Samsung Electronics shares rallies 6% after union suspends strike following tentative wage deal

Samsung Electronics experienced a significant boost in its share prices, rising over 6% on Thursday, following the labor union's decision to halt a planned 18-day strike. This announcement came late Wednesday, alleviating fears of potential disruptions at the major South Korean chip manufacturer. Initially, the union had indicated that the strike would proceed after negotiations mediated by the government fell through. However, a new round of discussions led by Kim Young-hoon, South Korea's labor and employment minister, resulted in a tentative agreement. The positive momentum for Samsung's shares was further fueled by optimism in the semiconductor sector, especially after Nvidia reported another impressive quarterly performance. The AI chip leader's revenue surged by 85%, reaching $81.62 billion, up from $44.06 billion a year prior. Additionally, Nvidia announced an $80 billion stock buyback program and increased its dividend payouts. As part of the new development, the union confirmed that the general strike would be suspended, with all members slated to vote on the tentative wage agreement from May 22 to May 27. During a briefing broadcasted on YouTube by KTV, Minister Kim emphasized the provisional nature of the agreement, stating that there remains a considerable way to go before a final accord is reached. He noted that while various issues are still outstanding, significant progress has been made in narrowing the gap between both parties. According to reports from Yonhap, Samsung’s highly lucrative chip division is set to receive 40% of the total bonus pool, with other business units getting the remaining 60%. A contentious decision regarding the distribution of bonuses among Samsung's less profitable divisions has been deferred for one year. Reuters disclosed that Samsung plans to allocate a special bonus amounting to 10.5% of operating profits to its chip division, while also agreeing to the union's demands to tie bonuses to operating profits and eliminate bonus payout caps. Furthermore, the company intends to partially fund these special bonuses with stock over a period of at least 10 years, contingent upon the chip division meeting operating profit targets of 200 trillion won ($133.65 billion) for the years 2026 to 2028, with the target reduced to 100 trillion won from 2029 to 2035. Previously, the union had sought performance bonuses equivalent to 15% of Samsung's operating profit, the removal of bonus payout caps, and a formalized bonus structure, among other requests. In comparison, rival SK Hynix reached a wage agreement last September, setting aside 10% of operating profits for worker bonuses. South Korean President Lee Jae Myung had commented on the situation after the initial talks collapsed, conveying that while it is understandable for labor unions to seek their interests, there should be reasonable limits in their actions. Prime Minister Kim Min-seok had estimated that the direct losses from the strike could amount to 1 trillion won, with potential economic losses soaring to 100 trillion won if production disruptions necessitate scrapping semiconductor wafers in production. Samsung Electronics represents 22.8% of South Korea's exports and accounts for 26% of its total market capitalization, with its revenue constituting 12.5% of the nation’s GDP.