Hard Drive Shortage in Thailand Affecting Supply Chain for Resellers, Consumers

Hardware suppliers and resellers around the world are still reeling in the wake of the destructive flooding in Thailand and its growing impact on the technology and consumer markets. While flooding is hardly uncommon in Thailand, the waters that swept through the country beginning in July are the worst on record and continue to wreak havoc. More than 500 people have lost their lives as a result of the devastation, and thousands of manufacturing factories have been forced to shut down due to lost inventory and irreparable damage.

The Situation

In recent years, Thailand has emerged as one of the major manufacturing hubs around the world and is responsible for supplying a significant percentage (some argue as much as 70%) of the world’s demand for hard disk drives (HDD). As far as the technology industry is concerned, the current shortage of these hard drives has left major manufacturers crippled and hardware resellers concerned for the future. Notably, the shortage is affecting several of the top HDD producers, including Western Digital, Toshiba and Seagate Technology. And while these producers attempt to shift production to factories in other locations until the water recedes and factories can be rebuilt, the effects of the shortage are already being felt worldwide.

The Impact

The reality is that while we are already starting the see the short-term impact of this devastation, no one can know for sure what the long-term effects will be. Currently, manufacturer hard drive prices are already starting to rise. While some distributors are holding on onto their inventory as they play a “wait and see” game and attempt to determine next steps, others are already increasing prices by 10 to 20 percent, and the expectation is that that figure will continue to steadily increase over the next quarter, potentially upwards of 30 to 50 percent.

In the short term, expectations are that many distributors and resellers will (hopefully) have enough inventory to meet demand through the end of the year. Come 2012, however, no one truly knows. Much of the long term outlook will depend on when the floods finally recede in Thailand and manufacturers can begin to assess the damage and take measures to renovate and rebuild. 

For distributors who may be faced with a shortage of inventory, the challenge becomes more difficult. Existing manufacturers’ hard drives will likely be distributed first to the government and secondarily to larger distributors. This leaves smaller value-added resellers (VARs) to fight their way up the food chain and hope they win the lottery, so to speak.

As we get closer to Q1 and the realization that many distributors and resellers will not have stock to meet their clients’ demands, we will start to see more significant effects coming into play. Lead times for new hard drives could reach upwards of 2 to 3 months. Servers, workstations, and other hardware could start to experience delays and price increases (Extended lead times on servers are already being pushed, with a normal 5-7 day lead time stretching to 20 days). Some analysts are predicting the consumer PC market will be hit hard in Q1 and Q2, with a potential reduction in sales by as much as $7 million.

And while the first thought may be to move infrastructures to the cloud, cloud providers may also be affected and become unable to meet the demand for space. Resolve is unlikely to come until well into 2012, and indications are that manufacturers like Western Digital and Toshiba won’t operate at pre-flood levels for 9-12 months.

Consumers and business who rely on distributors and resellers for hardware should speak directly to their vendors about preparations for the remainder of the year as well as for early 2012.

At Eze Castle Integration we are monitoring this situation closely and have contingency plans in place to support our clients. If you are an Eze Castle Integration client and have questions about inventory and hardware accessibility, please contact your Client Relationship Manager.