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Produced by Huxiu Technology Group

Author | Wandushan

Editor | Miao Zhengqing

Header image | Visual China

"As long as I am alive, Samsung will not allow the existence of labor unions."

45 years after Samsung founder Lee Byung-chul said this, Samsung's labor union not only took action, but also prepared to launch a desperate counterattack against the capital.

On July 8, Samsung Electronics' National Samsung Electronics Union announced a general strike, with more than 6,500 people protesting in front of the Samsung factory in Gyeonggi Province in the heavy rain.Requests for salary increases for all employees and adjustments to the measurement standards for performance bonuses.

Due to the lack of response from the group level, just two days later, on July 10, the National Samsung Electronics Union decided to launch an indefinite strike. Union Chairman Sun Yumu (transliteration) said,"The purpose of this general strike is to interrupt production."

This major strike also touched the nerves of some domestic practitioners.

A DRAM dealer told Huxiu:"We have not received any updated quotes from Samsung yet, and the supply is relatively stable, but our peers have said they will pay close attention to this strike. If there is any sign of trouble, it may trigger a new round of stockpiling."

Samsung has long been known to the public for its consumer electronics products, but beneath this coat, Samsung's other identity cannot be ignored - the world's largest memory chip company. According to Omida's statistics, Samsung Electronics' market share in the DRAM and NAND Flash markets in the fourth quarter of last year was as high as 45.5% and 36.6%, respectively.

Simply put, if Samsung flaps its wings, it can really create a hurricane in the storage industry.

This "flapping of wings" was led by the DS (semiconductor business) department responsible for the production of memory chips.According to Yonhap News Agency, among the 6,500 people who participated in the first strike, 5,211 worked in semiconductor equipment, manufacturing and R&D positions. As the situation develops, the number of participants may continue to increase.

In this context, if Samsung Electronics is in a state of long-term strike, it is possible that it will affect the global supply of memory chips.

It is worth mentioning that just one month before the general strike,Samsung Electronics has said it will make its all-in bet on HBM (high-bandwidth memory) chips - this storage chip, which was spawned by the massive computing power requirements of large models, has now become standard for AI servers.

The Samsung Electronics Union also knows the principle of "strike the snake at its most vulnerable part". After the general strike began, it particularly emphasized calling on front-line employees at the Pyeongtaek factory that produces HBM chips to walk out of the factory and strike together.

Image source: Visual China

A crisis involving the storage and AI industries seems to be gradually getting out of control.

After enduring the hard times, what is waiting for us now? A big strike?

In fact, even the management of Samsung Electronics might not have thought that the first major strike in the company's history would occur at this time.

Because the storage industry is currently in an upward cycle, and the magnitude of the cycle is so strong that it can be said that it has not been seen in the past decade.

Here we need to add some background. The memory chip industry has always had a strong cyclical nature. The last round of downward cycle occurred around the end of 2021. At that time, due to the tightening of terminal demand and the slowdown in the expansion of cloud vendors, the market began to experience a serious oversupply. Then, the price of storage particles fell for eight consecutive quarters, causing manufacturers to complain.

Taking Samsung's 2023 financial report as an example, its full-year revenue was 258.9 trillion won (about 1.36 trillion yuan), a year-on-year decrease of 14.33%; its full-year net profit was 15.5 trillion won (about 81.4 billion yuan), a year-on-year decrease of 72.17%.This is Samsung Electronics' worst profit performance in the past 12 years.

Data source: Samsung’s annual financial reports

Among them,Samsung's DS division (Semiconductor Solutions) recorded a loss of 14.88 trillion won (about 78.1 billion yuan), which is almost equivalent to the group's full-year net profit.

Although the problems of Samsung's DS department were mainly attributed to the industry's downward cycle, such lagging performance still angered the group's top management. In addition to replacing the department head, they also unprecedentedly adjusted the expected payment ratio of performance incentive bonuses for the entire department to 0%.

