With operations disrupted at more than a dozen hard disk drive (HDD) factories, damage to the HDD industry caused by widespread flooding is significant. This will naturally have a direct impact on worldwide PC shipments through the first half of 2012, according to a new International Data Corp. (IDC) report.
In the first half of 2011, Thailand accounted for 40% - 45% of worldwide HDD production. As of early November, nearly half of this capacity was directly impacted by the flooding. In addition to assembly and component facilities being inundated with water, the industry faces work stoppages due to poor access and power outages. The full extent of the damage to HDD industry factories will not be known until the floodwaters recede, although it's already clear that there will be HDD supply shortages into the first quarter of 2012.
"The HDD shortage will affect smaller PC vendors and lower priced products most, including netbooks, emerging markets and entry-level consumer PCs. However, even the largest vendors are expected to face HDD shortages, particularly for portable PCs where the market is more consolidated. Nevertheless, the shortage will relieve some pressure on pricing and margins, and present some opportunities for strategic share gains among the larger players," said Loren Loverde, program vice president of IDC worldwide consumer device trackers.
The severity of HDD shortages in the coming months largely depends on the industry's ability to recover lost production capacity in Thailand. While IDC believes HDD industry participants will recover and restore HDD production capacity relatively quickly, HDD supply will remain constrained for an extended period of time.
IDC believes that a large part of PC production for Q4 2011 shipment has already taken place or can be completed with existing HDD inventories, limiting the impact on Q4 PC shipments to less than 10%. Significant HDD shortages by mid-November 2011 will continue into Q1 2012. In a worst-case scenario, total PC shipments could be depressed by more than 20% in Q1 2012 vs. previous forecasts as a result of the HDD shortage. In a positive scenario, the HDD industry begins to recover in Q1 2012, and HDD pricing stabilizes by June, with the industry running close to normal in the second half of 2012, according to IDC.
Naturally, throughout the whole period of limited shipments HDD prices will be high as demand will exceed supply and manufacturers will face increased costs for components, expedited shipments, and shifting of production to new locations.
Due to shortages of hard drives and consequent inability to build PCs, larger PC vendors will get an opportunity to capture enterprise accounts from smaller competitors and accelerate industry consolidation, particularly in faster growth markets.
"In response to the crisis, priority will be given to the large PC manufacturers that drive HDD shipment volumes as well as to the high-margin products used in enterprise servers and storage. But the HDD vendors can't neglect their smaller customers, whose business will continue to be important once capacity is fully restored. Some interesting production and partnering arrangements with customers can be expected as HDD vendors scramble to bring production back up while simultaneously angling for a strategic advantage," said John Rydning, research vice president of hard disk drives and semiconductors at IDC.