Thailand floods take toll on PC makers
Several computer makers have admitted their fourth quarter earnings could be adversely affected by component shortages, including industry heavyweights Asustek Computer, Acer Inc., and Samsung Electronics.
“The whole PC production chain is stuck at a bottleneck,” Acer’s CEO JT Wang told investors, referring to the effects of the Thailand floods on hard disc supplies.
“This is not a problem that we can solve by ourselves and so we have started raising prices,” he added, noting that with HDD prices up an estimated 5-20 percent, the firm had had to raise the cost of its notebooks to protect its margins.
Acer saw its shares drop slightly on Monday after the firm predicted its fourth quarter shipments could decrease by up to 10 percent from Q3, owing to the constraints on the component supply chain. The firm had previously said it expected notebook shipments to stay flat during the fourth quarter, with perhaps a slight 5 percent uptick, though this estimation has now been reversed.
Fellow PC maker Asustek has also reigned in its fourth quarter guidance as a result of the pressure the floods have had on its supply chain.
"Substitutes for HDD are very few, so if the situation persists, not only notebook production will be affected but also desktops, and other component shipments will also drop," Asustek CFO David Chang told Reuters.
The Thai floods have already claimed the lives of hundreds of people, with tens of thousands more having had to flee their homes in Bangkok. On a financial scale, too, the floods have wreaked havoc, as the city accounts for 40 per cent of Thailand’s entire economic output.
Around 25 percent of the world’s hard drive manufacturing plants are situated in and around Bangkok, according to market research firm IHS iSuppli, which posits that HDD supply could be severely impacted until the fourth quarter of 2012, with the worst shortages occurring from mid-December 2011 to February 2012.
“As a result of the flooding, the HDD industry in the fourth quarter will suffer its worst downturn in three years,” the firm said in a statement. IHS is predicting that HDD shipments in the fourth quarter will decline to 125 million units, down 27.7 percent from 173 million in the third quarter.
“The drop is the largest sequential decrease on a percentage basis since the fourth quarter of 2008 when shipments fell 21.2 percent during the worst point of the last electronics downturn.”
Western Digital Corp., the world’s largest producer of hard disc drives has had to close all its factories in Thailand down completely, as has Toshiba Corp., and a number of other smaller HDD makers, leaving the industry with just two months’ worth of remaining inventory.
Samsung, too, said it would feel the impact of component constraints on its PC sales, singling out the drop in dynamic random access memory (DRAM) pricing as especially significant to its revenues.
“We expect PC sales to be lower than expected. As a result, we expect weakness in DRAM prices,” a Samsung executive said in an earnings call late last week.
Research firm inSpectrum confirmed it too expected the price of DRAM to continue to drop, saying traders were “dumping inventory for cash” as the end of the month approached.
InSpectrum reported that the spot price of branded 2Gb DDR3 had dropped 7 percent to $0.90 and that white-branded 2Gb DDR3 had decreased by 6 percent to $0.73.
The firm added that a dearth of HDDs would likely lead to increased demand for more expensive solid state drives (SSD), with USB flash drives rising in the aftermarket, “which means the price for mainstream NAND Flash in the spot market is expected to increase in short term.”
Meanwhile, IHS said the catastrophic floods were taking a toll on the production “of several key end products, electronic parts and subsystems—most notably automobiles, car components, cameras, analog and discrete semiconductors, and hard disk drives.”
The firm said the disruption was having an indirect impact on the production of notebook PCs, DRAM, cameras and set-top boxes too.
“Beyond Thailand itself, the worst-impacted country is Japan, which maintains extensive manufacturing operations in areas affected by the disaster,” said IHS in a statement.
“Overall, the Thailand flooding represents the second major natural disaster to affect Japan this year, after the March earthquake. Thailand plays a key role in the manufacturing operations of Japanese companies, with an estimated 1,800 Japanese manufacturers operating in that country and 450 Japanese businesses located in seven flood-hit industrial parks,” the company added.