Samsung chip empire, crossing the calamity!

In June 1993, Samsung Chairman Lee Kun-hee proposed the "New Management" declaration in Frankfurt, Germany, with the most influential phrase being "Except for my wife and children, everything else needs to change." Despite Samsung just securing the top position in the DRAM market at that time, its other departments were not as successful as the semiconductor sector. Apart from in South Korea, products labeled with SAMSUNG were usually ignored as second or third-rate products.

To demonstrate Samsung's determination, in March 1995, over 2,000 Samsung Electronics employees gathered at the Anycall mobile phone factory's playground, each with a cloth strip wrapped around their heads, bearing the words "Ensure Quality." In the end, 150,000 mobile phones worth a total of 50 billion Korean won were smashed with hammers and set on fire.

In the 1980s, Samsung Group once lagged behind LG and Hyundai. However, Lee Kun-hee, as the second-generation leader of Samsung, reshaped the Samsung empire with a strong hand and foresight. The semiconductor and mobile phone sectors, which he focused on, gained prominence in the 1990s, becoming the two most important pillar industries of Samsung.

More than thirty years have passed since Lee Kun-hee made the Frankfurt declaration. Today, Samsung is facing troubles and a pile of problems as South Korea's top chaebol, seemingly lacking the vigor of its past.

A Market in Decline

On the 31st anniversary of Lee Kun-hee's declaration, current Samsung Chairman Lee Jae-yong also traveled to the United States for business, reminiscent of Lee Kun-hee's world tour. Within two weeks, Lee Jae-yong completed over 30 official schedules across the U.S. Although Samsung has grown into a larger and more excellent enterprise compared to the New Management era, the reality faced by Lee Jae-yong is still far from optimistic.

According to Eugene Investment & Securities data, Samsung Electronics' sales have only grown at an average annual rate of 2.3% from 2012 when it exceeded 200 trillion Korean won to 2023 over the 11-year period. In USD terms, the growth rate is only 1%, which is a rather bleak performance, failing to outpace South Korea's GDP growth rate.

This is just a rough overview. When we delve deeper into Samsung Electronics' current performance, we will discover more significant issues. In 2013, Samsung Electronics' mobile division sales were equivalent to 73% of Apple's sales, but by 2023, this figure had plummeted to 22%, a significant decline. The Galaxy S and Note series once rivaled the iPhone in sales volume, with the Galaxy S4 alone selling 70 million units. However, the total sales of the three Galaxy S23 models today barely exceed 30 million units.

What about Samsung's semiconductor business? Looking at the non-memory sector, its sales were 88% of TSMC's in 2011, but by 2023, this had dropped to 26% In 2019, Lee Jae-yong announced the "System Semiconductor 2030 Vision", planning to invest 1.33 trillion Korean won by 2030 to become the leader in the field of system semiconductors such as design (Fabless) and manufacturing (Foundry). However, four years later, the gap between Samsung and TSMC has not only failed to narrow but has actually widened.

According to TrendForce data, in 2019 when Samsung announced its system semiconductor vision, TSMC held a market share of 51.8% while Samsung had 18.5%, resulting in a gap of 33.3 percentage points. By the fourth quarter of 2023, TSMC's market share in the global foundry market had increased to 61.2%, while Samsung's share was 11.3%, widening the gap between the two to 49.9 percentage points.

Even more critical is Samsung's rise in its core business of memory semiconductors. Since 1993, Samsung has maintained its leading position in the storage sector, including DRAM and NAND Flash. However, it is currently facing difficulties in producing high-bandwidth memory (HBM) for artificial intelligence (AI) semiconductors.

As of July 2024, more than a year and a half after the AI boom and over a year since NVIDIA reached a trillion-dollar market cap, Samsung has yet to catch up with NVIDIA. In June this year, NVIDIA CEO Jensen Huang mentioned that "Samsung Electronics, SK Hynix, and Micron will supply HBM to NVIDIA," and "we are also working to arrange (Samsung Electronics, Micron) to pass the tests as soon as possible and start using AI semiconductor processes."

"Passing the tests as soon as possible" means that so far, Samsung has not officially supplied HBM to NVIDIA. In response to recent reports that Samsung Electronics' HBM failed tests due to heating issues, Jensen Huang stated, "That is not the reason for failure, such reports are not worth mentioning," and "Cooperation with Samsung is progressing smoothly. We wanted to conclude it yesterday, but it was not successful, so we need to be patient."

From NVIDIA's perspective, the more suppliers of HBM, the better. Currently, SK Hynix's exclusive supply of HBM leads to uncertainty and a lack of bargaining power. While NVIDIA is eager to introduce Samsung and Micron, both companies are still striving to pass quality tests, becoming a stumbling block.