Such radical measures also laid the groundwork for the subsequent strike.However, what really exposed the labor-management relations at Samsung Electronics was the outbreak of this round of AI wave.

Since last year, global server shipments have surged, and the proportion of AI server shipments has continued to expand, consuming the manufacturers' backlog of inventory in the previous cycle in a short period of time, causing a gap in the supply of DRAM and NAND Flash particles.

At the same time, AI servers have reignited the HBM chip market.The reason why it is called "reignited" is that HBM chips are not actually new technology products. As early as 2013, SK Hynix launched HBM chips designed for high-end gaming graphics cards, but in gaming scenarios, traditional GDDR4/5 video memory particles can already meet the needs, and HBM chips with complex processes and high costs seem a bit "excessive".

As the requirements for video memory bandwidth of high-performance computing cards continue to increase, HBM chips are beginning to return to people's attention.

These hardware requirements generated by the AI ​​field,The storage industry has completed a gorgeous "V-shaped reversal" in a short period of time. According to Gartner's statistics, the global storage industry market size will increase by 66.3% year-on-year in 2024.

As the world's largest memory chip manufacturer, Samsung naturally made a lot of money this year.

Combined with the first quarter report and performance forecast released earlier,Samsung Electronics' operating profit in the first quarter of this year reached 6.6 trillion won (about 34.8 billion yuan), a sharp increase of 931.25% year-on-year; the operating profit in the second quarter was as high as 10.4 trillion won (about 54.9 billion yuan), a sharp increase of 1452.24% year-on-year.

Everything seemed to be going in the right direction until the first half of the year employee bonuses were paid out.

According to past tradition, Samsung Electronics will give its employees a "semi-annual bonus" in July every year, with the maximum ratio equivalent to 100% of the employee's monthly salary. However, this year the maximum ratio for the memory chip department is limited to 75%, while the ratio for the wafer foundry and LSI business is limited to 37.5%.

This directly triggered the anger of the employees. Their logic was simple:In the past, when the industry was in a downturn, the bonus prepayment ratio was reduced to 0%, and everyone was willing to overcome the difficulties together. Now that the industry has entered an upward cycle, the company's performance has skyrocketed, but the bonus ratio is still lower than in previous years, which is unacceptable in any way.

As a result, the largest strike in history happened so dramatically when the industry broke out.

Samsung's limit may only be two weeks

It is difficult to evaluate Samsung Electronics' decision to reduce employees' bonuses after its performance soared.

An industry analyst told me:"One possibility is that Samsung Electronics is currently in the 'water storage stage' to ensure that the HBM production line can be smoothly expanded this year and next year, so it intends to reduce costs."

But Samsung Electronics employees obviously would not agree with this statement. After the strike began, union members first targeted an 8-inch wafer factory. This older production line has a low degree of automation and is more dependent on manpower. The union did cause "some problems" on this production line.

However, given that this production line mainly produces relatively traditional LPDDR memory, Samsung Electronics has not responded to the outside world regarding the strike.

The union then set its sights on the Pyeongtaek factory that produced HBM chips, making it impossible for the company's management to turn a blind eye.

According to Yonhap News Agency, Samsung Electronics told the media on July 10 that "HBM's production line has a high degree of automation and the strike will not affect normal production."

But does such a large-scale strike really have no impact?

Huxiu has sought confirmation from multiple parties regarding the production issues of the wafer fab.They all said that Samsung Electronics' production could not be unaffected, and this had nothing to do with the level of automation.

An executive of a domestic wafer fab explained to the author, "There is a concept of Q Time in chip manufacturing, which is the minimum or maximum time between processes. For example, a process must be completed within 30 minutes. If it exceeds this time, the wafer surface may be over-oxidized, causing the entire batch of products to be scrapped."

"The Q Time for chip manufacturing is set during the trial production phase based on standard team staffing, rather than the minimum number of people required to operate the production line." The executive added that even if the factory has a high degree of automation, the issue of staff reduction cannot be ignored.

