tracy Alloway?

  And I'm Tracy Alloway.

• 2:04Joe Weisenthal?

  Tracy, this has come up on the podcast, but one of the things with the tariffs is I still think for the most part, people are talking about them from like a fiscal standpoint, which is, okay, prices are going to go up. What does that do to inflation? What does that do to sales? What does that do to employment? And less about the potential for like actual economic chaos because something isn't getting to somewhere else that it needs to be.

• 2:28Tracy Alloway?

  You want to go more micro instead of the macro?

• 2:31Joe Weisenthal?

  Yeah. Okay, I'm good with that. We can talk to economists all day and they all have their estimates, et cetera. But you know, there's a limit to, you know.

• 2:39Tracy Alloway?

  I think we should. So one of the things we obviously learned during the pandemic is like, real things exist in the world and they have to come from someplace where they're made and be shipped over. And if there are disruptions, then those can snowball in quite a big way. And there's one product in particular that I think kind of embodies a lot of what we talk about when it comes to tariffs and manufacturing and disruptions. And that's computers, right?

• 3:06Joe Weisenthal?

  Totally.

• 3:06Tracy Alloway?

  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.

• 3:33Joe Weisenthal?

  It's a total spider web because then the chips get made and then they go to Malaysia for packaging and then they go back to somewhere else.

• 3:39Tracy Alloway?

  No, I skipped a bunch of steps.

• 3:42Joe Weisenthal?

  I think a lot of people like this idea of reshoring more tech. And that's obvious. We saw during the Biden administration, various efforts on chips, et cetera. But it certainly 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. There's just so many different links and parts of what's assembly and packaging and components and all that, et cetera. That you're going to announce a new set of tariffs one day and then industry will just like digest those tariffs and then, you know.

• 4:17Tracy Alloway?

  Open up a US factory the next day.

• 4:19Joe Weisenthal?

  Or put a little markup on it. It's like, okay, you know, whatever. Here's the tariff rate is 25%. You know, add 25% to what we sell to the selling price. Like the idea that it could be that simple is a kind of unrealistic.

• 4:33Tracy Alloway?

  We should talk about it. Let's get granular.

• 4:35Joe Weisenthal?

  Okay, so I am very excited. We are going to be speaking with Steve Burke. He is the editor in chief of a publication YouTube channel, et cetera, called Gamers Nexus. They do a lot of technical coverage of computer hardware, et cetera, which is a world that I basically know nothing about. I don't know much about gaming. I know that gamers, you know, they buy their own chairs and they buy their own speakers and they buy, you know, decked out cooling towers so that they could play, you know, super high speed, but I really don't know much about it. But Steve and his team at Gamers Nexus, about a week ago, actually two weeks ago, I think it was April 14th, put out an insane documentary, three hour long documentary on YouTube called The Death of Affordable Computing and the Tariffs Impact

• 5:20Joe Weisenthal?

  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.

• 5:33Speaker 05

  Oh, thanks for having me. Yeah, I'm excited.

• 5:36Joe Weisenthal?

  When Tracy and I do an episode of the podcast, we talk about tariffs, we're worried that it's going to be out of date and irrelevant by the very next day. And that's just like a 40 minute conversation sometimes with like one economist. Just tell us, how did you quickly, within basically 12 days of quote liberation day, unquote, put together and what did you put together this three hour documentary about this world of computer hardware, gaming hardware? What is, what was this project?

• 6:03Speaker 05

  It was fun. I mean, it was born from chaos. And so for us, the moment we pulled the trigger on it was when the, I'll use the formal name, the reciprocal tariffs as they're called, were put in place. And so basically immediately, as soon as that happened, I called. A bunch of companies I worked with over the last 16 years and everybody was ready to go on record, which is very rare, as I'm sure you all know. And we booked the flights for 12 hours from that moment, got on the plane without a return flight and just went out and started talking to people. So it was a, the, the underlying concern of this will all be out of

• 6:42Speaker 05

  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, the real decision-making that these companies are doing at a given moment.

• 7:07Tracy Alloway?

