Samsung's labor crisis, production hurdles threaten competitive advantage in AI chip market

(MENAFN) Samsung Electronics is currently grappling with a worsening labor crisis, which is significantly impeding its ability to compete effectively in the rapidly growing market for chips used in artificial intelligence (AI) systems. Earlier this month, the Korean technology giant drew considerable investor interest with its announcement of an anticipated nearly 1,500 percent increase in operating profit for the second quarter on a year-over-year basis. This optimistic forecast is attributed to the global memory chip market recovering from a prolonged downturn.

However, this promising outlook is overshadowed by escalating labor unrest and production bottlenecks in chip manufacturing, which have left Samsung trailing behind its competitors in critical growth areas. Despite a 7.5 percent rise in Samsung's shares this year, smaller domestic competitor SK Hynix has seen a 65 percent surge. Samsung is falling behind SK Hynix and the U.S. chipmaker Micron in the development of high-bandwidth memory (HBM) chips, an essential component for AI systems. Furthermore, Samsung has not yet passed the testing required to become a supplier of HBM chips to Nvidia, a leader in the AI chip market. This situation is concerning for Samsung, which once led the memory chip industry, as highlighted by Myron Shih, an analyst at the chip industry consultancy SemiAnalysis. Shih emphasized that HBM is a highly profitable product, and Samsung's lag in this area represents a missed significant opportunity.

Adding to Samsung's challenges is its struggle to compete with the Taiwanese chip giant TSMC in the global foundry business—the contract manufacturing market for data-processing chips. Despite some optimism that major customers might seek to reduce their reliance on TSMC due to rising geopolitical risks, Samsung has yet to make a substantial impact in this market. Customers prioritize quality technology and stable supply, which Samsung’s foundry business has failed to consistently provide, as noted by Shih.

In response to the mounting crisis, Samsung Chairman Lee Jae-yong appointed industry veteran Jun Young-hyun as the new head of the chip division in May, with a commitment to overhaul both internal and external frameworks to address the "chip crisis." Nevertheless, according to a Samsung chip engineer who spoke anonymously, there has been little noticeable change even after the leadership shift in the division. This ongoing turmoil continues to hinder Samsung’s efforts to regain its competitive edge in the critical AI chip market.

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