



Both analysts and Apple are warning that the price of hard drives, which has already been creeping upwards the past few weeks, could jump significantly in Q4 due to catastrophic floods taking place in Thailand. During Apple's conference call this week, CEO Tim Cook said: ""Like many others, we source many components from Thailand and have multiple factories that supply these components. There are several factories that are currently not operable, and the recovery timeline for these factories is not known at this point... We would say that our primary exposure is on the Mac...I'm virtually certain there will be an overall industry shortage of disk drives as a result of the disaster."Industry analysts have chimed in to agree with Apple, while Western Digital has been forced to close its plants. Thailand is the second-largest manufacturer of hard drives, and even companies like Samsung, which haven't had to shut down production facilities, are facing part shortages. The HDD drive motor manufacturer Nidec, which supplies between 70-80 percent of the market with motors is expected to limit production due to flooding. Other companies potentially facing shortages include Hitachi, Seagate, and Toshiba.Companies like Western Digital have indicated that its customers have about two weeks of inventory on hand and distributors tend to carry ~4 weeks of supplies. The Thailand flood waters, however, aren't expected to recede any time soon. The prime minister has warned that it could take up to six weeks for waters to recede. The damage to roads and logistical supply lines could take quite a bit longer to sort out.The floods are seen as threatening sales at a time when gloomy economic outlooks already have manufacturers bracing for a slow holiday season. "From the Asia context, of course the impact will be on the Taiwan PC manufacturers, companies like Acer and Asustek Computer," said Satish Lele, vice president, consulting, Asia Pacific at Frost & Sullivan in Singapore. "From that context, the issue will start hitting these companies sometimes toward end of November and December, which for them are also key months because of the holiday season."Intel is one of the few optimistic voices in the storm, noting that the PC industry came through the Japan quake earlier this year with relative aplomb. "The PC supply chain has proven to be very resilient, as most recently demonstrated in the response to the earthquake in Japan," Intel spokesman Jon Carvill said.Given the uncertainty, we'd recommend anyone planning an HDD upgrade pick one up sooner rather than later. Combined with China's rare earth supply cuts, the price of hard drives could jump significantly in the next three months.