On May 4th, South Korea's KOSPI index closed up 5.12% at a record high of 6,936.99 points. Memory chip leaders were standout performers, with SK Hynix surging 12.5% and Samsung Electronics Co., Ltd. rising 5.44%, both achieving their highest-ever closing prices. Strong demand from major tech companies building AI data centers has constrained memory chip supply and driven up prices for both high-end and standard chips, benefiting both Samsung Electronics Co., Ltd. and SK Hynix amid a sustained growth cycle in the global memory market.
However, Samsung Electronics Co., Ltd.'s stock performance has significantly trailed that of SK Hynix. Year-to-date, Samsung Electronics Co., Ltd.'s shares have gained approximately 94%, while SK Hynix's shares have jumped about 122%, a performance gap of 28 percentage points. This divergence began last month. Samsung Electronics Co., Ltd.'s union held a rally on April 23rd, demanding a larger share of profits generated by AI and threatening an 18-day strike starting May 21st. The pressure from this strike threat could widen the performance gap between the two companies' stocks further.
The dispute between Samsung Electronics Co., Ltd.'s management and employees has prompted increased analyst concern over its profit outlook, especially after SK Hynix reached a landmark agreement last year to raise bonus payouts. Samsung Electronics Co., Ltd. is already behind SK Hynix in the high-margin High Bandwidth Memory (HBM) chip business, and this labor challenge complicates its recovery efforts.
"People remain bullish on AI-driven HBM demand but are worried about the potential strike at Samsung," stated Stanley Tang, a senior portfolio manager. He noted that while other semiconductor-related stocks also saw strong gains, "only Samsung is lagging."
Samsung Electronics Co., Ltd.'s earnings report showed first-quarter revenue reached 133.9 trillion won, up 69% year-on-year and 43% quarter-on-quarter. Its Device Solutions (DS) division, which includes semiconductors, generated revenue of 81.7 trillion won, an 86% sequential increase. Memory business was the core contributor, marking the first time the DS division's revenue exceeded 50% of the group's total. The division comprises memory chips and foundry operations. Memory chip revenue hit 74.8 trillion won (up 101.62% quarter-on-quarter), while foundry revenue was 6.9 trillion won (flat quarter-on-quarter).
Profit performance was even more impressive. Samsung Electronics Co., Ltd.'s overall operating profit for the quarter was 57.2 trillion won, soaring 184.6% from the previous quarter and 756% year-on-year. The DS division's operating profit reached 53.7 trillion won, a more than twofold increase from the 16.4 trillion won recorded in the fourth quarter of the previous year.
However, these substantial profits have not trickled down to frontline employees. The union is demanding a bonus equivalent to 15% of the annual operating profit and has threatened an 18-day strike from May 21st to June 7th if its demands are not met. The union previously rejected management's offer of a 10% profit share for bonuses and a 6.2% wage increase.
Samsung Electronics Co., Ltd.'s CFO, Park Soon-cheol, stated during a recent earnings call that the company is "addressing the labor issue in accordance with laws and principles and will continue to prioritize dialogue with the union to reach an amicable solution." He added, "Even if a strike occurs, the company plans to respond within the legal framework using dedicated teams and response systems to minimize production disruptions."
This severe labor dispute could impact the already tight global memory chip supply. A large-scale strike by approximately 40,000 Samsung Electronics Co., Ltd. employees on April 23rd reportedly led to an 18.4% drop in memory wafer capacity and a sharp 58.1% decline in foundry wafer capacity. This demonstrates that even highly automated memory production lines can suffer nearly a fifth capacity loss without workers, while labor-intensive foundry lines can lose almost 60%. If routine equipment setup and maintenance are halted for an extended period, restoring normal operations could take twice as long. This implies that an 18-day strike could require up to 36 days—over a month—for Samsung Electronics Co., Ltd. to fully restore production capacity, severely impacting both the company and the global semiconductor supply chain.
Faced with the imminent strike threat and potential ongoing operational disruptions, Samsung Electronics Co., Ltd.'s leadership is reportedly even evaluating the possibility of spinning off the semiconductor division. While separating the most profitable division could fundamentally resolve internal pay disparity disputes, such a move would likely damage the company's value, lead to a stock price decline, and provoke strong opposition from shareholders.
Citigroup analysts, led by Peter Lee, lowered their price target for Samsung Electronics Co., Ltd. on April 30th, citing concerns that "increased provisions for bonuses due to escalating strike risks" could erode profits, despite viewing the company as a long-term beneficiary of memory market growth.
In contrast, to ease its own labor tensions, SK Hynix reached an agreement with its union last September to allocate 10% of annual operating profit to a bonus pool, averting a strike and potentially setting a precedent for South Korea's tech industry. SK Hynix reported first-quarter net profit of 40.33 trillion won, significantly exceeding analyst estimates, with operating profit also beating expectations. Average selling prices for DRAM surged about 60% quarter-on-quarter, while NAND prices jumped approximately 70%. The company cited sustained strong server memory demand, offsetting weakness in PC and smartphone chips, as a key growth driver. SK Hynix expects favorable pricing conditions to continue in the short term.
Bank of America Securities analysts, led by Simon Woo, wrote that they assume Samsung Electronics Co., Ltd. will begin setting aside provisions for special employee bonuses in the second quarter. They also suggested that "a potential union strike at Samsung could lead to a more favorable chip pricing environment for SK Hynix," prompting them to raise their target price for SK Hynix.
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