Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Samsung Electronics considers scaling down chip production to brace for strike impact
A red light is seen at Samsung Electronics' headquarters in Suwon, Gyeonggi Province, Wednesday. Yonhap
By Nam Hyun-woo
Potential production cuts raise concerns over global semiconductor supply disruptions
Samsung Electronics is bracing for the impact of its labor unions’ planned 18-day general strike, scheduled to start on May 21, activating contingency measures to minimize disruptions, including adjusting chip production processes and limiting new wafer input volumes. A potential production scale-down could also disrupt the global semiconductor supply chain, industry observers warned.
According to industry officials on Thursday, the company has begun emergency management measures as the likelihood of a strike next week has increased, with the latest round of labor-management negotiations having ended without progress. The unions have rejected the possibility of further talks and reiterated their demands.
Since the strike may cause large-scale production disruptions and quality issues stemming from workforce shortages in its chipmaking division, the company is considering a “warm-down” process. Chip plants typically require preemptive adjustments to production operations at least a week in advance because halting manufacturing processes midway can result in huge losses.
“Unlike other industries, semiconductor manufacturers need to begin adjusting production volumes and quality control measures at least a week before a strike in order to minimize damage,” an industry official said. “To maintain quality control, production needs to be scaled down ahead of the strike.”
Officials said that the company needs to limit new wafer input and adjust its product mix toward high-margin products such as high-bandwidth memory to minimize losses.
The company proposed further talks with the company’s labor unions on Thursday.
Samsung Electronics' letter to labor unions / Captured from Samsung Electronics Labor Union's website
Samsung Electronics sent an official letter to Samsung Electronics Labor Union (SELU) and the National Samsung Electronics Union (NSEU) — the two unions jointly negotiating with the company — proposing additional talks between labor and management.
“During the recent mediation session arranged by the National Labor Relations Commission (LRC), labor and management each presented their positions but failed to reach an agreement,” the company said.
“The company proposes direct dialogue between labor and management. We ask for the unions’ positive consideration and response.”
It did not specify a date or format for the proposed talks.
The company was referring to the latest round of mediation that collapsed Wednesday after the two sides failed to narrow their differences and the unions rejected a government-drafted compromise proposal.
The LRC also sent a letter to management and unions requesting another round of mediation talks on Saturday.
“The LRC recommended that labor and management hold a second follow-up mediation session to return to sincere dialogue and negotiations in order to peacefully resolve their differences,” the commission said.
The unions refused to talk unless Samsung Electronics Co-CEO Jun Young-hyun, who heads the company's chipmaking division, responds to their demands.
“If the company sincerely wants dialogue, it should come up with more concrete proposals,” the union said in an official letter sent to Jun.
Samsung Electronics Labor Union's letter to Co-CEO Jun Young-hyun / Captured from Samsung Electronics Labor Union's website
“We are willing to engage in talks if the company demonstrates its willingness to discuss bonus transparency, the removal of the payout cap and institutionalization of the system. We ask the CEO to respond directly by 10 a.m. Friday.”
Choi Seung-ho, head of SELU and the unions’ chief negotiator, also said on social media, “There is no reason for further dialogue unless the bonus system is institutionalized and made transparent.”
The two sides have locked horns over institutionalizing the company’s bonus system, with management rejecting union demands for a legal guarantee allocating 15 percent of operating profit for performance bonuses, as well as the removal of the bonus cap.
Management, meanwhile, wants to maintain the current practice of distributing an amount equivalent to 10 percent of operating profit, without fixing the ratio in its collective bargaining agreement. It also rejected removing the bonus cap.
During the latest mediation session, the LRC proposed a compromise, but the unions rejected it for substantively maintaining the existing bonus system.
As of Thursday afternoon, 44,816 Samsung Electronics union members have expressed their intention to join the strike through a survey, up from more than 42,000 a day earlier. Samsung Electronics expects that if all the workers who have indicated they will strike participate in the walkout, it could result in a situation comparable to a full-scale shutdown.
Industry officials widely speculate that the strike could result in losses of up to 40 trillion won ($26.8 billion), with the figure potentially rising to 100 trillion won if production lines are brought to a complete halt and recovery operations take an extended period of time.