The flooding in Thailand is affecting the fabrication of several products and parts, including automobiles, car components, cameras, semiconductors and hard disk drives. The disruption to the supply chain is having an indirect impact in turn on the making of other products, including PCs, memory (DRAM), cameras and set-top boxes. As a result, in the short-term, HDDs will get 10% more expensive, but other consequences are likely to be more drastic, according to IHS Isuppli.
As a result of the flooding, the HDD industry in the fourth quarter will suffer its worst downturn in three years. HDD shipments in the fourth quarter will decline to 125 million units, down 27.7% from 173 million in the third quarter. The drop is the largest sequential decrease on percentage basis since the fourth quarter of 2008 when shipments fell 21.2% during the worst point of the last electronics downturn. IHS estimates that 30% of HDD production in the fourth quarter this year will be lost because of the disaster. This will result in a significant shortage of HDDs.
Because of the shortage, HDD inventories will be depleted and will cause average HDD pricing to rise by 10% in the fourth quarter compared to the third. Some industrial sources pointed out that hard drive manufacturers are about to increase their quotes on drives by 20% to 25% in the short-term future.
The downturn will be spurred by production disruptions and stoppages at the manufacturing operations of some of the world’s largest HDD makers, namely Western Digital Corp. and Toshiba Corp., as well at suppliers of key components. Thailand is the world’s second-largest producer of HDDs after China and is a major supplier of hard drive parts. Western Digital is likely to lose its status as the world’s largest shipper of HDDs, with its rank expected to fall two positions to third in Q4 2011, down from first place in the Q3 2011. Toshiba’s rank will increase to No.1 as a result of consolidation of Samsung and Seagate's HDD businesses despite of lower shipments.
In the PC market, the HDD shortage is likely to have the greatest impact on notebook PCs. The specific HDD plants affected by the flooding make devices designed for mobile computers. However, the PC industry appears to have sufficient stockpiles to last through the fourth quarter, so a disruption to notebook shipments in 2011 is not expected. Just the same, with HDD production disruptions expected to last at least six months, the shortage could impact PC production in the first quarter of 2012.
Starting in the second quarter next year, IHS expects the notebook supply chain to begin to adjust to the impact of the disaster, obtaining hard drives from alternative sources in different regions and using other types of storage solutions, including solid state drives (SSDs). Such a workaround will allow the notebook supply chain to mitigate the impact of the HDD shortage.
In another fallout from the disaster, the DRAM market could be negatively impacted by slowing sales of notebook PCs. Any reduction in PC sales due to supply chain constraints will further depress the already oversupplied DRAM market.
In the camera sector, the Thailand camera manufacturing operations of Sony, Nikon and Canon all have been disrupted or suspended by the flooding. As a result, IHS iSuppli anticipates that overall camera shipments will drop in the fourth quarter and possibly in the first quarter of 2012.
Lastly, the manufacturing operations of two major analog and discrete semiconductor suppliers - On Semiconductor and Microsemi - have faced a significant impact from the disaster in Thailand. Fellow suppliers Rohm and Toshiba also have been affected, but to a lesser degree. For now, IHS believes the manufacturing disruptions at On Semiconductor and Microsemi will have minimal impact on the entire semiconductor industry. However, whatever direct impact there may be will be felt mostly in the Japanese market. This is because On Semiconductor has limited alternative sites in which to move the test and assembly of customized packages for customers in Japan.