One of our 2012 Predictions for Global Supply Chains in 2012 calls for additional challenges and turmoil for the high tech and consumer electronics industry. The issues began manifesting themselves in a highly visible way in 2011 with the severe earthquake and tsunami that struck northern Japan and more recently, the effects of the severe monsoon related floods that impacted Thailand. Supply Chain Matters provided multiple commentaries reflecting on these problems. This author had the opportunity to provide expert background commentary in a recent Fortune-CNN Money commentary regarding the new fragility of global supply chains.
The latest public acknowledgement of the turmoil that is occurring from behind the scenes comes from chipmaker Intel, who had to lower its fourth quarter sales outlook by $1 billion this week. The CFO of Intel noted that reductions in inventories are occurring across the high tech supply chain, particularly over the last two weeks as OEM’s continue to adjust plans to deal with a significant shortage of hard disk drives in the first half of 2012. Behind the scenes, personal computer OEM’s have been assessing how severe the shortage may be and appear to be allocating what supply they will have to higher margin, full featured and more expensive PC’s. The cascading effect has apparently now reached Intel in its planned supply of microprocessors for OEM’s. The Silicon Valley.com article notes industry analyst firm IDC indicating that PC sales volume could be 10 to 20 percentage points lower in Q1 of 2012. That IDC number was in the range of 9 percent just a few weeks ago, which indicates that the severity of supply shortfalls are becoming more understood.
Meanwhile, Western Digital now indicates that it has been able to resume production at one factory much sooner than anticipated while also shifting some sourcing and production arrangements. The company will manufacture head sliders in both Thailand and Malaysia. Western Digital also indicated a preliminary estimate of losses of $225-$275 million, beyond what it may recover from insurance coverage.
The Wall Street Journal has also reported that ON Semiconductor, which produces chips for audio and power management used in mobile phones, autos and portable electronics, has now indicated that it will end all production at its Sanyo Semiconductor production facilities in Ayutthaya, Thailand, and provide limited production at its Bang Pa site. Most production will be moved to Malaysia, the Philippines and China.
We will certainly hear from more high tech OEM’s and component suppliers as the aftereffects of the Thailand floods continued to cascade across high tech and consumer electronics suppliers. While larger companies may well have the financial and other resources to mitigate business impacts, it may well be a variety of smaller suppliers who suffer continued impacts or have to succumb. Time will tell.
As we noted earlier, if you plan to buy a new PC, you might want to do it now vs. postponing that decision to 2012. The price may well be a lot higher, and availability to bit more scarce.
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