Is Samsung Safe From The Threat of War With North Korea?

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Is Samsung Safe From The Threat of War With North Korea?

With almost all major vendors relying on the world’s largest IT company in their supply chain, how might tensions on the Korean peninsula affect the IT industry?
By Chris Gonsalves

With tensions and sabre rattling on both sides of Korea’s demilitarised zone on the rise, the increasingly interconnected technology world has been left to wonder: what would happen if war interrupted operations at one of the industry’s most prolific suppliers?

Samsung’s global headquarters south of Seoul in Suwon, South Korea sits just 35 miles from the border with North Korea, where Kim Jong-eun has been issuing near daily threats of bombing and mayhem aimed at his democratic neighbors to the south. Even more troubling to some, Samsung’s massive 1,020-acre production facility – the heart of the company’s liquid-crystal display manufacturing -resides in the so-called Crystal Valley in Tangjeong near the port city of Asan, slightly further south, but exposed to attack by both air and sea.

As governments on both sides of the border ratchet up the war rhetoric, the perceived vulnerability of the biggest information technology company in the world is a concern that stretches well beyond the borders of the Land of the Morning Calm. Samsung is the world’s largest manufacturer of liquid-crystal display panels, memory chips and mobile phones, and is second only to Intel in overall semiconductor production.

Nearly every major global technology company relies on a supply-chain connection to Samsung to some degree. Samsung’s largest customer, Apple buys some $13bn worth of mobile processors, displays and flash memory chips for iOS devices each year, close to nine per cent of the Korean company’s total revenues. HP and Dell account for about six per cent of Samsung’s revenue, buying a steady variety of vital components including DRAM, flat-panels and lithium-ion batteries.

Major carriers Verizon Communications and AT&T, meanwhile, bought about $4bn in Samsung handsets last year.

With so much business dependent on a supply-chain partner in what is rapidly becoming the world’s next potential conflict hotspot, one would expect more anxiety and hand-wringing over the risk of disruption from even a brief breakout of hostilities on the Korean peninsula. Major US vendors contacted by Channelnomics for this story declined to comment on the risk to their supply chains, expressing both a lack of data on the subject and a bit of superstition that seems to preclude even talking about such an ugly possibility.

Experts and those with knowledge of the situation, however, say not to worry. Operations at Samsung and other major South Korean suppliers like LG Electronics, remain fairly well protected and insulated from upheaval.

Samsung’s primary hedge against the threat of war remains its massive geographic diversification of manufacturing assets, experts note. While Crystal Valley, a two million sq ft complex built on a former vineyard that employs about 20,000 workers, is an important cog in the Samsung machine, particularly in LCD display manufacturing, it’s just a small part of the company’s global capabilities. The company boasts five other plants worldwide that could pick of the display manufacturing slack in the event of a global shutdown.

And even that is a fraction of the 61 Samsung facilities worldwide, which includes locations like a massive chip fab plant in Austin, Texas that employs 2,000 workers and was recently expanded to 2.3 million sq ft. Globally, Samsung has more than 211,000 employees and more than enough capacity to weather any disruption at any of its facilities, even the ones closest to its home base, insiders say.

Not that Samsung is conceding any threat to its Korean operations. Former Samsung employees with knowledge of the Crystal Valley facilities tell Channelnomics that the company’s home plant, which is more like a small city, with residences, schools, theatres, parks and transportation for workers and their families, is among the best defended real estate in the small Asian nation. Combat troops and anti-aircraft and missile batteries dedicated to defending Samsung property drill regularly in and around Tangjeong with the sole mission of protecting one of Korea’s most valuable corporate assets, the sources said.

That military protection is bolstered by regular civil defence training, which is common for all South Korean citizens, but its particularly intensive for those who live and work in Crystal Valley and related facilities in Chungcheong-do, Cheonan and Asan.

"Most do not believe that all-out war is really a possibility," one former Samsung worker living just outside Seoul told Channelnomics this week. "They feel any threat from the North would be met with a decisive blow by South Korea and the US and would be exterminated quickly and without much local impact.

"The greater concern are the small skirmishes along the coast like North Korea has engaged in in the past," the source added. "These really do not threaten an entity like Samsung. This is still a secure and stable place."

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April 16, 2013 at 9:45 AM