Samsung's Fuller Disclosure


Anyone following the Justice Dept.'s investigation of price fixing in the memory-chip industry had reason to pay especially close attention to court filings made public Nov. 28. Samsung Electronics, the South Korean chipmaker, had already pled guilty in the case and agreed to a $300 million fine (see BW Online 10/14/05, "Samsung's Day of Reckoning"). But the document sheds new light on Samsung's agreement to plead guilty and names seven individuals who could face criminal prosecution in the matter.

Samsung is a key figure in the government's probe of an alleged conspiracy to thwart competition in the memory-chip business by manipulating prices, starting in mid-1999 and continuing until mid-2002. In the filing, submitted to the U.S. District Court in San Francisco, Samsung admits to several key details of a plan to fix prices on memory chips, known as dynamic random access memory, or DRAM.

But it also admits that some actions involved a particular type of memory chip known as RDRAM, designed by Rambus (RMBS), a chip technology designer that has lodged its own lawsuit against Samsung and other memory-chip companies. Rambus alleges it was injured by certain price-fixing actions by those companies during roughly the same time period.

MICRON'S DEAL. Samsung, the world's largest producer of computer memory chips, is the third company named so far in the government's ongoing probe into price-fixing in the memory-chip industry. The others are Infineon (IFX) of Germany and Hynix Semiconductor, also of South Korea. The filings mark the latest steps in what has turned out to be the biggest antitrust investigation in U.S history.

Until now the Justice Dept. has levied $646 million in fines, and sent five people to prison. A fourth company, Micron Technologies (MU), based in Boise, Idaho, has been cooperating with the investigation under a leniency deal.

The admission concerning RDRAM is significant, because Samsung admits in the filing that at least part of the actions for which it was charged related to RDRAM. Rambus lawyers have repeatedly sought to link the actions in the Justice Dept. case with its own.

"TREMENDOUS" STAKE. Specifically, they have argued that the actions to which Hynix, Infineon, and Samsung admitted were motivated by the goal of putting Rambus out of business. But the chipmakers have repeatedly denied there is any connection between the price fixing to which they admitted under the DOJ matter and the price-fixing alleged by Rambus.

Indeed, Samsung lawyer Mark Schechter, with the Washington, D.C., Howrey firm, said Samsung's actions relating to Rambus' memory technology showed the outfit's intent was the opposite, referring to language in the filing that portrays Samsung as having "invested in, promoted, and marketed RDRAM."

"Samsung staked a tremendous amount on the success of that technology," Schechter says. "It would not have been in its best interest to sabotage those efforts. There is little comfort here to those who would allege that Samsung was anything other than incredibly supportive of Rambus technology."

CALIFORNIA MEETING. In fact, Samsung was the largest supplier of RDRAM by far during the time period covered by the complaint. Among its customers was Sony (SNE) which used – and still uses -- RDRAM in its Playstation 2 gaming console.

Rambus in 2004 sued memory-chip makers, including Samsung, Hynix and Micron, in a California court, alleging that those companies colluded to artificially inflate prices on RDRAM, while similarly lowering prices on an alternative technology, double data rate DRAM (DDR) chips, and thus make RDRAM less attractive to computer manufacturers like Hewlett-Packard (HPQ), Dell (DELL), Gateway (GTW) and Apple (AAPL) among others.

Rambus' lawsuit paints a picture in which the memory companies planned to mislead Intel regarding how much it cost them to build RDRAM chips, and to overstate how many of the chips they planned to manufacture. Its complaint describes a 1998 meeting at which executives of Hynix, then a unit of Hyundai, urged executives with other companies to provide PC makers with artificially inflated price and production projections on RDRAM, and by overstating production plans on RDRAM chips to Intel.

RELUCTANT MARKET. In its complaint, Rambus cites notes of an October, 1998, meeting at Micron headquarters in Boise, which state that Farhad Tabrizi, a Hynix executive, reported that his outfit had shown Intel price projections for RDRAM chips that were "two to three times" the price of another kind of chip, and also gave Intel production projections that amounted to "three times their actual plans."

Intel (INTC) was Rambus' biggest ally in its effort to promote RDRAM as an industry standard memory technology. In the late 1990s it insisted that its then-forthcoming Pentium III chips would work only with RDRAM. RDRAM was designed to move data faster than memory technologies in use at the time (see BW Online, 10/31/05, "Rambus and a Price Fixing Tale"). Intel wanted RDRAM to succeed badly enough that, on Feb. 21, 2000, it invested $250 million in Infineon with the purpose of encouraging RDRAM production.

The only problem was that manufacturers of memory -- the low-margin commodity parts of the semiconductor industry -- balked at the idea of paying what they saw as unreasonable licensing fees and royalties for RDRAM. They instead promoted DDR, which was faster than than the older SDRAM technology, then being phased out, though not as fast as RDRAM.

A MATTER OF TIMING. Better yet, DDR was royalty-free. By October, 2001, Intel had moved away from Rambus memory and toward DDR, and DDR memory technology is now a standard component in most computers.

The time element of Samsung's new admissions also is key, because the period during which Samsung, Hynix and Infineon have admitted to collusion coincides closely with the period when Rambus was trying to establish RDRAM in the marketplace.

In the filings, Samsung and the government also name seven current or former Samsung employees, including Park Young Hwan, president and CEO of its US-based Semiconductor Division, who are not covered by the settlement agreement and may yet be subject to further prosecution.

The other six are: Thomas Quinn, a Samsung vice-president of memory sales; Kim Il Ung and Kang Yeong Ho, both vice-presidents in charge of marketing; Lee Sun Woo and Lee Young Woo, vice-presidents for memory-chip sales. The seventh, Rha Young Bae, is no longer a Samsung employee.

"FINAL RESOLUTION." When the guilty plea was announced, Thomas Barnett, the government's acting head of antitrust investigations, indicated seven people -- then unnamed -- were not covered by Samsung's guilty plea, indicating they might face criminal charges of their own. Samsung did not make any of them available for comment.

Samsung declined to comment on the filing, other than to say, "on Nov. 23, 2005, the plea agreement between Samsung and [the Justice Dept.] regarding price fixing of DRAM was filed with the clerk of the court in anticipation of a formal hearing to enter the plea on November 30." In the statement, Samsung went on to say, "there has been no change in the terms of the plea agreement or in the companies' status since the announcement of the plea last October. The plea agreement represents the final resolution of the federal DRAM investigation for Samsung."

Rambus general counsel, John Danforth, said: "We are continuing to pursue our own antitrust case which is based in part on the price fixing now being admitted by key members of the DRAM industry." He declined to elaborate.

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