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Publication Date: 12/1/2011
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Thailand Floods Mean HDD Shortages

The impact of the October/November monsoon floods in Thailand on many high technology industries has 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 impacted by parts shortages from flooded suppliers.

Overall about 50 percent of total hard disk drive assembly capacity is in Thailand with WD's Thailand production representing about 60 percent of that company's total HDD output. As a result of this flooding and the long-term damage to equipment and facilities, 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 billion.

Although demand for HDDs in the December 2011 calendar quarter was estimated as high as 180 million units, actual production estimates are for 110-120 million HDDs. The difference of 50-60 M units between production capacity and demand has led to price spikes for HDDs in the 20-50 percent range for 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 price increases for HDDs in the range of 25 percent over pre-flood levels appear likely for the near future. Overall drive average selling prices (ASPs) in the $62 to $65 range are quite likely for CQ4 2011 and CQ1 2012.

In addition to these price increases, the market share leadership for HDDs is likely to shift to Seagate from Western Digital in the short term until WD can shift production to other Asian countries or get new Thailand facilities operational.

The impact of the floods on WD's temporary leadership could pave the way for easier approval of the merger between WD and Hitachi GST (Hitachi's HDD operation) which has been delayed by European regulatory agencies. Toshiba announced that it will restart some Thai output early in 2012 but WD has not yet made a public statement on when it can start operations in Thailand or nearby countries to replace lost Thai output.

Some companies were able to save their equipment from inundation and thus will be back in operation sooner than others. Magnecomp (part of TDK), a manufacturer of suspensions for hard disk drive heads, announced that it would get its production started in one of its Thailand plants on November 7, 2011. Although the company had to cease operation on October 8 to 12, employees were able to move 95 percent of production equipment from the first floor of one of its facilities prior to the inundation by floodwaters. As a consequence of this heroic effort, MPT will be back in operation before many other facilities, aiding TDK's efforts to supply heads to the HDD industry and replace some shortfalls due to slider fabrication and head assembly facilities lost by companies such as Western Digital.

Equipment long immersed in water will need extensive repairs at least and likely most of this equipment will need to be replaced. The kinds of equipment needed range from several hundred CNC machines, through specialized fixtures and equipment for the production of sliders, to back-end drive test equipment and other specialized production, metrology and production measurement equipment. If, as we expect, much of this equipment must be replaced, the total capital equipment costs from the Thailand flood could approach $1 B. Combined with attempts to increase production to meet increasing demand for HDDs, 2012 will likely be a very good year for some providers of HDD and HDD component capital equipment including Teradyne, Veeco and Xyratex.

The 2012 Hard Disk Drive Technology and Capital Report from Coughlin Associates (due out at the end of November 2011, will look at the capital costs associated with repair and replacement of damaged equipment from the Thailand flood and give estimates for how long it will take to get these plants operational.

Contact: Thomas Coughlin, Coughlin Associates, 408-978-8184 E-mail: Web:

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