Zoom Telephonics finally got traction selling modems. Then the trade war hit

In September 2018, the administration slapped a 10 percent tariff on $200 billion in Chinese imports, including a variety of Zoom products. The following May, the tariff was increased to 25 percent. For Zoom chief executive Frank Manning, it was a major setback in his effort to turn the company around.

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”We’re still in business, and we’re still growing,” he said. “But what could have been very good times, profitable times, didn’t work out because of the tariffs.”

Zoom’s complaints have been echoed by other manufacturers in Massachusetts and throughout the United States: Riverdale Mills, of Northbridge, has been hampered by tariffs that have boosted the cost of steel; bicycle manufacturer 1854 Cycling, of Framingham, saw its profit margins slashed when tariffs on Chinese bicycle parts jacked up its manufacturing costs.

And the tariffs may be imposing a significant drag on US economic growth. After soaring in 2018, US factory output declined in the first two quarters of the year and grew only slightly in the third quarter. It’s unclear how much of the decline is directly attributable to the tariffs. But a study released by the Federal Reserve Bank several weeks ago concluded the 2018 tariffs have caused higher product prices and a decline in factory jobs.

In addition, uncertainty about the ongoing trade negotiations with China discourages companies from making investments and hiring workers.

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“We have heard directly from a number of our member companies about how the tariff uncertainty has caused them to be more cautious,” said Kristen Rupert, a senior vice president at Associated Industries of Massachusetts, a manufacturing trade group. “That creates real havoc for them. You need to be able to plan.”

In the late 1990s, Zoom was a leading maker of dial-up modems that connected people to the Internet over old-school telephone lines. Few people under age 30 have ever seen one, but in the days before home broadband connections, such modems were essential to online life. Zoom even manufactured many of its products in Boston.

As cable TV companies began offering high-speed broadband, Zoom began making cable modems and moved manufacturing to Mexico. But most consumers rented modems from the cable companies, rather than purchase their own. And Zoom found it difficult to win contracts with cable companies.

The company stagnated until 2016, when Zoom won a license to sell cable modems under the brand name of the Chicago electronics titan Motorola, and struck deals with major retailers Best Buy, Target, Walmart, and Amazon.

The company’s sales rose 66 percent in 2016, to about $17.8 million, and kept going up to more than $32 million in 2018. The business consultancy Deloitte added Zoom to its list of the 500 fastest-growing tech companies in the United States.

Even with the tariffs, Zoom is still growing. But its profits have taken a hit. Manning said the company posted a third-quarter loss of $200,000, solely on the $1 million it paid to the US government on its imported products. Without the tariffs, Manning said, Zoom would have turned an $800,000 quarterly profit.

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Passing those higher costs on to customers isn’t working, either. Zoom raised prices in the fourth quarter of 2018 — by $10 on select items. But its competitors kept their prices level, and Zoom’s sales dropped 16 percent. Now Manning just eats the extra costs, and grumbles.

“It was an experiment, and our experiment taught us we couldn’t raise prices,” he said. “I hate the fact that it’s so uneven and so unfair. How does it hit us, and it does not hit Apple?”

In fact, the smartphone giant didn’t escape unscathed.

Fifteen Apple products were hit with tariffs, including the Magic Mouse 2 and Magic Touchpad 2, and various other hardware components. But when Apple, like Zoom, applied for waivers, tariffs were rescinded on 10 of its 15 products. Zoom, meanwhile, sought 27 waivers and was turned down every time.

In addition, the Trump administration declared last month that it had reached a partial trade deal with China and would therefore halt its previously announced plan to levy 15 percent tariffs on smartphones, including Apple’s popular iPhone. For now, at least, the nation’s top phone maker is mostly in the clear. “They got at least a reprieve, if not a complete pass,” Manning said.

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Meanwhile, he’s scrambling to move production out of China. His two manufacturing partners also have factories in Vietnam. Products will start shipping from one of the Vietnamese plants in the first quarter, with the other to come online later.

It will still mean higher costs, though. Since parts for Zoom products are made in China, the company has pay to have them shipped to Vietnam before manufacturing can begin. And because so many companies are opening factories in Vietnam to dodge the US sanctions, workers are scarce and wages are soaring.

Manning acknowledges the United States needs to fight back against Chinese trade practices. “Whether you’re a conservative or a liberal, lots of people support some of the goals,” he said.

But he wishes his own company wasn’t pinned down in the line of fire.


Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.

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