Will protracted strike affect Samsung's chip productivity?

Members of the National Samsung Electronics Union stage a rally at the company's plant in Hwaseong, Gyeonggi Province, Monday. Korea Times photo by Shim Hyun-chul

With Samsung Electronics’ largest labor union threatening to extend its strike to “an indefinite period,” concerns are growing over the chipmaker’s productivity. The union is initially targeting less-automated manufacturing lines first and aims to expand its influence to high-bandwidth memory (HBM) chips, which are critical for powering artificial intelligence (AI).

Industry officials believe that the short-term impact on the company’s semiconductor productivity will be limited, as the wafers targeted by the union have a weakened market presence. However, they added that the union's threat to HBM chips could potentially slow down Samsung in competitive technological arenas with its rivals.

According to the National Samsung Electronics Union (NSEU), Wednesday, it will extend its strike to an indefinite period as “the company did not attempt to engage in any dialogue” during its three-day strike from Monday to Wednesday.

In its YouTube livestream, the union said its primary goal is “stopping the 8-inch wafer line” and “the next target will be HBM manufacturing lines.”

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Eight-inch wafers are commonly used for what chipmakers call "legacy products," such as power semiconductors or chips for home appliances. Compared to Samsung's other manufacturing lines for semiconductors used mostly for high-tech devices, the company's 8-inch wafer foundry lines are less automated, thus giving the union greater leverage in its collective action against management.

However, industry officials noted that Samsung and other chipmakers have already shifted their main production focus to high-value 12-inch wafers, so the impact of the personnel shortage may be limited.

"It seems like the union is targeting 8-inch wafers because its lines are less automated than other production lines," a semiconductor company official said on condition of anonymity.

"In the 8-inch wafer lines, the tasks performed by workers do not require a high level of skill, and there could be enough workers that can replace them in case of emergency. Therefore, it is unclear how the attempt will impact Samsung's overall productivity."

Another industry official said 8-inch wafers are no longer the mainstream of the chip industry, and their market is sluggish, meaning the strike's impact on Samsung's earnings and productivity could be limited.

"8-inch wafers are closer to niche market products, as they are far from the industry mainstream," the second official said. "Though Samsung's 8-inch wafer foundry business has a noteworthy capacity, the overall 8-inch market is yet to reach its upcycle, and client orders remain weak, meaning the impact would not be significant."

The officials anticipated that the union's plan to disrupt Samsung's HBM production lines will likely have mediocre short-term impacts as well because the advanced memory chips currently account for approximately 10 percent of the entire semiconductor market.

However, they added that a strike affecting HBM production lines could deal a blow, especially since the company is currently "in a critical moment" of expanding its presence in the HBM market amid increasing demand for chips powering AI.

Samsung Electronics' Hwaseong plant in Gyeonggi Province / Courtesy of Samsung Electronics

Another important factor will be the sustainability of the strike.

The NSEU has been demanding higher wage hikes for union members and improvements in the company's incentive standards. Samsung has been paying an overall performance incentive (OPI) to its employees when the company's earnings surpass a specific threshold. Due to a downturn in the global semiconductor market, last year the company did not pay OPI to employees at its Device Solutions division, which develops and manufactures chips.

In its earnings guidance announced last week, however, the company estimated its operating profit for the second quarter of this year at 10.4 trillion won ($7.54 billion), buoyed by the solid performance of its semiconductor division. Analysts assume that this uptrend will likely continue in the second half of this year.

"The prices of DRAM and NAND Flash are expected to continue to soar in the latter half of this year, which is likely to result in solid improvements in Samsung's profitability," Daishin Securities analyst Shin Seok-hwan said, estimating the company's operating profit may reach 46 trillion won.

A third industry official said, "With the semiconductor industry seeing a rebound, it is hard to understand the intention behind the NSEU's action. It feels like they might be undermining their own bonuses at a time when everyone is striving for good performance."

An official at Samsung Electronics said, "The company will fully respond to prevent any setbacks in productions and make efforts to resume dialogue with the labor union."