Samsung Electronics is grappling with a growing labor crisis that is complicating its efforts to compete with rivals in the fast-growing market for semiconductors used in artificial intelligence systems.
The Korean technology giant delighted investors earlier this month with its expectations that second-quarter operating profit would rise nearly 1,500 percent year-over-year, as the global memory market recovers from a prolonged slump.
But the stronger-than-expected guidance came amid growing labor unrest and setbacks in chip production that have seen it fall behind rivals in areas seen as essential to future growth. Samsung shares are up about 7.5 percent this year, compared with a 65 percent rally in smaller domestic rival SK Hynix.
Samsung lags behind SK Hynix and US chipmaker Micron in developing high-bandwidth memory (HBM) chips, a key component of AI systems, and has yet to meet industry leader Nvidia's requirements to qualify as an HBM supplier. Tests are to be passed.
“This is very worrying for a company that has historically been the largest memory maker,” said Myron Xie, an analyst at chip consultancy SemiAnalysis. “HBM is a very profitable product so Samsung is missing a big opportunity.”
Samsung has also failed to dominate TSMC's global foundry business – the market for contract manufacturing of processor chips – despite hopes that major customers will try to reduce their reliance on the Taiwanese chip company amid geopolitical risks.
“Even if customers want another foundry alternative, the first priority for customers is the quality of the technology and being able to have a stable source of supply, which the Samsung foundry did not provide,” Xie said.
In May, Samsung chair Lee Jae-yong suddenly installed the new head of Samsung Electronics' chip division, industry veteran Jun Young-hyun, who has “internally and externally” to deal with the company's “chip crisis.” promised to “renew the environment”.
But a chip engineer at Samsung told the Financial Times on condition of anonymity that he “didn't see many changes even after the change of our chief”.
“The internal environment is gloomy as we fall behind SK Hynix in HBM and fail to catch up with TSMC in foundry,” the engineer said.
“People are generally unhappy with their pay because they feel they are treated worse than their peers at SK Hynix,” he added. “Many are considering leaving the company to join our competitors.”
Growing worker discontent came to light last Monday, when an estimated 6,500 members of the National Samsung Electronics Union, which has seen its ranks swell from 10,000 to 30,000 in a year, staged a walkout. For example, a three-day strike was started.
The company, which on Wednesday introduced its latest foldable smartphones with enhanced AI features, is also under intense pressure from Apple and lower-cost Chinese rivals in the mobile sector, while Chinese rivals are also pushing display and home appliances. They are threatening to wipe out our market share. Equipment sector
“Workers are demoralized, discouraged by small financial rewards,” said a researcher at Samsung's smartphone business, also speaking on condition of anonymity. “They feel helpless because the administration seems directionless.”
“I've been used to the company's sales growth all my life, but this is the first time I've seen declining growth,” added a Samsung home appliance salesperson, who asked not to be named. “People on my team are sensing a crisis.”
Samsung denied the NSEU's claims that the three-day walkout had disrupted chip production. But on Wednesday, the union announced it would continue with an “indefinite strike” targeting production lines, including those used to make HBM chips.
“Management has no intention of negotiating,” the union said in a statement. “We have clearly identified disruptions to line production and the company will regret this decision.”
Samsung said in a statement to the FT that it was “committed to negotiating in good faith with the union”, but otherwise declined to comment on personnel matters. However, analysts said the strike would complicate efforts to make up lost ground to SK Hynix in the HBM race.
According to a Samsung investor, rivals are now locked in fierce competition for the limited supply of Korean engineering talent. Both companies declined to comment on the battle for talent.
According to CW Chung, an analyst at Nomura, Samsung last week announced a cross-division team dedicated to HBM development efforts and should eventually close the technology gap over SK Hynix as the industry prepares for future generations of HBM chips. Moving to
“Once you make the wrong strategy and produce the wrong chip, the effects will last for about three years,” Chung said, referring to the company's broader memory upcycle during that time. Profits will continue to increase. “But the worst seems to be behind the company now.”
Samsung argues that, as the only company with capabilities in advanced foundry and memory chips, as well as next-generation “advanced packaging” techniques, it is well-placed to handle the growing alliance between SK Hynix and TSMC. will be working together on the next generation of AI chips.
“Our commitment to technological development and investment scale has been and will continue to be central to our success,” the company said. “We are confident and excited about the opportunity to navigate the current landscape and solidify our leadership position.”
But Xie from SemiAnalysis said that “being a one-stop shop for chip design companies makes little sense when Samsung is not the best in any of the above aspects”.
“Given that Samsung has seen a decline in its technology capabilities in several areas of its business, it appears that there are issues stemming from the company's leadership and culture,” he added. “A cultural reset can be long and painful, but it can be the best thing for the company in the long run.”