In recent months, the crisis surrounding Samsung Electronics has gained widespread attention. Samsung Electronics has officially admitted to being in a deep crisis, with one of the main reasons cited being the dumping and technology theft by the Chinese Communist Party.
As a leading company in South Korea, Samsung Electronics accounts for about 18% of the country’s total exports, playing a pivotal role in the South Korean economy. The company’s profits even impact the government’s operations; last year, due to deteriorating performance, Samsung Electronics couldn’t pay corporate taxes, raising concerns about dwindling revenues. It can be said that Samsung Electronics’ crisis is also South Korea’s crisis.
Samsung Electronics officially acknowledged being in a crisis following the announcement of its third-quarter performance this year. According to the preliminary statistics released by Samsung Electronics on October 8th for the third quarter, its operating profit was 91 trillion Korean won (approximately 66 billion US dollars), a 12.8% decrease from the second quarter, significantly below market expectations. While the specific performance of each business sector was not disclosed that day, Samsung Electronics hinted that the semiconductor sector was a major factor behind the weakened performance.
As the world’s largest memory chip manufacturer, Samsung has had a significant advantage in both new technology products and traditional markets for years. However, amid the global “semiconductor spring” fueled by artificial intelligence (AI), Samsung has seen a decline in performance. This marks the first time Samsung Electronics has experienced a setback in performance during a prosperous period.
In terms of advanced chips, Samsung lags behind SK Hynix and Micron Technology in the development of high-bandwidth memory (HBM) chips for the future, and in the foundry sector, it trails behind TSMC.
Furthermore, Samsung faced its first major labor strike in history this year. In July, the company’s largest union initiated a large-scale strike due to dissatisfaction among employees over wages and bonuses, marking the first strike by the Samsung Electronics union in its 55-year history.
Overseas, workers at Samsung Electronics’ home appliance factory in Tamil Nadu, India, went on strike for over a month last month after rejecting a pay raise proposal. Due to various factors, it is believed that Samsung Electronics will reduce overseas staff in certain business sectors by up to 30%. This plan will continue until the end of this year and is expected to impact job positions in the Americas, Europe, Asia, and Africa, potentially leading to layoffs of thousands of employees in India alone.
Park Sang-ook, the Chief Presidential Secretary for Science and Technology in South Korea, stated on October 20th regarding the recent “Samsung Electronics crisis theory” that it is not just a Samsung issue but a symbol of crisis facing the science, technology, and industrial sectors in South Korea.
He said that although semiconductors have provided significant impetus to South Korea’s prosperity as a foundational industry, it is also time to look for new sources of growth.
On the day when Samsung Electronics announced its third-quarter performance, the company also broke its silence to acknowledge that one of the reasons for the poor performance was attributed to the rise of Chinese storage companies: “The growth of Chinese storage companies supplying generic chips has had an impact on (Samsung’s) declining performance.”
Taking China’s largest storage company, YMTC, as an example, under the support of the Chinese government, its DRAM production capacity is expected to reach 200,000 pieces by the end of 2024, accounting for approximately 11% of global DRAM output. Despite its product competitiveness being lower than Samsung Electronics, SK Hynix, and Micron, and facing difficulties in embedding intellectual property (IP) in export products, with the support of the Chinese government, YMTC is expected to dominate the Chinese market in areas such as smartphones and PCs. This is undoubtedly a major blow to Samsung, which relies on China for chip exports.
The share of China in South Korea’s chip exports was 36.6% last year, dropping to 35.5% in the first half of this year. The majority of South Korea’s semiconductor exports to China are generic chips. Samsung Electronics’ recent semi-annual report showed that over 90% of its sales in China in the first half of this year were in semiconductors.
Additionally, China’s practice of low-price dumping has caused losses to various industries in South Korea.
In a survey conducted by the Korea Chamber of Commerce and Industry on 2,228 manufacturing companies in South Korea, the results showed that 27.6% of the companies indicated that they were negatively affected by China’s low-price dumping, impacting actual sales, orders, and more. 42.1% of the companies expressed concerns that although they haven’t been affected so far, they might face losses in the future.
Another major crisis that Samsung Electronics is facing is technology leakage, with the majority of leaked technology ending up in China. In the first half of this year, 83% of South Korea’s core technology in semiconductors, batteries, and more was stolen by China.
Lee Chanhee, Chairman of the Samsung Compliance and Monitoring Committee, stated in the inaugural address of the Quasi-Monitoring Committee’s 2023 annual report on October 15 that Samsung Electronics is currently in a “desperate situation,” with “technological leakage” being one of the reasons.
For instance, in June last year, former executives and chip experts from Samsung Electronics and Hynix Semiconductor (now SK Hynix) were detained by the Seoul Metropolitan Police for allegedly leaking Samsung Electronics’ core chip technology – 20-nanometer DRAM process technology data to Chinese companies.
In 2016, former Samsung Electronics Minister Kim was tempted by huge benefits to leak Samsung Electronics’ 18-nanometer DRAM chip process information to YMTC, a move that threatened South Korea’s national core technology. Kim not only leaked Samsung Electronics’ core technology to China but also poached over 20 technicians from Samsung Electronics and affiliated companies. Kim was detained and prosecuted by the South Korean prosecution in January this year.
A special symposium titled “Reclaiming Korea’s Semiconductor Dominance” was held by the Korea Economic Intelligence on October 14, inviting five former government officials. Those present believed that the South Korean semiconductor industry stands at a crossroads, with China posing the most significant threat. They argue that in a semiconductor competition akin to a national rivalry, South Korea needs full government support to maintain leadership.
Former Minister of Industry Sung Yun-mo stated that China has invested approximately 300 billion yuan (around 42 billion US dollars) this year alone in semiconductor enterprises, while the United States has committed 52.7 billion US dollars to semiconductor and scientific laws. Sung Yun-mo emphasized the need for South Korea to expand current support conditions and deadlines and provide subsidies.