Western Digital partly resumes Thai output

Reuters News
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Posted: Dec 02, 2011 2:03 AM
Western Digital partly resumes Thai output

By Swetha Gopinath and Ploy Ten Kate

(Reuters) - Western Digital Corp, the worst hit hard drive manufacturer by Thai floods, said on Friday it has partly resumed production this week after months of suspension and warned of tighter global supply until early next year.

The California-based firm, which vies with Seagate Technology for the title of the world's largest maker of hard drives, joined the rival to offer a market-topping revenue forecast, as prices surge and manufacturers have yet to fully restore production from flood-hit factories.

Thailand produces around half of global hard drives by housing top-ranked Western Digital, Seagate, Toshiba Corp and Hitachi Global Storage Technologies.

Toshiba said on Friday it was uncertain when it can resume production from its flood-hit plant, as it continues to clean up.

"We are actually going to have our first big cleaning day tomorrow in the very first area of our plant where our warehouse is," Kobkarn Wattanavrangkul, chairwoman of Toshiba's Thai unit told Reuters, adding water has receded now to about 45-50 cm from its peak of as high as three meters.

"In terms of resuming production, we still can't tell you when, since the area we'll be getting in tomorrow is our warehouse, not the area of our production line. For that, we're still going to have to wait until the water (goes) down a bit more."

Western Digital expected global hard drive output shortages to amount to 60 million units in the current quarter, as supplies are seen at 120 million units, well short of estimated demand of between 170 and 180 million units.

"The company believes that significant industry supply constraints will continue in the March quarter and beyond," Western Digital said in a statement.

Western Digital, whose production facilities in Ayutthaya province and in Pathum Thani province were severely hit by floods, forecast on Friday $1.8 billion in October-December quarter revenue, higher than $1.2 billion of average analysts' estimate by Thomson Reuters I/B/E/S.

Gross margin is also seen above the high end of its previous range of 18 percent to 23 percent, it said.

Seagate said earlier this week that revenue for the current quarter would come in at $2.8 billion, better than market expectations, as its own shipment is seen falling by 16 percent from the previous quarter to 43 million units.

Seagate's Thai plants are largely unaffected by the floods, but production has been curtailed due to tighter component supplies as some of key suppliers' factories were also submerged.

Tighter shipments have forced computer manufacturers to scramble to secure supply and boosted hard drive prices by 20-40 percent in recent months.

Western Digital expected on Friday to take a flood-related charge of $225-$275 million, excluding any insurance recovery, in the current quarter.

The company also expects to file a property damage claim of at least $50 million and an additional claim for business interruption during the second quarter.

Floods will shrink global hard drive supply by 30 percent in the current quarter, and hit sales of PCs and semiconductors, affecting core businesses of the likes of Samsung Electronics Co, Lenovo Group Ltd and Hewlett-Packard Co, according to research firm IHS iSuppli.

With operations disrupted at more than a dozen hard drive factories, damage to the industry is significant and PC shipments may be crimped by as much as a fifth in the first three months of 2012, hurt by the shortage of hard drives, according to research firm IDC.

Last week, Western Digital secured conditional approval from the European Union's competition regulator to purchase Hitachi's HDD business for $4.3 billion, after it agreed to sell several production operations. However, the company still needs to sell more assets to get full regulatory approval.

Late Thursday, the company said it was working to satisfy provisions necessary for the transaction, which it expects to close by March 2012.

Western Digital's shares closed at $29.25 on Thursday on the New York Stock Exchange.

(Reporting by Swetha Gopinath in Bangalore; Editing by Matt Driskill and Miyoung Kim)