Strike Threat Could Cost 30 Trillion Won, Can Samsung’s Stock Rally Last?

TradingKey - On April 20, according to South Korean media reports, after obtaining majority representative status, the Samsung Electronics labor union issued a warning to the company. If a general strike lasting 18 days is held starting May 21, the company could suffer losses of up to 30 trillion won (approximately $20.3 billion).

On April 23, the union will hold a rally at the Pyeongtaek campus; if negotiations break down, a general strike will take place from May 21 to June 7. Samsung Electronics has applied to the court for an injunction to prohibit union members from occupying key facilities such as wafer fabs during the strike.

As of the close on April 21, Samsung Electronics was trading at 219,000 won, up 2.1%. The performance-driven rally has not been significantly impacted by the strike threat. Samsung's forward P/E ratio is approximately 4.5 times, lower than the historical average. If strike risks are eliminated, valuation will see a recovery; however, if the strike materializes, valuation will face pressure.

The trigger for the strike was Samsung's first-quarter operating profit reaching 57.2 trillion won, a staggering year-on-year surge of 755%. At the core of the conflict is Samsung's complex performance bonus system, which includes a 50% cap. Employees have expressed dissatisfaction, arguing that this practice deprives them of their right to share in the company's excess profits.

The union is demanding that the company allocate 15% of annual operating profit as performance bonuses and remove the cap, while also raising basic salaries by 7%. Management proposed that employees choose between sources of funding for excess profit incentives—specifically 20% of Economic Value Added (EVA) or 10% of operating profit—which the union rejected.

In contrast to Samsung, SK Hynix removed its bonus cap last September and pledged to allocate 10% of operating profit for dividends. Driven by demand for AI chips, SK Hynix's 2026 operating profit is projected to reach 250 trillion won, with average bonuses for approximately 35,000 employees potentially reaching 700 million won.

According to calculations by the Samsung union, under the same compensation levels, bonuses for employees in Samsung's chip division are less than one-third of those for SK Hynix employees. . The compensation gap has led to a brain drain; Union President Choi Seung-ho revealed that more than 200 employees have defected to rival SK Hynix over the past four months.

The impact of a Samsung strike extends beyond the company itself, potentially affecting the global technology supply chain. As the world's largest memory chip manufacturer, Samsung holds approximately 40% of the DRAM market and about 30% of the NAND flash market. The Pyeongtaek plant carries the responsibility of supplying HBM to global AI data centers. Given the current extreme shortage of memory chips, if delivery of customized products like HBM is delayed due to a strike, Samsung faces not only breach-of-contract penalties but also the risk of pushing customers toward SK Hynix and Micron ( MU ).

Downstream industries will face greater pressure due to the strike. According to DigiTimes, some PC manufacturers have increased component inventories by 50% to mitigate the risk of supply disruptions, while TV terminal manufacturers believe that doubling memory costs will drive up final product prices. TrendForce expects DRAM prices to continue rising in the second quarter, and a strike could push those expectations even higher.

However, some argue that the impact of the strike may be limited, as SK Hynix and Micron can partially offset production capacity, and downstream safety stocks can buffer against short-term shocks. A strike is considered a short-term disruption, and actual production losses may be far lower than the union's warnings.

Analysts point out that there is still room for compromise between both parties. The massive profits achieved in the first quarter have provided the company with bargaining chips, and there is still time for negotiation before May 21. The most ideal outcome would be to reach an agreement before the April 23 rally.

For investors, the scale of the April 23 rally and whether the company makes concessions will be key signals for judging short-term stock price trends. Currently, the stock price continues to rise despite the strike threat, indicating that market panic has not set in and that performance-driven factors still dominate.