More importantly, the entire process of high-end chip manufacturing involves thousands of steps, and any problem may cause a chain reaction.

A process R&D director at a wafer fab told the author that unlike the "three shifts" of production line workers, equipment maintenance engineers in a wafer fab are usually on call 24 hours a day, but there may be only one or two maintenance personnel for each type of equipment.

The R&D director imagined a scenario for me: for example, during the diffusion process, the diffusion furnace broke down one after another, and the maintenance engineer was unable to arrive. Then they could only hope to ask the equipment supplier for support and debug key parameters such as temperature, pressure, and vacuum indicators during the maintenance. Even after the maintenance was completed, it would take another week to redo the wafer verification.

During this period, the entire production line will be completely shut down, and the products and raw materials to be processed can only be stored in safe sites, causing incalculable losses.

"My personal experience is that if the equipment maintenance engineer is away from work, the production line will not be shut down for more than two weeks," the R&D director told the author.

Of course, in such critical positions, Samsung will most likely try every means to ensure that they will not be involved in the strike.

AI chips, danger?

As the exact scope of the strike is still unknown, industry analysts believe that it is currently impossible to make a judgment on the supply of memory chips this year.

Considering that this "indefinite strike" has just begun, perhaps we can make an assumption: if Samsung Electronics' memory chip production is really interrupted, what impact will it have on the company and the industry?

First of all, it is certain that Samsung will most likely lose in the competition with SK Hynix.

Since the beginning of this year, Samsung Electronics' DS division has been trying to break into Nvidia's supply chain with HBM chips. The latter's HBM chips on high-performance computing cards are currently supplied exclusively by SK Hynix.

Samsung has been coveting this piece of fat for a long time.

Some foreign media have calculated the material cost of the H100 chip: in this chip with a BOM (comprehensive hardware cost) of US$3,000, the price of the HBM chip accounts for half.

According to JPMorgan Chase's forecast, Samsung Electronics and SK Hynix are expected to have market shares of 44% and 48% respectively in 2024. In this comparison, the gap between the two does not seem obvious, but because SK Hynix won the order for Nvidia's high-computing cards, its gross profit margin in the first quarter soared to 39%, much higher than Samsung Electronics (19.2%).

Samsung had planned to win Nvidia's order with the more advanced HBM3E technology. There were even rumors that Samsung had passed the latter's technical certification, but as of now, Nvidia is still on the sidelines.

"For chip IP giants like Nvidia, they value the stability of the supply chain more than their technological advantages."An executive of a domestic wafer factory told the author that after experiencing this major strike, Nvidia may be more cautious in its cooperation with Samsung.

For the global chip industry, and even the AI ​​industry, Samsung's indefinite strike is destined to be a warning signal.

First, the current level of rising global memory chip prices has, to a certain extent, begun to curb downstream demand.

A DRAM distributor also told me,"The current price of Samsung's original DRAM has risen by almost 50% compared to last year's low point, and many manufacturers have repeatedly reduced their procurement needs."

A large-scale strike at this time will exacerbate the instability of the supply chain and will most likely cause the price of memory chips to continue to rise.

In addition, the market demand for HBM chips is only increasing, and the industry's production capacity has long been fully loaded. In a conference call after the release of the first quarter report this year, Samsung Electronics and SK Hynix both stated that their HBM production capacity in 2024 has been fully booked.

Although another memory chip giant Micron announced that it would expand HBM production capacity, it will not be realized until at least next year. The above three companies have a 100% market share in HBM. In other words, if the production of Samsung's HBM production line is interrupted, there will be no redundant production capacity in the industry to fill the gap.

This is bound to lead to a further increase in the prices of related products. According to IDC statistics, the price of HBM chips has increased fivefold in the past year. If the price of HBM chips continues to rise due to the production capacity gap, it is questionable how many AI practitioners are willing to pay for it.

As of press time, Samsung's strike is still ongoing.