Hardware makers slog through hard disk drive shortages

Hardware makers slog through hard disk drive shortages

Summary: Here's a tour of how the Thailand flooding and a hard drive shortage affected three tech giants: Sony, Western Digital and Seagate.

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One of the larger questions for tech companies going into fourth quarter earnings revolved around hard drive shortages and whether the supply chain could adapt after flooding in Thailand.

Answering that question is still fairly tricky. Why? There were no uniform trends. Some companies thrived and a few struggled. Seagate was a clear winner. Western Digital held up better than expected. Meanwhile, other companies such as Sony---a financial basket case to start with---flopped.

The takeaway here is that October's flooding in Thailand continues to whack the technology industry. But the impact is far from uniform.

Here's a tour of how the Thailand flooding affected three tech giants.

Sony: Thailand flooding hurts

Here's what Sony CFO Masaru Kato said on the company's fiscal third quarter earnings conference call from Tokyo Thursday:

The floods in Thailand were one of the major factors behind the significant decrease in sales and deterioration in operating results for the quarter. Several overall manufacturing facilities incurred direct damage, resulting in halt in production and the delayed launch of certain products.

Moreover, the supply chain across the entire industry was impacted and the demand decreased as companies we do business with were affected. The decrease in sales and significant deterioration in equity in net income of the affiliated companies caused us the record operating loss for the quarter.

In short, Sony's consumer product and services unit saw sales fall 24 percent from a year ago. Of course, there was weakness in Sony's TV business as well as PlayStation sales. The Thailand floods hurt the quarter, but can't be blamed for everything.

Western Digital: Could have been worse

Western Digital was widely expected to take a huge hit from the Thailand flooding. Western Digital, which makes disk drives, couldn't get components out of its suppliers, which were mostly in Thailand. Overall, Western Digital's fiscal second quarter earnings held up well.

CEO John Coyne said:

We've made substantial progress in our mission to restore our manufacturing capacity in the aftermath of the historic flooding in Thailand. This is reflected in our Q2 financial performance announced earlier today, the continued ramp of our Thai HDD production capacity, and in the fact that we have now recommenced slider manufacturing which had been suspended since October 10.While much work remains to be done over the next several quarters to reach our pre-flood manufacturing capabilities, the progress thus far is ahead of our original expectations and is a tribute to the dedicated and effective actions of our employees, contractors and Thai government agencies, the efforts of our supply partners, and the support of our customers.

However, Coyne also noted that he expects hard drive shortages to persist throughout 2012 with the situation improving gradually. He added that he expects the hard drive industry to reach pre-flood quarterly builds toward the end of the June quarter. From there, the pipeline of components has to build back up. Normal levels won't appear until 2013.

Coyne added that Western Digital has to revamp its supply chain. He said:

First, we will continue to focus on restoring our manufacturing and supply chain capacity to pre-flood levels. Second, in concert with our supply partners we are establishing the most robust and resilient supply chain of critical HDD components as we ramp our manufacturing capability back up. Third, during the flood recovery period we have maintained our focus and investment in development to ensure that we will be in a position to offer new products with advanced technology to sustain our leadership as we ramp our post-flood production.

Bottom line: Western Digital held its own and the fallout could have been much worse.

Seagate: The hard drive shortage creates opportunity

Steve Luczo, CEO of Seagate, said his company has weathered the Thailand flooding better than most. Why? First, Seagate's operations were relatively unscathed. Second, the supply chain is diversified.

Luczo said on Seagate's earnings conference call:

The disaster in Thailand affected a vast number of individuals and thousands of businesses. Although the industry is continuing to increase output, it's important to note that while many observers tend to believe that mid to late October was the low point of industry production, we believe the low point was closer to mid-December. Seagate's geographically diversified factory footprint and broad supply chain provided inherent advantages that mitigated the impact of the floods to Seagate's operations. Although many of our external component suppliers are still working to recover their businesses and return to full capacity. We have been very impressed with the response and efforts of our suppliers who have worked tirelessly to rebound from the effects of the flooding. There are still clear challenges that lie ahead in our component supply chain. And to help address the gaps in various product lines, Seagate has worked with its customers and suppliers on aggressive qualifications of new parts and factories, allowing us to match precious supply to end demand.

