(Han Joo-hyung)
Samsung Electronics reported record first-quarter operating profit of 57 trillion won (about $38.8 billion), but a widening gap between its chip and device businesses is stoking internal tensions over pay and restructuring.
The semiconductor-focused Device Solutions (DS) division accounted for the bulk of earnings, with about 51.7 trillion won in operating profit, compared with roughly 3.8 trillion won from the Device eXperience (DX) unit, which makes smartphones, TVs and home appliances. The imbalance underscores Samsung’s growing reliance on chips even as margins in its consumer-facing businesses continue to erode.
Chip costs squeeze device business
The outlook for the second half is increasingly fragile. Samsung’s device unit typically generates stronger earnings early in the year on new product launches, before momentum fades later — raising the risk of a sharper downturn this time.
DX chief and co-CEO Roh Tae-moon has recently floated the possibility of a full-year operating loss for the division, according to industry officials.
At the center of the pressure is a surge in semiconductor prices — a dynamic often described as “chip inflation.” While the chip-making DS division is benefiting from soaring demand for high-bandwidth memory and server DRAM, those same price increases are eroding margins in Samsung’s device business.
Prices for 16Gb DDR5 DRAM have jumped roughly sevenfold over the past year, with NAND seeing similar gains. Memory now accounts for about 40 percent of smartphone component costs, up from around 20 percent previously, adding an estimated $50 to $60 to the cost of a premium handset.
The earnings hit is significant. Operating profit at the Mobile eXperience (MX) unit is projected to drop to about 5 trillion won this year from 12.9 trillion won last year — a decline of more than 60 percent.
Losses are even more entrenched in the Visual Display (VD) and Digital Appliances (DA) businesses, which are expected to remain in the red after posting about 200 billion won in operating losses last year. The VD unit has already undergone a management review and is pushing ahead with efficiency measures.
A softer global backdrop is adding to the strain. Replacement demand for smartphones and TVs has weakened, while Chinese rivals such as Huawei, Xiaomi and TCL are gaining ground with aggressive pricing. Samsung is being squeezed at both ends of the market — by Apple at the high end and Chinese brands in the mid- and low-tier segments.
Samsung steps up restructuring
Samsung has begun a broad restructuring of its DX division, moving to streamline operations and cut costs.
The company has decided to exit appliance and TV sales operations in China, while keeping production bases and shifting toward supplying nearby markets. It is also outsourcing lower-end appliance manufacturing and moving to shut down a plant in Malaysia.
Workforce reductions are under review, with some units considering cuts of about 20 percent. Reassignment and retirement programs are being discussed, particularly for employees nearing retirement age. Voluntary departures are increasing in the appliance and TV businesses as workers opt to leave with compensation amid a deteriorating outlook.
Cost controls are tightening across the division, with Samsung targeting reductions of around 30 percent.
Bonus fight deepens internal divide
At the same time, tensions are rising over compensation. While the DX unit braces for cuts, unions dominated by semiconductor workers are pressing for larger performance-based payouts.
Samsung’s labor union has called for bonuses equal to 15 percent of operating profit and has warned of a potential general strike next month. About 80 percent of members in the company’s largest union are believed to be from the DS division.
The split highlights a growing disconnect inside Samsung: one side is preparing for losses and restructuring, while the other is demanding a bigger share of record profits.
Analysts warn that if compensation demands become misaligned with the company’s broader financial position, both labor-management tensions and internal divisions could escalate.
If the DX unit fails to regain profitability, rising cost pressures could further amplify those tensions and increase volatility in Samsung’s earnings.
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