Samsung Electronics is facing a mounting labor crisis that is complicating its efforts to catch up with its rivals in the booming semiconductor market used in artificial intelligence systems.
The Korean technology giant boosted investor optimism earlier this month with its forecast that operating profits in the second quarter of the year will rise by about 1,500 percent year-on-year, as the global memory market recovers from a long-term slump.
But the stronger-than-expected guidance came amid growing labor unrest and setbacks in chip production that has seen it fall behind rivals in areas identified as essential for future growth.
Samsung shares have risen about 7.5 percent this year, compared to a 65 percent rise for its smaller local rival SK Hynix.
Samsung is lagging behind SK Hynix and US chipmaker Micron in developing high-bandwidth memory (HBM) chips, a key component in artificial intelligence systems, and has not yet passed the tests required to qualify as an HBM supplier to industry leader Nvidia, according to a report by the newspaper. Financial Times.
The report quoted Myron Shi, an analyst at Semi Analysis, a consulting firm specializing in the chip industry, as saying: “This is very worrying for a company that has historically been the leader in memory manufacturing. HBM memory is a very profitable product, so Samsung is missing out on a huge opportunity.” ".
Samsung also failed to make a dent in TSMC's dominance of the global alloy business - the market for contract manufacturing of processor chips - despite optimism that major customers will seek to reduce their dependence on the Taiwanese chip giant amid rising geopolitical risks.
"While customers would like to have a second alternative, customers' first priority is the quality of technology and the ability to have a stable source of supply, which Samsung did not provide," Shi said.
In May, Samsung Chairman Lee Jae-yong surprisingly appointed a new head of Samsung Electronics' chip division, industry veteran Jeon Young-hyun, who promised to "renew the atmosphere internally and externally" to address the company's "chip crisis." .
Internal crisis
But one Samsung chip engineer, who spoke on condition of anonymity, told the Financial Times that they "didn't see a lot of changes even after replacing our president."
“The internal atmosphere is bleak as we lag behind SK Hynix in HBM and fail to catch up with TSMC in alloy manufacturing,” the engineer said.
He added: "Workers feel dissatisfied with their salaries in general because they believe that they are treated worse than their peers at SK Hynix. Many are thinking of leaving the company to join our competitors."
Workers' growing discontent was exposed last Monday, when an estimated 6,500 members of the national Samsung Electronics Union, which has seen its ranks grow from 10,000 to more than 30,000 members within a year, launched an unprecedented three-day strike.
Strong competition
The company, which unveiled its latest foldable smartphones last Wednesday with enhanced artificial intelligence features, is under intense pressure from Apple and less expensive Chinese competitors in the mobile phone sector, while Chinese rivals also threaten to erode its market share in the display and home appliance sectors.
“Worker morale is low, and they feel frustrated by smaller financial rewards. They feel helpless because management seems directionless,” said a researcher at Samsung's smartphone division, who also spoke on condition of anonymity.
A Samsung home appliance sales representative, who did not wish to be named, added: “I've been used to sales growth all my life in the company, but this is the first time I've seen a decline in growth... People on my team feel a sense of crisis.”
Samsung denied claims by the National Chip Workers Union that the three-day strike disrupted chip production. But on Wednesday, the union announced it would continue an "indefinite strike" targeting production lines, including those used to make HBM chips.
The union said in a statement, “Management does not intend to dialogue. We have clearly identified interruptions in production lines, and the company will regret this decision.”
Samsung said in a statement to the Financial Times that it "remains committed to engaging in good faith negotiations with the union," but declined to comment on personnel matters. However, analysts said a strike would complicate efforts to make up ground lost to SK Hynix in the HBM race.
According to one Samsung investor, the two companies are now in fierce competition for a limited pool of Korean engineering talent.
The two companies declined to comment on the talent battle.
Samsung announced last week the formation of a cross-departmental team dedicated to HBM development efforts, and is expected to eventually work to bridge the technology gap at SK Hynix as the industry transitions to future generations of HBM chips, according to CW Chung, an analyst at Nomura.
