Bloomberg News

Worst Thai Floods in 50 Years Hit Apple, Toyota Supply Chain

October 21, 2011

(Updates with government comment in fifth paragraph.)

Oct. 21 (Bloomberg) -- Apple Inc. and Toyota Motor Corp. are facing the worst supply disruptions since the March earthquake that crippled Japan, leading investors to scramble assessing the financial toll of the floods in Thailand.

Apple Chief Executive Officer Tim Cook said this week Thailand’s worst floods in half a century set back supply of components used in Mac computers, while Toyota suspended production of its Camry and Prius vehicles in the kingdom. Western Digital Corp., the world’s largest maker of hard-disk drives, warned it will post a loss this quarter and production won’t return to normal for months.

The floods have claimed more than 300 lives since July and shuttered more than 14,000 businesses in a country that makes about a quarter of the world’s hard-disk drives and serves as the Southeast Asian production hub for Japanese carmakers. While the government estimates damages of as much as 120 billion baht ($3.9 billion), disruptions to the global supply chain may be underestimated, according to BGC Partners Inc.

“The damage could be far, far bigger,” said Amir Anvarzadeh, Singapore-based manager for Asian equity sales at broker BGC. “I would be going after the supply chain and buy as many hard drives as I can.”

The floods have spread across 61 of the country’s 77 provinces since late July and threaten to swamp parts of Bangkok. Prime Minister Yingluck Shinawatra today warned all residents in the capital to move their belongings to higher floors as waters approached.

Hard-Disks, Autos

Thailand is the world’s largest producer of hard-disk drives, the biggest exporter of rice and rubber and the second- largest supplier of sugar, according to government data.

The automotive industry is among the hardest hit and the disruptions will ripple worldwide in the short term, according to Frost & Sullivan. Most of the cars made in Thailand last year were exported to markets from Australia to Europe and Mexico, according to the researcher.

Japanese carmakers -- including Toyota, Honda Motor Co. and Nissan Motor Co. -- are losing 6,000 units of production daily after halting production since early this month in their Southeast Asian manufacturing hub, the Japan Automobile Manufacturers Association said yesterday. The lost production may cost the top three more than $500 million a month, according to estimates at JPMorgan Chase & Co.

“It’s difficult to say when production in Thailand will return to normal,” Toshiyuki Shiga, chairman of the automakers group, said at a briefing in Tokyo yesterday.

GM, Ford

General Motors Co. and Ford Motor Co. also use Thailand as a production hub. Ford, which assembles the Fiesta in Thailand, is halting passenger-car production from Oct. 19 to 22, though the company is working with suppliers to resume output Oct. 25, Bangkok-based spokesman Neal McCarthy said. GM hasn’t been affected, spokesman Jonathan Rose said.

Honda, which halted production at its Ayutthaya province plant Oct. 5, may have the most at stake as the Tokyo-based carmaker counts Thailand as its second-biggest production base in Asia outside of Japan. In 2010, it produced about 170,000 units in the country, including the Accord and Civic. It has 40 suppliers with factories nearby producing body parts and components for engines and suspension and braking systems, Frost & Sullivan said in a report.

At Aisin Seiki Co.’s aluminum die-cast factory in central Thailand, water reached as high as 1.6 meters on Oct. 18, prompting the company to evacuate the plant’s 1,500 workers, spokesman Masayuki Toyama said. The Toyota affiliate is still assessing the situation, he said.

Sony Delay

Aon Benfield Group Ltd., the world’s biggest reinsurance broker, said more time is needed to estimate the financial toll.

Flooding has also disrupted electronics makers. Nikon Corp., the world’s second-largest maker of cameras with interchangeable lenses, formed a task force at the Tokyo headquarters last week dedicated to Thailand, including the impact on earnings, spokeswoman Sayaka Suzuki said.

Sony Corp., Japan’s largest exporter of consumer electronics, yesterday said it’s delaying the release of some cameras and headphones because Thai disruptions. The company is considering securing an alternative production base for cameras after flooding partially damaged a plant that makes almost all of its high-end cameras -- including the Alpha and NEX models -- in Ayutthaya Oct. 14, spokeswoman Satsuki Shinnaka said. Sony hasn’t determined when production will resume, she said.

Canon, Toshiba

At Canon Inc., the world’s largest maker of cameras, two factories in Ayutthaya have stopped. The company is considering relocating Inkjet printer production as far as Vietnam, spokesman Gota Fumoto said.

Five Hitachi Ltd. plants have stopped, disrupting production of electronic and metal components, parts for car brakes and compressors for refrigerators, spokesman Yuichi Izumisawa said.

Western Digital said this week it shut two factories in Thailand and it may take several quarters for the Irvine, California-based company to resume normal production.

Toshiba Corp., Japan’s largest maker of memory chips, halted production at nine factories that make products including hard-disk drives, solid state drives, chips, and household electronics, spokeswoman Mari Mikami said.

“We are faced with flooding, probably the worst even in my lifetime,” Thai Airways International Pcl President Piyasvasti Amranand said yesterday at a conference in Singapore, adding that operations to Bangkok and Chiangmai have been spared from disruption. “We are having some impact on our operations but hopefully it will not last long.”

As the ripples of disruptions spread, companies may begin hoarding components as they did following the March earthquake in Japan, according to BGC’s Anvarzadeh.

“Say I’m HP or I’m Dell, or whoever, I’ll be more proactive in my procurement programs, particularly in areas where I think bottle necks are going to exist, say three months ahead,” he said. “That’s exactly what happened in April, May, June. I can see that happening.”

--With assistance from Anna Mukai, Yuki Yamaguchi, Mariko Yasu, Takashi Amano and Kiyotaka Matsuda in Tokyo, Masatsugu Horie in Osaka, Liza Lin in Shanghai, Kyunghee Park in Singapore, Jasmine Wang in Hong Kong and Frederik Balfour in To contact the reporter on this story:. Editors: Young-Sam Cho, Tony Jordan

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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