(Chinese Version)

The Chinese new years is just around the corner and one of the the largest hard drive makers Seagate’s subsidiary Seagate Technology (Suzhou) officially announced to close down at this moment.

This sudden news erupted a heated discussion in the industry and the general public. The public is having constant doubts about whether the OEM and trade market have entered a downturn period. On January 14th, Suzhou Industrial Park Administrative Committee stated that the shutdown is an adjustment move determined by the market change and the group’s production capacity status.

According to Seagate, closing down its production in Suzhou Industrial Park is part of its global business restructure plan that is expected to improve operation and enhance efficiency. Up till the end of 2017 fiscal year, Seagate has laid off 6,500 employees, a number of staff accounting for 14% of the international giant’s total staff base. Seagate Technology (Suzhou) will lay off 2000 employees and the employee cut will take place during January 11th to 18th. The company will compensate the laid-off staff in accordance with relevant law and regulations.

Although Seagate has made official statement in which it claims the close down is part of its global strategy, many still wonder that the shutdown is due to the downturn occurred in the PC market and the decline of HDD shipment volume that comes along.

Quarterly profit slumps by 82.3%

It’s reported that Seagate has three hard drive manufacturing companies around the globe: One in Suzhou, one in Wuxi, and one in Thailand. Seagate Suzhou was registered in Suzhou Industrial Park in January 2003. Its predecessor was Maxtop Technology(Suzhou) that was acquired by Seagate in late 2005. The company mainly manufactures Seagate branded hard drives for laptops, PCs, and enterprise servers.

Suzhou Industrial Park, in which Seagate situates, is one of China’s most famous industrial parks, considered as a representative example of the Suzhou model.

However, in the past few years we have witnessed quite some news of factories shutting down, including Apple and Xiaomi’s OEM UnitedWin Suzhou, Nokia’s factory etc. The interesting part is they all happened at the end of the year. Some industry inside explained that these companies face high risks of close down at the end of the year since the suppliers usually call in arrears at that time while the winter season is truly an order winter.

Suzhou Industrial Park Administrative Committee revealed that Seagate’s factories in China mainly manufacture traditional head-powered hard drive. However, currently solid-state drives have become the mainstream and the trend is still on the rise. In addition to that, PCs, which are the main adopters of these hard drives, are declining in demand. All these contribute to the lack of orders for Seagate’s factories in Suzhou and Wuxi.

According to open data, Seagate Suzhou is one of the biggest hard drive makers in the world, but its hard drive business has been facing pressures as the PC market saturates. Seagate’s Q4 fiscal report shows the company made a profit of $2.986 billion in Q4, a year-on-year decrease of 19.2%. The net profit was $165 million, dropped by 82.3% year-on-year.

The downturn in the whole industry has no doubt affected Seagate Suzhou. But that’s not the only reason for the closedown. At present, Seagate’s factory in Suzhou is the company’s biggest HDD assembly plant in the globe. It’s making profit. And Seagate will definitely not going to give up the HDD market since it has already announced to invest another $470 million in Thailand to expand the HDD business.

While the demand is falling, the labor cost in East China is still rising. And Seagate Suzhou happens to be in that region. An entrepreneur from Zhejiang province stated that a worker will cost ￥4,500 in Jiangsu and Zhejiang province. “The cost will be up to around ￥6000 after adding the insurance and social benefit cost. And in Vietnam, the cost is only ￥800,” he added.

Perhaps the reason for the shutdown is really about the 1.5 billion fine and the new investment in Thailand?

More investment in Thailand

In 2015, the Tax Bureau of Jiangsu province believed that Seagate had been evading taxes during 2007 to 2013 as the taxes the company had paid didn’t add up to Seagate’s revenue. However, according to Seagate, local factories’ revenue was lower than that of other regions, and therefore the company did not violate the law. On that, Seagate and the Tax Bureau went into negotiation. Eventually Seagate agreed to pay another $225 million.

The hard drive maker reached an advance pricing arrangement with the bureau, which states the authority will increase the added-value tax and corporate income tax by about ￥400 million annually. Seagate will have a revenue boost of ￥450 million each year with this APA.

In the same year, Seagate also announced to invest $470 million in Thailand in the upcoming five years to expand the factory in Thailand. The factory in Thailand will be providing 49% of the total production capacity in the future and bring up 2,500 new jobs in Thailand.

Despite the closedown in China, Seagate is still expanding its investment in the Southeast Asia.

It’s apparent that though Seagate has closed down its current largest assembly plant, it doesn’t necessarily mean their hard drive production output will be affected. Seagate is only transferring this part of business to Thailand or other regions. An industry insider explained the reasons behind these changes:

“The global economy is in an essential adjusting phase, where the global trade volume will not have apparent growth or even shrink. However, the global production layout will undergo adjustments and the international competition will be more about the competition about the value chain.”

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Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.