At Samsung, the global AI boom spurred a looming strike and deep divisions

SEOUL, May 15 (Reuters) – South Korean chip giant Samsung’s 18-day strike, which has triggered concerns within the government, rattled foreign investors and threatened global supply chains, hinges on a crucial question: Who should share the spoils of the AI ​​boom?

As Samsung and the union try to reach a compromise over bonus payments, more than 45,000 workers are staging the largest strike in the conglomerate’s history starting May 21, threatening to reduce production of memory chips, key components in AI data centers, smartphones and laptops.

Samsung Electronics, which has profited hugely from the global memory shortage, has offered to pay generous bonuses to its employees. But it wants to provide its 27,000 memory chip employees with at least six times more contributions to its logic chip design and manufacturing jobs than its other employees.

The union argues that the company’s other 23,000 workers, who are responsible for making artificial intelligence chips for Tesla and Nvidia and often work in the same buildings as their counterparts, should not be left behind even though they have lost billions of dollars in recent years as their foundry business has faltered.

Reuters reviewed hundreds of pages of minutes covering Samsung’s internal wage negotiations and spoke with more than 10 workers, including union leaders and sources familiar with the discussions.

They talked about deep divisions, described employee departures, and explained that this could be traced back to and threatened by Samsung’s unconventional goal of becoming the world’s only semiconductor company offering a “one-stop shop” covering different types of chips and services, unlike more specialized rivals such as Micron or TSMC.

Internal discussions that showed friction between company divisions and employee departures had not previously been reported.

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

Samsung’s Device Solutions Division consists of three main businesses—memory, system LSI, and foundry—and the AI ​​boom has made these divisions wildly unequal in terms of profitability. Samsung is the world’s top memory chip maker in terms of sales, but it also produces televisions and smartphones.

Namuh Rhee, a Yonsei University professor and president of the Korean corporate governance group, said in a statement on social media that the problems were “partly self-inflicted by the company.”

He said Samsung’s move to bring together different businesses created a complex business structure that resulted in a valuation discount, created conflicts of interest and limited business opportunities. “Samsung must ensure that foundries are self-sufficient.”

Discontent among Samsung employees grew last year after rival SK Hynix removed its 10-year bonus cap. This resulted in bonuses being given three times larger than those offered to Samsung employees, which later convinced some people to jump ship.

In March, Samsung proposed that its memory chip employees receive bonuses higher than those of SK Hynix employees, or 607% of their annual salary, according to minutes of wage negotiations. The company’s memory and logic chip businesses also received the same bonus plan.

But employees at other businesses who primarily work on logic chips such as “base dies,” which are key components of artificial intelligence chips, will receive bonuses of between 50% and 100%, according to the documents.

Union officials argued that the huge gap in bonuses would push logic chip workers to leave the memory unit or other companies, disrupting the situation after Samsung Chairman Jay Y. Lee said he wanted to be “clearly No. 1” in the logic chip market by 2030.

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

Some workers said the exodus had already begun. Lee, a foundry engineer in Pyeongtaek who identified himself by his last name, said his team had shrunk sharply in the past few years as some moved to Samsung’s memory division and SK Hynix.

Two other employees, who declined to give their names, said many of their colleagues are now applying for jobs at SK Hynix and other companies. SK Hynix had no immediate comment.

The union’s demands include demands that Samsung remove the bonus cap of 50 percent of annual salaries and allocate 15 percent of annual operating profits to a bonus pool distributed to workers.

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

“They, the logic chip business, reported losses of trillions of won, and to be honest, if it wasn’t for our company, they would probably go bankrupt or shut down,” Samsung executive and negotiator Kim Hyung-ro said, according to the transcript. “So how can you justify giving performance bonuses?”

“The company still has faith in the business and continues to invest steadily in facilities; in fact, these investments are financed by money earned from the memory business.”

“The logic chip business is a strategically important business in which we continually invest, guided by our long-term vision,” Samsung said in a statement.

With the latest offer, “Samsung Electronics will offer its employees the best wages in the industry,” he said.

Samsung also said that failure to deliver to customers would lead to a “complete loss of trust” if the strike continued.

Samsung’s top executives, the South Korean government and investors have expressed concern about how the potential strike could threaten Samsung and affect the broader economy.

Besides job cuts, a strike could trigger capital outflows, a drop in tax revenues and a weakening of the won, Samsung’s chairman said in an internal memo earlier this month.

In late April, South Korean President Lee Jae Myung said that some unions were making excessive demands, which was widely perceived to be targeting Samsung unions.

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

Other companies are monitoring the dispute as a potential barometer for labor-management relations, analysts said.

“If Samsung sets a precedent for meeting union demands through strikes, companies may find themselves in a very unfavorable bargaining position in the future,” said Park Ji-soon, a law professor at Korea University.

Reuters spoke to protesting workers who said Samsung does not recognize the contributions of its employees in 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 colleagues had moved on to other companies and that he had applied to work at Micron.

“I attended the rally because I was angry,” he said. “I can’t sit in the office and work.”

“I’m not proud of Samsung anymore.”

(Reporting by Hyunjoo Jin; Additional reporting by Heekyong Yang; Editing by Brenda Goh and Thomas Derpinghaus)