Disruption in Korean production could have catastrophic impact on global electronics business, says IHS

What would happen if half of all global production for DRAM, two-thirds of NAND flash manufacturing and 70% of the world's tablet display supply suddenly disappeared from the market? The answer would be chaos, with the worldwide electronics supply chain grinding to a halt and stopping major market product segments in their tracks, including smartphones, tablets and PCs.

For high-tech companies, this could be the outcome if current tensions escalate to the point of war on the Korean peninsula, resulting in the disruption of South Korea's technology manufacturing base, IHS iSuppli believes. 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.

"However, South Korea now plays a more important role than ever in the global electronics business. And 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.

Samsung Electronics 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," Howard warned.

Fully 66% of industry revenues for the DRAM market, as well as 48% of total NAND flash revenues, belonged in 2012 to Samsung and SK Hynix, IHS indicated. While their combined share of both in the NAND market has remained fairly level for the last three years, the collective portion in DRAM of the two entities has been steadily rising.

Such a high proportion of global production could not be easily or quickly replaced by manufacturers in other regions, IHS noted. The Icheon facility of SK Hynix is located approximately 30 miles southwest of Seoul, while Samsung's massive manufacturing complex at Hwaseong is within 24 miles of the capital.

An equally bad situation could occur in the large-size display market, which is heavily dependent on South Korean suppliers, especially in the tablet market, IHS said.

LG Display and Samsung Display together held a 49.6% share of unit shipments of large-size LCD panels in the fourth quarter of 2012, IHS observed. Large-size panels are defined as those that are 10-inches or larger in the diagonal dimension and are used in products including TVs, notebooks and desktop monitors. Also included in the category are and 7-inch and larger displays used in tablets.

South Korea accounts for 70% of global supply of tablet display unit shipments, according to IHS.

"Inventory and production capacity for media tablet displays currently are at a high level," said Sweta Dash, senior director, display research & strategy, for IHS. "Because of this, a short-term disruption of South Korean production would have a minimal impact. However, a long-term stoppage or reduction of production would have a major effect and dramatically reduce global tablet supply."