  Yeah. And at the very least, people will learn about the supply chain of PCs. So you always have that aspect of it. It seemed like people, and again, you spoke to dozens of companies here, but it seemed like people really wanted to talk about all of this. And in fact, I think you got some like competitors all together in a room to have a conversation about how they were all thinking and dealing with potential tariffs.

• 7:32Speaker 05

  That's right.

• 7:33Tracy Alloway?

  People want to come on and talk about this, which really highlights the urgency here.

• 7:38Speaker 05

  Yeah. So the, the biggest challenge that a lot of them are facing is I think they're concerned about what the consumer perception will be as prices go up or as stock dries out. And there's good reason for that. I mean, consumers absolutely are, are kind of number one coverage angle is, is cynicism, you know, it's being really critical of 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 were worried about is if we're not transparent right now, when we have this opportunity,

• 8:19Speaker 05

  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. So.

• 8:36Joe Weisenthal?

  No, that, that actually makes a ton of sense. Why it would be strategic for these companies to talk about the real impact so that. When they raise the price of whatever, that people understand why. But actually, talk about this, setting aside the tariffs. What is this industry? Talk to us about the existing gamer hardware industry that you set out to describe in this documentary.

• 8:58Speaker 05

  Oh, sure.

• 8:59Joe Weisenthal?

  Who are these players? And like, where do they sit? You know, what do they sell? What kind of products? Give us an overview of it.

• 9:05Speaker 05

  Yeah, so I think the most important thing for anyone who doesn't pay close attention to it is to be aware that computer gaming hardware is used in workstations and 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 potentially the same supply as in the same wafer 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.

• 9:48Speaker 05

  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 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, Nvidia, or AMD, I don't remember which. But talk about the sort of worldwide gaming, audience, PC gaming.

• 10:32Speaker 05

  Depending 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.

• 10:43Tracy Alloway?

  So you know, Joe's first question was about all the uncertainty over the tariffs themselves and the fact that we don't know what's going to happen tomorrow. Maybe there's another announcement and then maybe the day after there's some backtracking on it. It seems really difficult to plan for tariffs coming in when you don't even know what exactly they're going to look like or you know, when they might actually be phased in. What were companies actually saying about their plans for handling this so far?

• 11:12Speaker 05

  So the plans are interesting. The number one thing they were telling us is that it's difficult to plan when the plan potentially changes on a daily basis. So a number of the companies we spoke with, including an Austin, Texas-based repair shop run by a guy named Lewis Rossman, who's kind of well-known for Right to Repair, Corsair, which is a huge publicly traded company. So like you have this huge range. And generally speaking, the message we received was we can deal with a high tariff. What we can't deal with is uncertainty. So that 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

• 11:56Speaker 05

  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 eight or a 12-inch wafer that then contains all of the silicon that eventually goes into a computer. So a wafer is just a disk, 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 in the US as an example. And they then dice

• 12:36Speaker 05

  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 12 to 18 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

• 13:17Speaker 05

  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.

• 13:49Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 14:05Speaker 06

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service institutional clients.

• 14:14Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reece Merrick of Ripple says.

• 14:22Speaker 07

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 14:41Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 14:51Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX Means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs. And hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 15:35Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 16:14Joe Weisenthal?

  You know, I've never been a PC gamer, or really a gamer of any sort. When I think about computers, you know, I have, I have a, I have a Mac, a sort of, you know, some laptop, I forget which one. And I run my Bloomberg Terminal on a computer made by Hewlett-Packard. Or, and I think I have a webcam probably made by Logitech. 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, Nvidia, 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 be thinking about?

• 16:52Speaker 05

  Yeah, there's a ton of them. So Asus, you've probably heard of. Does that sound familiar?

• 16:56Joe Weisenthal?

  I think so, yeah. Yeah, yeah.

