China, Korea instability may make 2014 the year tech stands still

China, Korea instability may make 2014 the year tech stands still

Summary: A pandemic in Asia, war in the Koreas, or a combination of these would create absolute chaos in the technology industry.

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We live in an extremely fragile world. One in which, as consumers of all forms of technology, we have become extremely dependent on the wellbeing of two economic and industrial powerhouses in Asia: China and South Korea.

The People's Republic of China represents the largest contract manufacturer of consumer electronics as well as business and enterprise computer equipment in the world.

china-korea-unstable-crop

Many of you are familiar with Hon Hai Precision Industry Co, also known as Foxconn. In its 13 factories located in nine Chinese cities, the manufacturing giant performs final assembly of Apple's iPhone and iPad, not to mention a huge pipeline of products from many other OEMs, including IBM and HP, as well as game consoles made by Microsoft, Sony, and Nintendo.

There are many other clients that Foxconn has that are too numerous to mention.

And Foxconn is just one manufacturer based in China. There are quite a few significant others, including TSMC, a Taiwanese firm that is the largest independent manufacturer of computer chips in the world.

TSMC has foundries in Taiwan, China, and Singapore and specializes in the system-on-a-chip semiconductors (SoC) that go into smartphone handsets and many kinds of tablets, and is slated to become the primary manufacturer of A-series SoCs that are used in Apple's iOS devices.

GlobalFoundries, in Singapore, is another prominent semiconductor firm that has AMD, Qualcomm, Broadcom, and STMicroelectronics as major customers.

And there are also those firms that specialize in manufacturing flash memory that is used in SSDs and mobile devices, DRAM, as well as controller ASICs of all sorts used in every consumer and business application imaginable.

Taken as a whole, the three Chinese-speaking nations are a crucial contract manufacturing triad of many, many technology products that are used throughout the world. But it's only part of the story.

Right next door to China is Korea. North Korea, the hermit kingdom, has no technology value whatsoever. But South Korea is home to Samsung, a technology conglomerate that in and of itself has 10 times the GDP of South Korea's neighbor in the north.

Samsung not only produces and brands its own products, like the Galaxy smartphones and tablets, but it is also the largest SoC foundry in the entire world.

In addition to its own SoC line, the Exynos, Samsung also makes chips for Qualcomm and Texas Instruments, which are used in many other smartphones and tablets. And it is also the current volume manufacturer of the A-Series chips used in the Apple iOS products. Among others.

Samsung is also the world's largest producer of DRAM and Flash, as well as the largest manufacturer of LCD displays of all sizes. And a huge manufacturer of lithium-ion batteries.

And we're just talking about Samsung here. There are other gigantic technology companies in South Korea, such as LG and the SK Group, which are important participants in the overall semiconductor supply chain.

If there were to be any disruption in the pace of manufacturing in either China or South Korea, or, in a nightmare scenario, both countries, or extend to nations of influence such as Taiwan, Singapore, Japan, Vietnam, Malaysia, and Indonesia, the technology industry as we know it would effectively come to a screeching halt.

What could cause such a thing?

I am not an economist. I am not a political scientist. I am not a sociologist. But I am a technologist who from time to time dabbles in futurism. I like to ponder, on occasion, what technology may exist 10 or 20 years from now, and how society and our economy may be impacted as a whole.

These are thought exercises that for the most part I find entertaining, and it's good fodder for writing material.

I normally do not think about the near future and what could happen under certain geopolitical and socioeconomic scenarios and what it means for our industry, because there's too much immediate randomness in our world. But recent events in Asia have gotten me thinking, and what I have been thinking about disturbs me greatly.

There's been a lot of saber rattling in North Korea lately. Most political analysts write this off as crazy blusters of a young leader looking to cement his position and appearance of strength with old-guard military installed under his father's reign, and may have no real intention whatsoever of causing a conflict.

There are certainly risks that Kim Jong-Un may try to push the boundaries of what is acceptable and go too far, such as a small demonstration of military capability by attacking a small South Korean island with artillery fire, or testing more missiles that could indicate nuclear delivery capability.

That would prompt a military retaliation by South Korea and the United States, and could escalate into an all-out conflict.

In such a conflict, there is no question that South Korea's technology centers will be targets.

Granted, the chance of this happening spontaneously in the next few months is probably slim. China, behind the scenes, is almost certainly telling Kim Jong-Un there's only so much mishegas it will tolerate before it severely curtails or cuts off the vital aid and assistance the country needs from a military and economic standpoint.

Without Chinese assistance, North Korea starves to death.

But there's a much bigger problem that could result in a snowball effect, which could force such a conflict.

