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Western Digital Restarts Thailand Hard Drive Production Earlier Than Expected

Western Digital said it has restarted hard drive operations in flood-ravished Thailand, and that it expects is acquisition of Hitachi GST to close by March.

Western Digital late Thursday night said that the rebooting of its Thailand hard drive manufacturing in the wake of devastating floods in that country has commenced earlier than expected.

However, Western Digital echoed rival Seagate's warning from earlier this week that hard drive supplies will remain constrained through at least the first half of 2012.

Western Digital also updated its pending acquisition of rival Hitachi Global Storage Technologies with word that it expects to close the transaction before March of 2012.

The hard disk shortage was caused by massive monsoon floods which inundated much of Thailand, including many of the industrial parks where hard drives and components are manufactured.

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, has slowed part of the production in other countries, leading both Western Digital and Seagate to estimate that fourth quarter production of hard drives will top out at about 120 million units, compared to normal expected demand in the quarter of 180 million units.

Western Digital, which depended on Thailand for about 60 percent of its hard drive production, said it restarted production in that country in one of its facilities a week ahead of its internal schedules. That facility had been submerged in about six feet of water since mid-October.

The company has also moved manufacturing equipment for sliders, a key hard drive component for hard drives, from that facility for decontamination, and expects slider production there to restart during the first quarter of 2012 at about the same time it plans to open a similar facility in Malaysia.

Other Western Digital facilities in Thailand are still under about two feet of water, and refurbishment will commence after they are pumped dry, which the company estimated will take another 10 days.

Investors expressed mixed reactions to the hard drive industry updates.

Western Digital's share prices rose nearly 10 percent by mid-morning Friday to $32.10 per share. That was up significantly from its Monday opening of $25.77 per share.

Seagate saw its share hit a weekly high on Thursday of $17.40, up well over its Monday's opening price of $15.68 thanks to its financial update earlier this week. However, its share prices were down close to 9 percent by mid-morning Monday to $16.55.

Rising prices and supply chain uncertainty from the Thailand flooding have already started to adversely impact the storage industry as a whole.

In mid-November, top executives from such storage vendors as NetApp, Dell, and Overland Storage, who normally might not be expected to comment on supply chain issues, were forced to address the hard drive situation as part of their quarterly financial reports.

NetApp, during its second fiscal 2012 quarter financial conference call, said the company has been building up enough inventory to last through the end of the year, but the impact of the shortage is still unknown.

Tom Georgens, NetApp president and CEO, said during the call, "The large buy we did as this was all unfolding should sustain us through a good part of (fiscal) Q3, but probably not all of it. Although enterprise-class drives are considered to be the least impacted, we still anticipate some amount of supply and pricing complexity."

Jeffrey Clarke, Dell vice chairman of global operations and end user computing solutions, said during Dell's fiscal third quarter 2012 financial report that the storage industry is in a hard drive allocation situation.

Next: Storage Vendors Doing The Best They Can


"That puts the industry in an allocation environment at least through Q1," Clarke said, according to the transcript. "Last month, we made strategic purchases of inventory, and pulled in supply from our hubs. This drove an increase in our end of quarter DSI (days sales of inventory)."

Eric Kelly, president and CEO of Overland Storage, said during his company's first fiscal 2012 quarter financials that the entire industry is scrambling to secure hard drive supplies.

"The orders that came in through the end of October, we honored those orders," he said. "We increased our prices subsequently after that to take into account the increase in disk drive pricing. We're doing everything we can to ensure that we protect our margins. But until the industry settles down, you manage it the best you can."

Regarding its planned acquisition of Hitachi GST in a deal worth about $4.3 billion, Western Digital has faced opposition from regulatory authorities in Europe concerned about the consolidation going on in the hard drive industry.

In addition to Western Digital's plans to acquire Hitachi GST, rival Seagate is also doing its part to consolidate the industry with its planned acquisition of Samsung's hard drive business.

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