Will Samsung Electronics’ semiconductor production line suffer a significant blow due to a strike? 

As the semiconductor market reaches a turning point in its recovery, Samsung Electronics is facing an unprecedented crisis of a shutdown of semiconductor production lines amid plans for a strike. 

Samsung Electronics has suffered a catastrophic deficit of 15 trillion Won in the semiconductor division last year. It is quite unfortunate to hear that just as the Samsung Electronics’ semiconductor business is slowly recovering from a deep loss, the labor union is calling for an extreme measure of a labor strike. The union’s aggressive stance is casting a dark cloud over not only the Samsung Group but also the national economy as well. 

The announcement of a labor strike by the National Samsung Electronics Union (NSEU) on May 29 for a directive to take a day off on June 7 by its union members has raised significant concerns. The total number of NSEU members is 28,000 and accounts for 20% of the total number of employees. If the union members take a day off following the leadership’s directive, significant difficulties in operating the semiconductor production lines are anticipated. Although this protest is only for one day, a possibility of a general strike is increasing depending on the negotiations with management. 

The semiconductor business of Samsung Electronics is just emerging from several years of severe recession. There is a growing optimism that the business will soon ride a wave of prosperity again. It must be pointed out that the aggressive actions taken by the labor union are only doing harm. The public is baffled by the union members’ decision to strike after incurring massive losses, asking “Is this really the time for a strike?”

The average annual salary of employees at Samsung Electronics is around 120 million Won, one of the highest in the country. Given this exceptional compensation and treatment, it seems excessive to go on strike, especially when many workers in the small and medium-sized enterprises (SMEs) endure much harsher conditions while working diligently. This strike might extinguish the flame of a recovering semiconductor market. Prolonged aggressive actions by the labor union might lead to mutual destruction for both the company and the union. 

If the Samsung Electronics labor union goes on strike, it will mark the first of its kind in 55 years. The no-union policy at Samsung was discontinued during the Moon Jae-in administration, in which the company experienced severe pressure and saw the imprisonment of top company executives. The Moon Jae-in administration was often described as having a close alliance with the Korean Confederation of Trade Unions (KCTU), to the extent that it faithfully reflected the KCTU’s position and demands in its policies and legislative actions. 

The strike by the NSEU signifies the persistent strategies and efforts by the KCTU and the Federation of Korean Trade Unions (FKTU) to establish unions within Samsung, the nation’s top company. With the collapse of Samsung’s no-union policy and the establishment of several unions, the NSEU, considered to be the most aggressive union, is now using the strike as a leverage to pressure Samsung Electronics. 

The NSEU is affiliated with the FKTU, considered to be a relatively moderate union. However, recent NSEU gatherings have seen the attendance of officials from the Korean Metal Workers’ Union (KMWU) under the KCTU, raising suspicions that it might switch affiliation to the KCTU. If this transition occurs, it would be a dream-come-true for the KCTU and the KMWU to take over the Samsung Electronics union. If the shift occurs, it could be start of multiple strikes and production line halts for Samsung Electronics, which has already been happening for Hyundai Motor Group (HMG). 

The union’s strike must be halted. It should take into consideration the severe crisis the company is facing. The semiconductor business of Samsung is in a critical situation. Due to the global semiconductor oversupply, Samsung experienced unprecedented losses last year. The deficit was so substantial that the company did not pay any corporate tax this year. During prosperous times, Samsung Electronics paid up to 10 trillion Won in corporate taxes, but paying 0 Won in corporate tax is an unprecedented and shameful record in the company’s history, as well as causing a significant disruption to the national tax revenue. The fact that a global company representing the nation did not pay any corporate tax reflects the severity of Samsung Electronics’ management crisis. 

What situation is Samsung Electronics facing? The company is at a crossroads, beyond a crisis, where its very survival is at stake. During the era of the former chairman Lee Kun-hee, Samsung Electronics has maintained a significant lead over its competitors, solidifying its position as the world’s top semiconductor manufacturer. 

What now? Samsung Electronics is falling behind SK Hynix in the field of high bandwidth memory (HBM), which are highly sought after in artificial intelligence (AI) semiconductors. SK Hynix exclusively supplies HBM to NVIDIA. Samsung Electronics has not yet secured a deal with NVIDIA amid issues over yield. The gap between the Taiwan’s TSMC, the leader in the foundry market, is steadily increasing. TSMC has become an insurmountable giant, holding a share of 60~70% in the market, whereas the share of Samsung Electronics has fallen to around 10%, a difference of around 50%p. 

