Slow Motion Recovery Follows Thai Floods

As we mark the one-year point after the terrible Japanese earthquake and tsunami, we also find ourselves approaching the six-month mark after Thailand's devastating flooding. Both events dramatically affected lives and businesses in Asia last year. The human toll of these tragedies will never be forgotten, but the economic and business effects tend to ebb after a while.

In the case of Japan, as Smith's MarketWatch Commentary discussed, the business aftershocks continue, such as the joint venture and bankruptcy announcements for some of the country's major semiconductor manufacturers. Thailand's semiconductor supply chain disruption has been very pervasive and persistent, and it may have made things worse for many Japanese manufacturers.

The floods not only devastated lives, infrastructure, businesses, and the Thai economy, but they also created one of the worst supply chain disruptions in years, because of the supply chain's tendency toward heavy agglomeration and single or limited sourcing. When the floods plunged almost all of Thailand's HDD and optics manufacturing under meters of water, the entire supply chain had to be realigned quickly, leaving most suppliers in shortage situations and resulting in a massive PC shortage situation.

It takes longer to recover from such an incredible supply chain disaster, and the PC supply chain is not quite up to normal levels yet. Shortages continue for HDDs, PCs, and enterprise drives. Allocation issues remain the daily travail of many suppliers. New vendors need to be screened, and limited availability has led to significant price increases for enterprise drives.

Rebalancing is expected in the second half of this year, at least for HDDs for PCs. But rebalancing does not equate to resumption of business for Thailand's various supply chain partners. After being submerged for months in fetid water, many factories (including those run by Sanyo, ON Semi, STATS ChipPAC, WD, Toshiba, and Hana Microelectronics) have had to be abandoned, because renovations costs would have been too high. Thailand lost many major manufacturing facilities to surrounding Asian countries, notably Malaysia, the Philippines, South Korea, and Singapore.

Supply chain changes continue in response to the Thai disaster, as my colleague Dustin Ford discussed last month for EBN's Supply Chain Intelligence series.

The disruption in Thailand, like the one in Japan's semiconductor and electronics sector, has led to a more pervasive set of supply chain strategies around risk management and especially sourcing. The losses have affected both components and devices, causing a PC supply shortfall of roughly 4 million units, according to IHS iSuppli.

As mentioned earlier, shortages are the daily situation for enterprise drives especially, but also for HDD supplies, keeping prices notably higher. Despite the many consolidations, M&A, and manufacturing shifts, the HDD supply chain is expected to be fully restored by the fourth quarter, leading to price stabilization. However, we also see new pan-Asian loci for manufacturing and more diverse supplier strategies with demands for expanded supply chain services to mitigate risks.