Flooding in Thailand will create “massive shortages” of hard disk drives (HDDs) in the first quarter of 2012, some analysts say. Meanwhile, some vendors have already panicked and are turning to the gray market, where prices of HDDs have increased by more than 100 percent in some cases, DigiTimes claims.

Nature is putting some cruel pressures on the hard disk drive industry, not to mention the overall IT business and most of Southeast Asia. About 70 percent of the world's HDDs are assemblied in Thailand, whose infrastructure is stymied in all sectors by slowly rising floodwaters that began several weeks ago as a result of an early monsoon season.

Western Digital, the world's No. 1-selling HDD producer with some 40 percent of the global market, obtains about 60 percent of its inventory from its factories in Thailand. However, the Irvine, Calif.-based company said Nov. 3 that it has shut down those facilities and is unsure as to when it will be able to reopen them.

WD said it will ship less than half the HDDs it had expected to supply for the remainder of the year. It is possible that the curtailed shipments will continue into spring 2012, WD added.

Iain Bowles, an executive at Probrand Ltd, a distributor of computer products whose offerings include Seagate — the world's No. 2 HDD maker with some 38 percent of the market — said in a Nov. 3 blog posting that the supply of HDDs will soon hit rock bottom. Factories in Thailand are expected to be out of action for at least 56 days, he added.

The flooding disaster will hit the world IT supply chain harder than the March 2011 Japanese tsunami, Bowles predicted. As a result, he said, there are likely to be massive shortages of the IT-cornerstone product in the first quarter of 2012.

Flooding in Bangkok
Source: U.S. Navy
(Click to enlarge)

"At the start of the floods in Bangkok, the IT industry had four weeks or 28 days of finished disk drive stock in the supply chain," Bowles said. "If the rains stop today, it will be a minimum of 56 days before production can restart. Thai authorities have said it will take two to four weeks to pump out flooded areas and that is even before any actual cleanup can start."

In comparison, Bowles said, when the tsunami struck, component stock in the supply chain sat at over 80 days, enabling recovery time before stock would become depleted. Stock levels in the supply chain act as a cushion for supply continuity, but in this case, the HDD stock "buffer" of finished products is simply too small given that most plants will remain under dirty water for some time yet.

Global demand for HDDs still growing

Global demand for HDDs continues to grow. Last quarter the market sold 177 million units, or about 59 million units per month, and is forecast to reach 180 million next quarter. However, the impact of the floods is expected to cause a 20 million-unit shortfall over demand per month.

"As a direct result, prices could rise by up to 25 percent for hard disks, and this will impact finished products down the line as well," Bowles said.

Disruption is being seen at all the key HDD producers, which also include Hitachi Global Storage Technologies, Toshiba/Fujitsu and Samsung Electronics. Apple, Sony and Toshiba have all confirmed they believe HDD shortages will prevail.

"Thailand does not have the same culture or infrastructure as Japan, so recovery may be slower than post-tsunami," Bowles said.

"For manufacturers, I suspect we will see attempts to move production to other geographies such as Malaysia," Bowles added. "However, much of the specialist machinery required to switch production sites is under water and cannot be accessed via flooded roads. This truly is another very testing time for the global ICT supply chain, and business needs to be prepared for HDD shortages."

Taiwan-based netbook maker Asustek told Reuters that it has HDD inventory that will last only until the end of November.

"Substitutes for HDDs are very few, so if the situation persists, not only notebook production will be affected but also desktops, and other component shipments will also drop," Asustek Chief Financial Officer David Chang was quoted as saying by the wire service.

Vendors panic

According to a Nov. 4 DigiTimes article, PC vendors are "going into a panic" to fill their HDD inventory, and doubling or tripling their normal orders. When manufacturers can't fill the orders, these customers are turning to the gray market, authors Aaron Lee and Joseph Tsai write.

Gray market pricing has increased from $45 for a 500GB drive to over $100, and 320GB models have gone up from $35 to $60 or $70, according to the story. It's said this will increase the cost of producing a 320GB-equipped PC by about 4 percent, and may boost the popularity of SSD-equipped Ultrabooks, sources are quoted as saying.

Lee and Tsai further report that Japan-based HDD motor supplier Nidec has had nearly 2,000 sets of equipment damaged by the floods. Unlike in the aftermath of an earthquake, where equipment only needs to be reset, the water damage will require replacement — meaning, they add, that a full recovery may take "more than two years."

Little impact on SSD market — for now

The crimp in the HDD market isn't expected to noticeably bump up the demand for its main competitor, solid-state drives, in the world marketplace, according to one industry analyst.

DRAMexchange, a division of TrendForce, said Nov. 1 that it does expect the floods will lead to a temporary interest in SSDs, driving some increase in sales of NAND flash, but not enough to offset restocking of NAND components by original equipment manufacturers.

DRAMexchange said that SSD parts pricing won't be affected, either, and it expects the contract price of mainstream NAND parts to decline in November and December after declining by 4 to 8 percent in the second half of October.

If the HDD inventory shortages created by the Thai floods continue into Q1 of 2012, the number of SSD-equipped PC models may increase, DRAMexchange said. But the firm also said it believes the extent of the effect on the NAND flash market will depend on the level of consumer acceptance.

Chris Preimesberger is a writer for eWEEK. Jonathan Angel provided additional reporting for this story.

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