Seagate Technologies announced last night that it will lay off 2,000 workers in Singapore as it is moving its HDD manufacturing operations out of Singapore to other locations such as Thailand, China and Malaysia, as part of its move to reduce costs by having fewer manufacturing locations.

Seagate accounts for 12-13% of Armstrong’s group sales, 37% of its rubber sales and 56% of total hard disk drive sales. However, we do not foresee any negative impact on Armstrong from this development. The company already supplies to Seagate across all of its Asian manufacturing sites through its Ang Mo Kio purchasing hub, which will be retained along with its administrative headquarters, media operation as well as product development. Currently, Armstrong supplies 56% of Seagate China’s rubber and foam part requirements, followed by Thailand 21%, Malaysia 16% and Singapore only 7%. The last is likely to be reallocated to the rest of Seagate’s sites.

However, the automotive side of its business is doing well, especially in China, which is expected to have posted double digit gains in revenue during 2Q09, as the impact on Peugeot from political tensions between China and France has been less severe than expected. Going into 2010, Armstrong is also gaining traction on new products, specifically a car seat related part which is worth 10x in value than its highest value part to-date. Going forward, we foresee upside to earnings if the current strength continues.

Maintain Hold on Armstrong although this development may dampen sentiment toward the stock in the short term.