Over the last few weeks, China has been trying to contain the spread of a strain of avian flu virus, H7N9. It has now been confirmed that two men in Shanghai have recently died from this pathogen, and hospitals in Beijing are stocking up on essentials to contain a full-on pandemic. As I write this, more and more cases are being reported.

Every year, the world holds its breath to see if the next avian flu strain originating in China is capable of jumping to other species through the food chain and affecting the general population through human-to-human transmission. Sixteen thousand pigs have been found dead in a river near Shanghai, and medical authorities there are attempting to determine whether there is a link with H7N9.

This particular outbreak could end up being contained very quickly, there may be no link whatsoever to the food chain in China, and there is no evidence as of yet that people can transmit this strain to each other. But someday, perhaps in the next few years, we could run out of luck, and China could end up in a full-blown pandemic.

In a pandemic situation, China would want to restrict travel between cities, and would impose martial law. Logistically, it would make the manufacturing of electronics difficult, and if a large population of skilled workers were to become ill, it could cause the Chinese supply chain to shut down entirely.

Under this scenario, China would be busy with dealing with any number of internal problems, and Foxconn and other major contract manufacturers could be closed down for months, perhaps as long as a year. This alone would wreak havoc with the technology industry on a number of levels.

But we're just talking about turning the factory off switch in China itself. Any reasonable outbreak would take time to determine all of the vectors, and because of the trade and commerce and heavy transportation of goods, services, and travellers between China, South Korea, Japan, and other countries in Asia, it is extremely likely that such a pandemic would find itself in those countries as well.

And if South Korea gets sick, then we've really got problems.

Ironically, North Korea's isolation from the rest of the world actually puts it at something of an advantage in terms of being shielded from a pandemic situation in Asia.

But if China is occupied by dealing with a pandemic, and Korea also potentially has to deal with a pandemic, and North Korea's economic support from China and other nations becomes disrupted in any way, there's a problem.

With his country under extreme economic duress, Kim Jong-Un and his generals might see a target of opportunity, and then the possibility of that nation going to war with its neighbor to the South increases significantly.

The global economic consequences of such a "perfect storm" in Asia like the kind I describe are massive and would have far-ranging implications on many industries and economies, not just the tech sector. Obviously, no electronics and technology of any kind would be able to be produced for a long period of time, and would cause the channel inventory of all kinds of products to run dry.

People won't be wondering when they can get the next iPad, iPhone, or Galaxy product. Or even thinking about such concepts as fanboyism. They'll be thinking about when they can get technology products, period.

The price of existing products in the channel will skyrocket. Replacement parts for all sorts of things will become scarce. Large secondary markets for used products will open up. The wireless industry will almost certainly have to freeze sales on new phones. PCs of any kind, old stock or new stock, running any flavor of OS, will be in huge demand.

And the companies that have server and datacenter equipment in abundance, like IBM, HP, Dell, EMC, Oracle, Fujitsu, and Cisco will be stockpiling these for their own use as well as for the US and EU governments.

In the absence of being able to buy new equipment and keep datacenters running, many enterprises might look to cloud services providers like Amazon AWS, Microsoft Azure, and hosted offerings by large services firms like IBM GTS and HP EDS that can either acquire such equipment or already own it.

But I suspect that long before that, the US and EU governments will enact controls and emergency legislation that will set quotas on what equipment can be bought and sold, and how these large corporations will control technology resources.

Almost certainly, technology rivals that would normally not want to sit in the same room with each other and that engage in open trash talk in today's environment would be forced to cooperate.

I won't even get to what happens if we can't keep a pandemic from spreading to this country. That's an article for someone else, and a scenario that frightens me too much to even contemplate the consequences.

Would a pandemic in China create a "perfect storm" for disrupting the global technology industry? Talk back and let me know.

Topics: China, Apple, Government, Hardware, Samsung, Smartphones, Tablets, Korea

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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25 comments
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  • anyone who bought a new smartphone in the last year

    or two prior to the onset of such a situation or a laptop in the last 3-4 years would be just fine with keeping them for at least 2-3 afterwards. The move to cloud would work well too as there is already great over capacity there. The us could fare well with Intel chips for all sorts of mobile devices and dram. It'd be good to kick us into the ssd market too. Touch screens would definitely be a difficulty though. As far as counting on China to do anything but encourage North Korea to start something don't hold your breath. They're the ones that gave them all the missile technology they stole from the us under Clinton. No one would be happier to see it used. They'd move on Taiwan the second things got going.
    Johnny Vegas
  • So...

    Sick of the ongoing patent battles, Apple are behind NK's nuclear agression and Samsung are spreading bird flu through China.

    On the plus side, the patent lawyers go broke.
    Pachanga-4184c
    • It's an interesting theory.

