The threats and opportunities that define the hardware sector in 2025

We sit in an era of great uncertainty. Geopolitical turbulence dominates the headlines as new trade wars pressure businesses and consumers alike. In the last few weeks, the U.S. implemented a 25% tariff on steel and aluminum imports, significantly impacting Canada and Europe. Meanwhile, the U.S. also incrementally raised tariffs across the board on China, which responded with its own set of tariffs on U.S. agricultural imports. What happens in the weeks and months to come remains unclear but will no doubt disrupt global economies.

According to the 2025 AlixPartners Disruption Index, geopolitical conflict is the top threat to technology hardware companies worldwide. This instability leads to inflation, price concerns, and interest rate increases. But alongside these threats, hardware executives are optimistic about the impact cutting-edge technologies will have on the industry in 2025. Namely, they see smart connected devices, AI, and machine learning—as well as the new business models these technologies bring about—as major growth opportunities.
 

The tech hardware companies that can weather the storm of uncertainty while capitalizing on these opportunities will become the industry leaders in this new age of artificial intelligence.

Key strategies for hardware companies to minimize impact and maximize innovation

As geopolitical concerns swirl, hardware companies should focus on what they can control—effectively responding to tariffs. Our assessment suggests that currently announced tariffs will, on average, have a 7% impact on the cost of goods sold (COGS) across the broader technology hardware ecosystem. The threat is severe, and companies that act decisively and deliberately will have the upper hand in a competitive landscape. 

A successful tariff strategy starts with the establishment of a “tariff war room.” Bringing together the relevant cross-functional business stakeholders with tariff experts makes it easier to review tariff situations and quickly execute effective mitigation tactics. These include:

• Incumbent vendor negotiations: Leveraging supplier footprints, manufacturing capabilities, and supply chain options to minimize tariff impacts.
• Customer pass-through strategies: Deciding which costs to absorb and which to pass on to customers.
• Rapid-duty engineering: Tactical supply chain restructuring to reduce short-term tariff effects.

To make the most of technological advancement opportunities, hardware companies need to act quickly, form the right partnerships, and boost internal capabilities:

• Prioritize speed: Our clients employ a variety of approaches in this rapidly changing hardware landscape. These include running smaller, more agile experiments to test and validate processes before building out further, as well as co-developing solutions with partners to promote a wider sourcing of ideas and faster supply chain movement to new architecture.
• Build partnerships: Hardware players need to forge partnerships with companies at the forefront of innovation (e.g., agentic AI, machine learning, IoT, etc.) to embed these technologies into products. Securing these partnerships will improve speed-to-market and capture of new market share. Companies must also reevaluate go-to-market partnerships, as enhanced products may open new opportunities.
• Fine-tune innovation capabilities (e.g., R&D): Given a market in flux, innovation and engineering teams need to focus on “design-for-X” capabilities (e.g., value, innovation, speed-to-market), where the “X” is optimized based on product needs, competitive bids, or for regulatory or compliance reasons. To enable this, companies must implement the right operating model with self-sufficient regional hubs. These provide cross-functional teams with clear decision-making swim lanes that can scale. Ensuring the right operational leadership is in place and automating parts of the process where feasible are also keys to driving innovation in today’s technological climate.

How top companies are responding

Leading hardware companies have already taken action to safeguard their margins from tariffs. Cisco, for example, has cut its tariff exposure for goods and services made in China by 80%, according to CFO Richard Herren. To diversify its supply chain, the company launched manufacturing and repair operations in India in 2023.  “We’ve game-planned out several scenarios and steps we could take depending on what actually goes into effect,” Herren said during Cisco’s Q2 earnings call. 

Cisco has chosen to prioritize supply chain adjustments over price increases in the current environment. Other top hardware companies are following a similar approach. We believe this is a winning strategy—acting decisively with proven tactics will best mitigate tariff impacts and protect customers from price increases. 

The measures hardware players take to exploit opportunities are just as important, if not more, as their reaction to threats.  Apple’s embrace of AI in its hardware has paid dividends. According to Canalys, 17% of the PCs shipped worldwide in 2024 were AI-capable, the majority of which (54%) were Apple machines. The company continues to evolve its channel strategy, recently announcing the Apple Partner Network program in an effort to build share in the enterprise segment.

As geopolitical tensions rise, hardware companies have no choice but to adapt. Agility is the key to success—those that can swiftly navigate tariff impacts while embedding technologies like AI and machine learning into their products will thrive. With the right strategies, partnerships, and innovation-led approaches, tech hardware companies will not only survive but also lead the charge into an era of growth and opportunity.