The recent flooding in Thailand is a disaster of huge proportions, and it hasn't received nearly as much attention as it should. While humanitarian concerns are the biggest issue from a parochial perspective, the flooding will also have a big impact on the PC market next year, very possibly leading to short supplies and higher prices.

Currently, reports say about one-third of the country is under water. Thankfully the slow-moving nature of the flooding has limited the death toll, but the floods are continuing. Though it's hard to predict exact damages, everyone agrees it is going to be very bad.

From a technology perspective, hard drives face the biggest threat. According to Western Digital, 40 percent of the world's hard drives are produced in Thailand, including 60 percent of WD's own production. As a result of the flood, the company will be able to make less than half the number of hard drives it normally produces.

WD has shut down its Thailand factories and doesn't know when it will be able to resume operations. Some of its key suppliers have ceased production as well, and while it doesn't have a timeline for recovery, the conditions are likely to continue "into the March quarter and possibly beyond."

A lot of drives are made in the impacted areas of Thailand, but drives are also produced in Malaysia, Singapore, China, and unaffected parts of Thailand. Seagate, whose facilities in Thailand are still operational, has said its production has also been constrained by the availability of specific externally-sourced components. It expects about a 20 percent decrease in its output.

Indeed, many of the companies that produce hard drive components—including companies you probably haven’t heard of like Nidec, which makes spindle motors, and Hutchinson and TDK/Magnecomp, which make suspensions—have had operations significantly impacted in Thailand.

All these numbers are subject to change because the flooding is far from over. According to Gartner Research Vice President John Monroe, who has been covering the HDD business for years, the previous production projections of about 180 million drives could be reduced by as much as 50 million drives in the fourth quarter. It’s likely that drive deliveries in early 2012 will still be significantly reduced, though it’s hard to know by exactly how much.

While most of the drives for major brand desktops and notebooks for this quarter have already been ordered and in some cases delivered, Monroe still expects the number of global PC shipments to be down at least 25 million units.

In general, Monroe said, "mission-critical" drives such as those used in big servers and storage systems are likely to be in the best shape. Notebook drives may be down around 15 percent. Desktop drives, which normally account for about 65 million drives a quarter, could be down 30 percent or more. Desktop makers, and in particular, the vendors of "white boxes," will find the supply very tight. 

Some makers, notably motor manufacturer Nidec, expect production can be back on schedule in the first quarter of 2012. However, Monroe said that other factors in the supply chain—especially read/write heads or "sliders," as well as facilities for test and assembly—could delay any rebound in total HDD production. WD’s flooded slider facilities in the Bang Pa-in district in central Thailand account for about 25 percent of the world's read/write head assembly capacity, and this capacity is gone, most likely for six months to a year. It will be impossible for the only other producers of read/write heads, including Seagate, Hitachi GST, and TDK, to quickly make up for this loss. Many of the high-end machining tools required for slider production usually take nine months to deliver after ordering.

In recent investor phone calls, companies like Intel, AMD, Apple, and EMC have all said they don’t expect any major impact from the flooding in quarter four.

Nevertheless, I recently got a note from Dell that said any open quotes for hard drives have been cancelled. It suggested that customers should "order clients and servers that you expect to be in production by year end sooner rather than later." The note said pricing has not changed yet, "but will certainly trend upward within 30 days especially on multiple hard drive machines."

Monroe is deeply concerned about global PC availability this quarter, but what worries me as a U.S. consumer isn’t particularly this quarter—as I said, most of the drives for the holiday season have already been ordered and even delivered. 

The bigger concern is next quarter. I'm sure some machines, particularly in the notebook space, will replace hard drives with solid-state drives based on flash memory. But that’s unrealistic for a lot of machines in part because there's only so much supply of flash memory, and in part because flash memory is so much more expensive per amount of storage. (The retail price of a 500GB hard disk drive is about $80; the retail price of a 64GB solid-state drive is about $130; in both cases, wholesale prices are  about half that.)

In addition, with tighter supplies, my guess is system vendors may well focus on more expensive systems and reduce the number of lower-cost ones. I won't be surprised to see prices increase next year, and potentially see a shortage both of retail hard drives and desktops.