D&H Co-CEO Michael Schwab On Tariffs, 2025 Opportunities And AI PCs

‘About 75 percent of our notebook computers come from areas, particularly China, that would be subject to tariffs. Probably the vast majority of displays and desktop PCs could be subject to tariffs coming out of Mexico,’ says D&H Co-president Michael Schwab.

2025 is expected to be a year of major changes impacting IT distribution, including new potential tariffs and other economic changes, major IT refreshes, and the question of how data centers will get enough power to support the growth in AI.

Michael Schwab, co-president of Harrisburg, Pa.-based SMB and midrange-focused distributor D&H, told CRN in an exclusive meeting that his company is ready to meet the unique challenges he expects the IT industry to face in 2025.

The top of the list of challenges is the potential for President-elect Donald Trump to impose new and significantly large tariffs certain countries, particularly on China and Mexico which are major suppliers of IT equipment to the U.S. market.

“We’re making sure we have ample supply to help mitigate any risk for quotes and bids to help support those opportunities with the most competitive pricing possible,” Schwab said. “But there will be a moment in time when we will need to buy products post-tariffs, and there will absolutely be higher prices.”

Schwab also discussed the impact of a potential East Coast port strike on IT supply chains. But he also said that 2025 will have a couple of challenges with potential upside for the IT industry and channel, including the long-awaited Windows 11 roll-out and the growth of AI that will result in strong demand for new PCs and AI PCs, and power shortages caused in large part by the growth of AI that will force data centers to upgrade their power infrastructures.

Read more of CRN’s conversation with Schwab, which has been lightly edited for clarity.

How do you define D&H today?

I define D&H in a number of ways. In many aspects, we’re like an alchemist, taking all these various inputs, curating them, and turning them into something valuable, something tangible that our reselling community sees value in. And from that perspective, think about here we are in 2025. There’s a new administration taking power. We've got the potential for tariffs. We've got this whole group of folks focused on government efficiency. How's that going to impact government spending? We've got possible port strikes. We've got AI deployments. We've got Microsoft Copilot. We've got data centers and their energy requirements. We’ve got Windows 10 ending support. And we have [Nvidia CEO] Jensen Huang keynoting at CES talking about the RTX 5000 launch. I feel making that mix of inputs more seamless for our customer community is what perhaps defines D&H best going into 2025.

There is talk in Washington, D.C., about additional tariffs on China and new tariffs on countries like Mexico, where a lot of manufacturing has moved recently, and the rest of the world. We know the end consumers, not the manufacturers, pay for tariffs. How will they impact distribution and D&H?

I think about short-term and longer-term impacts. About 75 percent of our notebook computers come from areas, particularly China, that would be subject to tariffs. Probably the vast majority of displays and desktop PCs could be subject to tariffs coming out of Mexico. I wholeheartedly believe that in the short term, everybody in the supply chain pays a higher price. We’re planning to make it as seamless as possible so we don’t see a 20 percent, 30 percent, 40 percent increase overnight, or whatever the tariffs might end up being. We’re making sure we have ample supply to help mitigate any risk for quotes and bids to help support those opportunities with the most competitive pricing possible. But there will be a moment in time when we will need to buy products post-tariffs, and there will absolutely be higher prices. I do think over time we will revert back to more of an equilibrium. And the unknown is, are the tariffs in some way permanent and become the new pricing model, or whether they are a negotiation tool and there's maybe some grand bargain that is stricken with other nations that allow the tariffs to be more reasonable and/or eliminated at some point. The best thing we can do to prepare for tariffs is to make sure we're ahead of the curve in terms of available inventory. And the best-case scenario is we do all that and implement it, and then we're moving forward in a very positive way with no price increases.

You also mentioned the possibility of port strikes. Is that a big concern going into 2025, or is that more on the periphery of concerns?