      Considering that there were photos of Kim Jong-Un using a 27" iMac shown recently.

      http://www.washingtonpost.com/blogs/worldviews/files/2013/03/composite-photo-kim-jong-un-battleplan-and-imac.jpg
      jperlow
  • Sort of reminds me of the cold war.

    The 3 great cold war phrases:

    "peace through superior firepower" - the motto of US Strategic Air Command, and if NK think they can play loose with their new toys then they will discover the relevance of this one before they can blink an eye.

    "nuke 'em till they glow then shoot them in the dark" - what will likely not happen to NK because the USA has enough conventional firepower to wipe their military from the face of the earth in no time. No need for Nukes, even in retaliation, the USA is not dumb enough to break that seal.

    "bomb 'em back to the stone age" - Air Force General Curtis LeMay's proposed solution to the drawn-out Vietnam War. But then of course NK isn't that far off Stone Age now apart from China's contribution.

    Oh and don't forget " nuclear combat toe to toe with the Roosskies" - Slim Pickens as Major T. J. "King" Kong of Dr. Strangelove, just had to put that one in for fun.

    The point is that NK might be able to start a war but they will last about one missile launch. Already there are carriers, anti-missile destroyers, stealth fighters, B52's, B2 stealth bombers and who knows what other unknowns amassed against NK. All on high alert and just waiting for that first missile launch before they blow every military installation in NK out of existence.
    And don't pretend that China will come to their aid - NK's value as a bargaining chip for China is well past it's use by date. The USA and China will have already discussed Plan A, Plan B and Plan C, all of which will result in the downfall of NK.
    I feel bad for the people of NK who are innocent in all of this - some will certainly die as collateral but ultimately their freedom is long overdue.


    And if you don't think the USA alone has the capacity to squash NK like a bug, consider this entry from Quora (accuracy unconfirmed but sounds good and from my understanding most of the issues of scale translate also to missiles, missile defences, naval power and air power)

    The US spends close to what the entire rest of the world spends in defense. 711 Billion. Per year. The next closest is China at 143 Billion.

    The M1 Abrams tank has seen more combat than just about any other tank on the battlefield today. It has never been knocked out by enemy fire. (Completely killed) Ever. China has less than five hundred Type 99 tanks, that have just been developed, and are not even close to being as good as the Abrams. We have 8,700 Abrams.

    We have 10 aircraft carriers. The good kind. Everyone else has 10. Combined. And they are mostly small ships that can launch helicopters.

    There are 8400 attack helicopters in the world. The US has 6400 of them.

    The United States has engaged in every type of ground warfare in the last 20 years. From mountains to jungles, and from desert to urban, we have the some of the most experienced warriors in the world. No other country comes close to the amount of combat veterans that we have.

    We own all the satellites that guide GPS systems. We have all the advanced stealth technology. The latest sensors? US. The latest information systems? US. An Abrams tank can see a target, the Tank Commander can instantly send that target to every tank in his Company. Now you have 14 tanks looking for you. Oh, and it also uploads to every Apache helicopter in the area. Every indirect and direct fire system in the area knows what you are and where you are. Your survivability just dropped to 0. Instantly.

    Fighting a conventional war against the US would be like a 3 year old child playing chess against Gary Kasparov. They wouldn't even know what they were supposed to be looking at.
    joneda1
    • YOU ESS EH? - YOU ESS EH?

      Very gung ho. How long did it take $711B pa of military might to catch Osama?

      The trouble with NK is that the naive buffoons running the show are "dug in deeper than an Alabama tick" (Jesse Ventura - Predator).

      They aren't the ones that are going to suffer if/when this hits the fan. They'll be bunkered down while their starving populace get vaporised/gassed/plagued (NK has one of the largest chemical/bioweapon caches too). And they won't care. Sure, eventually they'll be brought down, but at what cost to humanity? The US will one again be pilloried for war crimes; 100,000's of victims downwind will be suing for compensation. Millions of people suffer the consequences.

      The only hope is that if it's absolutely unavoidable, a small, precise military strike inspires the North Korean populace with enough confidence to rise above their systemic brainwashing and overthrow the military rulers.
      Pachanga-4184c
      • U.N. unfinished business just like Iraq

        The NK problem is more U.N. unfinished business this war needs to be put to rest NK has had more than enough oppourtunity to join the rest of the human race with no strings attached.
        ammohunt
      • I'm not an American.

        My point is simply that NK won't ever get to make more than a scratch on their neighbors. The military might of the USA. In conjunction with their allies will ensure that.
        All the posturing was just a bit of fun, I saw the force comparison on Quora and it sounded good.
        joneda1
    • too much hype

      Even if all those numbers are correct, and in theory, as the money are spent, they should be, right?:)

      You still don't know what cards the "enemy holds". At lest we know not all of your math is correct, Russia has fully functional GLONASS navigation satellite constellation with accuracy possibly better than that of GPS.

