Upstream, the flooding in Thailand seems to hit what we can only hope is a final high point after the lunar high tide came and went earlier this week. However, within Bangkok, which is mostly built in a tidal basin where the major rivers meet with the sea, floodwaters continued Friday to enter into new areas including the suburbs surrounding the Suvarnabhumi (international) Airport, but thus far sparing the airport itself (see this latest update from Bangkok Post).
Water, water everywhere
Meanwhile, the Don Muang (regional) Airport to the north of Bangkok remains closed and is being used as an evacuation center where many flood refugees are expecting to stay for months at this point, according to recent reports such as here from the Wall Street Journal. While roughly one-fifth of Bangkok is currently experiencing flooding (see this from the BBC), the extent of the floods equals roughly the landmass of Kuwait. With this much water, the problems go well beyond logistics and business realms as serious health crises from the fetid waters begin to impact life.
With this amount of standing water, no drainage in sight for well over a month, the medical communities continue to warn of serious problems facing the Thai people due to water-borne diseases (from the water and from insects), human and animal waste, as well as all types of garbage and refuse from both residential and industrial run-off (see this recent report from the Wall Street Journal). The situation is grave and will likely worsen, leaving many sick and more deaths unfortunately expected. In addition to a lack of electricity, there is, of course, no plumbing, contributing to the water pollution problems.
Supply chain stoppages continue
While the floodwaters may be stabilizing to the north of Bangkok, they are not receding, according to corporate sources, leaving damage assessments still off in the future. Even for those businesses not flooded, such as Toyota and Nissan, they are still in a work slowdown or stoppage due to the logistics and components disruptions faced in Thailand (see here for an update on automotive from Supply Chain Standard).
Those directly affected by the flood, which include a number of critical businesses to the semiconductor and electronics global supply chain, remain in an indefinite work stop with hopes of having insight within a month (including optics, LEDs, and many semi components plus test and assembly services) (see here for an overview by ElectronicsFeed).
The murky forecast
The resounding guesstimate for even being able to survey those industrial parks that have been flooded is two to four weeks, at a minimum (see this recap from iSuppli and this overview from Investor Place). That timeline is just to be able to enter the parks and assess damage; then there will be a good month or more until there is hope of enough of the flood waters to have receded that pumping would actually be possible. After that, there is the drying out phase which is expected to take one to two months; then there is the rebuilding and re-equipping of lines and tools. These are just the mechanics. On top of this situation is the mounting human health situation and the number of displaced employees to consider who are suffering in ways that we cannot measure and do justice to.
So, what is to become of the wider semiconductor and electronics supply chain in Thailand? Many have been asking this question for a couple of weeks and we have been listening in and following trends. There is public discussion that regional locations such as India, Malaysia and the Philippines may be well-suited to take up the slack and support some of the needs for new and/or expanded facilities (see for example here, here, and here for a view into this new positioning).
Regardless of what regional shifts in manufacturing locations may occur as a result of the ongoing flooding situation, it is clear that companies, whether large or small, are extremely negatively impacted and many will exceed even sizable insurance claim amounts (cf., ON Semi's recent financial statement overview here).
While most of the 4Q11 inventory was already in process along the supply chain, it is 1Q12 and forward that many expect to be the real point of impact for the industry. Presently there are already shortages across a range of sectors HDD (impacting memory), PC, optic, automotive, LED (some), and test and assembly, to name the most obvious. There will be negative earnings as a result of the flood simply because there will be volume downgrades due to lack of product. What product is available will be in increasingly shorter supply due to various component supply chain disruptions, causing prices to continue to climb (there is already public knowledge of the jump in various memory pricing, for example).
One outcome of these expected losses and cost increases is pricing changes downstream. We have already seen reports in the mainstream media that some of these costs are being looked at as possibly passed along to consumers in the form of increases in various final product price increases (especially for PC sector products). Given the demand-soft situation that has plagued not just our industry, but most due to continued poor macro-economic outlooks, it is a curious time to raise prices, but logically, it may be the only move left to make for some. The holiday season is likely to be mostly spared for consumers, but come 1Q12, it will be interesting to see if relocations upstream (temporary or permanent) will be sufficient to offset re-pricing downstream.