Two natural disasters this year, in Japan and Thailand, have demonstrated the vulnerability of supply chains in the global economy. Flooding in Thailand, beginning with monsoons in July, has brought the production of some hard-disk drive (HDD) components to a halt, price increases and dire predictions of scarcity by early 2012.
In March, an earthquake and subsequent tsunami in Japan seriously disrupted supplies of recordable media to global TV and film production markets when two Sony plants, one responsible for 100 percent of the world’s HDCAMSR tape production, were shut down. Now comes the news that Western Digital and Toshiba plants along with other major HDD component manufacturer’s facilities in Thailand have been forced to close due to flooding.
According to reports, Thailand assembles 50 percent of all HDDs; Western Digital’s facilities account for 50 percent of its entire HDD output. Those companies whose plants have escaped the flooding, including Seagate, are being affected by component shortages.
No one is yet able to predict when the affected factories will be able to resume production, much less return to pre-flood capacity. With no sign of the floodwaters abating, the Western Digital plant that manufactures a critical hard-drive component used worldwide is still inundated.
Tom Coughlin, a storage industry analyst, writing in Forbes, estimated that the repair and replacement of capital equipment in the flooded factories could run as high as $1 billion. Adding to the recovery time, some manufacturers of equipment such as CNC machines are similarly affected, and even at full capacity will need many months to provide sufficient replacements to the hard-drive plants.
Further eating into the available HDD supply are manufacturers such as Hitachi GST, untouched by the floods, which is reportedly focused on supplying its OEM partners first. Some industry experts note that HDD cost increases will be more easily absorbed into computer system prices, and system prices could therefore remain relatively stable compared to standalone drives.
Nate Cooper, sales and marketing manager at storage products reseller ProMAX Systems, reports that current stock levels in the U.S. will last a short while at least. “Most of the companies we’ve been talking to seem to have about a two-month supply. It looks like everybody’s good through about the end of the year.”
In the face of the predictions of shortages and price hikes, Cooper is advising his clients to buy sooner, rather than later. “I’m really encouraging all of our clients—and not from trying to squeeze in sales, but as partners in these businesses with them, since we rely on them just like they rely on us—if you truly need to expand your storage in the next six months, do it in the next six weeks.”
By early 2012, he says, “If you just have to buy more storage it’s going to cost you more. Will you be able to get it? Absolutely, but costs will go up.”
As Cooper notes that for audio production, “the amount of storage we need is nothing compared to a lot of other industries, and a lot of other companies.” Where a music album project might fit on a 36 GB drive, a 30-minute TV episode requires 10 to 15 terabytes.
“Anywhere from 30 to 50 percent of a shared storage system’s cost can be just the hard drives,” he continues. “I’ve got shared storage companies telling me that for each system that they sell, which is anywhere from 30 to 50 grand, their cost has gone up three to four grand. ...a lot of these companies are going to be forced to raise their prices.”
One such company is shared storage and networking experts Small Tree. According to company president Corky Seeber, “Small Tree will do its very best to keep its current pricing on its storage and meet its production requirements. We are fortunate to have inventory on hand, but exactly how long that will cover our product demands is a little hard to predict.” While Small Tree was proactive, he adds, “the impact of the floods on product availability was greater than originally reported.”
In Forbes, Coughlin reported that Q4 production was estimated at 180 million units, pre-flood, but that actual numbers are likely to be around 110 to 120 million. Prices are likely to rise anywhere between 25 and 50 percent, he wrote. Anecdotally, those commenting on the online forums in early November were reporting retail prices rising already by as much as 200 percent.