Light & Wonder turns to Mexico to mitigate US tariffs
Light & Wonder Strategically Shifts Supply Chain to Mexico Amidst Tariff Challenges
In a proactive move to mitigate the impact of U.S. tariffs, leading gaming machine and software supplier Light & Wonder is contemplating the transfer of part of its supply chain operations to Mexico. This decision seeks to leverage favorable trade agreements between the U.S. and Mexico, aiming to enhance operational efficiency and maintain competitiveness in the market.
CEO Matt Wilson articulated this strategy during an analyst call on Wednesday, emphasizing the company’s commitment to “dynamically reconfiguring [its] supply chain to circumvent existing policies.” He highlighted that “bringing product through Mexico is one effective example of our strategic approach.”
Understanding the Tariff Landscape
The context for this decisive action traces back to February, when then-President Donald Trump threatened to impose tariffs on imports, creating turbulence across financial markets. Analysts raised concerns about potential inflation spikes and rising unemployment rates as a direct consequence of such tariffs.
In April, a temporary 90-day pause on the implementation of tariffs offered a brief respite, leaving businesses globally on edge as they braced for possible ramifications on their operations.
As a prominent supplier of casino gaming machines, Light & Wonder stands to face considerable challenges if tariffs are enacted, potentially disrupting its established supply chains.
Latest Performance Metrics
In light of these challenges, Light & Wonder reported a robust 9% year-over-year growth in its North American installed base, now totaling 34,501 units, an increase of 497 units just from the previous quarter. This performance underscores the company’s resilience and adaptive strategies, even amidst turbulent economic conditions.
During the Q1 earnings call, CEO Wilson noted that the current tariff situation represents a “worst-case scenario.” However, he remains optimistic that ongoing negotiations with various countries will ultimately yield a more favorable market environment.
Operational Adjustments and Supply Chain Resilience
The company is undertaking critical adjustments to bolster its supply chain against tariff impacts. This includes increased operational efficiency and the strategic geographical diversification of its manufacturing base. Regions like Mexico, benefiting from the United States-Mexico-Canada Agreement (USMCA), have become focal points for sourcing key components.
“If you rewind three or four weeks to when these policies were first announced, our situation was almost a scorched-earth approach to ensuring product availability in the U.S.,” stated CFO Oliver Chow, underscoring the urgency of enhancing supply chain agility.
Strategic Inventory Management
To counter the potential fallout from tariffs, Light & Wonder has adopted a proactive inventory strategy, pulling stock forward to safeguard against disruptions in upcoming quarters. Notably, this approach mirrors strategies employed by other major corporations. For instance, Apple urgently airlifted 600 tonnes of iPhones into the U.S. to circumvent impending tariff implications.
Chow acknowledged the significant pressure that tariffs place on the gaming industry and emphasized the need for suppliers to absorb some of the cost increases, while also recognizing the sector’s ability to pass certain costs onto consumers. “The market dynamics can differ significantly from macroeconomic indicators, thus making Gross Gaming Revenue (GGR) a crucial metric for understanding market health,” Chow remarked, adding that “GGR is the fuel that drives the engine of the gaming ecosystem.”
Listing Decisions in a Volatile Market
In light of the prevailing uncertainty in global financial markets, Light & Wonder has paused its plans for a primary listing on the Australian Stock Exchange (ASX). While the company had been in discussions with financial advisors Jarden Australia and Goldman Sachs regarding this transition from NASDAQ, recent market volatility has prompted a more cautious approach.
“Given the multitude of external factors affecting investors—from macroeconomic conditions to tariff uncertainties—we feel it is prudent to decelerate our ASX listing initiative for the time being,” Wilson explained to investors, emphasizing the company’s strategic intent without compromising due diligence.
Q1 Financial Highlights
Turning to the financial results, Light & Wonder reported a 2% increase in group revenue, totaling £774 million for the first quarter. The company’s net income remained stable at $82 million compared to Q1 2024. The gaming segment saw revenues rise to $495 million, reflecting a 4% year-on-year improvement, while iGaming revenue also increased by 4%, reaching $77 million.
This multifaceted strategy reveals Light & Wonder’s commitment to navigating the complexities of the gambling industry while maintaining its competitive edge. As market dynamics continue to evolve, the company’s focus on supply chain agility and operational resilience proves essential in an increasingly volatile landscape.