Chairman Lee Jae-yong has been advocating for increased investment in the foundry sector with the goal of surpassing TSMC, but the situation is worsening. Last year, Samsung Electronics lost its leading position in the global smartphone market to Apple. This year, however, there is a strong possibility that it could reclaim the top spot, with the help of AI Galaxy smartphones. 

In the past, Samsung Electronics thrived as a leading company which no other companies could follow. The competitiveness of Samsung Electronics was emblematic of the nation’s overall strength. 

However, the perception of Samsung Electronics holding a significant technological gap has faded considerably. This is symbolically demonstrated in the lucrative HBM semiconductor market, where it is falling significantly behind rival SK Hynix, thought to be a perennial latecomer. The once-dominant image of Samsung as the leader is now losing its luster. 

One of the major factors contributing to Samsung’s crisis is the significant impact on leadership suffered by Chairman Lee Jae-yong due to harsh investigations and trials throughout the Moon Jae-in administration, which led to substantial legal risks. During critical times when investment decisions worth trillions of Won had to be made, the decisions made by professional managers which focused on short-term profits, in place of Chairman Lee who was preoccupied with legal matters, made matters worse by shaking the foundation of the top-tier Samsung. Samsung has benefited from the strong leadership of its owners – Lee Byung-chul, the founding Chairman, and Lee Kun-hee, the former Chairman – and their visions spanning 10, 30, and 50 years, transforming Samsung from a peripheral player into a global top-tier company. 

The prevailing opinion both inside and outside the group is that Samsung is facing a crisis due to Chairman Lee’s legal issues, which have undermined the strong owner leadership, and the long-term management strategies that often entail accepting losses. There is growing concern that Samsung’s strengths are fading.

The decision by professional managers not to invest in HBMs will be remembered as a dark chapter in Samsung’s semiconductor history. Recently, Chairman Lee has initiated reforms and changes, such as replacing the head of the semiconductor division, which brings a glimmer of hope. The public is keenly watching to see if Samsung can recover and reclaim its top position swiftly. 

Considering the struggles and efforts of Samsung Electronics’ management to survive in turbulent times, the NSEU should withdraw its strike plans. It should consider the serious internal and external risks facing the company. The company’s proposal of a 5.1% wage increase last year, despite experiencing significant losses in the semiconductor business, is seen as a gesture of utmost consideration for the union members. 

Now is the time for all employees to unite and help the company overcome its crisis. Both the labor and management should work together to guide Samsung Electronics reach a safe harbor in turbulent times. The NSEU should be cautious about becoming captive to aggressive unions like the KCTU. It should learn from the mistakes of the HMG union’s tendency of frequently resorting to strikes, often halting production lines. Strikes are ultimately counterproductive. 

Taiwanese competitor TSMC continues to operate without a union, similar to how Samsung did in the past. This is because a strike that halts semiconductor production lines can lead to severe operational setbacks and take a significant amount of time to resume. Even top-tier IT companies like Apple operate without unions. Strikes that halt production lines in critical industries like semiconductors, must be avoided. Korea’s economy heavily relies on semiconductors.

The union should act responsibly, considering the crucial role and impact of the semiconductor industry on the nation’s economy. How will the consequences and side effects be managed after a strike halts the production lines? The strikes by the Cargo Union over demands of higher freight rates, significantly disrupted the national logistics network with their provocative slogans. If the NSEU strike stops the semiconductor production line, the damage would be catastrophic. 

If the NSEU ultimately goes on strike, Samsung Electronics might reconsider expanding its domestic semiconductor investments. Instead, they may increase investments in competing countries like the United States, which do not have aggressive labor unions. Similar to how Hyundai Motor Company and Kia Corporation have avoided domestic investments over a decade and instead investing in the US, Europe, Southeast Asia, and Latin America, Samsung Electronics might follow their strategy of ‘Avoid domestic investments, increase overseas investments’. Recently HMG has resumed domestic investments for production of electric vehicles, but the trend of expanding overseas investments continues. 

Developed countries like the US are welcoming the expanding investments in the semiconductor by Samsung with open arms. They are offering substantial incentives, such as corporate tax exemptions and reductions, land provision, and significant subsidies, to attract investments. The labor union can wait until the semiconductor business is back on track to demand fair treatment. Given the current crisis management situation, the union should refrain from aggressive conflicts. /Lee Eui Chun, CEO of Mediapen

Translated by Lee Dong Jae