• 16:58Speaker 05

  So there's companies like Asus as an example, which is one of the larger ones. And they do just about everything. So they'll assemble computers. They also make motherboards. There's some scare quotes around that make I'll maybe come back to. And they make video cards, all this sort of type of thing, laptops. MSI is another one. Corsair is huge. So these three I've just named, they're all massive in the space. They're billion dollar companies. You also have hundreds of smaller ones. So just to rattle off a few, but CoolerMaster, Height, Crucial is actually large, they're owned by Micron. And you get into peripherals like LG is probably well known, but then some of their competitors are probably

• 17:40Speaker 05

  less known in the space. So to list off a couple like internal Yeah. component manufacturers, just for cooling alone, you have companies named Thermal Right, Thermal Take, there's CoolerMaster, 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. Noctua 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 Cyber Power, I Power, Dell, HP. Got it. And actually, there's, especially relating to the tariffs, there's something really interesting that I didn't

• 18:25Speaker 05

  put in that video, but 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. Hmm. A great example of this would be Deep Cool. Have you ever, did you ever hear about Deep Cool? I don't think so. Okay, so, long story short, Deep Cool got banned from the US.

• 19:10Speaker 05

  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 in the US, they're no longer sold, but they were pretty big here. Deepcool also, I haven't stated this publicly, but I, 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 design cooling components and cases and things like that. And so, some of their products in the past were made by Deepcool. Deepcool is a competitor to Be Quiet. So, these two companies, that one sources

• 19:54Speaker 05

  from the other, but they fight each other in the marketplace. And to be clear today, I'm not sure if Be Quiet still uses Deepcool because the US banned, 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 happen where some of these companies we spoke to, including CoolerMaster in the documentary, CoolerMaster's bringing in 4,000 pallets of computer hardware goods, which is an absurd amount of stuff.

• 20:35Speaker 05

  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 of 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.

• 21:04Joe Weisenthal?

  By the way, Tracy, so it looks like Deepcool, it's a Beijing-based company, and they got banned from the US for the business dealing, various business dealings in Russia. So.

• 21:16Speaker 05

  Just a little context there.

• 21:18Tracy Alloway?

  Thank you. Thank you, Joe, for 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 factories 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, to try to negotiate on prices. Was there much difference between the big and the small here?

• 21:57Speaker 05

  Oh, yeah. Yeah. The biggest difference was the ability to move production elsewhere. So, some of these companies are moving production to Vietnam, Thailand, and other countries, mostly in Asia. 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

• 22:42Speaker 05

  have factories. They might be able to absorb some of the excess filling 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, they're going to try and build a factory in the US. But what was interesting is that even those which can successfully move manufacturing out of China and to, say, Vietnam, indicated an expected 30 to 35% 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 that's before potential tariffs on those countries. So, the small

• 23:27Speaker 05

  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, 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.

• 24:05Joe Weisenthal?

  I have to imagine also that like, a large company presumably has customers outside of the US. And so, many of them probably, to some extent, large swathes of their business, might not be affected by tariffs, whereas like a small, specifically US-based company, you know, that's the whole thing.

• 24:24Speaker 05

  Yeah, and that's an excellent point because one of the things we ran into, you're talking about competitors being in the room in the video we shot. Yeah, so one of them, there's two companies, there's Cyberpower and iByPower. They're both in Southern California and they're actually basically on the same street. Despite both having power in the name, they are not related. And they both started around the same time in the late 90s. 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 Hite, which makes computer cases.

• 25:06Speaker 05

  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,

• 25:49Speaker 05

  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 100% of their computers in the US.

• 26:09Speaker 05

  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.

• 26:37Tracy Alloway?

  Yeah. And of course, there's an irony that the company which actually assembles stuff in the US is getting punished more than some other companies. There's another business that I wanted to ask you about specifically, and it is a logistics company that people use to actually, you know, transport stuff. It's called straightforwarding, which is a great name for like a mail company. But what are they seeing right now in terms of actual shipping volumes?

• 27:07Speaker 05

  So when we were talking to them, it would have been probably second week of April, I think. And what they were starting to see is that customers were indicating concern of the tariff. So this, just to put into perspective, the time I spoke to them, it was one day before the exemptions were announced, and therefore, two days before the exemptions were kind of unannounced. I remember that weekend, yeah. Yeah. Yeah. And then it was a day or two after the most recent round of tariffs. And so that at that time, the highest general tariff, you know, it's of course, it's different depending on the classification of the goods.

