Samsung Faces Chip Plant Strike That Threatens Global Supply

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Samsung Faces Chip Plant Strike That Threatens Global Supply.

general :: 12hrs ago :: source - bloomberg

By Yoolim Lee and Myungshin Cho

(Bloomberg) -- Talks between Samsung Electronics Co. and its largest labor union broke down, raising the prospect of a strike that may disrupt global chip supply and hamper an important engine of Korean economic growth.

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A general work stoppage will go ahead on Thursday after Samsung’s management rejected a proposal from government mediators that had been accepted by the union, labor leader Choi Seung-ho told reporters. Hours later, South Korean labor minister Kim Young-hoon called for direct negotiations between the two sides, though it’s unclear whether even that intervention could resolve their differences. Samsung shares tumbled as much as 4.4% before recouping losses in afternoon trading.

The collapse in negotiations puts the global technology supply chain at risk because Samsung is the world’s biggest supplier of the chips that go into devices from data center servers to smartphones and electric vehicles. The global AI infrastructure rollout has enriched South Korean companies on a scale not seen before, putting Samsung on track to become one of the world’s most profitable firms this year. Its semiconductor arm posted a 48-fold jump in profit for the March quarter.

More Koreans are demanding a greater share of those earnings after SK Hynix Inc. agreed last year to allocate 10% of annual operating profit to a performance bonus pool. Samsung’s lingering labor dispute, which puts the company at risk of production delays and complications accelerating development of its next-generation semiconductors, is being closely watched by other firms. On Wednesday, a union at Korean internet company Kakao Corp. said some of its members agreed to strike following failed wage negotiations, Yonhap reported.

Samsung said negotiations failed even after the company accepted the majority of the union’s requests, including those related to bonuses, blaming “excessive” demands. The union didn’t back down from its position that compensation must be raised even for employees in loss-making divisions, which is in violation of the company’s policy, Samsung said in a statement. “Abandoning this principle would not only impact our company but also have a negative ripple effect on other enterprises and industries,” it said.

The union wants Samsung to scrap an existing bonus cap, allocate 15% of its operating profit to worker bonuses and formalize those terms in employment contracts.

Samsung had proposed allocating 10% of operating profit to bonuses, along with a one-time special compensation package that exceeds industry standards. Samsung executives argued that the union’s demands would be difficult to sustain over the long term.

Still, Samsung said it will continue to seek a resolution through talks in an effort to prevent a walkout.

“While the mediated talks have failed, a window for agreement remains,” said Kim Dae Jong, a professor at Sejong University’s Business School in Seoul. “Even if the strike commences tomorrow, I expect the government to intervene by invoking emergency labor laws to halt the walkout because of the gravity of the matter.”

The government has previously hinted that it could resort to rarely used emergency powers to prevent a strike if the parties fail to reach an agreement. South Korea has invoked the emergency arbitration mechanism only four times since 1969. The last time was in 2005, when Korean Air pilots went on strike.

The Bank of Korea forecast that the strike could lead to as big as a 0.5 percentage point cut in Korea’s GDP growth this year, local media reported.

The dispute is an especially tricky test for President Lee Jae Myung, who rose to the nation’s top job on a platform of stronger labor protection and has hinted that labor rights could be curtailed for the greater good.

On Wednesday, Lee called for an “appropriate limit” on collective labor action, speaking at a cabinet meeting after the talks broke down. While Lee did not mention Samsung by name, he said it’s “understandable that some labor unions are working to secure their interests.”

A labor ministry official expressed regret over the collapse of the talks and said the government would continue supporting their negotiations “regardless of format.” Asked whether the government was considering invoking emergency arbitration powers, the official said: “There’s still time.”

--With assistance from Soo-Hyang Choi, Seyoon Kim and Shinhye Kang.

(Updates with South Korean president’s comments in the 13th paragraph.)