EL SEGUNDO –  The catastrophic flooding in Thailand will spur the hard disk drive market’s worst downturn in three years, says IHS iSuppli.

HDD shipments in the fourth quarter will decline to 125 million units, down 27.7% sequentially, the research firm says. The drop is the largest sequential decrease on a percentage basis since the fourth quarter of 2008.

The firm estimates that 30% of HDD production in the fourth quarter this year will be lost because of the disaster. This will result in a significant shortage of HDDs. HDD inventories will cause average HDD pricing to rise by 10% sequentially in the fourth quarter.

Production disruptions and stoppages are ongoing at the manufacturing operations of some of the world’s largest HDD makers – namely Western Digital and Toshiba – as well at 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, says IHS.

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, down from fifth.

In the PC market, the HDD shortage is likely to have the greatest impact on notebook PCs. 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 PC production in the first quarter of 2012.

Starting in the second quarter next year, 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. This will allow the notebook supply chain to mitigate the impact of the HDD shortage.

The DRAM market could be negatively impacted by slowing sales of notebook PCs. Any reduction in PC sales due to supply chain constraints will further depress the already over-supplied DRAM market, says the firm.

In the automotive sector, eight OEMs that build cars in central Thailand have halted all output: Ford, Mazda, Hino, Honda, Isuzu, Mitsubishi, Nissan and Toyota. These OEMs announced they have suspended production until the end of October, although IHS expects the action to extend into mid-November. IHS downgraded Thailand’s light-vehicle forecast to 1.64 million units in the fourth quarter, down from 1.77 million units. A further reduction of 50,000 to 75,000 units is possible. Already, floods have affected vehicles to be exported to core markets in the ASEAN region, Australia, Japan and the Middle East. Thailand’s exports account for 56% of total production.

The loss of critical automotive electronic component and parts supply from Thailand also has impacted Japan’s car output. In particular, prolonged part-inventory issues from Thailand may cause Japanese suppliers and OEMs to force further production adjustments. A key challenge could come sometime in the fourth quarter and the first quarter of 2012, as the Japanese continue trying to compensate for lost output from the country’s earthquake disaster earlier in March. The component shortages out of Thailand also are expected to impact car manufacturing facilities in North America, Europe and China, says IHS.

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

Last, 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, and mostly on the Japanese market.

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