Inside the Last-Minute Samsung Deal That’s Boosting Shares
The South Korean government directly intervened to push Samsung Electronics to strike a deal.
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Samsung Electronics (KR:005930) shares are surging on Thursday, causing the top-performing stock market in the world to lock in hefty gains, as the world’s largest memory-chip maker attempts to avoid a costly work stoppage.
Some 48,000 Samsung workers had been due to start an 18-day strike on Thursday, and last-minute government-backed attempts at mediation appeared to have failed. But the electronics conglomerate’s main union has suspended the work action so its members can vote from May 22 to 27 on a wage agreement.
The company, part of South Korea’s largest chaebol, or conglomerate, has done its best to bust union action in the past. But it did suffer a one-day work stoppage in 2024, the first time Samsung workers had walked off the job.
Talks on how to share Samsung’s bumper profits had broken down multiple times since negotiations began late last year. While it is not unusual for Korean companies to have testy and lengthy negotiations with their unions, even South Korea’s president, Lee Jae Myung, was pushing for the two sides in these talks to strike a deal. The labor minister even stepped in personally to shepherd the final talks.
Union Expects Deal to Pass
So, investors are cheering this potential agreement on pay so production can continue uninterrupted. The head of Samsung’s main union says he expects the wage deal to be ratified, according to Reuters.
The union, with many workers complaining that other chipmakers pay better wages, had been demanding that 15% of Samsung Electronics operating profit be set aside for bonuses, with a cap that limited bonuses to 50% of salary being scrapped.
Instead, Samsung is offering to set aside 10.5% of operating profit for special bonuses, to be paid with company shares over at least 10 years, without a cap. That’s contingent on the chip division achieving annual operating profit of at least 200 trillion won ($133 billion) each year from 2026 to 2028, and 100 trillion won ($66 billion) from 2029 to 2036.
The bonus pool would be shared 40% across the Samsung chip division as a whole, with 60% allocated to specific units. The union had also been pushing for broader sharing of the profits bonus, while management was resisting paying incentive bonuses to loss-making business units.
Soaring Profits
These are heady times for the company. For Q1, Samsung Electronics achieved a record operating profit of 57.2 trillion won ($37.9 billion), which already outstrips its entire operating profit of 43.6 trillion won ($28.9 billion) for all of 2025.
The symbolism of the deal is as important as its substance. Samsung is South Korea’s most-famous export, and the world’s fifth-most valuable brand, according to Interbrand, behind only leader Apple (AAPL), No. 2 Microsoft (MSFT), No. 3 Amazon.com (AMZN) and No. 4 Google (GOOGL).
The Samsung group accounts for 23% of the entire South Korean economy, as I explained in a column earlier this week, and a similar proportion of the entire country’s exports.
Given the group’s importance to Korean supply chains, economists were projecting that the Korean economy could take a hit to output as high as 100 trillion won ($66.3 billion) if Samsung Electronics temporarily stopped production.
Potential Forced Arbitration
To end the impasse in wage negotiations, the South Korean government had been considering the use of its emergency arbitration mechanism, which would have forced the union and company to come to some kind of agreement. Korea has only invoked that forced arbitration four times since it was first deployed in 1969, most recently using it twice in 2005 to force pilots from Asiana Airlines (KR:020560) and then Korean Air (KR:003490), the two main Korean airlines, back to work.
Samsung shares rose 8.5% on Thursday to a fresh all-time high, at 299,500 won. That helped the benchmark Kospi to an 8.4% advance. The Kospi ended the day at 7,816, just shy of its record close of 7,981, set on May 14.
Where the chipmaker goes, the Korean benchmark tends to follow. Samsung, which earlier this month became only the second Asian company to cross the $1 trillion mark in market value, accounts for around one-third of the market value of the Kospi.
New Price Target for Kospi
Nomura on Thursday issued a note to clients indicating that it is setting a new 2026 target for the Korean benchmark of 10,000 to 11,000, based on the increase in Korean corporate earnings.
That implies an upside of 34.3% from Thursday’s close. The Kospi is already up 85.5% year to date, and an eye-watering 225.0% since the start of 2025. That makes the Seoul market the world’s top performer both in 2025 and so far in 2026.
It is predicated on a rise in valuations from a current price/earnings ratio of 9.2 up to a P/E ratio of between 12.0 and 13.5.
Chief among the drivers is the upswing in demand for both “commodity” memory chips — the NAND and DRAM chips that have historically been Samsung’s specialty — as well as the next-gen high-bandwidth memory (HBM) chips that power the infrastructure of artificial intelligence applications.
Working Out the ‘Korea Discount’
Due to concerns about corporate governance, Seoul stocks trade at what’s known as the “Korea discount,” with a price-earnings ratio that is roughly 30% below international peers. It’s a legacy of the country’s recovery from the devastation of the Korean war, when the military dictatorships that governed the country worked hand in hand with Korean corporations to repair the country physically and restore its economy.
The Korean government is trying to address this with a series of corporate-governance reforms. In early 2024, the Financial Services Commission stock watchdog launched the voluntary Corporate Value-Up Program, inspired by similar governance reforms in Japan.
The scheme has had limited success. So far, 176 companies have published their Value-Up plans, committing to improve disclosures, empower minority shareholders, and restrict the use of treasury shares as a way to consolidate family control.
But it is the chip revolution that is transforming the Korean stock market, which at the end of April moved past the United Kingdom in terms of total size, making it the eighth-biggest stock market in the world.
Samsung and rival chipmaker SK Hynix (KR:000660) have turbocharged the Seoul market’s growth. Only Taiwanese chip-foundry specialist Taiwan Semiconductor Manufacturing Co. TSM (TW:2330), with a market value of $1.8 trillion, outdoes Samsung’s $1.3 trillion market capitalization.
U.S. investors can access the Korean chipmakers via the Roundhill Memory ETF (DRAM), as I noted in my last column. It has a concentrated exposure to 10 chipmakers, with Samsung, Hynix and U.S. rival Micron Technology (MU) making up almost 75% of the exposure.
At the time of publication, McMillan was long AAPL, MSFT and TSM.
