The devastating floods in Thailand will cause a 28 percent quarter-on-quarter drop in hard disk drive (HDD) production in the fourth quarter, potentially affecting notebook production in early 2012, research firm IHS iSuppli said on Monday.
Western Digital could also lose its position as the largest shipper of the drives, the research firm said.
Toshiba and Western Digital have announced so far the temporary shut down of their factories in the country, while Seagate Technology said the supply of components to its factories in Thailand was disrupted.
In an update last week, Toshiba said that water is two meters high on the site and the surrounding area, and more than one meter deep in the buildings at its hard disk facility at Navanakorn Industrial Estate Zone, Pathumtani, which was damaged. The company started alternative production at other factories, but said "the production volume will be limited by available capacity".
HDD shipments in the fourth quarter will decline to 125 million units, down 27.7 percent from 173 million in the third quarter, resulting in a significant shortage of HDDs, and an increase in price of about 10 percent compared to third quarter prices, iSuppli said.
Thailand is the world's second-largest producer of HDDs after China and is a major supplier of hard drive parts. Located in the country are key component makers like Nidec which according to iSuppli supplies more than 70 percent of all global HDD motors, and is a supplier to major HDD manufacturers like Western Digital, Seagate, Hitachi Global Storage Technologies, Toshiba and Samsung.
Nidec said in a regulatory filing last week that operations at most of its factories in Thailand making HDD motors and motor components remain temporarily suspended.
The floods in Thailand since July have so far claimed more than 380 lives, and have reached the capital city Bangkok, according to reports.
The HDD plants affected by the flooding make devices designed for mobile computers, but disruption to notebook shipments in 2011 is not expected, as the PC industry appears to have sufficient stockpiles to last through the fourth quarter, iSuppli said. With HDD production disruptions expected to last at least six months, the shortage could impact notebook PC production in the first quarter of 2012.
From the second quarter of 2012, notebook makers will likely start sourcing hard drives from alternative sources in different regions and using other types of storage, including solid state drives (SSDs), iSuppli said.
The floods in Thailand may also cost Western Digital its top position in the HDD market. Given the direct impact of the disaster on its operations, Western Digital is likely to lose its status as the world's largest shipper of HDDs, with its rank expected to fall to third in the fourth quarter, iSuppli said.
Western Digital temporarily suspended production in mid-October at its two factories in Thailand, which were inundated by floodwater, to protect its employees, equipment and facilities. Many of the company's component suppliers have been impacted, leaving material for hard drive production considerably constrained, said John Coyne, the company's president and chief executive officer in a statement last week on the company's website.
In the quarter to July 1, Western Digital shipped about 54 million hard drives from its facilities in Thailand and Malaysia, with about 60 percent coming from its sites in Thailand. Promising to do everything the company can to minimize any disruptions in its service or delivery of its products, Western Digital has asked its customers to "remain patient with us for the next few quarters".
Western Digital's proposed acquisition of Hitachi Global Storage Technologies, the hard drive unit of Hitachi, for US$4.3 billion in cash and stock, is still awaiting antitrust clearance from the European Commission. The company now expects to close the transaction in the fourth quarter, after having announced earlier that the acquisition would close in the third quarter.
Seagate said while announcing its fiscal first quarter financial results on Oct. 20 that it expects a significant impact to its production levels while its component suppliers in Thailand work to get their businesses up and running.
Given the severity of the situation and the extensive supply constraints caused by the disruptions, the effects on the HDD industry will be substantial and extend over multiple quarters, the company said.
The impact of the floods on the Thai camera manufacturing operations of Sony, Nikon and Canon has led iSuppli to anticipate a drop in overall camera shipments in the fourth quarter and possibly in the first quarter of 2012. Sony said last month that it was forced to postpone the launch of its new "NEX-7" high-end portable digital camera and cut production of another because a factory in Thailand was affected by the flooding.
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