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Thai Floods Recede, But Damage Remains

Massive flooding in Thailand finally appears to be relenting. But the long-term effects are only now beginning to be understood. Particularly in the semiconductor space, manufacturing delays could turn out to be worse than those from the spring earthquake and tsunami in Japan. Several predictions this week suggested there will be widespread delays in shipments of some basic components for virtually all electronic devices. The delays could reach into the second quarter of 2012.

Here’s a quick rundown of the situation as it stands today.

Most importantly, the situation is getting better after nearly three months of rising rivers. The floods have led to more than 500 deaths, as well as financial losses that could reach into the hundreds of billions of dollars. More than 50,000 Thais have lost their jobs.

Mercifully, the waters are no longer rising. But it’s far from over. The water still has to drain. It is still as deep as two meters in several areas around Ayuthaya, a plains region near Bangkok that houses several large industrial parks. It will be weeks still before many companies can make damage assessments.

The personal computer space has been hit particularly hard by the events. Thailand produces 40 percent of the world’s hard drives, and most producers, including the US giant {complink 4842|Seagate Technology LLC}, have factories in the affected area. This report from the Asia Sentinel, which has been following events from the ground, says that global disk drive shipments now look likely to fall by 51 million units this quarter, or just under 20 percent, and that global prices for disk drives could rise by 10 percent in 2012.

Most fourth-quarter production was completed before the disaster, and the current shutdown will really affect OEMs' abilities to lock in supply for first- and even second-quarter contracts.

With supply tightening, several OEMs are floating hints through the business press that large manufacturers will be able to muscle most of the supply of key components facing shortages — disc drives being key. If that’s true, medium-scale manufacturers would be the ones to suffer.

From a retail standpoint, one result of the disaster could be a shift in the growing PC-versus-tablet war. Most tablets don’t have disc drives; should a drive shortage hit PC manufacturers hard, it could cut into their ability to keep items such as netbooks and laptops cheap enough to compete on the low end of the retail computing market. This is the market where tablet and smartphone manufacturers won’t feel the crunch.

The effects of the shutdown are being felt up and down the supply chain throughout Southeast Asia. In neighboring Malaysia, the cable producer PIE Industrial was not hit by the disaster, but it has not been able to ship orders to customers in the affected area, according to local reports. The company announced that its cathode ray tube business could fall 20 percent, in part because of supply chain disruptions with partners affected by the floods.

One hopeful sign: Monsoon season is over in most of Thailand. It starts again in May.

30 comments on “Thai Floods Recede, But Damage Remains

  1. AnalyzeThis
    November 11, 2011

    Marc, as you mention at the end of this article… Monsoon season starts again in May.

    So does it really make sense for a lot of these companies to rebuild operations in Thailand if they may face the same problems possibly just a few months from now?

    Thailand isn't going to stop flooding. There is little guarantee that this situation won't happen again. So why re-invest?

    Do you anticipate that some companies will cut their losses and leave Thailand completely? If so, do you see a mass exodus or will the majority stick things out?

  2. Houngbo_Hospice
    November 12, 2011

    Thai floodings will ceratainly impact the electronic supply chain with the most effect on disk drive supplies. But I wonder if this situation will be enough to make manufacturers leave the country. 

  3. saranyatil
    November 13, 2011

    Actually wondering after reading the line monsoon season starts again in May.

    What is it going to happen, will there be lot of investments to prevent floods in the future and also to rebuild.

    I dont think companies will leave the place for these reasons, in that case Japan could never have been a choice a place which is at a greater risks.

    Companies may come up with a solution to survive in Thai.

     

  4. mfbertozzi
    November 13, 2011

    It is worldwide recognized that region is at ranking top for electronics and many manufactures have invested there for improving their supply chain and the business, as consequence. Despite this picture, steps ahead in preventing similar disasters are ever achieved. Is it only a personal opinion?

