The Heat Is Online

Thai Flood Creates Global Shortage of Hard Drives

Floodwaters Are Gone, but Supply Chain Issues Linger

The New York Times, Jan. 20, 2012

KHLONG LUANG, Thailand — The floodwaters receded weeks ago from this sprawling industrial zone, but the streets are littered with detritus, the phones do not work and rusted machinery has been dumped outside warehouses that once buzzed with efficiency.

Before Thailand’s great flood of 2011, companies like Panasonic, JVC and Hitachi produced electronics and computer components that were exported around the world. Now of the 227 factories operating in the zone, only 15 percent have restarted production, according to Nipit Arunvongse Na Ayudhya, the managing director of the company that manages the Nava Nakorn industrial zone, one of the largest in Thailand and located just north of Bangkok.

“The recovery has not been that easy,” Mr. Nipit said in an interview Friday on the sidelines of a meeting where he sought to soothe anxious foreign factory managers.

The slow recovery here is having global consequences. Before the floods, Thailand produced about 40 percent to 45 percent of the world’s hard disk drives, the invaluable and ubiquitous storage devices of the digital age. It is now becoming clear that it will be months — significantly longer than initially expected — before production of hard drives returns to antediluvian levels.

The upshot for consumers worldwide is that they may face a prolonged period of higher prices for hard drives. In the United States, certain models are currently 40 percent to 50 percent more expensive than before the floods, levels that may remain for several months, analysts say.

“By the end of the year, HDD price could come back to preflood level for certain drives,” said Fang Zhang, an analyst at IHS iSuppli, a market forecasting company based in the United States. He used the acronym for hard disk drives.

John Coyne, the president and chief executive of Western Digital, which makes about one-third of the world’s hard drives, said this past week that production in the company’s factories in Thailand would not return to preflood levels until September. About 60 other companies that produce hard drives and components were flooded, he said.

The challenges facing all flood-affected companies in Thailand are apparent during a drive through the Nava Nakorn industrial zone. Rotting furniture and rusted file cabinets are strewn outside a Panasonic factory. Workers brought in from Cambodia are cleaning up — dredging filthy drainage ditches and cleaning up trash in front of a JVC facility. But more than a month after the last puddles of floodwater dried in the tropical sun, parts of Nava Nakorn, which means “new city,” still resemble a municipal dump. Large piles of garbage bags sit beside roads fissured and potholed by the floods.

Many buildings bear the telltale scar of the floodwaters — a high water mark about two meters above street level.
For most factories, the hopes of recovering machinery seems to have been dashed by the prolonged exposure to corrosive, polluted water — in some cases two months.

One manager at a factory that produces components for television sets described his machinery as “100 percent killed in action.” Mr. Nipit estimates that about 60 percent of machinery will be thrown away.

As they rebuild, many foreign investors seem anxious and uncertain whether the Thai government is taking enough measures to prevent another round of flooding during future monsoons.

On Friday, factory managers attended a presentation about future flood prevention measures. By August, the Nava Nakorn industrial zone is to resemble a fortress, with a giant flood wall around the perimeter and sealable aluminum flood barriers across entrance points.

But the audience at the presentation peppered the managers of the industrial zone with skeptical questions about the timetable of rehabilitation and the reliability of future flood forecasting.

Mr. Coyne, the Western Digital president, also delivered a relatively frank message to the Thai government at a separate meeting earlier in the week. Thailand needs “a credible plan, well executed with measurable milestones along the way,” he said. “And we need to define those milestone quickly.” He urged the government to speed up flood prevention measures. “We have to ensure that we have no self-inflicted wounds in 2012,” he said. The monsoon season begins in May.

Before the floods last year, the concentration of hard-drive manufacturing in Thailand kept prices down because of economies of scale and the proximity of suppliers to one another. But the floods showed how risky this arrangement was.

Mr. Coyne said Thailand’s reputation was on the line. The No. 1 expectation of customers was that hard drives are available when they need them, he said.

“We need to work together to restore that guarantee of uninterrupted, predictable supply so that our customers will continue to believe in us — and believe in Thailand,” he said.

On Friday, the Thai prime minister, Yingluck Shinawatra, presented a plan to mitigate future flooding that includes reforestation, better coordination of the release of water from hydroelectric dams and a streamlining of decision-making when the risk of flooding arises.
“We will see how we can manage effectively to drain the water to the ocean and the canals as soon as possible,” she said.

Ms. Yingluck’s government, which came to power last August just as the flooding was intensifying, has been widely criticized for disseminating inconsistent and inaccurate reports during the floods.

“The information that we obtained from the government was useless,” Mr. Nipit said. “It was all misinformation.”

As reconstruction grinds on, Mr. Nipit and his colleagues are beseeching foreign factory managers for patience.

Prajak Visuttakul, another manager of the Nava Nakorn industrial zone, told the representatives of dozens of companies that water supplies would not be fully restored until May.

A former major general in the Thai Army, Mr. Prajak bowed to the audience made up of largely Japanese managers.

“We are sorry for this inconvenience,” he said. “This is the fastest we can do.”