The storage industry is getting hit again. Just a few months after the Japan earthquake affected flash storage manufacturing, the devastating Thai floods show signs of affecting hard disk drive manufacturing down the road.
Of course, the effect on the industry is minor compared to the effect on the Thai people themselves, where so far nearly 400 have died in what is said to be the worst flooding in 50 years. But as the worst of the flooding appears to be over, the country is beginning to examine the economic effects — which could end up being nearly as damaging as the economic unpleasantness a few years back, according to component research firm iSuppli:
“As a result of the flooding, the HDD industry in the fourth quarter will suffer its worst downturn in three years. HDD shipments in the fourth quarter will decline to 125 million units, down 27.7 percent from 173 million in the third quarter, as presented in the figure attached. The drop is the largest sequential decrease on a percentage basis since the fourth quarter of 2008 when shipments fell 21.2 percent during the worst point of the last electronics downturn. IHS estimates that 30 percent of HDD production in the fourth quarter this year will be lost because of the disaster. This will result in a significant shortage of HDDs. Because of the shortage, HDD inventories will be depleted and will cause average HDD pricing to rise by 10 percent in the fourth quarter compared to the third.”
Thailand is the world’s second-largest provider of hard disk drives, after China, and has manufacturing facilities for Western Digital and Toshiba, iSuppli goes on to say. And while Seagate has an operating plant in the area, it may face a shortage of parts, according to Reuters.
In fact, the effects are likely to be so devastating that they will change Western Digital’s status in disk drive manufacturing, iSuppli says. “Western Digital is likely to lose its status as the world’s largest shipper of HDDs, with its rank expected to fall two positions to third in the fourth quarter, down from first place in the third quarter. Toshiba’s rank could fall to fourth place, down from fifth.”
Slowdowns are particularly likely to occur in notebook PCs in the first quarter of next year, iSuppli said, because some components are stockpiled and the market will likely adjust to use different sources by the second quarter. Several notebook providers, including Compai, said their quarterly earnings might be lower as a result of lower shipments due to the lack of disk drives. (Though, if the Japanese flash storage manufacturers recover, perhaps this will push a faster-than-expected switch to flash storage in notebooks?)
Part of the blame goes to increasingly tight “just in time” manufacturing supply chains, where parts are shipped essentially as they’re needed rather than being warehoused, Reuters noted.
Iain Bowles of ProBrand had even more dire predictions, of price increases of up to 25 percent. In fact, shortages from the Thai natural disaster could be worse than the Japan earthquake because stockpiles are smaller, he said. Moreover, he believes it could extend into the second quarter of next year as well, and that the recovery is likely to be slower than in Japan.