Samsung shares lag SK Hynix’s rally as analysts cite strike risk

SAMSUNG Electronics shares’ recent underperformance against SK Hynix may intensify as a looming workers’ strike weighs on South Korea’s most valuable company versus its rival chipmaker.

Samsung’s shares gained as much as 4.8 per cent to a record high on Monday, part of a global rally driven by continued investor optimism about artificial intelligence. That pales before SK Hynix’s 12 per cent surge.

The performance between the two memory chipmakers diverged last month, with Samsung lagging its peer by more than 25 percentage points. Samsung’s labour union staged a rally on April 23 to demand a greater share of AI-induced profits and threatened an 18-day strike starting May 21. 

The tussle between Samsung’s management and employees has prompted more analysts to raise concerns about the firm’s earnings prospects, especially after SK Hynix struck a landmark deal last year to raise its bonus payouts. Samsung’s labour dispute poses a challenge to its efforts to chart a comeback after falling behind SK Hynix in the lucrative business of high bandwidth memory chips.

“People are still bullish on AI-driven demand of high-bandwidth memory, but concerned of potential strike in Samsung,” said Stanley Tang, a senior portfolio manager at Sumitomo Mitsui DS Asset Management. With shares of Taiwan’s MediaTek and ASE Technology Holding both up nearly 10 per cent, “it is just Samsung lagging behind,” he said. 

Samsung’s labour union demanded 15 per cent of operating profit handed to chip-division employees, with the threat of a 18-day walkout. It had rejected the management’s earlier offer that included allocating 10 per cent of operating profit to bonuses and a 6.2 per cent wage increase. 

Samsung “is addressing management-labour issues in accordance with laws and procedures and will continue to prioritise dialogue with the union to reach an amicable resolution,” its chief financial officer Park Sooncheol said on an earnings call last week.

“Even in the event of a strike, the company plans to respond through dedicated teams and response system, within the legal framework to minimize potential production disruptions.”

Samsung’s semiconductor arm logged historic profit over the March quarter, beating expectations with a 48-fold jump as AI data center orders delivered hefty margins. 

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In a bid to quell its own labour tensions, SK Hynix reached a deal with its labour union in September to allocate 10 per cent of its annual operating profit to a bonus pool, averting a strike and potentially setting a precedent for Korea’s tech industry.

Citigroup analysts led by Peter Lee lowered Samsung’s price target to 300,000 won (S$260) from 320,000 won on Apr 30, saying while they see the chipmaker as a long-term beneficiary of the memory market growth, “bonus-related provisions upon the intensifying labor strike” could erode its earnings.

In contrast, BofA Securities raised price targets for SK Hynix. In a research note, the brokerage’s analysts led by Simon Woo wrote they have already assumed that Samsung will start provisioning for employee special bonuses in the second quarter, while “Samsung’s potential labour union strike can also offer more favourable chip pricing environment for Hynix.” BLOOMBERG