Western Digital Corp. said flooding in Thailand is having a "significant impact" on the hard-disk drive maker's operations and its ability to meet customer demand in the current quarter, adding supply concerns to an industry already hurt by weak consumer spending on PCs.
The flooding in Thailand, the world's second-largest exporter of hard-disk drives, comes during the key selling season for hard-disk drives, with PC makers obtaining supplies for holiday sales. Analysts said it likely will lead to higher prices and potential supply constraints later this year or early next year.
"The PC market has been demand challenged, but now it's also supply challenged," ThinkEquity analyst Rajesh Ghai said. "It's a double whammy."
Western Digital, the world's largest provider of hard-disk drives, said Monday it is extending the suspension of its Thailand operations amid the country's worst floods in half a century. About 60% of Western Digital's hard-disk drives come from its Thailand sites, and the majority of its hard-disk drives go to the PC market. In addition, many components companies also have suspended operations, hurting other disk-drive makers.
Western Digital plans to provide more details during its earnings conference call Wednesday.
Shares, down 22% in the year-to-date, dropped 6.8% to $26.42 in midafternoon trading Monday on the New York Stock Exchange.
Western Digital joins a list of tech providers affected by the supply-chain disruption, including hard-drive rival Seagate Technology Inc., component supplier Hutchinson Technology Inc. and chip makers ON Semiconductor Corp. and Microsemi Corp. The flood's impact also comes at a tough time for the companies, which saw disruption in the PC supply chain from an earthquake and tsunami in Japan earlier this year.
Analysts said the flooding in Thailand could have a greater impact on the hard-drive makers than the Japan quake, with more components suppliers affected. IDC analyst John Rydning estimates any factory outages longer than three weeks would hurt even the top PC makers, with hard-drive inventories recently running "on the lean side."
In addition, hard-disk drive makers are facing other challenges. Once an integral part of all PCs, disk drives now compete with flash-memory products to be the main storage device for everything from laptop PCs to computer servers.
And the boom in sales of Apple Inc.'s iPad and other tablets, which use flash memory chips instead of magnetic disks, poses a threat to the hard-drive makers.
Western Digital last year eclipsed Seagate to take the top spot in global shipments. Western Digital further cemented its lead earlier this year with its $4.3 billion bid for Hitachi Ltd.'s drive business, giving it 50% market share. Seagate's bid for Samsung Electronics Co.'s HDD unit will boost its portion of the market to 40%.
Over the weekend, rising waters inundated Western Digital's Bang Pa-in Industrial Park facilities, submerging some equipment, the company said. On Monday, waters started to flow into the Navanakorn Industrial Park, threatening its equipment there, as well.
The company's other facilities in Malaysia, Singapore and the U.S. remain fully operational, the company said.
Seagate last week said its production of hard drives will be constrained in the current quarter due to the flooding, though it said its Thailand factories are operational.
Seagate said it is unclear what the magnitude of the supply-chain disruption would be on its output. Seagate said it will provide its next update on Thailand during its earnings report Thursday.
"If this lingers on more than a quarter, there could be outright product not available," Needham analyst Richard Kugele said. "Right now there's definitely pretty dramatic shortages and pricing is increasing significantly."
. If they reduce prices, now would be a perfect time to carve a niche for themselves.
