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Welcome to Tech News Briefing. It's Tuesday, April 29th. I'm Victoria Craig for The Wall Street Journal. IBM plans to plow billions of dollars into its U.S. business at a time when the company is trying to prove its mettle in the world of AI. Then, big tech companies got a reprieve from the Trump administration's latest tariffs. We'll tell you why small tech is looking for ways to survive.
But first, IBM said yesterday that it plans to spend $150 billion over the next five years to bolster its manufacturing and R&D in the U.S. The company said it's all in the name of reaffirming a commitment to American innovation and economic opportunity. It also comes as President Trump's tariffs threaten to make international manufacturing more expensive.
My colleague Katie Dayton spoke with WSJ Heard on the Street columnist Asa Fitch about how economic uncertainty is posing a challenge for IBM's ambitions and about the role artificial intelligence plays in Big Blue's overall strategy.
Asa, when I hear the name IBM, I don't necessarily think of artificial intelligence. It's not a company we hear often listed amongst the likes of OpenAI and NVIDIA. When did the company first turn its attention to this technology? IBM has been...
around since 1911. It's a very old company and it's been a pioneering company in a lot of technologies, including AI. You may remember that its Watson computer beat the champions at Jeopardy a number of years ago. Also, its Deep Blue chess computer beat then world champion Garry Kasparov a while back. So IBM has been doing AI for a long time. The thing is, it
It hasn't been a big prominent name in the recent AI boom for many people. You mentioned in the story that it's been working on AI quotes without much fanfare.
Why hasn't it been a bit flashier about the work that it's doing in this space? The thing is for IBM, which is basically a business-focused company, is focused on other corporations and how they use AI. You know, it's been a bit below the radar. There's not a lot of popular awareness of what companies are doing with AI.
But companies are doing a lot with AI. They're trying to harness AI for chatbots to interact with customers or a lot of internal processes that people just don't see, using their internal corporate data to do things autonomously and all sorts of other projects and applications and things like that. So IBM has been helping a lot of companies do that through its consulting business. And stepping back.
How has its approach to AI, how does that fit in with what its CEO, Arvind Krishna, wants to do on a grand scale with the company? So Arvind Krishna, since he came on in 2020, has changed the company a lot. There was an old philosophy at IBM where everything IBM did had to be about steering customers toward other IBM products, other IBM services.
These days, you know, the thing is, companies don't want to do that. They don't want to be locked into one company's products. They're much more varied in how they approach their IT setups, which is where IBM really operates. So IBM under Krishna has become more of a facilitator of what companies want to do and a lot more agnostic about which company they choose or which service they choose.
And that's helped IBM a lot because its customers appreciate that attitude, that lack of lock-in. I mean, I'm not going to say that IBM never tries to lock in customers. They do in some ways, but their approach has been much more, especially on the software side, in the sort of open source philosophy of do whatever you want and we'll help you do it. And that plays into their AI strategy and what's made them successful.
succeed in AI. They've basically offered companies consulting, hand-holding, essentially to help them do AI in whatever way they want to do AI. And where has IBM signaled it's going to go next with its AI business? That's kind of the big question hanging over the company. There's a lot of concern about AI in the long run for corporations and how IBM can play in that market. Clearly, they've built up a big business, but there's a possibility that AI evolves in such a way that
That was Katie Dayton speaking with our Heard on the Street columnist, Asa Fitch. Coming up, less product availability, more subscriptions, maybe even higher prices. Those are some of the coping strategies that small tech companies are using to deal with tariffs. More after the break.
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Earlier this month, big tech companies like Apple and Nvidia got a reprieve from President Trump's tariffs. That means, at least for now, laptops, cell phones and smartwatches are exempt from higher import taxes on goods from China. But starting May 2nd, small tech companies could see the cost of bringing their China-made products to the U.S.
surge. That's because the de minimis provision, a commonly used exemption on items that sell for $800 or less, will expire. WSJ personal tech columnist Nicole Nguyen has been looking into what it means for American gadget makers and consumers like you and me. So Nicole, walk us through how some of those small companies are balancing supply and possible changes in demand.
