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Hard disk drive (HDD) manufacturing facilities Seagate Technology were not damaged by severe flooding in Thailand, but the company's production capacity is constrained by shortages of components. Even though Seagate moderately lowered its shipments forecast for the fourth quarter of calendar 2011, it clearly admits that the problems caused by the flooding are a multi-quarter issue.

Seagate, the world's second largest maker of hard disk drives, has two Thailand facilities: Seagate Teparuk, which produces head stack and head gimbal assemblies, and Seagate Korat,  which manufactures slider, head assembly and head gimbal assembly as well as hard drives. At present, Seagate's own facilities in Thailand are running at full production, but the company experiences supply issues with third-party component manufacturers, which significantly reduces Seagate's ability to produce HDDs.

"Our business priority is to work with our external component suppliers, supporting their efforts to rebuild the supply chain as quickly as possible. We expect to experience significant impacts to our production levels, while our suppliers work together businesses up and running. Given the severity of the situation and the expense of supply constraints caused by the disruption, including those described by our primary competitor, the effects on our industry are likely to be substantial and will extend over multiple quarters," said Steven Luczo, chief executive officer of Seagate.

Seagate shipped 50.7 million hard disk drives during the calendar third quarter of 2011 (Q1 FY2012) and lost approximately 3% of market share because it did not reduce prices of HDDs for mission-critical servers, raised prices on notebook drives and did not reduce prices of hard drives in the Asia distribution channel.

"Based on our current assessment of the external component supply chain, we expect to ship between 40 million and 50 million units in the December quarter. Given the volatility in the supply chain, which will impact mix and volume, we cannot provide a meaningful revenue estimate at this time," said Mr.Luczo.

Provided that the issues with external components get resolved, no other problems occur and Samsung's HDD business acquisition proceed as planned, Seagate will be able to increase its production capacity to 60 million hard drives by the end of Q4 2011 and boost that number by 10 million in Q1 2012.

"Our production is not constrained by either internal components supply or by our ability to assemble finished product; rather, we are constrained by the availability of specific externally-sourced components. If these component constraints are resolved result by the end of the December quarter, we expect to exit the quarter with a production capacity of at least 60 million units for the March quarter, excluding any additional capacity from the Samsung acquisition. Assuming no component constraints, we would expect additional capacity of at least 10 million units associated with the Samsung acquisition," concluded Mr. Luczo.

Tags: Seagate, HDD, Business

Discussion

Comments currently: 3
Discussion started: 10/22/11 08:16:25 AM
Latest comment: 10/24/11 02:45:03 PM

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1. 
One of the many liabilities to manufacturing in Asia is frequent severe weather. Perhaps PC companies should not place all of their eggs in one basket in a typhoon?
0 0 [Posted by: beenthere  | Date: 10/22/11 08:16:25 AM]
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2. 
We expect to experience significant impacts to our production levels, while our suppliers work together businesses up and running.

should be:

We expect to experience significant impacts to our production levels, while our suppliers work to get their businesses up and running.
0 0 [Posted by: Shenpen  | Date: 10/22/11 07:00:29 PM]
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3. 
I wrote this in another X-bitlabs article about the hard drive shortage:

The politics of the situation there are interesting, and factor into what is happening.

Thailand is used to flooding, and they have various flood management abilities. This year's flooding is exceptional in terms of the severity and how widespread it is. However, in previous decades, the water flow would have been different. It typically would have gone through Supanburi province to Nakornpathom, then Samutsongkram, then to the gulf. However, this time, there was an order not to let the water go through Supanburi. Thus, all the water went through Ayuthaya (the old capital), then Lopburi, then Patumthani, then down through Bangkok (including the industrial facilities of the hard drive manufacturers).

So why wasn't the water sent through Supanburi as in the past? That area has many rice fields... which belong to the exiled PM Thaksin and Mohamed Al-Fayed. How can he accomplish this while exiled? He still has many connections in Thailand of course, including business connections with another former PM who has an influential position in the current government--and whose hometown is in Supanburi.

Regardless, it's an incredible natural disaster for Thailand and its people, and it has global implications. Their political situation/history and how it may be affecting flood management could be making a very bad situation even worse, however.
0 0 [Posted by: bluvg  | Date: 10/24/11 02:45:03 PM]
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