Samsung Electronics is currently facing one of its most significant labor-management crises in history. According to a research report released by J.P. Morgan on May 6, the Samsung National Union (NSEU) has announced plans to initiate a large-scale strike lasting 18 days from May 21 to June 7. The union's core demands include abolishing the 50% cap on performance bonuses, securing a 7% increase in base wages, and requesting that 15% of the company's annual operating profit be allocated to an employee bonus pool. Negotiations are still ongoing, and company management has clearly expressed its desire to seek an amicable resolution. However, J.P. Morgan stated that the ultimate impact on profits will depend on the duration of the strike and the outcome of the negotiations. If all union demands are met, Samsung's 2026 operating profit faces a downside risk of 7% to 12%. Additionally, approximately 1% to 2% of the semiconductor division's revenue could be lost due to production halts. This labor crisis is intensifying the divergence in stock performance between Samsung and its competitor SK Hynix. SK Hynix successfully averted strike risks by reaching an agreement with its union on a 10% profit-sharing scheme as early as last September. In contrast, Samsung is now facing renewed internal uncertainty pressure while its competitive disadvantage in the High Bandwidth Memory (HBM) market persists. Since April, the performance gap between the two companies' stock prices has exceeded 25 percentage points.
The union's demands are aggressive, and negotiations have reached a stalemate. This potential strike is not a sudden event but the result of escalating labor-management tensions over the past two years. In July 2024, Samsung experienced its first-ever strike, with about 6,000 employees participating daily for approximately one month. Subsequently, the NSEU and management engaged in multiple rounds of negotiations from December 2025 to March 2026. However, due to irreconcilable differences, mediation by the National Labor Relations Commission was suspended this March. In March, the union announced the 18-day strike plan and warned it could impact HBM production lines. On the 18th of the same month, 93% of the 66,019 union members voted in favor of the strike. The threat of a strike briefly subsided after union representatives met with co-CEOs on April 23. However, by the end of April, between 37,000 and 40,000 workers held a large-scale rally at the Pyeongtaek chip plant to build momentum for the May strike. Concurrently, some non-chip division employees began leaving the union, indicating potential cracks in the union's internal cohesion.
Samsung's Chief Financial Officer, Park Soon-cheol, stated during an earnings call last week that the company is handling the labor issue in accordance with laws and regulations, prioritizing a proper resolution through dialogue. He also mentioned that even if a strike occurs, specialized teams and contingency mechanisms would be deployed to minimize production disruptions.
Profit Impact Assessment: Additional Labor Costs Could Reach 39 Trillion Won J.P. Morgan conducted a scenario analysis of the financial impact of a strike using a bottom-up estimation approach. If Samsung accepts the union's terms—allocating 10% to 15% of operating profit to a performance bonus pool and increasing base wages by 5%—it is estimated that this would add 21 trillion to 39 trillion won in additional labor costs compared to existing forecasts. This would pose a 7% to 12% downside risk to Samsung's 2026 operating profit. Compared to the Bloomberg market consensus, J.P. Morgan believes that under a 10% profit-sharing scenario, there is approximately a 3% downside risk to operating profit. Based on J.P. Morgan's own published forecast, the full-year 2026 operating profit is approximately 35 trillion won; in the most pessimistic scenario, actual profits would be further compressed. Regarding production impact, J.P. Morgan referenced NSEU data from a preliminary activity in April on daily wafer output impact. It calculated that an 18-day strike could lead to revenue opportunity losses exceeding 4 trillion won, representing about 1% of the semiconductor division's annual sales. If production lines are forced to shut down, the losses would be more severe—potentially reducing annual DRAM output by 0.9%, NAND by 0.5%, and system chip and foundry division output by 2.4%. Combining increased labor costs and production losses, the total impact on full-year operating profit is estimated to be between 26 trillion and 43 trillion won. In a previous report, a team led by Citi analyst Peter Lee also noted, when downgrading Samsung's target price on April 30, that increased provisions related to bonuses due to intensified labor disputes could erode profits. They subsequently lowered their operating profit forecasts for the company by 10% and 11% for this year and next, respectively.
The Gap in Compensation Structure with SK Hynix is a Core Contention Point From a compensation structure perspective, the Samsung union's demands have a realistic context. According to J.P. Morgan data, over the past two years, Samsung allocated 11% of its sales revenue to employee compensation (including base salary and incentive bonuses), while SK Hynix allocated 12.5%. In terms of total compensation per employee, SK Hynix's level in 2025 was more than double that of Samsung. However, J.P. Morgan points out that this gap primarily stems from differences in workforce size and structure: Samsung has a global workforce of approximately 260,000, with only 60% of its Korean employees working in the semiconductor division. SK Hynix has about 42,000 employees, all of whom are engaged in semiconductor business. The absolute difference in per capita compensation between the two companies is largely determined by these structural factors, rather than simply reflecting the superiority or inferiority of their compensation policies. SK Hynix set a precedent for the industry by reaching an agreement with its union last September on a scheme to share 10% of annual operating profit. Bank of America Securities analyst Simon Woo wrote in a report that a potential strike at Samsung could even further improve SK Hynix's chip pricing environment, providing an additional positive factor for the latter.
Strong Fundamentals, but Valuation Discount Persists Samsung's own fundamental business position is not weak. Its semiconductor division recorded historic profits in the first quarter of this year, driven by AI data center orders, with operating profit surging 48-fold year-on-year, exceeding market expectations. J.P. Morgan also noted that the memory industry cycle continues its upward trend, with memory supply shortages expected to intensify further by 2027, indicating that medium- to long-term fundamentals remain robust. However, strong performance has not fully offset the valuation discount brought by labor risks. Stanley Tang, Senior Fund Manager at Sumitomo Mitsui DS Asset Management, stated, "The market remains optimistic about AI-driven demand for High Bandwidth Memory but is cautious about the potential strike at Samsung." He pointed out that while stocks like MediaTek and ASE Technology Holding have risen nearly 10%, "only Samsung is underperforming the market." Since May, Samsung's stock price has risen about 20%, outperforming the composite stock price index's 12% gain during the same period. This rise is primarily attributed to stronger-than-expected CPU-related memory demand and expectations regarding cooperation on Apple foundry orders. However, J.P. Morgan warns that as negotiations are not yet concluded, production uncertainty and earnings per share risks will continue to cause short-term stock price volatility.
J.P. Morgan: Maintains Overweight Rating, Advises Watching for Short-Term Volatility Opportunities Despite the aforementioned risks, J.P. Morgan maintains its Overweight rating on Samsung Electronics, with a target price of 350,000 won (for December 2026), implying approximately 31% upside from the current price of 268,000 won. Analyst Jay Kwon from the firm stated that the core investment thesis of a "higher and more prolonged" memory upcycle remains unchanged. He noted that past stock price pullbacks due to strike concerns have historically presented buying opportunities, and their current view remains the same. J.P. Morgan believes it is highly likely that management and the union will eventually reach an agreement, which would then serve as a "clearing signal" for the stock price. Looking further ahead, J.P. Morgan's bullish stance is built on two main pillars: first, the ongoing expansion of capital expenditure by cloud service providers on hardware and the industry trend of AI memory demand expanding from GPUs to CPUs by 2027; second, Samsung's continuous improvement in technological execution within the HBM sector. The firm believes that for Samsung's stock valuation to become more attractive, more evidence of technological leadership is needed to rebuild investor confidence. The May 21 strike deadline will be the most critical near-term observation point.