      You never know, the 3 years old child might be actually better at chess than Gary Kasparov.
      danbi
    • One decent point there

      China won't go to NK's aid. Any aggression by them is just going to result in a rather large death count among their own population.
      As for the rest, enjoy your posturing!
      Boothy_p
    • Who pays?

      All of that military hardware and the soldiers and sailors who operate them cost money, lots of money.

      The human toll would be horrific, no doubt about it. But what about the US economy? Another Trillion in debt? Who would we borrow from? China might not be able to cover the bill on this one.

      If this is not merely more saber ratling I think our only hope (economically) is to pressure China to keep NK in line.

      Good call that China would use the chaos to end the Taiwan thorn in their side issue.
      MajorlyCool
    • "Peace is our Profession"

      That was Strategic Air commands Motto- though we often "unofficially" completed that motto with 'Nuclear Destruction is just a hobby"
      Threv
  • My first thoughts on this nightmare scenario

    Oh boy. Like all nightmare scenarios, this one is a doozy and would make the last world wide banking crisis pale in comparison. (And that crisis nearly cost me my full pension check)

    On the flip side of this Armageddon, a few possible side effect predictions come to mind.

    On the US side, Silicon Valley companies might become dominant world wide manufactures of electronic components. Or perhaps mega mergers might become necessary on the US tech front.

    Apple has enough ready cash in their war chest to start building fab plants - or partner w/someone to build fab plants to take up the slack. (This doesn't happen overnight, obviously. But I could see this happening within two to three years under a type of Manhattan Project atmosphere.)

    Japanese companies and their affiliates regain their world wide dominance for electronics.

    And ... and who am I kidding. There is NO way out of this scenario, if it came to pass, that could lessen a world wide - ten years at least - REALLY BIG ECONOMIC GREAT DEPRESSION type event.

    The ONLY good thing about Jason's article is that his conjectures must have already have occurred to all the leaders and policy makers of the world. If that is the case, N. Korea does not get to make the first move in this doomsday chess game.

    There would be some pre-emptive military action taken by China, US, GB, Russia, France, Germany and God knows who else against N. Korea

    As for the pandemic component of this nightmare scenario, well, the world survived the 1918 Flu pandemic where an estimated 5 percent of the world population perished and "The Roaring Twenties" carried on for ten years after that. The toll in human life would be terrible but the world wide manufacturing infrastructure would be intact. Economically speaking, the world would enter a economic recession but not a depression from solely a medical pandemic event.
    kenosha77a
    • Very good response

      n/t
      Ram U
    • Actually, speaking about world wide effects of pandemics

      I hate to say this because I'm not a cold blooded illegitimate son, but say the wold lost 10 to 20 percent of it's population in a catastrophic world wide pandemic.

      The future would be a better place for the both human and non-human survivors. And for Gaia herself.
      kenosha77a
      • Lets hope that you and yours are in that 10-20%

        Becasue ideas such as those have no place in any world i want my children to live in.
        ammohunt
        • You misunderstand my comment

          As things go right now, the pressures put upon the environment by our massive human population growth should be self evident by now. I was just being a realist.

          Actually, if that doomsday pandemic scenario would occur and one out of five persons would perish, the odds would definitely be in your favor for granting your wish to see my demise and my family's as well. However, before going down, I would do everything in my power to try to same as many individuals as I could - even you and members of your family if chance or fate put us in the same vicinity.

          Such is the courage of the human heart fighting against overwhelming odds.
          kenosha77a
  • A pandemic in Asia

    would quickly spread to the rest of the world in 2014. More than tech would stand still.
    Rabid Howler Monkey
  • If any of those things happen...

    The last thing anyone will be worried about is their phone or PC upgrades.
    NoAxToGrind
  • Psychics are not part of technology

    The economics of this and other modern countries will effect technology more than fortune telling.
    sickntired44
  • ...Destined to repeat it

    So the 21st century will be a repeat of the 20th.

    Just having a bit of fun here, don't read too much into it.

    For tonight's 21st century performance of the 20th century, the following changes will be made..

    -The part of the Spanish Flu will be played by Avian Flu
    -The parts of "our leader is God" Japan and "Off the hinge despot" Italy will be combined into a single role played by North Korea.
    -The collective middle east will reinterpret Germany and create an avant garde rendition
    -Taiwan will fill in for France, but will still be rescued by the US.
    -China will play the part of Russia, serving as a backboard for all general conflicts. They will retain the part of "ally that people never knew they had, but didn't really want." They will also ensure that the "Eastern Bloc" is reformed as an "Eastern Hemisphere Bloc"

    - And of course, the part of the great depression will see a repeat performance.
    DallasSoxFan