Flooded HDD Factories in Thailand Will Be Costly For All
The impact of the October/November monsoon floods in Thailand on many high technology industries have been considerable. Perhaps none have been as hard hit as the HDD industry where major plants for Western Digital and Toshiba were flooded and many major HDD component suppliers were flooded as well. Even non-flooded production facilities such as those of Seagate and Hitachi GST have been shut down for several weeks. Overall about 50% of total hard disk drive assembly capacity is in Thailand with WDs Thailand production representing about 60% of its total HDD output. As a result of this flooding and the long term damage to equipment and facilities in Thailand there will be a shortage of HDDs in December 2011 and throughout 2012. In addition, replacing and repairing capital equipment in the flooded plants will lead to large increases in capital equipment spending through 2012 that will likely approach $1 B.!
Although demand for HDDs in the December 2011 calendar quarter was estimated as high as 180 M units, actual production estimates are for 110-120 M HDDs. The difference of 50-60 M units between production and demand has led to price spikes for HDDs in the 20-50% range in the short term. With production volumes in the March calendar quarter of 2012 constrained to 120-130 M units with demand (including pent up demand from the prior quarter) being much higher, long term prices increases for HDDs in the range of 25% over pre-flood levels appear likely for the near future. Overall drive average selling prices (ASPs) in the $62-$65 range are quite likely for CQ4 2011 and CQ1 2012.
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