Samsung and union reduce part of differences before strike

SEJONG, South Korea, May 19 (Reuters) – Negotiations between Samsung Electronics and the company’s South Korean workers union are expected to continue until the end of Tuesday, a mediator said, as the South Korean government and business groups push to avoid a prolonged strike at the company.

The two sides are trying to reach an agreement on bonus payments before some 48,000 workers lock arms on Thursday.

A strike of this magnitude and duration has the potential to inflict significant damage on South Korea’s economy, as Samsung is responsible for nearly a quarter of the country’s exports. Samsung is also the world’s biggest memory chip maker and production disruptions could hurt global supply at a time when the boom in artificial intelligence has caused shortages of the component.

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Park Su-keun, chairman of the National Labor Relations Commission, which is mediating the talks, said that although both sides made concessions, they remained stuck on two key issues, but declined to go into details.

“Samsung Electronics management and the union will be in ⁠mediation with ‌the commission by 10 p.m.,” Park told reporters. Tuesday’s negotiations were scheduled to end at 7 pm (local time).

Samsung ⁠declined to comment. A union representative said the organization was making every effort to come up with a plan that would serve the interests of its members.

UNION UNDER PRESSURE

While the threat of a strike left South Korea nervous, investors were cheered after the government threatened over the weekend to intervene and order emergency arbitration. This could prevent the strike from continuing for 30 days while the government mediates negotiations.

Samsung shares closed down 2% on Tuesday, reducing losses after news of the reduction in differences. Shares are down 1.3% over the past week.

“The reality is that all of our citizens are concerned about this, considering the cascading effects that a Samsung strike could bring,” Industry Minister Kim Jung-kwan told Parliament on Tuesday.

South Korean business groups also called on the union not to proceed with the strike.

POSSIBLE CONSEQUENCES

In the worst case scenario, the strike could reduce the South Korean economy’s forecast for 2.0% expansion this year by 0.5 percentage points, according to an official at the country’s central bank, who declined to be identified.

This assumes that around 30 trillion won ($19.9 billion) of chip production could be lost, as well as a likely additional ‘few weeks’ of disruption before manufacturing lines return to normal operation.

KB analyst Jeff Kim estimated that an 18-day strike could disrupt the global supply of DRAM memory by 3% to 4% and NAND memory by 2% to 3%, which will likely trigger further price increases.

For many investors, more than the possible strike itself, the biggest question is whether Samsung will give in to the union’s demand to include bigger bonuses in workers’ contracts, resulting in permanent increases in labor costs.

“The question is how they negotiate the formalization of salary increases,” said Lee Seung-yub, portfolio manager at Seoul-based hedge fund Quad Investment Management.

The union demands that Samsung remove the maximum bonus limit, which is ⁠50% of annual salaries, allocate 15% of annual operating profit to bonuses ​and formalize this in labor contracts.

Samsung has proposed that memory chip workers receive one-off bonuses this year that would surpass those received by employees at rival SK Hynix, while the bonus cap would remain in place.

SALARY DIFFERENCE

The dispute is the biggest confrontation between Samsung and its union since Samsung Electronics President Jay Y. Lee promised in 2020 to leave the company’s previous union-busting efforts behind.

Samsung remains one of the most sought-after workplaces in Korea, but employees are furious about the pay gap with smaller rival SK Hynix, which has taken the lead in supplying high-bandwidth memory for AI chip units to Nvidia.

SK Hynix overhauled its salary structure last year. The Samsung union claims that last year SK Hynix workers received bonuses three times higher than Samsung workers, resulting in an exodus of Samsung employees to SK Hynix and an increase in union membership.

On Monday, a court partially granted Samsung’s request for an injunction, ruling that essential staffing levels at some production facilities must be maintained during any action. Samsung has notified the union that this will require 7,087 workers to report to work even if the strike goes ahead.