Two of the world’s largest makers of hard disk drives had to temporarily shut down their manufacturing facilities in Thailand recently due to severe flooding and this action will clearly affect their business performance this quarter. But according to Western Digital, the situation is so bad that not only shortages of hard disk drives will occur this quarter, but will span throughout several quarters.
“The industry will be supply-constrained due to the flooding in Thailand and the concentration of HDD suppliers and factories in various industrial states in the flooded and flood-threatened areas. […] In order to get these facilities back up and running, we need the water level to stabilize, after which point, it will take some period of time for the floods to recede. We estimate that our regular capacity and possibly our suppliers' capacity will be significantly constrained for several quarters,” said Timothy Leyden, chief operating officer of WD, during quarterly conference call with financial analysts.
The flooded buildings in Thailand include Western Digital’s HDD assembly test and slider facilities, where a substantial majority of its slider fabrication capacity resides. In parallel with the intermittent slider shortages resulting from the above disruption, WD is also experiencing other shortages on component paths from vendors located in several Thailand industrial parks that have already been inundated by the floods or have been affected by protective plant shut downs.
During the third quarter of 2011 WD shipped 58 million hard disk drives (HDDs), up from 50.7 million units during the same timeframe a year ago. However, due to shortages of sliders as well as capacity constraints in the calendar Q4 2011 the company only expects to sell from 22 to 26 million of hard drives.
“We are working with our suppliers to affect the recovery of their supply chain and to ramp existing capacity in other locations. 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,” added Mr. Leyden.
Western Digital this week reported revenue of $2.7 billion, hard-drive unit shipments of 58 million and net income of $239 million, or $1.01 per share, for its first fiscal quarter ended September 30, 2011. The company's results include expenses of $21 million associated with the planned acquisition of Hitachi Global Storage Technologies (Hitachi GST).
“Due to the concentration of HDD supply chain factories in various industrial parks in the flooded area, it is apparent that the HDD industry will be constrained in meeting that 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. While the flooding in Thailand presents us with a series of daunting challenges during the next several quarters, I'm highly confident in the abilities of the dedicated WD team with its strong execution skills to complete our operations recovery effectively and efficiency,” said John Coyne, chief executive officer of WD.