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Weighing in on Japan quake vs. Thai flood

Posted: 09 Dec 2011 ?? ?Print Version ?Bookmark and Share

Keywords:HDD industry? NAND industry? Thailand flood?

IHS Inc. has released its report titled "IHS iSuppli Mobile & Embedded Memory Market Brief" that examines the state of hard disk drive (HDD) manufacturers in Thailand. It also reflects on efficient emergency coping strategies employed by NAND makers in Japan after the earthquake and tsunami ravaged the country.

NAND flash revenue in Q3 rose 9.9 percent to reach $5.2 billion, reversing the 4.3 decline that the industry suffered in Q2. Pointing out how much the market has regained its footing, revenue during Q3 was the highest in industry history, the market research firm noted.

The Thailand flood that has submerged a large part of the country since July is the second major natural disaster to hit Asia this year after that of Japan's.

"A key takeaway for HDD suppliers now enduring the crisis in Thailand is to study the painful lessons from the Japan disaster, especially on how to be flexible with production capacity," noted Dee Nguyen, memory analyst at IHS. "NAND manufacturers were nimble in response following the quake, stepping in to increase production after the disaster hit one of their own. In the larger high-tech space, the catastrophe also started a conversation among companies about the vulnerabilities of the supply chain and their capability to manage unexpected events!allowing the overall industry to take a step toward disaster preparedness in the future."

The Thailand floods can only serve to make the lessons learned from the Japan tragedy more relevant, highlighting the need for HDD companies to spread geographic risk by building in redundancies within the supply chain, Nguyen added. The current floods also can help instill awareness for better inventory management throughout the HDD space, in order to mitigate the impact on key customers of any impending calamity.

NAND flash market

Thailand flood vs. Japan quake
Although it's still too early to make a firm estimate of the impact of the Thailand floods compared to that of Japan's disaster, there are major differences in how the two disasters impacted the NAND and HDD industries, respectively.

For one, the damage from the earthquake in Japan was confined to one key NAND supplier, Toshiba Corp., which at that time controlled 35-40 percent of the NAND memory market. But despite the hit to Toshiba, other NAND suppliers!including Samsung Electronics, Micron Technology and Hynix Semiconductor!were able to pick up the slack, increase production to meet demand and continue shipments to key customers. And while Toshiba experienced a direct hit to its revenues and margins in Q2 because of the disaster, the company has indicated in its latest earnings release that the quake impact was minimal in Q3, showing that it has recovered more quickly than initially feared.

As a result, while the Japan disaster took a heavy toll in terms of the human lives that were lost, the recovery on the business side was swift in the NAND industry. And because the NAND supply chain proved agile and flexible, unaffected companies were able to expand production, allowing both suppliers and customers to rely on inventory management in order to keep the engine running.

In comparison, the damage from the floods is spread among several suppliers of the global HDD industry. A quarter of the worldwide HDD capacity is located in Thailand, and three of the top five suppliers have facilities in the affected region, Thus, manufacturing is impacted on several fronts.

Furthermore, production capacity for HDDs outside of the affected region in Thailand is constrained at the moment, given that HDD manufacturing in other parts of the world is already at full capacity, with little room left for ramping up. Again, this is different from the Japan experience, where the fall-off in production at Toshiba was easily shifted to its competitors.

And in one crucial difference between the misfortunes visited on the two countries, companies in Japan were able to regroup quickly, while suppliers in Thailand will need to wait for the floodwaters to recede!a process that could take several months!before damage can be fully assessed.

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