The European Union’s president, Ursula von der Leyen, indicated that retaliatory tariffs on US digital goods could be implemented. This potential action, reported by the Financial Times, may challenge IT leaders in their digital and AI initiatives. Previously, Computer Weekly highlighted that current tariffs are affecting multiple countries exporting to the United States, despite a temporary 90-day reprieve from the White House.
Impact on Data Centre Costs
The introduction of tariffs is expected to raise prices on data centre equipment, affecting both on-premise and public cloud deployments. Forrester principal analyst Lee Sustar noted that these trade tensions will disrupt the public cloud sector in several ways. In the short term, cloud service providers may face higher costs for supplies, but their bulk purchasing power on chips and cables offers some flexibility.
However, ambitious infrastructure projects like Microsoft’s proposed $80 billion AI data centre expansion will face increased costs due to rising material prices, while demand for cloud services might diminish amid economic uncertainty. Consequently, cloud providers may need to reconsider large investments and could pass these increased costs onto customers.
Data centre equipment manufacturers are currently taking a wait-and-see stance regarding the implications of existing and forthcoming tariffs on manufacturing costs. Dell’s COO, Jeff Clarke, emphasized their robust global supply chain designed to adapt to trade regulations. Similarly, HPE’s CFO Marie Myers acknowledged that recent tariffs have introduced uncertainty, particularly impacting their server business, and noted ongoing efforts to mitigate these effects through adjustments in their supply chain and pricing strategies.
HPE CEO Antonio Neri indicated that the company would leverage its global supply chain to manage the expected impacts, signaling potential pricing adjustments ahead. Lenovo, on the other hand, highlighted its capability to shift orders among different manufacturing sites and maintain supply chain resilience through comprehensive control and a geodiversity program aimed at sourcing components from various locations outside of China and Taiwan.
While Alphabet, Amazon, and Microsoft have not publicly addressed tariffs in recent earnings calls, Forrester’s Mark Moccia suggested that all public cloud providers will likely face increased costs due to the recent trade actions. He pointed to anticipated rises in the prices of PCs, IT infrastructure, cloud services, and chips, advising IT leaders to prepare for budget adjustments that may force prioritization of critical projects.
Regarding public cloud services, while not currently tariffed, the underlying costs associated with these services could rise as material costs and currency fluctuations impact pricing structures. If other nations retaliate against US offerings, the commercial landscape could become even more complex.
Strategic Purchasing Opportunities
Moccia suggested that IT leaders might utilize the current 90-day reprieve as an opportunity to negotiate more favorable contracts with hardware and cloud service providers before tariffs take effect. Canalys reported a rise in PC shipments recently, as organizations are opting to upgrade their devices preemptively. IT buyers may find it advantageous to expedite orders for data centre infrastructure now rather than postpone until later in the year. Similarly, securing reserved cloud instances at this time could help buffer against potential price increases.