Manufacturers of car parts and computer hard drives are the worst hit in Thailand, and face a bleak key holiday selling season due to massive floods, which have shut down production.
Japanese car makers that had just started to recover from the March earthquake and tsunami that disrupted their supply chains are now facing shortages of key parts made in Thailand, a key manufacturing base in Southeast Asia.
Companies including Toyota Motor Co and Honda Motor Co have already curtailed production at plants as far away as North America because their Thai suppliers are under water.
Computer makers such as Lenovo Group Ltd, the world’s No.2 PC maker, have also been affected. Lenovo said earlier this week it expected some constraints on hard disk drive supplies through the first quarter of next year due to the floods.
Samsung Electronics, the world’s top computer memory chip maker, said on Friday that it expected Thailand’s floods to dampen sales of personal computers and prices of DRAM chips used in PCs.
“We expect PC (sales) to be lower than expected. As a result, we expect weakness in DRAM prices,” an executive at Samsung told an earnings conference call.
Taiwan’s Acer Inc said it has already started to raise prices on future orders to cope with rising costs.
Thailand is the No. 2 maker of hard disk drives (HDD) after China and makes about half of global output taking place there, meaning damage caused by flooding could keep factories closed or hobbled for months, analysts and executives said.
Thailand has become a major manufacturing center due to government incentives, tax breaks and land acquisition deals specifically designed to lure automotive companies and high-tech manufacturers.
Complicating the situation are the tight links global companies have forged in their supply chains to minimize holding expensive inventories and which utilize “just in time” manufacturing. As seen during the March earthquake in Japan, when one link is broken, it can disrupt production on a global scale.
Flooding has forced the closure of seven industrial estates in Ayutthaya, Nonthaburi and Pathum Thani provinces bordering Bangkok, causing billions of dollars of damage and putting about 650,000 people temporarily out of work.
“Inventory in the supply chain should be able to satisfy demand until late November to early December, but if the situation does not improve, many products will not be able to be produced because hard disk production is very concentrated in Thailand and the plants in China and Malaysia are not enough to support industry demand,” said Charles Lin, chief financial officer of Pegatron Corp. The company is the main contract manufacturer for Asustek Computer Inc.
Top hard drive makers Western Digital and Seagate both have factories in Thailand. Western Digital’s factories are closed and Seagate has warned it could face parts shortages even though its plants are running.
Computer makers may be affected longer than other manufacturers because their manufacturing plants require “clean room” environments to fabricate precision computer components.
Asustek’s Chief Financial Officer, David Chang, said the floods were already pushing up prices for hard drives by as much as 20-40 percent.
“If the situation persists, not only notebook production will be affected, but shipments for desktops and other components will also drop,” he said.
“Our inventory can last us until the end of November and our Q4 guidance to be given out next Monday will be more conservative to reflect the impact.”
Industry officials said it may take as long as 45 days after the waters recede to be up and running. Car makers could however, be as affected if the supply shortages include electronic components.
A spokeswoman for Quanta Computer, the world’s top contract PC maker and whose clients include Hewlett Packard, said its clients have not been affected much “so far.”
“Usually under tight inventory environment, first-tier companies enjoy priority to get the materials because they have stronger bargaining power,” said Carol Hsu.
CARS AND SANDBAGS
Toyota Motor officials in Thailand said the company had shifted ready-made parts used to produce pick-up trucks and modified pick-up trucks to its Gateway City facility in Thailand’s Chachoengsao province.
The facility there is 44 meters [136.5 feet] above sea level, said Vudhigorn Suriyachantananont, senior vice president of Toyota Motor Thailand.
Wall of sandbags are protecting the plant and “tools and machinery are sealed and stored in high places,” he said.
Daihatsu Motor Co said on Friday it would reduce work to produce Toyota-badged cars at two Japanese factories next week due to a shortage of parts from Thailand.
Daihatsu, the minivehicle unit of Toyota, said it expects no impact from the Thai floods on its own minicar production in Japan and in Indonesia and Malaysia at least for November.
The Japanese government announced on Friday it would allow Japanese companies operating in Thailand to bring some Thai workers to Japan to make up for lost production.
Japan’s trade ministry said the Thai workers would only be allowed in for six months and would not be allowed to bring their families.
Topics Auto Flood Manufacturing Japan
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