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South Korean tech companies pick up slack left by Japan

The global high-tech industry is suffering significant production losses as Japan's dominant semiconductor manufacturers struggle to resume operations. South Korean firms are moving to fill the void.

By Bryan KayCorrespondent / April 8, 2011

Employees work at a plant of Samsung Electronics in Seoul, South Korea, on April 7. South Korean tech companies move to fill the void left by disaster-hit Japan.

Samsung/Reuters

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Seoul, South Korea

Japan is the birthplace of 20 percent of the world’s semiconductors – the crucial piece of technology behind smartphones, tablets, computers, and cars.

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But as disaster-hit Japanese technology manufacturers and parts suppliers struggle to resume operations, the global technology industry is suffering production losses in the hundreds of thousands of computer parts, at a cost likely to amount well into the millions of dollars. Some predict it could be up to six months before Japanese production of semiconductors fully resumes.

Enter South Korean firms such as Samsung and Hynix, world leaders in the production of memory chips and LCD screens for mobile and computer industry giants like Apple and Dell.

"The quake could lead to good momentum in [exporting] components such as memory chips and LCD screens because Samsung and Hynix will be better positioned to supply more to big tech firms such as Apple, Dell, Hewlett-Packard," says Kim Yoo-chul, a Seoul-based technology journalist.

"As an example, Apple asked Samsung and Hynix Semiconductor to provide more NAND flash memory chips and mobile DRAMs used for its iPad 2 and iPhone 5, as Toshiba has been known to have had some disruptions in the supply of its NAND chips to Apple."

Hynix, the second-largest memory-chipmaker in the world behind Samsung, is also said to be boosting its production of mobile DRAM chips at the request of foreign companies, he adds.

This comes as reports surfaced Wednesday suggesting that global chip prices would rise 7 percent this year in response to supply chain disruptions in the wake of Japan's devastating earthquake.

Japanese firms, including Elpida Memory, account for more than one-third of NAND-type chips, which are used in smartphones and tablets.

The Samsung Economic Research Institute sees lasting potential for South Korean firms. "Over the longer term, diversification of parts and materials supply channels, and reexamination of Korea's global production network should be promoted to better cope with future crises," it said in a report.

Mr. Kim agrees that "for the short term, the quake will be good for chips and LCD screens." But, he cautions, the economic benefit could be temporary, because of a heavy dependence on core and essential components from Japanese firms. Korea lags behind Japan in terms of technological development.

Others point to the need for still-broader diversification in electronics production. Market research firm IHS iSuppli told Logistics Manager magazine that the Japan disaster illustrated how the high concentration of such production across East Asia could have a debilitating effect worldwide should another large natural disaster hit in the region. In South Korea, for instance, a large chunk of tech manufacturing is stationed around the footprint of the capital, Seoul.

That's a lot of pressure on South Korea, say analysts. "Nearly half of all global production of DRAM occurs in the Seoul area," Mike Howard of IHS told the magazine. "If manufacturing were to be disrupted by some event occurring in this small geographic area, the impact on the global electronics supply chain would be devastating."

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