As the industry's third player, Micron's initial misjudgment of the technology roadmap led to its own HMC standard, causing a delay in progress on HBM. Samsung, as a leader in DRAM, once served as NVIDIA's exclusive HBM supplier but now cannot even meet the standards for AI products, which is quite regrettable 2020 年以来，三星一直在积极投资 HBM 开发，并成功完成了 HBM 商业化产品的首次大规模生产。在第三代产品 HBM2E 上击败了海力士。然而，由于市场需求增长缓慢，2019 年三星减少了 HBM 投资并缩小了团队规模。

Samsung Semiconductor reorganized its business in July this year. Two dedicated HBM development teams operating in task force (TF) format were integrated into the DRAM development department of the Memory Business Division, forming a new HBM development team. This change is one of Samsung's important initiatives to narrow the gap with Micron in the field of HBM.

However, Samsung's current challenges go beyond just HBM.

Internal Conflicts Intensify

Many may have heard that Samsung Electronics' union recently held a large-scale strike, marking the first time in the 55-year history of Samsung's union.

On June 7th this year, the National Samsung Electronics Labor Union (referred to as "All Samsung Labor") conducted a collective leave struggle. On July 8th, All Samsung Labor held a general strike resolution meeting in front of the main gate of Samsung Electronics Hwaseong Business Site in Hwaseong City, Gyeonggi Province, planning a two-day strike. The main demands include increasing member salaries, adding holidays, and improving performance bonus systems.

All Samsung Labor has about 30,000 members, accounting for 24% of all Samsung Electronics employees (about 125,000 people). As of 11 am on the 8th, All Samsung Labor stated that 6,540 union members participated in the strike. The Gyeonggi Province Dongtan Police estimated that about 3,000 people attended the rally that day. Subsequently, as the Samsung management did not attempt any dialogue during the strike, All Samsung Labor announced an upgrade to an indefinite general strike on July 10th.

Before Lee Jae-yong officially announced the abolition of the no-union policy in May 2020, Samsung Group had long pursued a "no-union policy." This logic believed that providing generous enough treatment to employees could eliminate the need for a union. For the company, it could achieve more efficient operations. However, this practice has always been criticized for violating labor rights.

All Samsung Labor was established in November 2019 as an organization under the Korean Confederation of Trade Unions (KCTU) National Metal Workers' Union. Most of its members belong to the Device Solutions Division (DS) responsible for the semiconductor business, with the largest number of members among Samsung Electronics' five unions. However, due to not reaching half of all employees, its bargaining power is limited Chairman Sun Yumu of the All Three Labor Committee stated in an interview with BBC Korea: "Previously, Samsung's logic was that as long as there were performance results, there would be rewards. But now, even if there is performance, rewards are only given to executives, not to employees." Sun Yumu added, "It is normal for employees not to receive performance bonuses if the company is losing money, but we demand open and transparent standards."

Currently, the proportion of performance bonuses in Samsung employees' salaries is relatively high, but the calculation criteria are not clear, leading to significant uncertainty. The union expressed dissatisfaction with last year's loss in the Samsung Electronics semiconductor division, which resulted in employees not receiving performance bonuses equivalent to more than 50% of their basic salary, while executives received bonuses under other names.

In addition, an important focus of the Samsung strike is improving the working environment. The second strike of the All Three Labor Committee was centered on the Samsung Electronics Xing Factory, which houses an 8-inch wafer production line used for traditional semiconductor production for cars and household appliances. Most of Samsung's 12-inch production lines are equipped with automation equipment, such as overhead cranes that transport bundled wafers from the factory ceiling. However, this old 8-inch production line still relies on manual handling.

On July 13th, the sixth day of the All Three Labor strike, participants at the Samsung Electronics Xing Factory shared a photo of a thumb with a protruding joint in their KakaoTalk group chat, accompanied by the message "the finger is deformed." This photo sparked comments like "you can see the '8-inch' production line medal just by looking at the finger," followed by other images and testimonies about varicose veins, plantar fasciitis, lumbar disc herniation, and cervical disc herniation. Through the group chat, workers shared their experiences of high-intensity labor and unfair treatment, stating "this time, there must be a change."

According to data from the All Three Labor Committee, on the first day of the strike, the operation rate of Samsung's 8-inch production line dropped from 80% to 18%. The majority of actively participating workers are women aged 20 to 40, who hope to receive not only "salary increases" and "additional holidays," but more importantly, to be treated as more than just "parts."

It is understood that while most other 12-inch production lines have automated devices installed, workers at the Samsung Electronics Xing Factory's 8-inch production line still manually handle semiconductor silicon wafers weighing between 3 to 5 kilograms. This production line operates 365 days a year, 24 hours a day, with three shifts at 6 am, 2 pm, and 10 pm. Workers stand for 8 hours a day, manually handling and operating these wafers, leading to conditions such as deformed fingers, varicose veins, and lumbar disc herniation due to the high-intensity labor Despite having a one-hour meal break, the machines at the factory keep running, requiring others to take over the work, which prevents workers from eating or using the restroom in peace. A staff member who has worked for 25 years stated, "To avoid severe cystitis, I dare not drink water or touch coffee before work."