If we rewind the clock a bit to Q4, we were definitely concerned when East Coast ports down to the Gulf were at risk. And I think they actually went on strike for three days, and then they signed an agreement to extend it out here till January. But that date is coming upon us rapidly, and my hope is that it's a nonevent, that they're able to come to an agreement. But if they strike, there’ll be delays and rerouting and products sort of stuck in limbo. If you sort of recall the days of the West Coast port strikes, where you had all those ships sort of hovering offshore in California, I don't think we’ll end up at that level of impasse. But the reality is, if you combine port strikes with tariffs, you inevitably end up with a supply chain disruption that could negatively impact the overall PC growth. I’m personally very optimistic about PC growth. Put those risk factors aside, and I’m thinking about the business as incrementally opportunistic, even over and above the 2024 number. We’ll have to monitor and navigate challenges, but I’m very optimistic about PC growth in 2025.

That PC growth will in theory be fueled in part by Microsoft’s end of support for Windows 10. Do you expect that to actually lead to a big bump in PC demand?

We do. Whether we’re talking to OEMs like Hewlett Packard, Acer, Dell, all the manufacturers see upside opportunity that probably didn't materialize in 2024 as anticipated. But as you get closer to that true end-of-support date, there’s heightened awareness and opportunities for replacing long-in-the-tooth, four-year-old PCs. Microsoft wholeheartedly believes in this, as does Intel and AMD and Qualcomm and other chip manufacturers. We have an industry that looks at this moment of time as accelerating the upgrade cycle in a very short period of time. Consumers and businesses want to be productive. They want to have best-in-class technology. But there has to be some sort of impetus to drive those purchasing decisions and get them to move. … Corporations, small and large, will be looking at their device portfolio, and there will be a very significant increase in new devices sold with Windows 11. And I'm excited for that opportunity. Users will get an incremental benefit, because at the same time they should also be considering AI-enabled PCs enabled by NPU (neural processing unit) technology to do greater TOPS (trillions of operations per second), maybe 40-plus TOPS to 100 TOPS with the new devices. So you get the best of both in that environment. You're getting an AI PC, and you're getting Windows 11.

Do you expect significant demand for AI PCs from your business-focused reseller partners?

Productivity across North America is absolutely increasing, and that's measured by how much work the average individual gets done in an hour. I believe it's risen 2 percent per quarter over the last five quarters through Q3 of 2024, and I think it'll probably be 2 percent again in fourth quarter of 2024 when the Labor Department puts out that information. So we’re seeing enhanced productivity that, in my opinion, only happens because of improved technology. It's not necessarily because everyone's working harder in an hour. They're being more efficient, more productive. And those gains reflect a couple different things. Think about new technologies that have been produced like video conferencing and video collaboration tools so we're not flying around the country for a one-hour meeting. We're using this technology today.

However, that productivity has not been because of AI deployments. AI hasn't been around for long enough. It hasn't been embedded within organizations yet. It really is happening at the hyperscalers, and we're using it to make inquiries, get responses, create visualizations, improve PowerPoints. But it's really not omnipresent in how we conduct business. I envision a world in which AI deployments for most corporations, small to large, will continue enhancing that productivity. It might be demand planning, better marketing, or identifying sales trends. Those are all areas where corporations are going to use AI technology. Today it's large language models that are driving AI deployments. Think about ChatGPT and similar solutions. They’re taking all the data out there on the internet and feeding it back to us with inquiries. It's not our own data because corporations are very reticent to put that out in the public domain, because once it's out there, it’s out there. So smaller language models and internal AI is where the world is going.

And there's this new phrase we're going to hear a lot about in 2025 called AI agents. AI agents are tools that do stuff on our behalf, and that will be a huge improvement in business productivity. Think about the systems, the reliability, and the decision making across every industry. Think about insurance and how they underwrite risk. Using AI agents to do that would be a huge quantum leap further in their ability to get decisions made faster and more accurate. It’s called agentic AI. I think that's really going to make things incrementally more productive, and I'm excited to see those deployments happen throughout 2025 and beyond. The use cases aren't necessarily there today, but I do believe, based on how quickly AI has been adopted, that it’s the next frontier. The blue ocean opportunity is AI agents.

Are there any other major factors you think might impact the IT business and D&H’s business in particular this year?

