Thailand Flooding Hits Optics Industry

By Melinda Rose, Senior Editor

A number of optical components OEMs are exercising contingency plans after one of their major suppliers said it could be closed for the remainder of the quarter because of the severe flooding in Thailand.

High-technology products such as integrated circuits and parts, hard disk drives, electrical appliances, vehicles and vehicle parts are now leading Thailand's growth in exports, according to the US State Department.

The floods, which began in July after unusually heavy monsoon rains, have killed nearly 400 people, submerged 4 million acres and are starting to encroach on areas of Bangkok, home to 12 million people. The water is mainly affecting the central provinces along the Chao Phraya River, Thai officials say.

In Nonthaburi, Thailand, about 12 miles from Bangkok, a man braves the flood waters. (iStockphoto)

Bangkok also is home to Fabrinet, a provider of optical communication components, modules and subsystems, industrial lasers and sensors for companies such as Oclaro, Infinera, JDSU and Opnext.

Fabrinet said on Oct. 24 that 3.5 feet of water had infiltrated several manufacturing buildings at its Chokchai campus in Pathum Thani. Although authorities said they had done what they could to move or protect production and test equipment, inventory and tooling, the company still expected that production at Chokchai would remain stopped for the rest of the current quarter.

Fabrinet said that, as of the morning of Oct. 24, the flooding had not yet breached its Pinehurst campus, located about 7 miles north of Chokchai, but production there was suspended because of problems with local transportation and utilities.

Areas of the Chinatown district in Bangkok were underwater on Oct. 15. (iStockphoto)

According to Thai government officials, the peak period for flooding, the result of a combination of high seasonal tides and the large volume of water flowing from the northern provinces through the Bangkok area, ended Oct. 31. Because of that, the chance of flooding in central Bangkok, which has so far not been affected except in some areas close to the Chao Phraya River during high tides, is now greatly reduced.

Sunnyvale, calif.-based Infinera, a provider of large-scale photonic integrated circuits, said on Oct. 26 that the flooding at Fabrinet is forcing it to exercise contingency plans, such as moving production to other locations, increasing production at other facilities and using existing inventory, but that "it will likely not be possible to transition all components and subsystems quickly enough to avoid some supply chain disruption."

Although still assessing the full extent of the impact of the flood on its financials, Infinera said it expects revenue to take a hit of between 5 and 15 percent.

Tier-one optical communications and laser products provider Oclaro said on Oct. 25 that, between the Chokchai and Pinehurst facilities, Fabrinet supplies 30 percent of its finished goods, while its manufacturing facility in Shenzhen, China, and other locations account for the remainder.

Emcore Corp., a provider of semiconductor-based components for the broadband, fiber optic, satellite and solar power markets, said Fabrinet is its primary contract manufacturer and that the floodwaters had infiltrated areas used to make its fiber optic products. Some of the Albuquerque, N.M.-based company's manufacturing and test equipment also were submerged. Emcore said it is unlikely that production would restart before the end of the year, which will have a "significant impact" on its operations and ability to fulfill fiber optic products orders through the December quarter. Its solar division was not affected.

JDSU of Milpitas, Calif., said on Oct. 25 that its Communications Test and Measurement and Advanced Optical Technology business segments expect little to no impact from the flooding at Fabrinet, one of its three primary contract manufacturing partners that serve its Communication and Commercial Optical Products unit. The company is not supplied by Fabrinet's Chokchai facility, JDSU said.

However, the majority of JDSU's commercial laser business products, which includes its photovoltaic business, are manufactured at Fabrinet.

"Our equipment is safe and dry at this point. The water level at the Pinehurst Fabrinet facility has been steadily subsiding and, over the past week, has dropped by several inches, which is encouraging," JDSU President and CEO Thomas Waechter said in an earnings call on Nov. 1.

Because water levels are still causing infrastructure challenges, it's not possible to know when full production will be back, he said, but "we are very encouraged by the events of the past several days and expect to have some level of production within the next week or two."

Engineered materials and optoelectronic components supplier II-VI said the majority of products made by its Aegis Lightwave subsidiary are manufactured by Fabrinet.

Aegis Lightwave makes channel-monitoring products for optical networking systems manufacturers. II-VI's China-based Photop Technologies subsidiary also makes components that go into assemblies that Fabrinet makes for other customers, II-VI officials said in an earnings call last week.

Laser manufacturer Power Technology of Little Rock, Ark., announced last week that it is expanding its US production of laser diode modules and other components in response to the flooding and is expanding its inventory.

A large percentage of laser diode modules and diode-pumped solid-state lasers are manufactured in Bangkok, Power Technology said, and distruptions in the supply chain are partially because up to 650,000 employees can't get to work.

"Following the flooding in Thailand, Opnext is executing business continuity contingency plans, expanding the capacity at our manufacturing facility in Totsuka, Japan, for our 10 G products while moving some capacity to our contract manufacturers in China and our facility in Fremont, California," said Harry Bosco, chairman and CEO of optical modules and components maker Opnext. "Operationally, our direction is clear. What is less clear is the full extent of the impact of this situation on our financial results for the current and future quarters. While I am immensely encouraged by how swiftly the team has responded, we will not be able, however, to transition capacity quickly enough to avoid a significant impact on our results for the December quarter."

For more information, visit: www.fabrinet.com, www.infinera.com, www.oclaro.com, www.jdsu.com, www.ii-vi.com or www.powertechnology.com.