So a lot of what consumers are purchasing today, that's inventory that was purchased pre-tariff. So consumers won't see rising prices immediately. But once that stock is depleted and goes out of stock,
then companies are going to have to face emptier shelves or ingest that inventory from abroad and pay tariffs should it be after the 90-day pause if it's outside of China or pay the 145% tariff levied on Chinese goods and raise prices for consumers if they can't absorb that themselves. And there aren't many companies that can absorb that other than the biggest companies in the world. Any
And you talked to a couple of those smaller businesses that are doing things like putting U.S.-bound shipments from China on hold or potentially raising prices. Just walk us through some of those options. I talked to one company named Flouse, which makes an electric flosser. And this electric flosser contains lots of tiny components. And that precision assembly is really only done in China. So that's why the Flouse is made in China.
The owner is considering bringing that inventory that she has just finished manufacturing in China stateside and putting the stock in what's called bonded warehousing. And bonded warehousing allows importers to defer customs payments to a later date.
And she's hoping very desperately that the tariffs will come down. And that's the bet that she's making. But it's a risky one. Even if U.S. tariffs on China do come down, there's already a problem brewing there because when some companies moved where they're getting their supplies from, that has inherently pushed up the cost because to get them to the United States is now more expensive. That's right.
That's right. The 90-day pause has caused a rush for importers to put their stuff on boats from either Vietnam or any of the non-China tariffed countries to put their stuff on a boat to the U.S. And that rush has caused shipping prices to increase. One company I spoke to said that their prices from Vietnam went up 25% last week.
So even if this tariff situation was fixed tomorrow, we are probably looking at higher shipping costs all around. And eventually, potentially a shortage of supplies on the shelves if companies can't get those supplies to the U.S. Yes, exactly. Most companies have anywhere between one to two months worth of stock left in
But there is a big shopping event ahead, which is Prime Day. Amazon Prime Day is a very big day for these companies, and they are just hoping that they have enough stock to make it to that day. And if they don't, then they will be facing loss of revenue and potentially putting the jobs of their teams at risk. One way that companies have been able to keep revenue flowing despite all of these tariff obstacles is through subscriptions.
We can expect to see more companies implementing those kinds of subscription-based models.
It looks like the companies that will be best positioned to survive this moment are companies that have revenue streams that are padded out by recurring revenue. And by that, I mean subscriptions either from services like cloud storage or like this smart video baby monitor that I use called the Nanit. I pay money for Sleep Insights because I'm desperate for sleep. And so do many, many other parents or from auto refills of reports
replaceable items. So for example, this smart air purifier company called Mila that I interviewed, most of their customers are signed up for an auto refill for the purifiers filter, which needs to be replaced about twice a year. And so they feel pretty confident that they're going to weather this moment.
And this time is a moment of reckoning for a lot of hardware companies who are looking to diversify their revenue streams. And so they, too, are considering leaning more heavily on subscriptions. So long as those things don't ultimately have to come from China or another country with high tariffs. Long term, Nicole, though, what does this mean for the quality of the products that we're used to buying? So I talked to someone who works in
in the States and in China to help develop new products for American brands. And what he's concerned about is that these tariffs can't be absorbed by consumers. There's just not enough price elasticity for a higher priced version of that item to compete in the American marketplace. And so these brands will have to
squeeze their suppliers. In other words, they'll have to negotiate better terms with their suppliers. Those suppliers in turn will have to negotiate better terms with their sub-suppliers and so on and so forth.
And what may happen is that the suppliers, in order to provide that product at a lower price, will have to cut corners. This person is very concerned that we'll see degrading quality coming from China, even though for the last several years, we've seen a lot of high quality goods come from China. We could see a reversion to a lower quality product.
That was WSJ columnist Nicole Nguyen. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer Melanie Roy and deputy editor Chris Zinsley. I'm Victoria Craig for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.