At Samsung, global AI boom generated threat of strike and deep divisions

SEOUL, May 15 (Reuters) – The looming 18-day strike at South Korean chip giant Samsung, which has raised concerns within the government, rattled foreign investors and threatened global supply chains, rests on a crucial question: Who should share the spoils of the artificial intelligence boom?

More than 45,000 workers are threatening to stage the biggest strike in the South Korean conglomerate’s history starting next Thursday, reducing production of memory chips, as Samsung and its union struggle to find an agreement on bonus payments.

Samsung Electronics, which made huge profits from the global shortage of memory chips, has offered to pay bonuses to employees. However, the company wants to give 27,000 of them who work on memory microprocessors at least six times more than other workers in its logic chip design and manufacturing business.

The union argues that the company’s other 23,000 workers – responsible for manufacturing AI chips for Tesla and Nvidia and who often work in the same buildings as their memory chip peers – should not be left behind, despite the area having suffered billions in losses in recent years due to the decline in the group’s chip foundry business.

Reuters reviewed hundreds of pages of transcripts about Samsung’s internal pay negotiations and spoke to more than 10 workers, including union leaders and sources familiar with the discussions.

They talked about deep divisions, described employee departures and revealed how this could be related to – and threaten – Samsung’s unusual goal of becoming the only semiconductor company in the world to offer a ‘one-stop shop’ covering different types of chips and services, ⁠unlike ‌more specialized competitors like Micron or TSMC.

JPMorgan estimated that the strike could affect Samsung’s operating profit by 21 trillion to 31 trillion won ($14.08 billion to $20.79 billion), while sales losses could reach about 4.5 trillion won.

Samsung’s device solutions division includes three main businesses – memory, system LSI and foundry – and the AI ​​boom has made these divisions extremely unequal in terms of profitability. Samsung is the world’s largest memory chip maker in terms of sales, but it also makes televisions and smartphones.

The problems are “partially self-inflicted by the company,” Namuh Rhee, a professor at Yonsei University and president of a Korean corporate governance group, said on social media.

He said Samsung’s initiative to bring together different companies has created a complex business structure that results in a valuation discount, causing conflicts of interest and limiting business opportunities. ‘Samsung must enable foundries to become self-sufficient.’

THREAT OF TALENT LEAKAGE

Discontent among Samsung workers rose last year after rival SK Hynix abolished its salary cap for 10 years. This resulted in bonuses more than three times larger than those offered to Samsung workers, which later led to some employees leaving the company.

In March, Samsung proposed that memory chip employees receive bonuses that would exceed those of SK Hynix employees, or 607% of their annual salary, according to transcripts of its salary negotiations. The company’s memory and logic chip businesses used to receive the same bonus plan.

But employees at other businesses that work primarily with logic chips would receive bonuses of 50% to 100%, according to the documents.

Union officials argue that the big difference in bonuses leads logic chip workers to leave for the memory unit or other companies, hurting it.

‘If the memory division receives 500 million won, while the foundry division only receives 80 million won, what motivation would these employees have to continue working?’ union leader Choi Seung-ho said during the negotiations, according to the transcripts.

Some workers said the exodus was already underway. An employee who identified himself by his surname, Lee, a foundry engineer in Pyeongtaek, said his team has shrunk drastically over the past two years as some of them have been transferred to Samsung’s memory division and SK Hynix.

Two other employees who declined to be named said many of their peers are currently applying for jobs at SK Hynix and other companies. SK Hynix had no immediate comment.

The union’s demands include calls for Samsung to remove a bonus cap of 50% of annual salaries and allocate 15% of annual operating profit to a bonus package distributed to workers.

Samsung negotiators say performance bonuses should be paid based on merit.

“They, the logic chip business, recorded losses in the trillions of won, and honestly, if it weren’t for our company, they probably would have gone out of business or closed,” said Samsung executive and negotiator Kim Hyung-ro, according to transcripts. ‘So how can you ⁠justify giving performance bonuses?’

‘The company still has faith in this business and continues to invest consistently in facilities – and in reality, these investments are being financed with money made from the memory business.’

In a statement, Samsung said “the logic chip business is a strategically significant one that we have continually invested in, guided by our long-term vision.”

‘Samsung Electronics will offer its employees the best compensation in the industry,’ he said.

Samsung also said that if the strike goes ahead, a failure to deliver to customers will result in ‘a complete loss of confidence’.

RIPPLE EFFECT

Samsung’s top leadership, the South Korean government and investors have expressed concerns about how the possible strike could threaten Samsung and affect the broader economy.

In an internal memo earlier this month, Samsung’s president said that in addition to business disruptions, a strike could trigger capital outflows, a drop in tax collections and a ​weakening of the won.

In late April, South Korean President Lee Jae Myung ⁠said some unions were making excessive demands, in comments that were widely perceived as aimed at Samsung unions.

The North American Chamber of Commerce in Korea said labor uncertainty could affect confidence in Korea’s reputation as a reliable partner in global production and supply chains.

Analysts said other companies are watching the dispute as a potential barometer for relations between workers and management.

“If Samsung sets a precedent in which union demands are taken forward through a strike, the companies could find themselves in a very unfavorable bargaining position in the future,” said Korea University law professor Park Ji-soon.

Workers protesting told Reuters that Samsung does not recognize its employees’ contributions to making it a world-leading company.

Lee, a chip researcher for 30 years, told Reuters on the sidelines of a rally of about 40,000 workers in late April that many of his peers had left for other companies and that he had applied to work at Micron.

‘I participated in the demonstration because I am furious,’ he said. ‘I can’t just sit in the office and work. I’m not proud of Samsung anymore.’