WD: Thailand Floods 2011 Update

Here is FAQ published by Western Digital Corp. on November 16, 2011: Thailand Floods and Business Update 2011

Does the head supply agreement with SAE/TDK announced in the 8K filing on November 16, 2011, include slider capacity?
Yes.

Can you quantify the incremental capacity involved in the agreement?
This is a meaningful agreement with a long time strategic partner; we are not providing any granularity beyond that.

Will WD be providing an update on its recovery effort sometime this quarter?
We expect to share additional information on the progress of our recovery efforts in Thailand later this quarter.

Is there any update on the approval and closure of your acquisition of HGST?
The company is highly focused on getting our proposed acquisition of HGST approved and closed. We remain confident in our ability to obtain approval of the HGST transaction from the required regulatory authorities and to finance the acquisition on acceptable terms. We are excited about the synergies to be realized upon the combination of the two companies.

How is WD affected by the Thailand floods in October?
The torrential flooding in Thailand in October has claimed hundreds of lives, displaced hundreds of thousands of residents and directly and profoundly impacted thousands of businesses. Western Digital’s business is one of those. While many of our employees have been severely impacted, we’re thankful they all are safe.
In mid�October we temporarily suspended production at our two factories in Thailand, which have been inundated by floodwater, to protect our employees and our equipment and facilities. We manufacture approximately 60 percent of our hard drives in Thailand, with the remainder in Malaysia. Many of our component suppliers have been impacted, as well, leaving material for hard drive production and hard drive supply to customers considerably constrained.

How many employees do you have in Thailand? Are employees safe?
We employ approximately 37,000 people in the country.
While many of our employees have been severely impacted, we’re thankful they all are safe.

What are the specific locations of WD’s facilities in Thailand?
Navanakorn and Bang Pa�In industrial estates, which are North of the city of Bangkok.

What is manufactured at those facilities?
The flooded buildings in Thailand include hard drive assembly, drive testing and slider (recording head) fabrication facilities, where a substantial majority of our slider manufacturing resides.

How much of WD’s manufacturing output is affected?
We manufacture approximately 60 percent of our hard drives in Thailand, with the remainder in Malaysia.

What other HDD components are affected and in short supply?
We are experiencing shortages on component parts from vendors located in several Thai industrial parks that also have been inundated by the floods, or have been affected by protective plant shutdowns.
These are mostly mechanical components, which were produced locally.

How long will WD’s Thailand facilities be shut down?
We are not yet in a position to establish when we will recommence operations in Thailand. We will reopen as soon as it is safe for our employees and the flood is receding. Our ramp�up will be gated by three things:

• logistical infrastructure and transportation availability;
• the repair and recertification of equipment that has been moved/damaged; and component supply availability.

All other factories, such as in Malaysia and Singapore, are operational. We also are working to maximize output at our Malaysian manufacturing facility and are pursuing options at other locations.

How long will hard drive supply be affected?
This is a complex and dynamic situation that will require extensive rebuilding for the Thai people and government, and bring unprecedented challenges to the HDD industry for multiple quarters.

What impact will this have on pricing?
Limited component availability throughout the HDD supply chain and efforts by manufacturers to bring systems back online as quickly as possible may have the effect of raising hard drive prices. Market forces along the distribution chain (outside the control of HDD manufacturers) also could impact prices.

Which WD products are affected?
The production of most classes of WD hard drives is affected, to varying to degrees. In our allocation of resources to types of products, we are focused on matching our production mix to the needs of our customers.

How is WD allocating its limited supply of hard drives to customers?
Our intent is to be as balanced as possible in our approach to satisfying all of our customer’s requirements, across geographies and market segments, while we deal with our constraints and those of suppliers.

What is WD doing to speed its recovery?
We are evaluating the situation on a continuous basis, but in order to get these facilities back up and running, we first need the water level to recede. We are working to safely accelerate the water removal and extract and transfer the equipment to other locations where it can be decontaminated and refurbished prior to re�commissioning.
We are working with our suppliers to effect the recovery of their supply chain and to ramp existing capacity in other locations.
We are proceeding with all possible haste and ingenuity to address the situation because we are mindful of the impact on our employees, customers, suppliers, shareholders and the communities in which we operate.
We are also pursuing all possible options to maximize our Malaysian facility’s throughput.

Why are so many hard drive companies and related suppliers concentrated in the same area?
Industry clustering is a common feature of most industries. This achieves cost synergies, saves freight costs and leverages the skills of the local labor pool. This enables us to meet the economic requirements of the broader PC industry.
The disk drive industry is highly competitive. Consequently, all components of the supply chain focus very heavily on cost in order to meet the price parameters demanded by our customers. Our sourcing strategy (internal/external) is intended to somewhat mitigate the risk.