Samsung Electronics is grappling with an escalating labor crisis that is complicating its efforts to catch up with rivals in the booming market for semiconductors used in artificial intelligence systems.
The Korean tech giant delighted investors earlier this month with its expectations that second-quarter operating profits would rise almost 1,500 percent year-on-year as the global memory market recovers from a prolonged slump.
But the stronger-than-expected guidance came amid growing labor unrest and bottlenecks in chipmaking that have seen it lag behind rivals in areas identified as key to future growth. Samsung shares are up about 7.5 percent this year, compared with a 65 percent gain for smaller domestic rival SK Hynix.
Samsung is behind SK Hynix and US chipmaker Micron in the development of high-bandwidth memory (HBM) chips, a core component of AI systems, and has yet to pass the tests required to qualify as an HBM supplier for industry leader Nvidia.
“This is extremely troubling for a company that has historically been a leading memory maker,” said Myron Xie, an analyst at chip consultancy SemiAnalysis. “HBM is a very profitable product, so Samsung is missing a huge opportunity.”
Samsung has also failed to make a dent in TSMC’s dominance of the global foundry business – the market for contract manufacturing of processor chips – despite optimism that major customers would seek to reduce their dependence on the Taiwanese chip giant amid risks of geopolitical growth.
“While customers would like a second foundry alternative, the number one priority for customers is the quality of the technology and the ability to have a stable source of supply, which the Samsung foundry has not delivered,” Xie said.
In May, Samsung Chairman Lee Jae-yong suddenly installed a new head of Samsung Electronics’ chip division, industry veteran Jun Young-hyun, who promised to “renew the atmosphere inside and out” to address a ” chip crisis” in the company.
But a Samsung chip engineer, speaking on condition of anonymity, told the Financial Times that they “didn’t see much change even after our boss was replaced.”
“The internal atmosphere is gloomy as we are behind SK Hynix in HBM and unable to catch up with TSMC in smelters,” the engineer said.
“People feel dissatisfied with their pay in general as they feel they are treated worse than their peers at SK Hynix,” they added. “Many people are considering leaving the company to join our competitors.”
The workers’ growing discontent was on display last Monday when about 6,500 members of the Samsung Electronics National Union, which has seen its ranks swell from 10,000 to more than 30,000 in a year, launched an unprecedented three-month strike. – daily.
The company, which unveiled its latest foldable smartphones on Wednesday with enhanced AI features, is also under heavy pressure from Apple and lower-cost Chinese rivals in the mobile sector, with Chinese competitors also threatening to erode its market share on screen and at home. equipment sectors.
“Worker morale is low, discouraged by smaller financial rewards,” said a researcher at Samsung’s smartphone business, also speaking on condition of anonymity. “They feel powerless because management seems unfair.”
“I’ve been used to rising sales throughout my company life, but this is the first time I’ve seen declining growth,” added a Samsung home appliance salesperson, who also did not want to be named. “People on my team are feeling a sense of crisis.”
Samsung denied NSEU claims that the three-day walkout had disrupted chip production. But on Wednesday, the union announced it would go ahead with an “indefinite strike” that would target production lines, including those used to make HBM chips.
“Management has no intention of dialogue,” the union said in a statement. “We have clearly identified line production disruptions and the company will regret this decision.”
Samsung said in a statement to the FT that it “remains committed to engaging in good faith negotiations with the unions”, but otherwise declined to comment on personnel matters. However, analysts said the strike would complicate efforts to make up lost ground at SK Hynix in the HBM race.
The rivals are now locked in fierce competition for a limited supply of Korean engineering talent, according to a Samsung investor. Both companies declined to comment on the talent battle.
Samsung last week announced a cross-divisional team dedicated to HBM development efforts and should eventually close the technology gap to SK Hynix as the industry moves toward next-generation HBM chips, according to CW Chung, an analyst at Nomura.
“Once you get the wrong strategy and develop the wrong chip, its ripple effects will last about three years,” Chung said, noting that the broader memory cycle will continue to boost the company’s profitability in the meantime. . “But the worst seems to be behind the company now.”
Samsung argues that, as the only company with advanced memory chip and foundry capabilities, as well as next-generation “advanced packaging” techniques, it will be well-positioned to take on a growing alliance between SK Hynix and TSMC, which are working closely together on the next generation of AI chips.
“Our commitment to technological advancement and scale of investment have been essential to our success and will continue to be so,” the company said. “We are confident and excited about the opportunity to navigate the current landscape and strengthen our leadership position.”
But SemiAnalysis’ Xie said that “being a one-stop shop has little value for chip design companies when Samsung is not the best in any of the above aspects.”
“Given that Samsung has seen its technological capabilities erode in multiple areas of its business, there appear to be problems 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.”