• 27:48Speaker 05

  The highest general, I think they quoted at 170%, 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 their 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

• 28:30Speaker 05

  was a year-over-year reduction anticipated for next week of, correct me if I'm wrong, I think something like 35%. Does that sound right? It sounds more or less, yeah.

• 28:39Tracy Alloway?

  Sounds possible, for sure.

• 28:40Speaker 05

  Yeah, so I think that's the number I read this morning. Anyway, what they're seeing is potential reduction in import, which means reduction need for people who do that job. And, you know, couriers, anyone in that whole chain warehousing, there's a ton of warehousing in City of Industry in California, and they're going to be impacted for sure.

• 29:18Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk, and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices, but according to recruiters,

• 30:03Speaker 01

  advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 30:41Joe Weisenthal?

  Stepping back, if it's setting aside the tariffs, what are gamers looking for when they buy? Whether it's, let's say, a tower, like, you know, I know there's some part of its design and then cooling, I imagine, sort of keeps it alive and healthy for high-quality cooling, keeps it alive. And then there's purely, you know, high-performance gear for the best gaming experience. Like, what does your viewer? What do they want? And what are they benchmarking various options against each other on what specs?

• 31:12Speaker 05

  Sure, yeah. So our viewers tend to build their own computers. So you call it DIY, right? Do-it-yourself PC building. And for anyone who hasn't done it, it's actually, it's really fun. It's pretty easy. It's like putting together Legos. It's just with way fewer pieces. But typically, they shop first based, you set your budget, you have an idea of what you might want to spend. The first two components people are pricing out are normally the CPU and the GPU. Those 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 Photoshop. And so like, just these three Adobe solutions alone,

• 31:57Speaker 05

  depending on which one it is, they can be very CPU or very GPU intensive. And the same is true for gaming. So people tend to spec 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, where what people are starting to go for if they have a little more budget is some kind of looks, focus. So you can, I mean, you can make computers look really cool these days. And yeah, and so there's, 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...

• 32:43Speaker 05

  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 in 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.

• 33:24Tracy Alloway?

  Joe, do you remember that old show Pimp My Ride?

• 33:26Speaker 05

  Yeah.

• 33:27Tracy Alloway?

  Where they did makeovers of cars? We need to like pimp my computer kind of thing. Where they just like.

• 33:32Speaker 05

  That doesn't exist.

• 33:32Tracy Alloway?

  Yeah, I would, I would actually watch that.

• 33:35Speaker 05

  You would watch that, wouldn't you? Yeah, I could see you watching. There was, there is a, another YouTuber in the space, Jay's Two Cents, who basically did that for Terry Crews, actually, as in the actor. Yeah.

• 33:47Tracy Alloway?

  I'm gonna look that up.

• 33:48Speaker 05

  Yeah. He built them a gaming PC.

• 33:51Tracy Alloway?

  Very cool. Talk to us a little bit more about pricing because it sounds like everyone agrees that the tariffs are going to be, the cost is going to be borne by the American consumer and so prices are going to have to come up. But also, when we're talking about tariffs that are almost, you know, 200% in some cases, it feels like that is such a significant increase that you're also going to see volumes fall and demand destruction, which normally would pull prices down. But I 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.

• 34:33Speaker 05

  Yeah, I think it could pull prices down eventually. In the short term, though, I mean, if their options are losing hundreds of dollars per device or letting it sit on a shelf, I think right now, there's not enough pain to, well, for most of them anyway, to take that hit just to liquidate whatever they can. So pricing, I think it's pretty safe to say it's going to 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 initial increase in 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

• 35:16Speaker 05

  prices are going to come down in step with a tariffs reduction, 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 in 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,

• 36:00Speaker 05

  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 Micro Center. And they are like a highly specialized Best Buy. I mean, if you do DIY PC building, they're your number one physical choice. The retailers would be like Newegg or Amazon. And what we learned is that some of these retailers, like Micro Center, have very rigid margin demands. And so for computer cases, for some of the companies we spoke to, the margin demand is about 25%. And that means these case manufacturers are often making less than, just in terms of percentage or even dollar amount.

• 36:43Joe Weisenthal?

  Like if they want to get Micro Center shelf space?

• 36:46Speaker 05

  Correct. Yeah. Yeah. So that secures the shelf space. And I think under typical conditions, I've had companies badmouth 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.

