Transcend Information has shifted its focus from DRAM to NAND flash and, in view of growing demand for consumer SSDs due to increasing sales of ultrabooks and mature technological development of SATA 6Gbps, will enhance marketing of this product line in 2012, according to company chairman Peter Su.

Transcend shipped 100 million units of memory module products in 2011, hiking 30% from 2010, Su said.

Having been engaged in SSDs for industrial use, Transcend will focus its SSD business on the consumer-use market segment in 2012 through retail channel marketing and cooperation with PC ODMs, Su indicated. Storage capacities of SSDs built in ultrabooks are not necessarily as large as 256GB and instead can begin at 32GB or 64GB to lower product costs, Su pointed out.

Transcend generated revenues of NT$2.127 billion (US$70.2 million) for December and those of NT$29.207 billion for 2011. Of December revenues, 65.85% came from NAND flash products, 19.42% from DRAM products and 14.73% from others.

In the wake of Seagate's completion of acquisition of Samsung Electronics' hard disc drive (HDD) business, industry observers believe the HDD industry will be dominated by Western Digital and Seagate in 2012.

Seagate pointed out that the acquisition will help the company gain access to Samsung HDD business' properties such as assets, business structure and employees, especially Samsung's leading M8 high-capacity 2.5-inch HDD production line.

Since European Commission has also recently conditionally approved Western Digital's acquisition of Hitachi Global Storage Technologies (HGST), the resources of the future HDD industry will gradually be dominated by the two giants, the sources pointed out.

The short supply of hard disk drives (HDDs) in the Taiwan retail market due to the impact of flooding in Thailand is expected to peak in January 2012 and begin to ease in March, according to sources from local retail channels.

Global HDD production was at about 180 million units in the third quarter, but the floods resulted in a drop to only around 110-120 million units in the fourth quarter, he sources said. HDD production will reach 140-150 million units in first-quarter 2012, still less than the pre-flood level, and therefore, the HDD market is unlikely to see sharp price drops in the near future.

Currently, most of the HDD makers are reportedly using their operatinal capacities to manufacture models that offer better gross margins. Western Digital is said to be mainly manufacturing its Caviar Black series, boosting the price of 500GB Caviar Black hard drive to NT$3,600-3,800 (US$119-125), up from NT$2,600-2,800 originally, while the price of 500GB Caviar Blue hard drives also rose to NT$2,600-2,800 from NT$1,300-1,400.

However, HDD makers have dismissed the rumors about selective production, saying that supply of most of the upstream materials is still in shortage and their output has been determined by the materials available.

Hard disk drives
Photo: Digitimes file photo

Facing rising hard drive prices, Acer vice president Scott Lin has recently confirmed that the company's newly-produced notebooks in December will all see their prices rise by NT$500-700 (US$16-23), an increase of 2-3% from their original prices, while Asustek Computer vice chairman Jonathan Tseng also confirmed it will raise company notebook prices, according to a Chinese-language Apple Daily report.

Lin pointed out that Acer's hard drive inventory will be depleted by the end of November and its new notebook products made in December will all have higher prices to reflect the rising hard drives costs.

Seagate Technology has downward adjusted its fourth-quarter 2011 shipment goals for hard disk drives (HDDs) to 41-45 million units due to the impact of flooding in Thailand, decreasing 10-18% on quarter, according to Seagate Technology Taiwan.

Seagate's factories in Thailand have resumed production, but output is lower than normal due to short supply of components, Seagate Taiwan said.

Seagate forecasts global supply of 110-120 million HDDs in the fourth quarter, 33.3-38.9% short of global demand at 180 million units.

Source: Industry sources, compiled by Digitimes, November 2011

Several channel retailers are already preparing to dump their hard drive inventory, which was piled up due to concerns over potential shortages, in December as the imbalance between supply and demand is not as serious as originally expected and the retailers are trying to shed some stock to avoid from being hurt as hard drive capacity will be gradually restored in January and February 2012, according to sources from channel retailers.

Since Japan-based hard drive motor supplier Nidec already announced that one of its plants in Thailand has resumed production, while many other hard drive component suppliers are also aggressively seeking solutions to substitute their lost capacity in Thailand, the sources believe the hard drive shortage issues will see an obvious improvement in January 2012.

Since the hard drive shortages may not be as serious as expected, while demand in the PC market remains weak as pricing has surpassed consumers' sweet spot, several retailers are already set to drop their hard drive prices and dump inventories into retail channel in December.

Some PC ODMs may be forced to stop production beginning November due to hard disk drive (HDD) shortages, according to industry sources. Global HDD supply in the fourth quarter is expected to decrease from 170 million units in previous years to 100-110 million units in 2011, the sources indicated.

