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UPDATE4 Semi Supply Chain Disruption to Last Well into 2012: Thailand continues to flood, human and economic situations devastating


Lunar high tide is set to peak Saturday evening in Thailand, the point at which we hope to know just how much of inner Bangkok will be flooded or spared.  Presently, the news is not positive, as government officials have called for evacuations throughout Bangkok and are bracing for the worst (see this from Bangkok Post).

Economic Impact

Should inner Bangkok flood, the financial and business center for the country would be disrupted.  In this event, estimates for Thailand's GDP are likely to further lower from the roughly 2.6% presently (down from 4.1% prior to early October), to roughly 0.5% (see here from Financial Times; and here from Bloomberg).  However, once reconstruction can begin, the resumption to the 4% level is likely (see also Credit Suisse, "Thailand's post-flooding growth, rates, and FX outlook: A wave of changes," 10-27-11).


Supply Chain Disruptions

Meanwhile, logistics are a challenge, though the international airport in southern Bangkok is still in operation, with hopes of keeping it in operation.  Humanitarian aid will be necessary and food shortages are forecasted due to over one-third of the rice crop being submerged.

The news is still trickling out from the major semiconductor, electronics and automotive companies.  In part this relative quiet is likely due to a few significant variables: evacuation orders remain in place and new ones were recently implemented for Bangkok; the country is on a "five day holiday" due to flooding to allow people to move to non-flooded provinces; power is still shut to any flooded areas to reduce the risks of electrocution; water levels remain high and rising throughout the country; and finally, it is likely that many corporations are assessing internal situations, negotiating with supply chain partners, relocating (at least temporarily) production to alternate sites, and are preparing to report assessments simultaneously with their 4Q11 financial statements, which will come out in greater numbers next week (see also this assessment from Gartner).

Long Lasting Effects

We do know that the situation is severe and will last well into 2012 with "sub-par Q1 results" an expectation at this point, as cited here from Pipeline Data.  Pricing issues have already hit the industry's supply chains and the expectations are that in order to buffer anticipated reduced to negative earnings, end-product ASPs are also likely to rise (see this recent statement about rising computer prices from Acer and Samsung in Financial Times).

The immediate impacts on 4Q11 markets and sectors within the semiconductor and electronics industries are already being felt across OEMs and the entire semiconductor value chain (see this in-depth industry review from Seeking Alpha).  This situation is expected by all to worsen as supplies tighten and prices begin their rise for components and finished products in PC (e.g., here from Financial Times), HDD, NAND, optics (e.g., here from Forbes), and automotive (e.g., here from Bloomberg).  However, the greater impacts will hit after inventory is down to zero and production is still halted and/or dramatically reduced.  Industry and financial analysts, as well as strategists, from across sectors are concerned that it will be first during 1Q12 that the negative impacts on component availability, volume, ASP spikes, and depressed revenue (due to lack of final products) are felt.  Similar effects are likely to linger throughout the 2012 year for a number of companies (see also the latest EMS review from Manufacturing Market Insider, Vol. 21, No.10, October 2011).

With the situation still in flux, we at Smith MarketWatch will continue to monitor all aspects of the flooding in Thailand and provide industry relevant updates as they occur and can be verified.  Subscribe here (no charge) to follow the situation and our analyses.

Lisa Ann Cairns, Ph.D.
Written on Friday, 28 October 2011 11:45 by Lisa Ann Cairns, Ph.D.

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