American tech company iRobot , the creator of the popular Roomba-branded robotic vacuum cleaner, is severing its ties with its Chinese manufacturing partner.
The company said Wednesday that it is ending its contract with Kin Yat Holdings effective immediately.
Kin Yat Holdings relied on the Massachusetts-based company for roughly 55% of its revenue last year. Sources with knowledge in the matter said the move is iRobot's way of distancing itself from the growing tensions between the U.S. and China.
In its exchange filing, Kin Yat Holdings confirmed the decision. The company said its American partner cited "rising production costs in China" and a desire for "more geographic diversification of production" as the main reasons for its decision.
Kin Yat Holdings' share prices tumbled in Hong Kong following its announcement. The stock ended Wednesday 16.8% lower at HK$0.93 ($0.12) per share.
Before the decision was announced, iRobot had been gradually shifting its production out from China to Malaysia. The company initially announced to shift during its first-quarter earnings call.
"Our plan to substantially increase our production in Malaysia over the course of this year is progressing well, even with the tight Labor market," iRobot's executive vice president and chief financial officer, Julie Zeiler, said.
In mid-February, iRobot said it plans to significantly increase its production capacity outside China to support the majority of its 2022 North American volume requirements. The company said the move is meant to reduce its exposure to the risks involving the rising tensions between the U.S. and China.
"We believe that we will substantially reduce and potentially eliminate our exposure to current U.S. tariffs, and mitigate the geopolitical risks associated with concentrating production solely in China," the company said.
Zeiler said the reinstated 25% tariff on its Roombas imported from China since the start of the year has cost it around $3.4 million. She said the company's gross margin would have been 1.1% higher were it not for the tariffs.
Kin Yat Holdings said in its filing that it generated about $342.47 million from its business with iRobot for its fiscal year ended March 2019. This represented about 65% of its total revenue. The figure dropped to around $220 million in its following fiscal year due to the disruptions caused by the pandemic.