Data centers are another area ripe for an upgrade cycle. In the research I’ve seen, the vast number of data centers are at least six years old, if not older. Their energy efficiency is poor, their security, scalability, and manageability are all less capable than newer, upgraded server technologies in the market today. I'm talking about on-premises server technologies, not necessarily the hyperscalers. Think about the enterprises that have these antiquated pieces of hardware. This is a whole other upgrade cycle that's coming, particularly as energy costs become more and more of a factor. You read about the deployment of small nuclear power plants to support data center energy needs. Think about the electrification of our automobile industry and the needs of that industry for power. We do not have enough power. The grid is going to be challenged, which is why you see all this demand for increased utility resources. And then there’s the cooling requirements. If you're going to improve that, it's going to be through new and upgraded technology. That’s another great opportunity. …

The IT business will thrive in 2025.

D&H traditionally has had more of a focus on the small and mid-sized business market, and not so much on the enterprise. Do you see that changing going forward?

Our core competency will not change. I would define that as having dedicated sales resources, technical resources, and pre-sales consultants located domestically here in the US to help our SMB and mid-market resellers navigate their end-user needs. I think we are best-in-class, and I don't see us wavering from that. Sure, we can sell enterprise-class technologies, but those primarily go through larger resellers that have capabilities of their own, along with resources and big centers to support those end user needs at the enterprise level. I think our core value continues along this journey of being a best-in-class distributor for SMB and mid-market resellers for sure.

2024 saw some big changes in IT distribution including Ingram Micro closing its IPO and TD Synnex’s new change in leadership. How do events like those impact D&H and the overall IT distribution industry in 2025?

I think about the role the distribution community plays in delivering technology infrastructure, and it has only become more complicated. Cloud computing, hardware and software, services, and technical resources are getting more complicated, not less complicated, as choices expand exponentially. To deliver a great outcome, distributors play perhaps a more important role than ever. I look across our competitors and across D&H, and I think we do this very well on behalf of the entire community of resellers. Some of the changes that happen at our competitors are part of the normal business cycle for public companies, and D&H, as a privately held and employee-owned company, takes the long-term approach to these business cycles and to the leadership teams we put in place. So while there is perhaps more churn and at the same time more focus on quarterly financial results to meet analyst expectations as public companies must do, we play the long game in distribution. That allows us to be very consistent with our community of customers. And I think that's why SMB and mid-market partners really do enjoy the relationships they build with D&H.

So how is D&H doing? It is a private company, but can you talk about how the company did in 2024 financially?

We're going to have those numbers soon. But it was a positive year overall, and I think in an industry where in general technology advances, prices come down, and margins get compressed, we're always looking for ways to make sure that we're both delivering on customers’ expectations with competitive pricing and support and giving them the operational resources that they need, including credit, and at the same time making sure that we have a financial plan in place to continuously reinvest in the business. Part of our secret sauce to success is making sure we're always reinvesting in our logistics, our IT systems, our sales training and enablement, and anything to help customers succeed while making sure D&H is here for the long run.

If you look at the latest financial results from TD Synnex, Ingram Micro, ScanSource, and maybe other distributors, how would you compare D&H’s growth to what your publicly-listed competitors are doing?

When you're as large and as global as they are, in many ways their results reflect the growth of the overall economy and IT industry. In years where the economy is growing and the IT industry is growing, they'll reap the benefits on a larger scale, while I feel D&H still has the ability to be a bit more nimble and strategic in where we deploy resources. Even in years that the PC industry isn't growing, we can find ways to enhance capabilities and grow our top-line revenue, perhaps with more flexibility than they have, just because of their size and magnitude of their business. And for that reason, we watch the overall industry because we want the entire industry, our manufacturers, distributors, resellers, all to be very successful, because our success is predicated on their success. But I would say that D&H, being North America focused and focused on the opportunities we see presented in front of us, can grow in environments where others perhaps are more challenged.

D&H has never made an acquisition. Is that something you would ever consider doing, or do you prefer to stick with organic growth?

Organic growth has been our core competency. Not that we would ever dismiss an M&A opportunity if we saw something strategic that we could embed into our business model and make it part of the D&H DNA. It's who we are, it's what we do, it's our culture. If we felt there was a match there in a part of our business where we didn't have internal resources, we would absolutely consider it. It’s always a challenge to find a meeting of the minds and a cultural fit. So far, we haven't found one, but we haven't dismissed it altogether, either.