This year’s monsoon season is causing devastating flooding in Thailand, which is threatening the supply of hard drives for the notebook PC market. The floods are expected to limit the hard disk drive motor supply coming from maker Nidec, which has about 80% share of the market. Nidec is a supplier to all the major hard drive manufacturers including Hitachi, Seagate, Toshiba, and Western Digital. Additionally, Hitachi, Toshiba, and Western Digital have plants in Thailand that have curtailed production because of the supply shortage.
Typically, notebook brands carry up to four weeks of hard disk drive inventory to respond to market dynamics and logistics. Given weaker than expected demand for the fourth quarter, some brands were leaning towards the lower end of inventory ranges, two to three weeks, for most components.
Despite an increase in demand in late August for the back-to-school season, we aren’t expecting strong Y/Y shipment growth for the fourth quarter. We do expect brands to be aggressive with pricing in the fourth quarter similar to what they did in late August to boost demand. But the strong fourth quarter last year (which had the benefit of a relatively new operating system, Windows 7) along with the weak US economy and the success of tablet PCs are significant hurdles for strong Y/Y growth rates and shipments.
Weak notebook demand will limit the impact of the hard drive supply concern for the short term. In the longer term, it will be important to monitor the time to resume hard disk drive production; if the process takes longer than one month, it could be a limiting factor for notebook PC shipments.