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UPDATE7 Thailand Floods To Adversely Affect more than PC Sector


As quarterly earnings continue to be reported, we are able to round out our picture of the dramatic effects that the devastating flooding in Thailand is having on the semiconductor and electronics industry.  Importantly, we see noteworthy shifts increasing in likelihood for sectors and for the global semiconductor supply chain as we move into 2012.

Beyond PC, storage sector raises red flags too

As reported today by CRN here, some leading storage companies are disclosing that the hard disk drive (HDD) and related component shortages due to the flooding are expected to have an impact on their sector. 

The effects on the PC sector have been under discussion for a few weeks now, but we are seeing that holiday shipments of consumer electronics are (thus far) not significantly impacted; the first half of 2012 will likely be a different story, due to quickly dwindling HDD supplies upstream (cf., here and here from ZDNet).

However, as CRN underscores, the effect on storage is still a looming question, but based on their research, executives, such as those at NetApp, as cited here by CRN, are disclosing that they have tried to amass enough to support inventory through December:

"NetApp made large purchases of hard drives as soon as word of the potential impact from the floods came through, said Steve Gomo, NetApp's executive vice president and CFO.  "We believe we will have sufficient drive inventory through the end of December, but it's difficult for anybody to predict the business impact beyond that," he said. " (see this CRN report)

Of particular concern for NetApp, according to the CRN report, is the roll-out of their small business storage solution.

More generally, we realize that the concerns raised by NetApp are not isolated to one company, of course.  As a result, the question of how deeply the Thailand flooding will impact the semiconductor and electronics industry is still relatively unknown in terms of actual numbers and extent of sectors affected (e.g., volume, pricing, sales, and revenues).  What is certain is that this event is likely to be one of the more significant supply chain events in recent history.

Supply chain shifts

From the outset of the flooding, questions around the ability of Thailand to maintain its base of semiconductor and electronics manufacturers have been a posed by the Thai government and by industry analysts alike (see, for example, this recent MarketWatch Commentary and this from the New York Times).

Bloomberg reported here that there is escalating concern of reduced investment in Thailand going forward.  While Thailand has been favored by major manufacturers, particularly from Japan, the recent flooding catastrophe may have highlighted problems in infrastructure, planning and disaster management that could further promote investment in new factories in Vietnam and Indonesia over Thailand.

Certainly this year's natural disasters in Japan and now Thailand have reminded industries that reviewing risk management and supply chain strategies are essential.  While a seemingly obvious reminder, the outcome of these strategic reviews could entail significant re-weighting of manufacturing and distribution hubs for a number of industries, such as automotive, semiconductor and electronic, especially.

The emerging economies are essential to continued industry growth (particularly with softening consumer electronics sales, as noted by iSuppli here), but carefully reviewing country-internal risk factors and including diversified sourcing and production strategies will likely open supply chains in healthy new directions.

Lisa Ann Cairns, Ph.D.
Written on Friday, 18 November 2011 13:51 by Lisa Ann Cairns, Ph.D.

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