GoPro to move operations to Mexico due to increasing US-China trade tensions

Contxto – GoPro’s stock price ticked up after the company’s latest earnings report. Apart from revealing its first profitable quarter since 3Q 2017, the company announced it will move most of the camera production from China to Mexico.

We are pleased to share that in the second quarter GoPro will increase production of cameras to the United States from Guadalajara, Mexico.

Among the several new moves to get out of its losing streak, the company launched the new Hero 7 model and plans to cut costs by getting out of China and into Guadalajara – joining other big tech firms such as Intel, HP and IBM.

The company closed the year with US$32 million in net profit, compared to 4Q 2017’s net losses of US$55.9 million.

From China to Mexico

According to Nick Woodman, GoPro’s CEO, the company moved out of China because of production costs and strategic reasons.

When asked by Bloomberg’s journalist, Selina Wang, if the company wanted out because of China’s rising tariffs, the executive claimed it was just a trigger, but there were many more benefits to it. He states that even without the tariffs, the move would save them a substantial amount of money.

“The threat of tariffs served as a catalyst to move production out of China,”, said the official. “China is getting more expensive to do business in”.

So why Mexico? Well, the company was evaluating other production facilities including Malaysia and Taiwan, but at the end of the day Mexico has great cost and supply chain benefits, as well as a “terrific infrastructure”.

Making the most out of the geographic location, the city will produce most cameras for the US and Mexican market.

Restructuring business and product units

The tech company is not only taking action in terms of cost-cutting.

For some time, it has been experimenting outside of the hardware and gadgets vertical. Presumably, the cloud software business it is venturing into is taking off successfully compared to its media and drone business branches.

It also recently launched its newest camera, the Hero 7 model.

According to some tech review sites, the new product just “reminds you why the company dominated this industry”, claiming GoPro’s market share ownership from its competitors and substitute products, such as smartphone cameras.

According to Techradar, the new model’s benefits include great 4k video and image quality, UI improvements, electronic image stabilization (HyperSmooth) and time-lapse shooting (TimeWarp). On the other hand, the product is unresponsive at times, it still struggles with voice commands and of course, there are cheaper options in the market.

In terms of software services, the firm is now charging users for a subscription service that uploads pictures and videos automatically to their online account.

This new business unit has already over 190 thousand paying users, which according to the company’s executives is already “having a meaningful impact on the company’s gross margins”.  

Final thoughts

Hardware is a tough business to be in. Especially nowadays, where smartphones have the capacity to compete with almost any gadget out there – or at least complement most of them.

GoPro is doing well concentrating on its niche market, as well as finding other business units to profit from. Migrating to a subscription and software model will grant the company the so-desired scalability that every tech company aims to get.

Perhaps improving or adding more distinctive features such as voice command, or gesture recognition algorithms could be a way to stand out of the ever-changing tech developments.

One thing is certain if the company doesn’t find a way to improve its underlying unit economics quickly or smoothly blend their software recurring revenue to their main business model, they’ll find themselves drowning, no matter how many sales they’re able to generate.

-VC