• 37:31Speaker 05

  But the question is, if a $360 computer case that has all these bells and whistles now has to be sold for $600 to $700, 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 a real chance of that, especially in niche industries like this one.

• 38:02Joe Weisenthal?

  Yeah, so, you know, let's say, you know, my son isn't old enough yet, thankfully, to be a hardcore gamer, but it's probably only a matter of years because I see how much he likes screens of all sorts.

• 38:14Tracy Alloway?

  I wonder where he gets that from.

• 38:16Joe Weisenthal?

  Yeah, right, right. It is my fault. But let's say, you know, I, you know, it's later in the year and I'm like, okay, I want to buy him a Christmas present. For the gamer in your family or in anyone's family, what do you think this Christmas looks like in terms of higher prices and diminished variety of options?

• 38:33Speaker 05

  Yeah, the reduced variety is a big one because if you're consolidating your order volume, you're reducing your order volume, you might have to consolidate the SKUs, right? So suddenly the 1,500 units of red become 1,500 more units of black computer cases. And so that definitely would reduce, I think, the choice, or at least the variety, 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,

• 39:16Speaker 05

  or just the computer's 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 on to 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. 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

• 40:01Speaker 05

  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-

• 40:14Joe Weisenthal?

  Right. Why allocate silicon capacity when you could be selling to AI data centers? Anyway, sorry, keep going.

• 40:20Speaker 05

  Exactly. No, I mean, that's exactly right. Yeah, it's, and like Intel, for example, with its GPUs, they have a small GPU effort in consumer they've been pushing. One of the people at Intel stated to me in the past, we should be wrapping these in dollar bills when we ship them out the door, because they're fighting so much on the pricing with Nvidia and AMD, that 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

• 41:03Speaker 05

  for the dollar, so there's lower memory capacity. Part of that is product segmentation, where companies like Nvidia recognize, like you said- If I have a user who wants 32 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.

• 41:46Tracy Alloway?

  So I just have one last question. Obviously, the stated goal of the tariffs is to move manufacturing production to the States. Did any of the companies that you actually spoke to talk about this as a possibility? And what are the sticking points, other than the timeframe of building a new factory? What are the sticking points or the challenges in actually making more stuff in the US?

• 42:12Speaker 05

  Almost all of them indicated that this is not a possibility any time in the near future. There's one exception, which is a company we spoke to called Protocase. And Protocase is part of another company that makes enterprise and server equipment called 45 Drives. And so these companies, they are headquartered in Canada. And for the last 12 years, the owner was telling us, or the co-founder, I should say, they were looking at opening a plant somewhere in the US for assembly and 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.

• 42:55Speaker 05

  So if you need something, they can turn it around in a couple of days. Whereas if you need a lot of something, you might be waiting months. Everyone else basically said that 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 is a motherboard. A motherboard is roughly a one foot by one foot board that goes right in the middle of your computer. The CPU socket's into it, the GPU socket's into it, the RAM goes in it. You can think about it kind of like the brainstorm of the computer. And a high-end motherboard for a workstation or whatever, a high-end gaming PC, has somewhere between 1,800 and 3,000 individual components on it.

• 43:39Speaker 05

  So these are, they get really small. Yeah. And so, these components come from all over the place. So a motherboard factory is a surface 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, 100 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 10 to 30 factories.

• 44:24Speaker 05

  And that's just to make one part of one computer. That's 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 going to buy those components from somewhere else and it's going to be Vietnam, Thailand, China, mostly China, Taiwan, and so forth. But if there's tariffs on those parts, which are about as, 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.

• 45:09Speaker 05

  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, it, it just seems to cause too much chaos there. You know, people would be timid to invest in a, a factory in the US that might take several years to build if they're not sure what's going to change tomorrow.

• 45:42Joe Weisenthal?

  I just have one last question, too, and I sort of have this nagging feeling that I might be stepping into a gamer landmine, but I literally don't know at all. Do it, Joe. Why not just, you know, all this stuff, it feel, the idea of having to like worry so much about the specs on your own computer, sort of feels retro. I just do every, all my work in a browser. Why not just like the whole industry go to cloud gaming and not have to worry about the spinning disk in your home?

