What would happen during a conflict with North Korea. Half of the world’s smartphones and TVs would be left without components
Even if Phenian is not producing anything spectacular, in the case of military hostilities in North Korea the planet might face an electronics crisis, since half of the smartphone memories are produced in South Korea, as well as half of the TV screens sold worldwide.
American president Donald Trump recently warned that a ”major conflict” with North Korea is possible, with the Phenian regime undergoing a new ballistic test on Saturday.
South Koreans have gotten used to the declarations of their northern counterparts, yet a Reuters analysis shows several reasons to be concerned, should a conflict be triggered.
”Rain of fire”
Firstly, if the USA destroys the missile and nuclear test polygons belonging to North Korea, then its artillery will most likely attack South Korea.
In this sector, North Korea is a lethal danger. The country has 21,000 artillery elements, arranged along the demilitarised area between the North and the South. These can put in imminent danger the capital Seoul and 25 million south-Koreans over a distance of 56 kilometers from the border, according to a Voice of America report.
North Korea might also attempt to launch missiles targeted towards Japan, another US ally in the region, or towards the American territory Guam, located in the Pacific.
In such a case, several factories of South Korean economy giants might be struck, complicating the matters.
South Korea is the mother-country of several electronic components producers, including Samsung Electronics, LG Display and SK Hynix, which would be particularly vulnerable to such an attack.
Any interruption of their operations might lead to general chaos in the world of smartphones, TVs, computers and tablets, all over the world.
South Korea produces half of the memory chips or flat screens sold worldwide. Samsung is the world’s largest TV produce and the largest screen producer, with its screens being used by other companies as well. For example, the media reported that the future iPhone 8 screen will feature OLED screen, so that besides the Samsung smartphones with AMOLED screens, there might also be supply problems for Apple, too.
LG Electronics is also the world’s second TV producer, while LG Display is also a screen provider to Sony. In case of disruptions, Japanese producers Sharp and Japan Display would profit from the situation, as well as Chinese groups TCL Communications and BOE Technology Group, as well as Taiwanese groups Innolux Corp and AU Optronics Corp.
The Seoul stock-market increased by 9% this year, especially after Samsung Electronics announced a profit of $8,75bn, while LG Display and SK Hynix, major providers to Apple, also announced optimist estimates for this year.
On the other hand LG Electronics announced in a press statement that “discussions regarding a conflict are speculative~, and that the company does not want to react to this situation.
On the other hand, Hyundai Motor, the main automobile producer in South Korea, announced that is has emergency plans in order to make sure that business will unfold normally in various situations, but did not provide further details.
Any military conflict in the Korean Peninsula might have a dramatic effect on the memory supplies. Samsung and SK Hynix together amount for 50% of the worldwide production of flash memories, used for storage in smartphones and tablets.
The two groups also amount together for two thirds of the RAM memories used in computers, making producers’ mission of finding alternate sources nearly impossible.
The battle for “allocation”
A memory crisis is happening right now, and an interruption of production would make large clients such as Apple and Lenovo to trigger a series of contract procedures called ”allocation”. More specifically, a formula will calculate how much of the production goes to which recipient. Battles of this kind among corporations are not a pleasant thing at all, according to Trevor Schick, former executive for the supply chain at HP Enterprise and Motorola Mobility.
“In the memory world, the minute things go into allocation, everyone is in a fight for who gets into the allocation. Scale plays a big role in that,” Schick said.
“Most contracts have a formula for how the allocation happens. But when it does, everyone from the big companies gets on planes to Asia to get in front of those CEOs and lay out their case as to why they should get the memory.”
Samsung, SK Hynix, LG Display and Apple refused to comment.
Who would win
The final beneficiaries of the interruptions in South Korea would be Japan’s Toshiba, as well as American companies Micron Technology and Western Digital. The Toshiba production is located mainly in Japan, and Micron has units in the USA and Singapore.
The processors would also pose problems. Samsung produces in its giant plants some of the Qualcomm processors, which are found in most smartphones sold worldwide. In the case of problems, Taiwanese rivals TSMC and UMC would profit from the situation, as well as GlobalFoundries, a company that separated a few years ago from processor producer Advanced Micro Devices (AMD). MediaTek, a Taiwan rival of Qualcomm, would also be in advantage.
Another problem is posed by smartphone batteries, with Samsung SDI being a supplier for Apple and BMW, while LG Chem is providing batteries for electric cars and hybrids produced by General Motors and Ford.
China, the geopolitical advantage
On the other hand, the main geopolitical advantage is represented by China, with most electronic components produced in South Korea going to China in order to be assembled and turned into tablets, smartphones and computers.
Besides the iPhone, produced in China by Foxconn, local electronics producers get components from South Korea. The most important Chinese smartphone producers are Huawei, Oppo, Vivo, Xiaomi, TCL (under the brand Alcatel – ), Meizu, LeEco, Haier, Hisense, Gionee, OnePlus, Lenovo and ZTE.
Beijing will most likely not want for the activity in one of the largest companies in China to be affected, and neither for work to be interrupted in the giant Foxconn factories, which have a million employees in the Asian country.