In response, some PC ODMs pointed out that HDD supplies are controlled by their brand clients and they currently still have not yet received any information about the issue and will continue to check with clients.

The top-five HDD makers have all been impacted by the floods in Thailand, creating a supply gap as high as 50-60% and causing HDD prices to rise rapidly.

Japan-based HDD motor supplier Nidec has nine plants in Thailand, seven of which have been shut down due to the floods. The company is currently trying to ease the impact by raising its production capacity at plants in China and the Philippines.

Taiwan-based Min Aik Technology, which supplies components for HDDs and had its two plants in Thailand flooded, has decided to move its capacity to plants in Malaysia, but the installation of new production lines will require at least three months to finish, and so production capacity is unlikely to fully recover before the end of the first quarter of 2012. Since the company's upstream material supplier Hutchinson also had plants damaged by the floods, Min Aik is currently seeking alternative supply sources.

In addition, the floods are expected to reduce Western Digitial's HDD shipments to 22-26 million in the fourth quarter, down from 58 million units, while Seagate, suffering from component shortages, will see its hard drive shipments reach only 40 million units.

Meanwhile, Hitachi's HDD shipments will drop to 20 million units in the fourth quarter, down 30-40% sequentially, with Toshiba's shipments to also drop 40-50% on quarter.

In 2012, HDD makers are mostly expecting their shipments to drop another 40-50% in the first quarter with the recovery estimated to start by the end of the second quarter.

As floods in Thailand have seriously impacted the hard drive supply chain, Western Digital recently notified its distributors in Taiwan that the company will not distribute any hard drive supplies to Taiwan in November. Samsung Electronics is also not supplying any hard drives to Taiwan in November and will shift shipments for the use of its own-brand PC products, according to sources from channel retailers.

Currently, channel supplies can only last until mid-November, the sources noted.

With expectations of a supply shortage, PC brand vendors and channel retailers are already competing to fill their hard drive inventories. Meanwhile, hard drive makers have also set up a strategy to reduce their supply to retail channels, preventing their brand clients from purchasing hard drives from retail channels, while also increasing their bargaining power over brand vendors over the next two quarters.

The increase in hard drive prices has also impacted consumer demand in the PC DIY market with sales of motherboards and processors being affected.

As Western Digital (WD) has given priority to PC vendors for supply of its hard disk drives (HDDs) due to shortages arising from flooding in Thailand, retail channels in the Taiwan market hope that Seagate Technology can supply them with HDDs and take over some portion of WD's existing market share, adding that retail prices for external HDDs have risen by 15-30% and may increase by 40% at the end of 2011.

Affected by hard drive shortages, Acer chairman JT Wang has also recently noted that the company will not rule out the possibility of raising its PC prices to reflect the issues.

Sources from channel retailers pointed out that brand vendors are already starting to compete for supply priority with hard drive prices already rising more than 20%. Starting in November, several notebooks and desktops will see their prices increase by 10%, with the possibility of reaching 40% by year-end.

Although solid state drives (SSD) are expected to become a substitute of hard drives, since notebook vendors still think the cost of SSDs is too high, the storages are unlikely to drive a strong replacement trend, the sources noted.

Hard disk drive shortages are expected to peak in the first quarter of 2012, and the global supply chain will resume normal production the following quarter at the earliest, according to Taiwan-based component makers.

The makers noted that to recover their hard drive manufacturing plants will not require too much time, but since their upstream hard drive component suppliers such as Japan-based Nidec, which supplies 80% of global hard drive motors and has 30% of its capacity located in Thailand, and Taiwan-based Min Aik Technology, have all been seriously impacted by the floods, they will still be unable to resume production.

Western Digital, which experienced the most serious impact from the floods, pointed out that its plants in China, the Philippines, Malaysia and Singapore, have all implemented a shift rotation system to help cover the supply gap. The company's hard drive shipments in the third quarter were about 58 million units, and after losing its plants in Thailand, the company currently has about 40% of its original capacity, equivalent to quarterly shipments of 24 million units, and this number only applies on condition that the company still has sufficient component inventory.

Since the recovery in Thailand is already lagging behind, if the supply gap of key components is unable to be satisfied, both component and hard drive inventories are expected to be depleted in the first quarter of 2012.

The situation has also caused channel retailers to raise their hard drive prices and pile up inventory. Currently, a 2.5-inch 500GB hard drive's price has already risen close to 60%, up from NT$1,300 originally to NT$2,100. Commenting on the situation, the makers pointed out that the adjustments ought to be made because of the expectation of potential shortages, although hard drive makers did increased their prices in October, the range was only about 15-20%.

As for piling up inventory, Western Digital pointed out that it originally supplied 45% of its capacity to OEM players with the remaining 55% supplied to retail channels. After the disaster, the company will evaluate its current capacity and rearrange its distribution.

