Output likely to slump about 15 per cent due to damage to manufacturing facilities in industrial parks
Flooding in Ayutthaya's Rojana and Bang-Pa-In industrial parks and at Pathum Thani's Nava Nakorn Industrial Park have damaged the production of semiconductor components for hard disk drive and HDD manufacturers.
According to research firm Gartner, the planned production of 180 million HDDs in the fourth quarter of this year would have to be slashed by about 20 million to 30 million. The situation could be more serious than that as it is not known yet when production at any of the facilities in Ayutthaya and elsewhere could resume.
If drive-makers deplete global inventories, they might manage to ship 170 million HDDs in the fourth quarter, although the figures are tentative.
The research firm has also forecast that supply constraints may limit HDD shipments through the first quarter of 2012. A lack of key components from the Ayutthaya region will affect even drive-makers with facilities outside the flood zone.
A similar report recently by research firm IHS iSuppli also forecasts that the floods in Thailand could potentially lead to a shortage of HDD supplies during the current quarter. This shortage may last into the first quarter of 2012.
While it is too early to gauge the extent of the impact of the floods, HDD supplies are likely to be constrained throughout the fourth quarter.
The current IHS HDD forecast, made before the disaster, estimated production of 176.2 million hard drives during the fourth quarter, representing 25.9 per cent of annual manufacturing in 2011. IHS likely will downgrade its fourth-quarter production forecast in light of the impact of the disaster.
According to the Gartner forecast, the flooding has forced factories to shut down. This supply-chain disruption will affect semiconductor companies' materials production, manufacturing services and electronics products worldwide.
From a semiconductor factory perspective, the back end, including packaging and test areas of the supply chain, will be most affected by the flooding.
There are 25 assembly facilities representing integrated device manufacturers (IDMs) and semiconductor assembly and test services (SATS) companies in the affected areas such as ON Semiconductor.
Keith Jackson, ON Semiconductor president and chief executive officer, said that the company's SANYO Semiconductor division, which operates wafer probe and assembly and test operations in the Rojana Industrial Park and Bang Pa In Industrial Park, have been damaged by the flooding.
Operations at this location remain suspended. It will be unable to restart probe, assembly and test operations at the Rojana Industrial Park for an indefinite period. The future of this site will be evaluated once the company is able to gain access to its facility.
The company is now shifting production to other facilities within and outside its global ON Semiconductor manufacturing network.
Certain products will be sourced from alternative assembly and test locations beginning in the fourth quarter of 2011, while more complex production transfers may take multiple quarters to be restored to full production capacity.
The company's operations in the Rojana Industrial Park produced approximately 10 to 12 per cent of its total worldwide output as measured by revenues of US$905.8 million (Bt28 billion) for the second quarter of 2011.
The negative impact of the flooding crisis to its manufacturing facilities, including the Bang Pa-In facility, is estimated to be approximately $40 million to $60 million per quarter of lost revenue over this same three- to four-quarter period.
Damage from the stoppage of its operations at the Rojana Industrial Park due to the flood will exceed $50 million of potential proceeds.
Meanwhile, Western Digital Corp also announced that it has extended the suspension of its operations in Thailand at both the Bang Pa-in and Nava Nakorn industrial parks.
Western Digital reported that the company has shut two factories in Thailand. The company may see exports from Thailand slide as much as 40 per cent to Bt120 billion ($3.9 billion). Therefore, it may take the company between four and six months to resume full production, cutting Western Digitals exports from Thailand by Bt80 billion, from Bt200 billion.
According to research firm IHS iSuppli, WD is the world's largest HDD manufacturer in terms of volume, and its production in Thailand accounts for 60 per cent of its total capacity.
In the second quarter of 2011, WD produced 53.8 million HDDs, giving it a 32-per-cent share of the global market.
Even though the company's other facilities in Malaysia, Singapore and the US are fully operational, the company now expects that the flooding of its facilities in Thailand, combined with flood damage to the company's supply chain, will have a significant impact on the company's overall operations and its ability to meet customer demand for its products in the quarter ending December.
Meanwhile, the other large HDD manufacturer, Seagate Technology, announced that currently all Seagate factories in Thailand - a head stack and head gymbal assembly (HGA) facility in Teparuk, and a head assembly and HGA operations in Korat - continue to be operational following the disaster.
The hard disk drive components supply chain is being disrupted and it is expected that certain components in the supply chain will be constrained. Given the volatility of the situation, it is unclear what the magnitude of the supply-chain disruption will be to Seagate's hard disk drive output from its Thailand operations.
However, 25 per cent of worldwide HDD assembly facilities are located in Thailand, according to the recent release from research firm IHS iSuppli.
The floods may also have affected the operations of the supplier of a key HDD component - motor. Nidec Corp supplies more than 70 per cent of all global HDD motors. Among its customers are major HDD manufacturers like WD, Seagate, Hitachi GST, Toshiba and Samsung. Nidec has two subsidiaries in the country - Nidec Electronics and Nidec Precision - both located in Ayutthaya.
Hard disk drive suspension assembly maker Hutchinson Technology has also temporarily suspended operations at its facilities in Ayutthaya due to the flooding and loss of power.
Hutchins said it plans to increase output at its US assembly operations and will use existing inventory to meet customer demands.
The flooding crisis in Thailand has also affected the Mac computer line. Some of those factories have been shut down, and Apple is now assessing the impact on its computer production timeline.
"Our hearts go out to all of the people in Thailand who have experienced these devastating losses of life and property as a result of the monsoons and the flooding," Apple CEO Tim Cook said during the company's fourth quarter earnings call on Tuesday afternoon. "There are several factories that are currently not operable and the recovery timeline for these factories is not known at this point."
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