Seagate Benefits From Thailand Disaster

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The flood is a drama for Thailand's people and industry. Following this event, many storage companies are affected but some of them will benefit from the situation. The misfortune of some can make the happiness of others.

The Losers

It's a disaster for WD, the biggest victim, with 60% of its hard drives assembled in Thailand by 37,000 people, with the remainder in Malaysia. The company expects revenues of $1.05 billion to $1.25 billion for the second quarter ending in December, compared to $2.69 billion reported in the former quarter. For the same periods, units shipped are supposed to decrease from 58 million to 22-25 million. Executives of WD will have the titanic job of rebuilding (or transferring) their Thai facilities, and at the same time integrating newly-acquired Hitachi GST.

HDD maker Toshiba also has a plant in Thailand.

Many HDD components manufacturers in Thailand are impacted including Amtek, Asahi Glass, Cal-Comp Electronics, Furukawa, Hoya, Hutchinson, Innovex, Microsemi, Min Aik, Minebea, Nidec, ON Semiconductor, TDK/Magnecomp.

About all the storage industry will suffer from HDD shortage, as disk drives are the main elements of their configuration. It will be the case of all the firms in storage subsystems, from the biggest (EMC, NetApp, etc), to the smallest, and much more for the latter being served after OEMs by HDD makers.

There will be difficulties for some other storage companies having supply chain in Thailand like Emulex and LSI.

All storage integrators, VARs, VADs and distributors will suffer.

Add also all PC and server makers (Acer, Apple, Dell, HP, Lenovo, etc.).

All the end users will pay (much) more for their HDDs, regardless of the source, even if they are to be manufactured at the same price as before - just because of Thailand's flooding. They also will spend more for any computer or external subsystems integrating at least one HDD.

The Winners

Other HDD makers will benefit, having their main assembly plants outside Thailand and now selling their devices at higher price and then much higher margin. "Gross margin as a percent of revenue is expected to be 150-300 basis points above the high-end of the company's long-term, targeted gross margin range of 22-26%," stated Seagate. For the December 2011 quarter, the company now expects unit shipments of 43 million units and revenue of $2.8 billion to be compared to 51 million units and roughly the same total sales for the September quarter. And March 2012 quarter could be exceptional: "At least $3.75 billion and gross margin as a percent of revenue is expected to be at least 300 basis points above the aforementioned targeted range of 22-26%." Seagate is affected by some external component supply constraints but is largely vertical integrated. [We suggest CEO Steve Luczo that Seagate, finally benefiting of the Thai flooding, makes a significant financial contribution to support the recovery efforts of Thailand, for example through the Thai Red Cross Society, like rival and victim WD already did. Ed.]

CORECTION (November 29, 2011): See BELOW

Happiness also for Hitachi GST and Samsung (to be acquired by Seagate) for the same reasons.

Other beneficiaries will be HDD brokers and data recovery companies (in Thailand).

With the price of solid-state drives in better competition with HDDs, SSD market will benefit, but we don't think it will really push the tape and library sector.


CORRECTION:
Few minutes after the publication of this comment, we have received the following email from Brian Ziel, senior director of corporate communications et Seagate:
"I'm shocked, knowing all of your insider information about the industry, that you're unaware of our $1 million donation to recovery and relief in Thailand. We did this weeks ago. Please see the details below and update your story."

In response to severe flooding that has devastated large portions of Thailand, Seagate is donating $1 million toward relief and recovery efforts and is working with employees to contribute as well.

The money is spread among three organizations:

1. Chaipattana Foundation. This foundation, which is run by the Princess of Thailand, has set up five flood-relief centers and is providing "first responder" food and shelter relief.
2. Thailand Red Cross Society.
3. Give2Asia, a leading organization committed to social responsibility and philanthropy in Asia, to support recovery projects using the balance of our funds. These funds will be targeted to flood-damaged areas of Thailand.

• To date, 132 Seagate employees have suffered damage to their homes. In response, Seagate is implementing a plan under which teams of employee volunteers will help clean up affected employees' homes, with Seagate financial support.
• A number of Seagate executives and members of the Board of Directors are making personal contributions toward flood relief.