• 46:09Speaker 05

  Oh, you're hurting me.

• 46:10Joe Weisenthal?

  Yeah. In one minute or less. No, let's, um, tell, like, could there just be a shift to cloud gaming? I don't know. Say about that. What are the constraints? Why not Netflix for gaming or whatever?

• 46:20Speaker 05

  Sure. The shortest possible answer I have is latency and control or customization. So as quickly as possible, I mean, latency is the responsiveness between your input and what happens on the screen. And going through networking infrastructure, you might be at two times longer, three times longer latency, meaning that when you push the button on the controller or the keyboard, you don't see that action until a perceptibly 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

• 47:03Speaker 05

  uncomfortable, certainly I, 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 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 the car, they take it back. Or in the gaming world, if they just decide, this game's 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, and 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.

• 47:48Joe Weisenthal?

  Our producer Dash says I asked a noob question there. Steve Burke, Gamers Nexus, it's really phenomenal work that you put together. I really would encourage all the listeners to go check it out. And thank you so much for coming on Odd Lots.

• 48:00Speaker 05

  Thank you. It was fun.

• 48:14Joe Weisenthal?

  Tracy, I think there was one point in my life, maybe like, I don't know, 2010, I'd gotten my idea, I should build a computer. I never did it.

• 48:22Tracy Alloway?

  Oh, I thought you were gonna say you should get into gaming.

• 48:25Joe Weisenthal?

  No, I should not get into gaming. I thought it might be fun and I was like, I don't know. But it does seem, it does seem cool to build your own computer.

• 48:32Tracy Alloway?

  I imagine, yes.

• 48:34Joe Weisenthal?

  Thing is, all I do is tweet and email and I really cannot justify like-

• 48:38Tracy Alloway?

  You want to get your hands dirty?

• 48:40Joe Weisenthal?

  No, I do kinda. It seems cool, but I can't really justify it because I don't do anything that's particularly computing intensive.

• 48:46Tracy Alloway?

  All right. Well, let me know if you decide to. You could do like a pie or something like that. There is so many interesting things to actually pull out of that episode, but I guess the big one for me is the question of where does the pain of tariffs actually land? And I know everyone's expecting higher prices at this point for consumers, but there are still all these additional layers where you could see companies or other entities kind of absorb the costs. And so it was really interesting when Steve was talking about Micro Center and margin demand of 25% and the frustration of people that actually make things, that the retailers aren't necessarily budging on the margins that they want to see

• 49:30Tracy Alloway?

  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?

• 49:38Joe Weisenthal?

  There's so many, so many interesting micro and macroeconomic stories that you could take out of this one industry, including who bears the pain, who eats the margin, the question you asked about the difference between large and small companies and the risks that they can take. Obviously, you know, the web of supply chain is extraordinary complex and the uncertainty and how even one piece of moving manufacturing back would require like multiple different kinds of factories. I just thought 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 a sort of young men.

• 50:23Tracy Alloway?

  Yep.

• 50:23Joe Weisenthal?

  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 going to be interesting to see the reaction.

• 50:44Tracy Alloway?

  I imagine there's going to be a lot of coverage of this issue in the gaming community. So we'll have to watch out for it. Maybe have Steve back on the show.

• 50:51Joe Weisenthal?

  Yeah, absolutely.

• 50:52Tracy Alloway?

  Shall we leave it there for now?

• 50:53Joe Weisenthal?

  Let's leave it there.

• 50:54Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 50:59Joe Weisenthal?

  And I'm Jill Weisenthal. You can follow me at TheStalwart. Follow Steve Burke's coverage at Gamers Nexus. Follow our producers, Carmen Rodriguez, at Carmen Armin, Dashil Bennett, at Dashbot, and Kale Brooks, at KaleBrooks. For more Odd Lots content, go to Bloomberg.com/oddlots. We have a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, where we even have a gaming sub-channel. That's discord.gg/oddlots.

• 51:26Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about computer games and the supply chain of PCs, then please leave us a positive review on your favorite podcast platform. And remember, if you're a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 52:42Speaker 08

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