Samsung Workers Face Strike Threat Amid Global AI Expansion

South Korean Chip Giant Samsung Faces Largest Strike in History

SEOUL, May 15 (Reuters) - A looming 18-day strike at Samsung Electronics, the world's top memory chipmaker, has raised concerns within the South Korean government, rattled foreign investors, and threatened global supply chains. The strike, which is set to begin on May 21, is the largest in the company's history and is centered around a crucial question: who should share in the spoils of the AI boom.

More than 45,000 workers are threatening to stage the strike, reducing production of memory chips that are crucial components in AI data centers, smartphones, and laptops. Samsung and its union are struggling to find a compromise over bonus payouts, with the company offering generous bonuses to staff but wanting to give 27,000 memory chip employees at least six times more than its other workers in its logic chip design and manufacturing businesses.

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The union argues that the firm's other 23,000 workers, responsible for making AI chips for Tesla and Nvidia, should not be left behind, despite suffering billions in losses in recent years as the foundry business floundered. The internal discussions showing friction between the company divisions and employee departures have not been previously reported.

JPMorgan estimated the strike could impact Samsung's operating profit by 21 trillion won to 31 trillion won ($14.08 billion to $20.79 billion), while sales losses could stand at about 4.5 trillion won. Samsung's Device Solutions Division includes three main businesses - memory, system LSI, and foundry - and the AI boom has made these divisions wildly unequal in profitability.

Samsung's move to put different businesses together created a complex business structure that results in a valuation discount while causing conflicts of interest and limiting business opportunities, according to Namuh Rhee, a Yonsei University professor and chairman of a Korean corporate governance group. The issues are "partly self-inflicted by the company," he said.

Discontent among Samsung workers grew last year after rival SK Hynix abolished its bonus pay cap for 10 years, resulting in bonuses more than three times higher than those offered to Samsung workers. This led to some people jumping ship to SK Hynix, which later offered bonuses that topped those of Samsung workers.

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The union's demands include requests for Samsung to abolish a bonus cap of 50% of annual salaries and allocate 15% of annual operating profit to a bonus pool distributed to workers. Samsung negotiators say performance bonuses should be paid out according to merit.

"If the memory division gets 500 million won while the foundry division only gets 80 million won, what motivation would those employees have to keep working?" said union leader Choi Seung-ho during negotiations.

The strike has raised concerns among Samsung's top leadership, the South Korean government, and investors about how it could threaten Samsung and affect the broader economy. The American Chamber of Commerce in Korea said the labor uncertainty could affect confidence in Korea's reputation as a dependable partner in global manufacturing and supply chains.

Analysts said other companies were watching the dispute as a potential barometer for labor-management relations. "If Samsung sets a precedent in which union demands are pushed through by means of a strike, companies could find themselves in a very unfavorable bargaining position in the future," Korea University law professor Park Ji-soon said.

Samsung has said it will offer its employees the best compensation in the industry with the latest proposal, but protesters have said the company does not recognize its employees' contributions to making it a world-leading company.