Last updated: October 20, 2011 9:40 pm

Thai floods hit global hard drive production

Western Digital Corporation, the world’s leading manufacturer of hard disk drives, said global supply may be constrained for several quarters because of flooding in Thailand.

The firm, which manufactured a third of the 166m hard drives shipped globally in the third quarter, has closed all of its facilities in Thailand, after monsoon rains inundated industrial parks near Bangkok, the capital, and killed more than 300 people. Weather forecasters say the deluge may worsen in the coming weeks.

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“We estimate that our regular capacity and possibly our suppliers’ capacity will be significantly constrained for several quarters,” Timothy Leyden, Western’s chief operating officer told analysts on an earnings call on Wednesday night.

“At this point we are not in a position to establish when [Thai factories] will recommence operations,” added Wolfgang Nickl, the company’s chief financial officer.

Western Digital shares slumped 5 per cent in the first minutes of trading on Thursday to $22.64, a two-year low, before rebounding strongly to $25.96, a gain of 6 per cent on the day.

Roughly 25 per cent of all global hard drive assembly facilities are located in Thailand, according to industry tracker iSuppli, which said supply would be constrained until the fourth quarter of 2012.

About 60 per cent of Western Digital’s production takes place in Thailand, while Toshiba, the fourth biggest hard drive producer, has approximately 50 per cent of its capacity in the country.

iSuppli also said the flooding may have affected operations of Nidec Corporation, a Japanese company that supplies more than 70 per cent of the motors in global hard drives.

Western Digital said it only had four weeks of inventory on hand to meet existing customer orders.

The majority of hard drives end up in personal computers, although they are also used in other consumer electronic devices and industrial equipment, such as imaging equipment.

Fears that supply disruption could hit production of personal computers knocked shares in Dell, which derives around two-thirds of revenues from personal computer sales. Dell shares fell 5.4 per cent to $15.05, while Hewlett-Packard, which derives around 15 per cent of operating profit from PC sales, was off 1 per cent to 24.74.

In the UK, Pace blamed the closure of Western Digital’s Thai facilities, which supply hard disk drives to its set-top box factories, for its third profit warning of the year, dragging its shares down 12 per cent.

However, manufacturers of memory benefited on hopes that computer manufacturers may opt to produce more netbooks, which rely on memory but do not use hard drives, to counter supply challenges.

STEC inc was up 5.7 per cent to $10.82.

“Following our discussion with WD management, we believe flooding in Thailand will cause worse supply constraints in the PC industry than the tsunami in Japan earlier this year,” said Jason Nyoland, a tech analyst at Robert W Baird.

The Thai floods are causing widespread disruption to many industrial supply chains, with Japanese car manufacturers also hard hit.

Ford has also been forced to suspend operations at its Thai unit, AutoAlliance Thailand (AAT).

“AAT is located in an area of Rayong that has not been affected by the floods. However, a number of AAT’s suppliers operating in Ayutthaya province have been affected,” the company said. Ford has closed its Thai facilities until at least October 25.

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