Thailand floods to lead to hard drive shortages for months

Thailand floods to lead to hard drive shortages for months

Summary: A flooding disaster in Thailand has hampered the hard drive supply chain and shortages may plague PC, server and storage vendors in the months to come.

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TOPICS: Hardware
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Floods in Thailand have rattled the hard drive supply chain from component suppliers to giants like Western Digital and ultimately PC and server makers will be affected, say analysts. Thailand's disaster has shut down 14,000 factories, flooded hundreds of thousands of homes and put more than 660,000 out of work.

Last week, the impact of the flooding in Thailand played out very differently for hard drive giants Western Digital and Seagate, but shortages will loom into 2012, say executives.

Western Digital CEO John Coyne said that the company's December quarter revenue will fall 60 percent from a year ago since the company has a high concentration of supply chain factories in flooded areas.

Recovery for Western Digital, which includes helping many of its workers affected by the floods, will be a multi-quarter task. Western Digital operating chief Tim Leyden said last week during the company's fiscal first quarter earnings call that the hard drive industry will see tight supplies for a while. Leyden said:

We suspended production in all of our Thailand facilities from the beginning of last week in order to protect our personnel, and to move as much equipment as possible to locations less likely to incur water damage. At this point, we are thankful that all our employees are safe, and we moved much of the equipment which had been situated on the ground floors to higher floors. Despite the heroic efforts of our team, over the past weekend rising water, which had first penetrated the Bang Pa-in Industrial Park flood defenses, inundated the Company's manufacturing facilities there and submerged the remaining equipment on the ground floors.

Western Digital executives said that 60 percent of its drives are produced in Thailand compared to 40 percent for the industry overall. The problem: Western Digital doesn't know when it can get its plants running, but the problems will "continue into the March quarter and beyond," said Leyden.

Other companies such as Seyyon Semiconductor noted that it will take a year for the tech industry's base in Thailand to recover. Nidec, which makes spinning motors for disk drives, said it is trying to shift production from Thailand to China and the Philippines. Nidec's ability to shift production will determine the industry's ability to produce hard drives.

Seagate's facilities were largely spared, but the company will have to struggle to acquire components for its drives. Seagate CEO Steve Luczo said last week on the company’s earnings conference call that "the flood disaster in Thailand is having a widespread impact on individuals and businesses of all types, including the hard drive industry, disrupting transportation, logistics, power generation, and the availability of labor."

As for the hard drive industry, Luczo said the situation is "serious and highly volatile." Due to pure luck, Seagate's plants are completely operational and running at full production. However, Seagate's component suppliers weren't as lucky.

Like Coyne and Leyden, Luczo said that the supply squeeze in the hard drive industry will extend for many quarters. CNET: Hard drives could get scarce: Apple, analysts

Analysts expect Western Digital's market share to fall as Seagate gains. Nevertheless, hard drive makers won't be able to meet demand. Barclays Capital analyst Ben Reitzes said in a research note that he sees "significant implications for the hard drive industry as well as PC makers. HP and Dell will see higher component prices and shortages. Apple will see the least impact because it uses flash drives for the MacBook Air and iPad.

"Regarding PC makers, we believe that a prolonged disruption to disk drive production could impact the PC market as well," said Reitzes. "If drive makers remain supply constrained, we would expect PC makers to be negatively impacted from an availability perspective as well as from component pricing increases."

Apple CEO Tim Cook said on the company's fourth quarter earnings call that the supply situation is fluid. Responding to an analyst question, he said:

There are several factories that are currently not operable, and the recovery timeline for these factories is not known at this point. As you can appreciate, the weather really hasn't allowed an ability to assess those. From the work that we have done, we would say that our primary exposure is on the Mac because as you point out, of the number of drives or drive components that are sourced in or in Thailand is a significant portion of the total worldwide supply of drives. And so I can't give you a precise accounting. It is something that I'm concerned about. We do expect -- I'm virtually certain there will be an overall industry shortage of disk drives as a result of the disaster. How it affects Apple? I'm not sure.

Dell and HP will take an earnings hit due to higher hard drive prices. Western Digital and Seagate both indicated prices will increase. Reitzes estimated that 10 percent to 12 percent of a desktop's bill of materials derives from hard drives. For a laptop, a hard drive represents 8 percent to 10 percent of costs. HP and Dell will also face margin pressure on servers, said analysts.

The hard drive shortages may also hamper storage vendors such as EMC and NetApp, said Stifel Nicolaus analyst Aaron Rakers. However, David Goulden, EMC's chief financial officer, said that he wasn't expecting supply constraints. "We tend to be our supplier's largest customer and get pretty good treatment when it comes to situations like this," said Goulden.

Topic: Hardware

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19 comments
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  • RE: Thailand floods to lead to hard drive shortages for months

    I've got a crazy idea... there's this obscure little country called America that's been looking to get into manufacturing again....
    jgm@...
    • RE: Thailand floods to lead to hard drive shortages for months

      @jgm@...
      I like that
      MoeFugger
      • RE: Thailand floods to lead to hard drive shortages for months

        @MoeFugger Will American workers and engineers cut their wages 1/10th?
        SinfoCOMAR
      • RE: Thailand floods to lead to hard drive shortages for months

        @SinfoCOMAR

        i know the perfect person for you to ask - yourself.