  5. Jay_Bond
    November 14, 2011

     

    The fact that the rising waters have come to an almost complete stop is good for Thailand and its people. The fact that parts of Thailand are still covered with almost 7 feet of water is still a big issue. Thailand is a low lying country and this could take a long time to just drain the existing water, not to mention any new rains. It will be very interesting to see how hard the electronics sector is it, and which companies feel it the worse. Like you said, I have a feeling it will be the smaller companies who hurt the most. Could this be a major event that causes some people to convert to tablets because of rising costs in laptops?

  6. tioluwa
    November 14, 2011

    We are looking at these floods in the light of the electronics supply chain, but is the supply chain, and OEMs in the area going to do anything to help prevent things like this from happening in the future?

    First was Japan, now Thailand, God knows where else.

    On the case of Japan, there was alot of talk about emergency relief systems and the likes, is any such issue being discussed or looked into in the Thailand case?

  7. Marc Herman
    November 14, 2011

    Hi Tioluwa,

    So far the OEMs have not talked about pulling out of Thailand. Notably the Japanese firms are standing by their Thai partners. I suppose the question behind the question you are asking is: can we really defend against this sort of thing? We're talking about vast sections of Bangkok being under two meters of water. Certainly, as in the US in Katrina, or Japan earlier this year, we can argue that natural disasters are really made by humans. That is, there are natural events — a rainy year, an earthquake — but what makes them disasters is humanity's inability to manage our relationship to these inevitable events. But Bangkok is a very, very old place, and the modern forces acting on it are very chaotic. It's probably fair to say that one shouldn't put a sensitive electronics factory in a floodplain. I suppose the question is, would you pay 1% more (or whatever the number is) for one built in a factory with better safeguards, working under more stringent laws, etc? If the disk drive industry were to calculate disaster risk against wage savings in, say, five countries, what would they find? 

  8. tioluwa
    November 14, 2011

    Well Marc,

    i guess you got the point very well. its up to the OEMs to make up their mind i guess, and the consumers to really understand what is at stake here. if the natural risks of the Thailand area is worth it in the long run, as opposed to the regulations and laws of  anyother place, then by all means.

    however, with the wave of natural disasters that appear to be on the increase, i think long term measures may have to be considered.

  9. Houngbo_Hospice
    November 14, 2011

     Is it only a personal opinion?

    @mfbertozzi:

    In my opinions, many manufacturers were aware of that situation and even though their preventive actions didn't work, they are not ready to live their Thai manufacturing plants just yet. If they move to some “flood free”  areas,   they might as well face other realities there. No place seems to be 100% safe.

  10. Nemos
    November 14, 2011

    your article got me back to thoughts “Why all the companies choose countries with the lowest labor cost per hour” really maybe my question sounds silly to executive managers and to the most of the readers here ,but when I heard about one disaster to a particular area in the world cause such damage to all the productive chain thoughts like the above come to me.

  11. JADEN
    November 14, 2011

    The companies affected can rebuild their operation in Thailand because relocation might cause them so much than expected.  What to do is to have protection against the future occurence, which is highly possible.

  12. JADEN
    November 14, 2011

    Manufacturing problems due to the severe floods would cause a worldwide PCs shortage as there will be shortage of hard drive, this is another opportunity for tablets demand.

  13. mfbertozzi
    November 15, 2011

    I agree Jaden, the only point is how strong could be a product position inside the market, in case it is used for replace others not for features but for limited availability or stocks' lack.

  14. FLYINGSCOT
    November 15, 2011

    Glad to hear that the floods are subsiding a little.  It will be very interesting to see how the larger companies like Seagate change their disaster recovery strategies.  I wonder if they will deploy in different countries now.

  15. Ariella
    November 15, 2011

    @Jaden what strategies coud companies employ as protectin against such disasters in future?

