Irvine-based Western Digital Corp. will likely lose its title as the world’s largest disk drive maker this quarter as production plants in Thailand remain closed due to severe flooding and equipment damage.
The company has held the market share lead over Scotts Valley-based rival Seagate Technologies LLC for nearly two years. It could slip to No. 3 or No. 4 worldwide, according to El Segundo-based market tracker iSuppli Corp., a unit of IHS Inc.
Western Digital’s disk drives go into computers, external storage devices, corporate networks and consumer electronics.
Its recent guidance on the current quarter shed some light on a grim situation in Thailand, which is struggling with flooding caused by a heavier-than-usual monsoon season punctuated by typhoons.
Executives said Western Digital expects to ship between 22 million and 26 million hard drives in the December quarter, down nearly 59% from the prior period.
Western Digital projects revenue in the December quarter between $1 billion and $1.25 billion, down from $2.47 billion a year earlier.
Western Digital projects a loss between $257 million and $292 million for the quarter, in line with Wall Street estimates.
It posted an adjusted profit of $225 million a year ago.
Thailand’s Role
Thailand is the world’s second-largest producer of disk drives behind China and a major supplier of hard drive components. Western Digital ships about 60% of its disk drives from Thailand.
“Since Western Digital has greater direct manufacturing exposure to the flooded areas, we believe the impact on our business in the short term will be greater than to other hard drive disk manufacturers,” President and Chief Executive John Coyne said in a recent conference call with analysts and investors.
Seagate will ship between 40 million and 45 million disk drives in the current quarter, according to iSupply’s estimates.
No. 3 San Jose-based Hitachi Global Storage Technologies Ltd. is expected to maintain last quarter’s shipments of nearly 32 million units.
Western Digital is set to acquire Hitachi Global in a $4.3 billion deal that would make it the undisputed leader in drives. It leads by number of drives shipped but is second in revenue to Seagate, which leads on sales of the more-expensive corporate drives.
The Hitachi deal is expected to close in coming months.
The industry, meanwhile, is expecting the current quarter to result in the worst drop-off of hard disk drive sales in three years. That outlook does not include shipments of solidstate drives, which use chips instead of spinning disks and are growing in market share.
Hard disk drive shipments are projected to see a quarter-to-quarter decline of nearly 28%, to 125 million units globally, according to iSuppli.
Western Digital’s flooded buildings in Thailand house assembly and testing operations along with a “substantial majority” of the company’s slider fabrication, which accounts for a key component in disk drives, Chief Operating Officer Tim Leyden said in the recent conference call.
Western Digital is working to shift some of those operations to its facility in Malaysia, he said.
The ongoing challenges wrought by flooding in Thailand prompted an analyst at New York-based Needham & Co. last week to cut Western Digital to a “hold” from a “buy” rating.
The downgrade reflected numerous concerns, including possible concessions the company might make in the Hitachi buy that could satisfy regulators but diminish the benefits
of the deal. Also casting a shadow on the company’s outlook is an increasing likelihood it will have to “expend considerable cash” to recover its manufacturing capabilities in Thailand.
Downtime
The downtime and concessions on the Hitachi deal could threaten its standing in the corporate market and trim valuable technology from the acquisition.
The recent flooding affected various parts of Asia, with Thailand bearing the brunt.
Among the effects there:
· More than 300 dead
· 9 million people affected
· 14,000 factories flooded
· More than 660,000 employees out of work.
Western Digital’s work force of some 37,000 people in Thailand is safe, executives said.
The drive maker is one of several local companies that have sustained disruptions to operations in Thailand. Earlier this month, Aliso Viejo-based Microsemi Corp. gave a profit outlook for the current quarter well below analysts’ consensus amid ongoing concerns.
The chipmaker was forced to shut down two plants in Thailand in the past month as widespread flooding affected the capital of Bangkok and surrounding areas.
“Thailand is out of commission,” said Rob Adams, Microsemi’s vice president of corporate development. “They don’t think they’ll have power restored until March.”
Costa Mesa-based data storage equipment maker Emulex Corp. suspended operations at a subcontracted manufacturing plant there last month due to flooding. The company said the building sustained some damage, but equipment, inventory and finished products were spared by a move to a higher floor.
The Thailand plant produces board-level adapter products for Emulex that are also produced at other locations, including Malaysia and China.
Emulex recently restored supply to nearly all its customers in the region, according to President and Chief Operating Officer Jeff Benck.
“Our redundant supply chain design and strong execution has minimized the impact of the Thailand flooding for our customers and for Emulex,” he said. “This is an enormous tragedy for Thailand, and our best wishes go out to all of the Thai people.”