        Will you work for 1/10th?
        HypnoToad72
    • RE: Thailand floods to lead to hard drive shortages for months

      @jgm@...I can guarantee if Western Digital wanted to build a factory, we have some converted textile factories in the greater Charlotte area that can be had cheaply, and a ready made workforce that will work for Target wages to make awesome SSDs and Hybrid Hard Drives.
      DAMANgoldberg
    • 20-25% of Americas work as guards

      Seriously, what are you guarding and from whom if you don't make anything?... Oh right, guarding the rich from the poor.<br><br>www.international.ucla DOT edu/cms/files/jayadev_bowles.pdf (see table p338) <br><br>I wonder what percentage still work in manufacturing, I mean actual making things, not guarding the factory, or working in the shop.
      guihombre
      • RE: Thailand floods to lead to hard drive shortages for months

        @guihombre
        Read the definition used in that study before you jump to conclusions.

        "We explore the economic importance of the private and public exercise of power in the execution of contracts and defense of property rights. We define power and represent it in a model of growth in a modern
        capitalist economy, borrowing themes from the classical economists (unproductive labor, profit-driven investment), Marx (the labor disciplining effect of unemployment), and the contemporary theory of incomplete contracts (the role of monitoring and enforcement rents). We use this model to identify the resources devoted to the exercise of power, which we term guard labor as we measure these in labor units".

        They're not guarding the factory, they're trying to protect intellectual property from those (international) attempting to steal that property.

        And where are you from?
        Matalist
  • RE: Thailand floods to lead to hard drive shortages for months

    Well then, maybe the SSD's will get a little boost up.
    MoeFugger
    • RE: Thailand floods to lead to hard drive shortages for months

      @MoeFugger Assuming they are not made in the same place.
      slickjim
  • RE: Thailand floods to lead to hard drive shortages for months

    I would. Certainly be looking clean room manufacturing somewhere in the world because the first vendor to solve this issue gets a bunch of big fat contracts!
    slickjim
    • RE: Thailand floods to lead to hard drive shortages for months

      @Peter Perry Yes like the US would be a good start :-)
      rocketman67
  • RE: Thailand floods to lead to hard drive shortages for months

    http://xrl.us/bmgwhv
    sdfgklryj
  • Make them in the US

    As a tech I can disassemble a laptop in about 1/2 hour.

    Factoring that assembling is always easier, I bet there isn't a device that cannot be put together in 15 min. Even if you assume a very high wage like $20/hour that's only $5 per device!

    That's 6 percent of a $75 hard drive, 0.5 percent of a $1000 Mac Laptop. Or 1.6 percent of a $300 ipod.

    Would anyone seriously argue that they wouldn't, given the choice, spend an extra $5 to buy an American assembled drive?

    Yeah that $5 is out of someone's pocket, but if that keeps people employed it means your city spends less to demolish abandoned houses, that crime is lower, that someone pays taxes to support police and fire services...

    You might argue that 6% on a drive is a lot.... When isn't it? 0.5% on a Macbook? We can be making lots of things in the US if we show a little backbone.
    croberts
    • Yeah yeah!

      @croberts While we're at it, make sure that the HDD assemblers are heavily unionized with mafia backing!
      MSFTWorshipper
  • In better news around the World?

    Is the PC a thing of the past?

    Well not if you have any desire to hold the global economy for ransom. Isn't that what corporate greed is all about is opportunity. I mean why even consider moving your operation to another country when your own road map for a rebirth in current hard drive design can squeeze a few more bucks out of the consumer.

    PERSONALLY I REALLY THINK THAT IT WILL END WITH OVER STOCKING AT OUTLET RETAILERS AND A HUGE SURPLUS OF HAMMER HARD DRIVES FOR SEAGATE. I would never own a Seagate hard drive because I think that the chance of getting used parts sold as a new components is very common for their green initiative.

    It sickens me to think that Samsung has been gone the way of the "Dodo Bird" like Maxtor.

    So what about Western Digital's Hitachi division? Just maybe if PC's are all ready to succumb to the Sandy Bridge and Ivy Bridge laptops then Japan can help keep pricing for the mainstream PC build on hold; if only to bolster customer confidence. Seriously, Amazon and Frys and Newegg and Tigerdirect; etc. this and the price of a power supply will damage you forevermore.
    Rob T.
  • Use The Time To Fix Your Hard Drive Reliability Problems

    This goes for all manufacturers.
    goingbust
  • RE: Thailand floods to lead to hard drive shortages for months

    Good thing my computers already busting to the brim with hdds!

    On another note, i hope everything is ok in thailand :(
    Frenz9
  • RE: Thailand floods to lead to hard drive shortages for months

    Perfect example of putting all of your eggs in one basket :-)
    rocketman67
  • RE: Thailand floods to lead to hard drive shortages for months

    There are a lot of used drives for sale at computer shows/sales, like First Saturday in Dallas, and Fourth Saturday in Oklahoma City, that will take up the slack for external drives or whatever such need is. I am not suggesting used drives for new computers unless you build it yourself. You probably won't find rives in the TB sizes, but a few GB drives can be found, I'm sure. I just haven't had a need for more lately.<br>We always are on the hunt for a bargain, but as has been said, if the drives were to be made here, then that would be good for our economy.
    dhays