Indeed, Dave Mosley, Seagate's executive vice president of operations, said the hard drive maker has seen more than 200 requalifications just for motor base assemblies. Lead times are longer too. Nevertheless, Seagate is posting strong financial results because relative to rivals it's in a much better position.

Luczo added that the company isn't maximizing profits---average selling price per unit was $13 higher, but costs were $2.50 higher. Seagate's plan is to give suppliers a break on pricing in exchange for longer term contracts. The strategy is paying off in the short and long runs. Seagate blew away its December quarter earnings (non-GAAP earnings of $1.32 a share vs. estimates of $1.08 a share) and gave a strong outlook for the months ahead.

Barclays Capital analyst Ben Reitzes said in a research note that Seagate's long-term supply contracts are going to pay off nicely. As a result, Seagate can predict its fiscal 2012 results. Reitzes said:

Given the company’s improved visibility due to long-term supply agreements with all of its top customers (60% of capacity is under these LTAs for the year), the company provided guidance not only for March and June but for CY12. In the March quarter, Seagate expects revenue of $4.3 billion (+62% y/y; 36% q/q) on expected unit shipments of 60 million (including Samsung) on TAM of 130-135 million. Seagate is also planning for gross margins of at least 33% as the company expects pricing to remain relatively benign for the next several quarters. For June, Seagate is currently expecting revenue of $5 billion, which implies y/y growth of 75% (15% q/q) with gross margins remaining relatively flat sequentially. Most surprising was the company’s confidence in its ability to generate $20 billion in revenue in CY 2012 (implying y/y growth of over 70%).

Related: Thailand floods to lead to hard drive shortages for months

Topics: Enterprise Software, Hardware, Software

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  • Some problems here

    We've had no problems or delays getting computers from Dell, but our Lenovo laptops have had significant delays because of the hard drive problem.
    rag@...
    • RE: Hardware makers slog through hard disk drive shortages

      @rag@... DELL warned us in early December they might have to ship
      some of the new hi-format hard disks (4096/sector) in models such
      as the 790, during 1st/2nd quarter 2012.

      We received today a test disk, 750 Gig, with which to check our
      pre-build 'Ghost Image' to ensure it is compatible with these larger
      sector disks.

      My read on this is DELL may well have to use these stocks they were
      building up for the move to higher format disks in PC's, before they
      see an upturn in availability of 'normal' hard disks.

      We, as a company, have been 'recovering' hard-disks from machines
      we have ready for disposal, to be able to say to DELL if needs be:
      'Ship without Disk'.

      Regards,

      Eli.
      Elihion
      • RE: Hardware makers slog through hard disk drive shortages

        @Elihion [url=http://www.macrolancer.com/]Macrolancer[/url]
        empipo
    • RE: Hardware makers slog through hard disk drive shortages

      @rag@... I have also had a long delay with my Lenovo Desktop. HP and Dell seem to be able to ship much faster.
      tombillet@...
    • RE: Hardware makers slog through hard disk drive shortages

      @rag@... Our Lenovo's have had significant delays as well but they're all using SSD Drives and it is only the T420S... Our X220 SSD models are coming in fine.
      slickjim
  • RE: Hardware makers slog through hard disk drive shortages

    So let me get this one flood knocks them out for a year and a half? They need to find new locations to make hard drives or move half of the factories to non flood areas. You never know when Thailand will get another flood.
    Randalllind
    • RE: Hardware makers slog through hard disk drive shortages

      @Randalllind THIS YEAR, THAT'S WHEN!! These floods were no "natural disaster". They were planned from the beginning to some sick Thai-Chinese megalomaniac's pleasure. I suggest all the companies involved to take your businesses out of Thailand, or better yet -- why don't you build your factories where it's like, oh let's see... NOT ON A FRIGGIN' FLOODWAY!! These factories were built in the wrong place to begin with. The area was originally designated as a natural floodway, but of course, the then said megalomaniac decided to open it up to businesses (to the folly of the investors). The guy once stabbed American telecom giants in the back, now he's stabbing the other industries in the back as well. Some people just aren't happy with having trillions of dollars...
      theanimaster
      • RE: Hardware makers slog through hard disk drive shortages

        @theanimaster This crap started 6 months or so ago so if we go until 2013 That's a year and a half is what I was saying. I don't really care if it was natural or man made. Still stupid.
        Randalllind
      • Meglomaniac is right...