Chips
Samsung says that, as the only company with capabilities in cutting-edge memory chips, as well as next-generation "advanced packaging" technologies, it will be well-positioned to take on an emerging alliance between SK Hynix and TSMC, which are working closely together on the next generation of... Artificial intelligence chips.
The company also said: “Our commitment to technological advancement and investment volume has been and will continue to be the core of our success. We are confident and excited about the opportunity we have to navigate the current landscape and strengthen our leadership position.”
But SemiAnalysis's Shi said that "being a one-stop shop is of little value to chip design companies when Samsung is not the best in any of the above aspects."
"As Samsung has seen its technological capabilities erode in multiple areas of its business, there appear to be problems stemming from the company's leadership and culture. A culture reset may be long and painful, but it may be the best thing for the company in the long run," he added.
Competition with Chinese companies
In turn, information technology expert, Mohammed Al-Harithi, said in exclusive statements to the “Eqtisad Sky News Arabia” website, that Samsung is in strong competition with some Chinese companies in many markets during the recent period, and while it dominates a large market, the real competition is between them. And between Apple, and related to the features built into the phone, adding: When Samsung introduced the S24 phone equipped with generative artificial intelligence within the operating system, this contributed to increasing its demand rates again.
But at the same time, he points out that “the Apple user belongs to its brand and cannot change it, and Samsung’s competition is more focused on the market share of other Chinese companies, such as Huawei, Xiaomi, and others.”
He emphasizes that the challenge associated with electronic chips is a general problem, and some are trying to find a solution to it by relying on different supply chains or searching for other sources from other countries, or even finding alternatives in the field of hardware manufacturing (the manufactured part) by relying on software. (software operating system).
While the chip manufacturing crisis affects Samsung in particular and represents a headache for the company, which is trying in various ways to catch up with the advanced chip market, with the boom in artificial intelligence.
In the context of his talk about the challenges, he adds: The new features of integrating generative artificial intelligence are important to the user in some way, but their cost increases the cost of producing the phone, so the user may not be very interested in the topic; Because in the end, he wants a phone at a certain price, he may turn to Chinese companies, which have been able to integrate artificial intelligence into their phones while maintaining a lower price.
Therefore, the challenges now also represent producing a phone at an appropriate price in light of inflation, rising global prices, and the clear challenges regarding the electronic chip file.
Challenges
For his part, Bassem Bishri, Chairman of the Board of Directors of Spime Sense Labs, which specializes in smart city applications, and a consultant to the Information Technology Institute for Internet of Things and Communications applications, said in special statements to the “Iqtisad Sky News Arabia” website that the crisis of chips and supply chains is a general problem that affects many companies. Therefore, Samsung, the manufacturer of phones and electronic devices, is affected by this crisis in light of its efforts to catch up, and this applies to other companies such as Apple, Huawei, LG, and all companies operating in the electronics industry.
Samsung is not outside the crisis, as all companies have become on the same line, but there is a difference between it and Apple. Samsung targets the customer who wants practical products, while Apple targets the customer who wants distinction and difference. This does not prevent Apple from having models that target the customer who has... Less money, as well as Samsung, which sometimes targets customers with high financial levels, according to Bishri, who explains that despite the different trends, the technology required is the same, and therefore everyone is affected by what is going on in the market and the competition for that technology.
He added: “There are common challenges facing all companies operating in the sector, especially the challenge related to chips, supply chain disruptions, and the challenges represented by successive, major economic crises, the most recent of which resulted from wars and which affect supply chains, and before that was the Corona pandemic crisis.”
Many companies did not recover from the repercussions of the pandemic, which caused some factories to stop for a period, and as a result of late implementation orders accumulated, and when the world got over this crisis, the crisis of wars and geopolitical turmoil appeared.
In addition to these challenges, there is what is linked to the strong competition in the smartphone market and the emergence of players with a great deal of influence and presence, especially Chinese players. Added to these problems are those related to regulatory controls, both in Europe and the United States of America.
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