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Thai waves drench us, too

Sandra Gittlen | Dec. 21, 2011
Few world crises have shocked the tech sector as much as the recent flooding in Thailand.

Few world crises have shocked the tech sector as much as the recent flooding in Thailand. The Asian country serves as home to factories producing hard disk drives, integrated circuits, and other critical computer components. The latest natural disaster has ground facilities to a halt and manufacturers, retailers and buyers are scrambling to cope.

In November, both Gartner and IDC sounded the alarm that disruption of operations at more than a dozen HDD factories would have a significant impact. The research firm warned that although Q4 PC shipments were minimally affected, the first quarter of 2012 would be another story. "In a worst-case scenario, total PC shipments could be depressed by more than 20% in Q1 2012 vs. previous forecasts," IDC stated.

IDC warned companies to expect higher HDD prices as well as other repercussions. "In response to the crisis, priority will be given to the large PC manufacturers that drive HDD shipment volumes as well as to the high-margin products used in enterprise servers and storage," noted John Rydning, research vice president for IDC's Hard Disk Drives and Semiconductors area, in the statement.

The industry already had received a similar wake-up call after the earthquake and tsunami in Japan earlier this year. Companies such as Sony, Panasonic and Toshiba with plants smack-dab in the hit zone were thrown back on their heels.

The globalization trend clearly has its drawbacks -- namely susceptibility to these types of disasters. "The tragic 2011 earthquake and tsunami in Japan provided a stark illustration of the interconnectedness and vulnerability of the global technology supply chain," remarked analyst firm Booz & Co. in a email teaser for its 2012 Technology Industry Perspective report. "Large technology companies will be looking to mitigate the effect of these improbable 'black swan' events on their operations," Booz predicts.

I agree. Going forward, there is likely to be far more consideration of the risks of consolidating factories in far-away lands with few disaster recovery capabilities and underdeveloped infrastructure. In my opinion, global manufacturers have no choice but to develop stronger failover plans for these emerging markets and to create more distributed production strategies.

Consider this: In the first half of 2011, Thailand accounted for 40% to 45% of worldwide HDD production, according to IDC. Last month, nearly half of that capacity was "directly impacted by flooding," the firm reported.

Electronics makers that rely on components from overseas will have to reexamine their supply chain and ask the tough questions of their suppliers. No doubt they are concerned that any such changes will ramp up prices. But a slight increase spread over time is surely better than the current component dearth.

 

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