Brokerages sour on Samsung as union bonus demands threaten profits

After soaring nearly fivefold in a year thanks to explosive demand for advanced memory chips, Samsung Electronics is now facing some cautious calls from both local and foreign securities firms, with analysts lowering ratings and target prices.

Samsung Electronics' flag at the company's Seocho office in southern Seoul [NEWS1]

After soaring nearly fivefold in a year thanks to explosive demand for advanced memory chips, Samsung Electronics is now facing some cautious calls from both local and foreign securities firms, with analysts lowering ratings and target prices.

At the heart of the concern is costs. Samsung's union is demanding that 15 percent of annual operating profit be distributed as employee bonuses — a figure that, applied to FnGuide's 2026 consensus estimate of 340 trillion won ($235 billion) in operating profit, would translate to roughly 47.6 trillion won in bonus payouts.

The high-stakes labor dispute at Samsung has drawn intervention at the highest levels. Korea's president, lawmakers, Samsung's board chairman and its co-CEOs have all waded into the standoff in an effort to defuse tensions. Meanwhile, friction is growing within the union itself, as workers in the semiconductor division and those in other business units clash over how profits should be shared.

Rather than treating it as a structural risk, several reports have trimmed their target prices on the premise that the company's hefty bonus commitments will inevitably eat into operating profits over the remaining three quarters.

Shares in the Suwon, Gyeonggi-based chipmaker rose 2.07 percent to close at 271,500 won on Thursday, a day after surging 14.41 percent to a historic high that pushed Samsung's market capitalization past $1 trillion, making it only the second Asian company to cross that threshold after Taiwan's TSMC.

Financial burden after bonus payout Citi Research was the first brokerage to cut its target price, trimming it by 6.25 percent to 300,000 won while maintaining a buy rating. The firm cited earnings downside from bonus provisions, conservatively estimating that 10 percent of annual operating profit — in line with SK hynix's precedent — would be distributed as employee compensation, pressuring profit figures in 2026 and 2027.

"We can reasonably predict that the company will move forward with provisioning," said Peter Lee, managing director at Citi Research. "Since nothing was set aside in the first quarter, they would need to cover a full year's worth across the remaining three quarters, and that figure could be larger than what the market expects, with a more meaningful drag on quarterly earnings than people are currently pricing in."

Factoring in those additional costs, Citi revised its 2026 and 2027 operating profit estimates down by 10 and 11 percent, respectively, to 306.3 trillion won and 351.7 trillion won.

More than 30,000 Samsung Electronics employees gather at the company's Pyeongtaek chip plant in Gyeonggi on April 23, demanding greater transparency in the company's compensation structure. [YONHAP]

Labor relations have historically never been a serious risk factor at Samsung, a company not typically associated with public industrial disputes. But SK hynix's decision to distribute 10 percent of annual operating profit as employee bonuses has stirred frustration among Samsung workers, who believe they deserve comparable treatment — or better. The National Samsung Electronics Union (NSEU) is demanding that the threshold be set at 15 percent of total annual operating profit, and has declared an 18-day strike running from May 21 to June 7.

Domestic analysts, however, view the target price impact as purely numerical — a function of how management and labor ultimately structure the bonus agreement — rather than a meaningful threat to chip production.

Ko Young-min, an analyst at Daol Investment & Securities, raised his target price to 390,000 won, citing continued strength in memory prices and upward earnings revisions. The brokerage lifted its 2026 annual operating profit estimate to 366.1 trillion won and also pointed to a favorable contracting environment for memory suppliers to secure long-term supply agreements of up to five years.

Samsung Electronics said at its April earnings call that it had already signed such deals with several customers and that the agreements were more binding than in the past, when contracts rarely lasted a year, and clients largely dictated terms.

"A recent check on the LTA contracting environment suggests Samsung is negotiating memory pricing on the most favorable terms among the three major memory makers," Ko said.

Analysts have pointed to SanDisk's disclosure of a five-year LTA with a minimum order backlog of $42 billion and financial guarantees totaling $11 billion as a bellwether for the broader shift.

Internal dispute grows to whispers of a spinoff Cracks have begun to emerge within the union itself, as the semiconductor division's outperformance relative to other business units has fueled calls for a structural separation. The tension is rooted in Samsung's dual-division architecture: the Device Solutions (DS) division, which handles semiconductors, and the Device Experience (DX) division, which oversees smartphones and home appliances.

The core problem is one of earnings distribution. With the bulk of this year's profits generated by the semiconductor business, following the union's bonus demands would concentrate payouts heavily among DS employees — a disparity that has sharpened divisions within the labor ranks.

A banner denouncing Samsung Electronics' labor union, erected by the Samsung Electronics' shareholder committee, hangs in Yongsan District, central Seoul, on May 6. [NEWS1]

A senior Samsung Electronics executive recently raised the possibility of a spinoff in discussions with the government, a move widely interpreted as reflecting both the deadlocked wage negotiations and deepening internal friction. Calls for a structural separation are not new, but the prospect of a general strike has brought the issue into sharper relief. The prevailing view, however, is that an actual split remains unlikely given the financial and strategic burden it would entail, as well as strong opposition from academia and existing shareholders.

Samsung shareholders have recently staged counter-rallies across Pyeongtaek, Gyeonggi, and Seoul's Yongsan and Yeouido regions, denouncing what they characterized as excessive and ill-timed labor demands that threaten future investment capacity and shareholder value during a critical upcycle.

Meanwhile, Samsung Electronics' two co-CEOs — Vice Chairman Jun Young-hyun and Roh Tae-moon, head of the DX division — issued an internal message to employees on Thursday, urging them to "do their best in their respective roles so that our future competitiveness is not lost," adding that management would "continue consultations with an open mind and work to find a direction that employees can embrace."

The message, coming two weeks before the planned strike, represents a direct intervention by top management to prevent the labor dispute. Samsung has been in wage negotiations with the union's joint committee since December 2025.

Samsung Electronics' Seocho office in southern Seoul [NEWS1]

In March, Samsung put forward a proposal that would allow employees of its semiconductor division to receive special bonuses exceeding the existing cap of 50 percent of annual salary, on the condition that its DS division ranked first domestically, and would use 10 percent of annual operating profit for bonus payments. The NSEU turned down the offer, insisting on the permanent abolition of the bonus cap altogether, at which the talks broke down.

"We regret that we have not yet reached a final agreement," the two executives wrote, acknowledging that "many employees must be feeling anxious and frustrated as negotiations have dragged on." They emphasized the management's determination to resolve the dispute through direct dialogue and to prevent the situation from escalating into a general strike.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]