For shift workers who toil day and night, rest is essential. However, due to insufficient manpower, holidays are not given much importance. "Other departments say we must use up our statutory annual leave, but I have to climb the ladder to arrange my annual leave," said a Samsung employee who joined the company in 2010 and mainly works on the 8-inch production line. "Even with new employees coming in, they often leave because they can't adapt to the shifts, so there is always a shortage of staff. When more people want to use their annual leave, we have to play rock-paper-scissors to decide. You have to win the game to use your annual leave."

In fact, Samsung's Xingong factory has been covered by major media outlets in South Korea before. As early as 2007, 22-year-old South Korean girl Hwang Yumi entered the Samsung Xingong factory to work on semiconductor cleaning. Less than 2 years later, she died of leukemia. Her father discovered during the rights protection process that due to exposure to toxic materials, 320 people in the factory had fallen ill, with 118 of them already deceased. This incident caused a strong reaction in South Korea and was even adapted into a movie called "Another Promise." It wasn't until 2018 that Samsung formally apologized to these workers who had developed cancer. Hwang Yumi's father, Hwang Sang-gi, has said multiple times, "If Samsung had a union, my Yumi wouldn't have gotten sick or died."

Regarding these accusations, Samsung Electronics continues to deny them outright. A Samsung Electronics spokesperson responded, "When employees apply for work-related injuries, we actively support them." He also stated, "For accidents that require more than 4 days of rest or result in a shutdown, we guide the application for work-related injuries. Therefore, the claim that applying for work-related injuries will have adverse effects is completely untrue." He further added, "Every year, statutory management supervisors receive training on the work-related injury process guidelines, and every 3 years, musculoskeletal burden operations are regularly inspected."

The company emphasized that Samsung strictly adheres to the Industrial Safety and Health Act's operational environmental standards and emphasized that the strike did not affect production performance. Measures will also be taken in the future to prevent such issues from occurring.

In stark contrast to Samsung is its competitor SK Hynix next door, which has been established for over twenty years and has not encountered large-scale strikes so far. After the merger in 1999, Hynix fell into difficulties. Unlike Samsung Electronics, which covers various businesses such as semiconductors, mobile phones, home appliances, and displays, Hynix had no support to rely on in the semiconductor field's difficulties and had to fight with creditors for self-rescue. This situation prompted unity between Hynix's union and the company In difficult times, the SK Hynix union participated in efforts to overcome the crisis through wage freezes and collective agreements reached without negotiation. The company did not resort to layoffs, instead overcoming difficulties together with employees. SK Hynix union also pioneered the "wage sharing model," where a portion of increased employee wages is used to support partner companies when the company is profitable.

Of course, the above is all history. In fact, SK Hynix also faced problems similar to Samsung's in the past two years. In February 2021, in response to strong dissatisfaction from executives and employees over lower-than-expected performance bonuses and demands to improve measurement standards, SK Hynix held a labor-management meeting. Both sides reached a consensus to abolish the EVA (Economic Value Added) system, which deducts various costs including corporate taxes from operating profit to arrive at a figure. Performance bonuses were then based on 10% of operating profit.

At the same time, SK Group Chairman Choi Tae-won led the announcement to return Hynix's salaries, and Hynix CEO Lee Seok-hee also issued an explanatory statement. Their approach to problem-solving has become an example of labor-management relations in South Korea in recent years.

Looking back at Samsung's handling of the situation, there are some awkward moments. Since the passing of Lee Kun-hee and Lee Jae-yong taking over, the problems of this vast empire have already erupted. It is not easy to solve them, and relying on emergency leadership changes is only a temporary comfort to the outside world.

Final Thoughts

In 2010, Lee Kun-hee once said, "Most of the products and businesses Samsung is launching today will disappear within 10 years. We should start over, there is no time to waste." Even when Samsung's smartphone shipments hit a new record in 2013, Lee Kun-hee still called for change: "We must push innovation harder and lead industry trends."

For the semiconductor market, there is no eternal dominance. Having experienced Samsung's low point and witnessed the rise and fall of countless domestic and foreign companies, Lee Kun-hee, who played a key role in the growth of Samsung's semiconductor and smartphone businesses, is well aware of this. Therefore, he is constantly worried about the future of this business empire.

Now, with Samsung plagued by various issues, wouldn't it hope for a major transformation like the one in 1993?

Source: Semiconductor Industry Observation, Original Title: "Samsung Chip Empire" Crossing the Tribulation!》