Jabil sees China tariffs as a short-term opportunity

A mounting trade war between the United States and China doesn’t seem to be worrying the chief financial officer at manufacturing services firm Jabil Inc.

Jabil (NYSE: JBL), the largest company headquartered in St. Petersburg, has more than 100 facilities, but about half of its 44 million square feet of total space is in China.

Michael Dastoor, CFO, Jabil

“In the short-to-medium term, we see this as an opportunity,” said Michael Dastoor, Jabil’s CFO, at the J.P. Morgan Global Technology, Media and Communications Conference in Boston Tuesday.

It would be difficult for Jabil’s largest customer, Apple Inc., to move production out of China, while Jabil might pick up additional customers at its manufacturing plants in other countries, Dastoor said.

President Donald Trump raised tariffs on $200 billion in U.S. imports from China from 10 percent to 25 percent last Friday, and has said additional tariffs may be imposed. China has retaliated saying it will impose increased tariffs on $60 billion in U.S. products starting June 1.

The tariffs caused a sharp stock sell-off Monday. The markets gained back ground on Tuesday, but many companies that make products in China for sale in the U.S. are worried, economists say.

“We’re getting more and more customers asking us about alternatives, asking for cost and pricing, but no one is moving at this stage,” Dastoor said.

Jabil makes iPhone casings and other products in China for Apple, and that company accounted for 28 percent of Jabil’s $22.1 billion revenue in its last fiscal year. Dastoor did not refer to Apple by name — Jabil officials typically refer to Apple as “our largest customer” and the products it makes for Apple as part of its mobility business  — but he said it would be difficult for the customer to move.

“You can’t just lift the mobility piece and move it to another country. You would have to lift the entire supply chain — the components, the raw materials that go with it. So it’s not an easy thing. There’s millions of people involved in the supply chain and there are not that many countries in the world that can put up a supply chain that quickly for that scale,” Dastoor said.

If some Jabil customers do decide to shift production out of China, Jabil can accommodate them, he said.

“We’re in 30 countries and 29 of them are not China. We have worldwide capacity, in Vietnam, in Malaysia, we’re in parts of eastern Europe, Mexico, Brazil, the U.S. We’re worldwide from an operational standpoint,” Dastoor said.

There are original equipment manufacturers with their own plants in China that could turn to Jabil for help, he said.

“If they decide they have to move out, they’re not going to set up another factory in Vietnam or India. They will come to a [contract manufacturer] like us, who has capacity, who has the setup , who has local knowledge, who knows the regulation, who knows the tax structure, knows how to employ people, knows where to get engineering capability from. Not many people have that expertise,” Dastoor said. “So in the short-medium term we see that as an opportunity for us to build in other parts of the world. Our capacity can be taken up and down relatively easy in most parts of the world, so we have to increase our capacity elsewhere, we can do that as well.”

One of Jabil’s clients, GoPro, a tech company that makes cameras, recently moved production from China to Mexico, but Dastoor said the move wasn’t only about tariffs. “It was about the product portfolio, access to the U.S. markets, all of that led to that decision,” he said.

Morgan Stanley’s chief U.S. equity strategist said Monday that the U.S. economy could fall into a recession if the trade war keeps escalating, a report from CNBC said. Dastoor was less specific about the impact of a prolonged trade war.

“Does this create a far bigger scenario in terms of recession?  Who knows,” he said.