        @theanimaster : I have no idea why they located their facilities there. They must have gotten some serious kickbacks to do so.
        They have a law there called La Majeste that will get you thrown in jail for years for simply speaking badly of the king. Insecure nut job through and through. He's spent decades brainwashing his people.
        Then he has that dam opened up and floods his own lands. I'd pack my stuff and leave if I was any of those manufacturers. The fact that they're staying means they're getting some serious kickbacks.
        For what they're charging for hard drives right now (almost doubled since Oct), you could build in the U.S. and still make a huge profit.
        Zorched
      • RE: Hardware makers slog through hard disk drive shortages

        @Zorched I'm speaking of the current breed of politicians and they're the ones who are to blame. The King himself has had the solution to the problem decades ago and the civil government (and governments of the past) just outright refused to implement these plans -- simply because those plans WOULD work! i.e.: it didn't benefit the "government" -- just the people (and economy)!
        theanimaster
  • RE: Hardware makers slog through hard disk drive shortages

    I think its all bogus just a way for them to arbitrarily raise HDD pricing because SSDs were getting popular and even when these plants come back online I highly doubt we will see a reduction in cost they flooded the market with a high supply and had to cut pricing the flood was if this is the real factor gave them a way jack prices up
    KineticArtist
  • RE: Hardware makers slog through hard disk drive shortages

    My brother lives in Thailand - the flood damage was NOT bogus. It was feared that the situation would be worse!
    Anynamesleft
    • RE: Hardware makers slog through hard disk drive shortages

      @Anynamesleft Trust me, it WILL be worse. The major dams are already to 80-90% their capacity as we speak. They're not going to get the levels down in time for the rainy season come this June. It's going to happen all over again.

      But at least now I know how high to build my barriers. We took in over a meter of water. This year, we can probably expect double that.
      theanimaster
      • RE: Hardware makers slog through hard disk drive shortages

        @theanimaster <br>good luck to you
        preferred user
  • Glad I bought my hard drives when I did

    I bought two 3TB Western Digital drives for $119 each in late August. So glad I took advantage of that sale.
    Bonesnap
  • RE: Hardware makers slog through hard disk drive shortages

    "Flood Damage to HD Factories" is really bogus! First of all, the "factories" which make the HD platters are NOT located in the flood area of the lowlands. They are in mountainous locations, not the flood plain. Further, COMPLETED hard drives are assembled in CHINA, not Thailand (at least Western Digital and Seagate drives are, according to the labels on the ones I own).
    Another nefarious method to jack up prices, in my never humble opinion.
    Karl K
    • RE: Hardware makers slog through hard disk drive shortages

      @Karl K Where's this coming from? The manufacturers have their factories smack dab in them nice natural floodways! Same as Honda... nice that they had to scrap those 1,000 semi-complete vehicles...
      theanimaster
    • RE: Hardware makers slog through hard disk drive shortages

      @Karl K
      what about their suppliers seems Seagate did ok and is able to raise prices
      preferred user
  • RE: Hardware makers slog through hard disk drive shortages

    "Luczo added that the company isn???t maximizing profits???average selling price per unit was $13 higher"

    BS Not for the end user, or small OEM. I'm seeing a 70% price increase.
    craigeb78
    • RE: Hardware makers slog through hard disk drive shortages

      @craigeb78 - Sometimes the retail prices are "more" than 70% higher. WD is using these profits to carry them through a very tough period. Apparently, that's the real value of their product or you wouldn't be paying it. Right?

      By the way, you also read that Luczo is giving suppliers a break on pricing in exchange for longer term contracts. If your supplier is unwilling or unable to accept a long term contract, than the $13 comment wasn't applicable.
      SlimSam