As for whether Western Digital will consider readjusting its production proportion to separate the risk, the company pointed out that its focus currently should be on recovering its capacity and it will make evaluations about adjustments at a later time.

The flooding in Thailand is affecting the production of several key end products, electronic parts and subsystems, most notably automobiles, car components, cameras, analog and discrete semiconductors, and hard disk drives (HDDs). The disruption to the electronics supply chain is having an indirect impact in turn on the production of other devices and systems, including notebooks, DRAM, cameras and set-top boxes. Beyond Thailand itself, the worst-impacted country is Japan, which maintains extensive manufacturing operations in areas affected by the disaster.

As a result of the flooding, the HDD industry in the fourth quarter will suffer its worst downturn in three years. HDD shipments in the fourth quarter will decline to 125 million units, down 27.7% from 173 million in the third quarter. The drop is the largest sequential decrease on a percentage basis since the fourth quarter of 2008 when shipments fell 21.2% during the worst point of the last electronics downturn. IHS estimates that 30% of HDD production in the fourth quarter will be lost because of the disaster. This will result in a significant shortage of HDDs.

Because of the shortage, HDD inventories will be depleted and will cause average HDD pricing to rise by 10% in the fourth quarter compared to the third.

The downturn will be spurred by production disruptions and stoppages at the manufacturing operations of some of the world's largest HDD makers, namely Western Digital and Toshiba, as well as suppliers of key components. Thailand is the world's second-largest producer of HDDs after China and is a major supplier of hard drive parts.

Given the direct impact of the disaster on its operations, Western Digital is likely to lose its status as the world's largest shipper of HDDs, with its rank expected to fall two positions to third in the fourth quarter, down from first place in the third quarter. Toshiba's rank could fall to fourth place.

In the PC market, the HDD shortage is likely to have the greatest impact on notebooks. The specific HDD plants affected by the flooding make devices designed for mobile computers. However, the PC industry appears to have sufficient stockpiles to last through the fourth quarter, so a disruption to notebook shipments in 2011 is not expected. Just the same, with HDD production disruptions expected to last at least six months, the shortage could impact notebook production in the first quarter of 2012.

Starting in the second quarter of 2012, IHS expects the notebook supply chain to begin to adjust to the impact of the disaster, obtaining hard drives from alternative sources in different regions and using other types of storage solutions, including solid state drives (SSDs). Such a workaround will allow the notebook supply chain to mitigate the impact of the HDD shortage.

In another fallout from the disaster, the DRAM market could be negatively impacted by slowing sales of notebooks. Any reduction in PC sales due to supply chain constraints will further depress the already oversupplied DRAM market.

In the camera sector, the Thailand camera manufacturing operations of Sony, Nikon and Canon all have been disrupted or suspended by the flooding. As a result, IHS iSuppli anticipates that overall camera shipments will drop in the fourth quarter and possibly in the first quarter of 2012.

Lastly, the manufacturing operations of two major analog and discrete semiconductor suppliers, On Semiconductor and Microsemi, have faced a significant impact from the disaster in Thailand. Fellow suppliers Rohm and Toshiba also have been affected, but to a lesser degree. For now, IHS believes the manufacturing disruptions at On Semiconductor and Microsemi will have minimal impact on the entire semiconductor industry. However, whatever direct impact there may be will be felt mostly in the Japan market. This is because On Semiconductor has limited alternative sites in which to move the test and assembly of customized packages for customers in Japan.

Overall, the Thailand flooding represents the second major natural disaster to affect Japan in 2011, after the March earthquake. Thailand plays a key role in the manufacturing operations of Japan-based companies, with an estimated 1,800 Japan-based manufacturers operating in the country and 450 Japan-based businesses located in seven flood-hit industrial parks.

According to Digitimes Research senior analyst Joanne Chien, most hard drive and related key component makers are currently unable to fully control their plants that were affected by the floods in Thailand and can only focus on speeding up their capacity expansion at unaffected plants.

Although Western Digital was the only player whose plants were directly hit by the floods, since several makers of hard drive key components such as motors, pick-up heads and spindles had their plants affected, other hard drive makers are unlikely to avoid feeling the impact of the devastation, Chien noted.

Chien pointed out that 12% of PC demand in the fourth quarter will not be able to be met due to the floods with volumes to reach 10.5 million units.

Since the hard drive supply chain's inventory will deplete completely by the second-half of November, the PC industry will start suffering from hard drive shortages in December. Although the first quarter of 2012 will be in the traditional slow season, the insufficient hard drive inventory and gap in capacity will both worsen the impact on PC shipments.

Source: Digitimes Research