Lenovo hopes to weather flood

PUBLISHED : Friday, 04 November, 2011, 12:00am
UPDATED : Friday, 04 November, 2011, 12:00am

Mainland computer giant Lenovo Group expects to secure more supplies of hard disk drives, as the catastrophic flooding in Thailand triggers a major disruption in the global electronics supply chain.

The floods, which have inundated about a third of Thailand since July, have affected manufacturing at industrial parks of several products, electronic parts and subsystems - most notably hard disk drives, analogue and discrete semiconductors, cameras and car electronics.

Market research firm IHS iSuppli said the disruption would soon affect other products, including notebook computers, dynamic random access memory chips, television set-top boxes and cars.

Hong Kong-listed Lenovo, the world's second-largest supplier of personal computers, estimated that the looming shortage and increased cost of hard disk drives as a result of the Thailand floods would not be a problem in the short term.

'We have good relationships with key suppliers in that area,' Lenovo chairman and chief executive Yang Yuanqing said. 'We have adjusted our strategy and we'll try our best to meet the requirements of the market.'

Thailand is the world's second-biggest producer of hard disk drives after the mainland and is a major supplier of hard drive parts. The flooding in the country has led to work stoppages at the factories of Western Digital and Toshiba, the world's leading hard drive manufacturers, and at the plants of their components suppliers.

Western Digital, the industry's largest maker of hard disk drives, recently said the flooding of its factories at the Bang Pa-in Industrial Estate and the Navanakorn Industrial Park, would disrupt the company's supply chain in Thailand.

'[The flooding] will have significant impact on the company's overall operations and its ability to meet customer demand for its products in the December quarter,' Western Digital said.

But it said the company's other facilities in Malaysia, Singapore and in the US were fully operational.

Lenovo chief financial officer Wong Wai-ming disclosed on Wednesday that more than half the hard drives used by the computer maker were sourced from manufacturers with factories in Thailand.

Market research firm Gartner forecast supply constraints may limit overall hard disk drive shipments through the first quarter next year.

'Gartner believes that 20 to 30 million hard disk drives will be taken out of the planned production of 180 million hard disk drives in the fourth quarter this year,' analyst John Monroe said in a report.

But that estimate could worsen.

'No one knows when production at any of the facilities in Ayutthaya province and elsewhere will resume,' Monroe said. 'The high- water mark of the floods remains unknown, and meteorologists predict additional high tides and monsoons in the region. There will surely be a run for hard disk drive inventories.'

IHS iSuppli said the global personal computer industry appeared to have sufficient stockpiles to last through the fourth quarter this year. Market research firm IDC, however, said computer prices could go up as the cost of hard disk drives increased due to the shortage.

'We will leverage our relationships with suppliers to secure more inventory for our customers,' said Wong, noting that Lenovo is the world's largest maker of notebook computers for business users.

Fang Zhang, a storage analyst at IHS iSuppli, expects notebook computer makers to adjust to the shortage from the second quarter next year by obtaining hard disk drives from alternative sources in different regions and increase use of other storage devices.

The share price of Lenovo, which announced record earnings in the quarter to September, was up 3.21 per cent to close yesterday at HK$5.78, its highest finish since reaching HK$5.81 on May 3 last year.