The wave of foreign investment retreats caused by the U.S.-China trade war continues. U.S. floor-sweeping robot maker iRobot on Tuesday (May 4) resolutely parted ways with longtime partner Kin Yat Holdings Ltd. in Hong Kong, whose shares then plunged on the Hong Kong Stock Exchange, closing down 16.8 percent to 94 HK cents (HK$0.94).
According to a filing by Kin Yat on Tuesday, one of the company’s “significant customers”, “a leading U.S. technology company specializing in the production of floor sweeping robots,” is terminating its service contract with Kin Yat, noting that as of March 2020 Kenyon derives 55% of its annual gross revenue from this customer.
Kin Yat’s reliance on iRobot peaked in the year ending March 2019, when the U.S. customer accounted for 65 percent of its total revenue, or HK$2.66 billion (US$340 million). That figure dropped to HK$1.7 billion ($210 million) the following year.
Kin Yat said the customer terminated the contract because it wanted to diversify its production locations and took into account that production costs in China were rising.
Kin Yat Group began manufacturing toys in 1981 and moved from Hong Kong to Shenzhen in 1985. 2007 saw a partnership with iRobot to develop Roombas, or floor sweeping robots. The group’s factories are mainly concentrated in China.
Amid rising tensions between the U.S. and China, iRobot has gradually begun to shift production out of China in recent years.
Julie Zeiler, iRobot’s executive vice president and finance officer, said on a conference call Tuesday that the company’s plan to significantly increase production in Malaysia this year is going well despite a tightening labor market, the Nikkei reported. She predicted that by the end of 2021, the company will have enough capacity in Malaysia to support the vast majority of demand in 2022 and North America.
iRobot had said in February, “We believe (by shifting the production chain) will significantly reduce and potentially eliminate the risk of current U.S. (high) tariffs on Chinese products, and mitigate the geopolitical risks associated with concentrating production solely in China.”
Zeller noted that the U.S. reinstated a 25 percent tariff on floor-sweeping robots imported from China earlier this year, which she said added $3.4 million to costs in the first three months. Without those tariffs, gross margins would have improved by 1.1 percentage points.
According to iRobot’s website, the company’s manufacturing partners in China also include private Chinese automaker BYD, Hong Kong-based Simatelex Manufactory Ltd. and U.S.-based Jabil Group (Jabil). One of these partners is already producing iRobot’s goods in Malaysia in 2019.
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