CEO of Seagate Technology Discusses Thailand Floods And The Hard Disk Industry

Refer to 'Enterprise IT News'

Steve Luczo, the CEO of Seagate Technology told AllThingsD that the whole industry's supply chain is going to be affected until the end of 2013 at least, in order to be able to restore the state back to pre-flood operating capacity. This can be worrying for traders who have seen margin cost goes up by as much as 100%. It is a challenging time which many are still struggling to uncover and looking for solution to mitigate.

More than one-quarter of the world’s hard drive manufacturing capacity has been disrupted in one way or another, including 45 percent of the capacity devoted to making hard drives for personal computers.

Steve Luczo reckons that the industry (in this regard) is just experiencing the tip of the iceberg and many people are still looking for answers.

Luczo gave us a preview of the hard disk industry where during pre-flood the industry had the capacity to ship about 190 million units a quarter. Pre-flood, we expected the demand to be pretty consistent at about 180 million a quarter, with a bump in September 2012 for Windows 8.

Now, after the flood, Seagate expected that 130 million for March on the optimistic side, and then 150 million for June, 170 for September and then 190 million for December.

On the issue with over markups in the channels, Luczo thinks that it is expected because channels are experiencing 70% shortage while OEMs are blessed with better supplies. The channels are selling the few drives that are out there to whoever needs them the most and is willing to pay for them.

Luczo commented that Seagate is actually not facing any critical scenario out of these floods. First of all, the demand has been on 10 year contant average and secondly, they are not playing the pricing game. Seagate is more focusing on technology transitions which will allow them to produce hard disks with fewer parts and that will bring down the cost as well as making use of manufacturing expertise to bring down further cost. The long-term business model of Seagate is to achieve gross margins of 22 to 26 percent.

For conclusion, the floods actually help Seagate because of two reasons. 1.) Seagate is manufacturer of hard disk and 2.) the demand for storage has been constant even after the floods. Only OEMs and channels will have to suffer the effects of lower supply.

And it is a good thing that the floods actually help to bring back the margin of the business for everybody.