  16. JADEN
    November 15, 2011

    The protection is in two sides; one from the government, and second by the companies.  Thailand government is to provide flood management to protect the country from future floods occurence.  The major causes of floods is usually heavy rainfall, severe winds over water and tsunami, and the methods of protection can includes coastal defence such has sea walls, rivers defence like levee to prevent rivers from overflowing their banks, dams construction and water weir for rivers that are prone to floods, construction of floodways and terracing hillsides to slow flow downhill.  Companies on there own part can erect floodwall to protect themselves. You can see the kind of floodwall protection at http://www.floodcontrolam.com/multimedia.php

  17. Ariella
    November 15, 2011

    @Jaden Yes, but isn't it still possible for the flood to overrun the walls? From what I understand that is what happens in severe conditions. I also wonder, given the expense of all that construction, if companies would simply find it more economical to locate elsewhere — at least until that other location would prove to have dangers of its own.

  18. bolaji ojo
    November 15, 2011

    @Ariella, Correct. But the problem with simply relocating facilities is that relocating personnel may be even more expensive. If a company decides to relocate its plants, it would have to also move employees to the new location or find new employees.

    The flood in Thailand points to the challenges companies face in deciding where to site manufacturing facilities in a world where finding a competitive edge is critical.

  19. Ariella
    November 15, 2011

    That is true, Bolaji. It is, no doubt, a tough call to make.

  20. Hawk
    November 15, 2011

    @Ariella, What other locations do you think these companies should consider and what is the likelihood that they will do this? I know countries like Vietnam, Malaysia and Indonesia would like to benefit from this.

  21. Ariella
    November 15, 2011

    Honestly, Hawk, I wouldn't know if the companies would do better elsewhere, though, as you suggest some countries would love to have the opportunity to host them.

  22. tioluwa
    November 15, 2011

    This just casts my mind back to the rescent discussions on why manufacturers are trooping to China.

    Hawk's question is important, in asking what other locations are available for manufacturers, we are also asking what other locations offer the same benefits as Thailand does, which also leads to the question: What benefits do manufacturers get from manufacturing in Thailand, and do they really have options.

    I think by now we at EBN should have accepted the fact that there is more to siting a factory or outsourcing than the issue of cheap labor costs.

  23. Marc Herman
    November 15, 2011

    Indonesia is a wonderful, wonderful nation. It is perhaps not the place to go to safeguard one's self against natural disasters, however….

  24. Mr. Roques
    November 15, 2011

    Whoa, didn't know about Thailand's floods until this morning. Real tragedy! monsoon season strikes again.

    I was reading that theres a company in Thailand that produces most of the motors that hard drives use, so there's a definite advantage of having all the companies close.

    10% price increase seems optimistic, after I read all the info.

  25. Taimoor Zubar
    November 16, 2011

    While no one can completely guarantee protection against natural disasters, but it's always important to have contingency plans especially if it's disasters like flood which are likely to occur every year. I think Thailand and other places with large amounts of rainfall should seek to develop industrial areas on highlands where the damage by rains and floods is minimum.

  26. Daniel
    November 16, 2011

    Marc, it’s true always. The after effects of disaster can reflect in economy and production line for a certain period.

  27. Barbara Jorgensen
    November 16, 2011

    Marc–thanks for your on the scene reporting. EBN continues to get inquiries about the situation and it is great to point to our own site for some of the best information available. Outside of the supply chain, this tragedy has barely been mentioned in the mainstream media. And thanks for continuing to recognize the human toll associated with the floods. I hope we never neglect–we being the collective media–never fail to remember what's really important.

  28. Marc Herman
    November 16, 2011

    Thanks Barbara. I should say for the record I'm not on the scene; I'm not even in Thailand. But it is wierd how little attention this has gotten, even from those who are, in theory, able to put people right there.

  29. itguyphil
    November 19, 2011

    We can't predict when natural disasters may happen, but when it does happen, it always affects many lives severely, as these floods had already took 500 lives and left 50,000 people unemployed. The worst part, it takes years to rebuild the entire country's economic stabililty, as the floods have a big blow on it.

  30. Kunmi
    November 25, 2011

    That reminds me of a friend that saw in the news how Thailand was being flooded and he said that what would become of rice exportation? Knowing that major food that they produce is rice which is accepted world wide; and I can imagine the impact this floods would have made on food supply chain?

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