LG and Samsung in Korea’s trouble zone: Will global smartphone and tablet production halt?

Telecom Lead Asia: The rising friction in Korea may impact the production of smartphones, media tablets and PCs. Samsung, Apple, Nokia, LG, HTC, BlackBerry, Sony, Huawei, ZTE, etc. will be forced to look for new alternatives as the electronics supply chain grinding may pose.

If current tensions escalate to the point of war on the Korean peninsula, according to a report by IHS, there will be a halt in half of global production for dynamic random access memory (DRAM), two-thirds of NAND flash manufacturing and 70 percent of the world’s tablet display supply.

While IHS regards such a major conflagration and disruption as unlikely, forward-thinking technology firms are planning for such a contingency, just as they are preparing for other natural and man-made disasters that could impact their businesses in the future.

Last week, Samsung India said it would start manufacturing its Galaxy S4 smartphone in India. At present, Samsung is heavily promoting Galaxy S4 in India to retain its leading position in smartphone market. However, Samsung did not cite the current tension in Korea as the reason for starting the production of Samsung Galaxy S4.

The telecom industry is currently debating whether Taiwan, one of the major mobile component suppliers, can address the shortage due to any escalation in Korea.

“With the supply chain having become more entwined and connected, a significant disruption in any region will impact the entire world. Because of this, it is important for companies to understand the magnitude of South Korea’s role in the global electronics market—and to prepare for any contingencies,” said Mike Howard, senior principal analyst for DRAM & memory at IHS.

Technology firms Samsung and SK Hynix are headquartered close to Seoul, the capital of South Korea, which lies only about 30 miles from the border with North Korea. Both companies have major manufacturing operations in the area as well.

Any type of manufacturing disruption of six months would prevent the shipment of hundreds of millions of mobile phones and tens of millions of PCs and media tablets.

66 percent of industry revenue for the dynamic random access memory (DRAM) market, as well as 48 percent of total NAND flash revenue, belonged in 2012 to the two South Korean memory titans Samsung and SK Hynix. Such a high proportion of global production could not be easily or quickly replaced by manufacturers in other regions.

The Icheon facility of SK Hynix is located approximately 30 miles southwest of Seoul, while Samsung’s manufacturing complex at Hwaseong is within 24 miles of the capital.

While some gadgets could have their amount of memory reduced—a smartphone with 32 gigabytes (GB) of NAND could be downsized to 8GB, or an 8GB laptop reduced to 4GB—other devices must have the memory for which they were originally designed, especially where DRAM is involved.

LG Display and Samsung Display of South Korea together held a 49.6 percent share of unit shipments of large-sized liquid crystal display (LCD) panels in the fourth quarter of 2012. South Korea accounts for 70 percent of global supply of tablet display unit shipments.

Pix is symbolic.

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