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Compared to the scores of companies in the disk drive industry with operations in Thailand, Seagate Technology is lucky. Only 180 of its 15,400 workers are among the 13 million people whose homes have been swamped. The floodwaters that have engulfed much of the industrial heartland north of Bangkok for the past six weeks have spared both of Seagate’s sprawling Thai factories. In fact, the weather at Seagate’s plant in Teparuk, which is outside the flood zone, has been uncharacteristically dry, says Thailand country manager Jeffrey D. Nygaard.
Still, Seagate Chief Executive Officer Stephen J. Luczo is forecasting difficult times for the drive industry. Each of the hundreds of thousands of drives Seagate’s Thai factories ship every day contain parts from 130 or so suppliers, many still under three feet of water. The projections by some Wall Street analysts that production will be back to pre-flood levels by summer is nonsense, Luczo believes. “This is going to take a lot longer than people are assuming, until the end of 2012 at least,” he says. “And by then, demand will have gone up.”
Luczo, 54, is spending less time on his hobbies—he’s an avid snowboarder who owns a music label, a movie studio, and an Indy race car team—to focus on the recovery. If his forecast is right, anyone who needs a hard drive—from laptop and DVR makers to the operators of data centers that host top websites and social networks—will feel the pinch. Average drive prices have already jumped about 20 percent because of the flooding, which is affecting infrastructure that churns out roughly 40 percent of the world’s drives. Seagate’s two biggest competitors, Western Digital and Toshiba, both have major factories in the flood zone, and industry production this quarter is expected to be 50 million drives short of its 180 million target. Only now are retailers and local distributors feeling the effects. “It’s going to be very interesting to see who gets drives and who doesn’t,” says Luczo. He says he’s talking with customers suddenly eager to lock up some of Seagate’s capacity, despite the higher prices. Some have offered $250 million upfront, he says.
All the cash in the world won’t help if Luczo and other drive manufacturers can’t get the parts they need. Despite their cheapness—a megabyte of storage has dropped from $50 in 1981 to one-tenth of a cent today—disk drives are incredibly complex. Inside each one, a nearly weightless suspension arm hovers above a magnetic disk spinning as fast as 7,200 revolutions per minute. The arm holds a recording head the size of a pepper flake, which sits above the disk at a height measured in nanometers—less than the ridges of a fingerprint, as marketers like to say. Each disk drive contains more than 200 parts, most of them designed for specific models. Many suppliers are family-owned businesses that manufacture one-of-a-kind industrial molds or specialty chemicals.
Few of the companies in this finely tuned supply chain, lured to Thailand by low wages and government incentives, ever thought they would need to worry about massive floods. When suspension arm maker Hutchinson Technology opened a plant in the Rajana Industrial Park seven miles from the Chao Phraya River a year ago, it had no problem getting flood insurance, says CEO Wayne Fortun. Hours after the levee broke on Oct. 10, his plant was filled with six feet of water. Employees moved some inventory and equipment to the second floor, but some $50 million worth of highly specialized gear remains bolted to the ground. Fortun still has no idea what’s salvageable. “The water was down to four feet at last report,” he says. “We’re hopeful it will be dry by the first week of December.”
