Korean conflict could nuke your next phone, experts say
{{#rendered}} {{/rendered}}Chances are that the smartphone tucked away in your purse, the TV in your living room and the laptop sitting on your desk wouldn’t exist without components from South Korea. Mega manufacturers such as Samsung and LG are located in Seoul near the border of North and South Korea, a border that’s primed to explode if recent tensions between the two nations boil over.
If North Korea’s heated rhetoric and missile tests evolve into a full-fledged war, there could be major disruptions in the supply chain for products such as LCD televisions, smartphones and tablets, analysts have said.
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{{#rendered}} {{/rendered}}“Anything that disrupts the work flow of supply is going to be an issue,” said Thomas J. Dinges, Senior Principal Analyst, Outsourced Manufacturing for IHS.
Supplying the World
According to Dinges, more than half of the world’s supply of DRAM and a substantial amount of its flash memory and display panels are manufactured in Korea.
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{{#rendered}} {{/rendered}}“Let’s ballpark it somewhere between 40 and 50 percent of the world’s supply of these three major components are coming out of Korea,” he said.
During the fourth quarter of 2012 alone, Korea accounted for a monstrous 78.5 percent of the global DRAM market share, with Japan coming in at a distant second with 19 percent, market research firm TrendForce reports. Most desktop computers and laptops use DRAM to store data because its less expensive than RAM alternatives such as SRAM.
Samsung is at the forefront of the semiconductor industry in Korea, with tech industry big shots such as Apple, Qualcomm, and Texas Instruments among its clientele. Theoretically, if warfare in Korea blocked major suppliers like Samsung from exporting product, we could see effects on product availability in the United States in about three months.
{{#rendered}} {{/rendered}}“There’s so much that’s already in the pipelines whether it’s in inventory or in transit,” said Gene Tyndall, executive vice president of global supply chain solutions for Tompkins International. “There’s probably about two to three months of safety, but after that [companies] would have to find alternate sources of production.”
Supply chain delays would hit the TV industry specifically hard since Korea plays a major role in LCD screen manufacturing.
“From a display panel supply standpoint, it probably wouldn’t be as disruptive for tablets and handhelds as it possibly could be for television,” Dinges said. “A higher percentage of those [panels] are built in Korea than panels made for smartphones and tablets.”
{{#rendered}} {{/rendered}}Samsung's Vulnerability
Samsung could experience more severe availability issues with its products than other competing brands. Companies such as Apple and HP keep about four to six weeks of inventory handy to prepare for any supply chain disruption, Dinges said, but Samsung operates differently.
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“They’ll keep what they consider to be emergency stock, but they don’t like to keep stock that may not be able to be sold,” Tyndall said. “They’re very tight on that.”
{{#rendered}} {{/rendered}}Although Samsung does have smaller factories in other regions of the world, it largely relies on Korea to manufacture its own products and components for its clients.
“Samsung doesn’t have a lot of flexibility around the world because they don’t have that many plants outside of Korea,” Tyndall said. “They do have some in Mexico and a few in Europe, but that’s not enough. Because they are primarily a produce-at-home company, [a production slowdown] would indeed impact others in about two to three months, again if the conflict drags a bit.”
Potentially Seismic Impact
A supply chain disruption in South Korea could also ignite a surge in component demand from Samsung’s customers, according to Dinges.
{{#rendered}} {{/rendered}}“The natural reaction is that things start to look like they’re going to get worse,” he said. “The natural reaction is that [companies] dependent on these types of products are all of a sudden going to say ‘Look, I don’t know what the supply disruption is going to be, just open the checkbook up and buy whatever we can.”
However, the biggest potential obstacle for Samsung customers would be seeking out new suppliers, Tyndall said. Similarly, when Japan was struck by an 8.9 magnitude earthquake in 2011, panel makers were forced to scout out new material suppliers to keep their product lines going. Sony, Toshiba and Texas Instruments halted production at their plants for months following the disaster.
“First of all, the customers of Samsung would have to find alternate suppliers, and that’s not easy,” Tyndall said. “It will take time to even find alternate sources. It doesn’t happen overnight. The risk plans are there and they’re probably being discussed right now, but depending on the length and severity we can see availability problems.”
{{#rendered}} {{/rendered}}Wait and See Mode
Unless warfare escalates into more than disturbing threats and mounting tensions, the supply chain isn’t likely to suffer, according to Tyndall.
“I think these days we’re pretty much okay, but again if the conflict goes on for months we could see all sorts of problems,” he said. “I think we’d have to watch it very carefully and see what can be done.”