Thailand Floods Raise Havoc On Hard Drive Business As Customers Scramble For Supplies

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Massive flooding in Thailand is grinding a significant portion of the industry's hard drive production to a halt, sparking concerns about its impact on an IT industry that depends on the devices and is already causing constraints in supply to the channel.

Thailand is suffering from a growing floods caused by near record high monsoon rains that has covered a large portion of the country, including the capital, Bangkok, causing widespread shutdowns of factories producing hard drives and related components.

Analyst firm IHS iSuppli estimated that about 25 percent of the world's hard drives are manufactured in Thailand. In addition, a disruption in the production of key components, including electric motors and slider assemblies, threatens at least part of the production in other countries.

Western Digital, which has a significant portion of its hard drive manufacturing in Thailand, has been forced to curtail production in that country and put both storage OEMs and reseller customers on allocation.

Seagate's drive production facilities are located in other countries, including Malaysia, and so have not been hit directly by the floods. However, there are concerns about supply chain disruptions impacting at least part of that production.

John Coyne, president and CEO of Western Digital, said this week during his company's first quarter financial conference call that the hard drive industry will be constrained in meeting demand.

"Since WD has greater direct manufacturing exposure to the flooded areas, we believe the impact on our business in the short term will be greater than to other HDD manufacturers," Coyne said, according to a transcript of the call provided by Seeking Alpha.

Timothy Leyden, Western Digital COO, said that in addition to hard drive production stoppages, the flooding also impacted the company's assembly test and slider facilities, as well as supply of components from other vendors, and is expected to constrain capacity for several quarters.

"We are working with our suppliers to affect the recovery of their supply chain and to ramp existing capacity in other locations," Leyden said. "We are proceeding with all possible haste and ingenuity to address the situation because we are mindful of the impact on our employees, customers, suppliers, shareholders and the communities in which we operate. We are also pursuing all possible options to maximize our Malaysian facility's throughput."

Western Digital declined to comment further about the situation.

Seagate, in supplemental material provided Thursday as part of its first quarter financial report, said that its Thailand component and drive assembly factories are operational and running at full production, but that the situation is different for some of its component suppliers.

"We expect to experience significant impact to our production levels while our suppliers work to get their businesses up and running," Seagate wrote.

Because of the supply constraints from the Thailand floods, including those of its "primary competitor," a reference to Western Digital, Seagate wrote in the supplementary materials that it expects the effects to last several quarters.

"As we strengthen our supply chain and optimize our output, we are engaged with customers to re-align build schedules, product mix and to reset delivery expectations," the company wrote.

As a result of the constraints, system builders are scrambling to place much larger orders than normal to secure supplies to meet their customer demands for servers and storage appliances even as distributors begin allocation.

Next: System Builders Scramble To Secure Hard Drive Supplies

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