Samsung to pay $300m price fixing fine

Korean electronics giant Samsung has agreed to pay a $300 million fine for its part in an international cartel to fix DRAM prices. The fine is the second largest in US history and the biggest penalty since 1999.

Samsung has pleaded guilty to the charge that between 1 April 1999 to 15 June 2002, Samsung and its US subsidiary, Samsung Semiconductor, conspired with other DRAM manufacturers to fix the prices of DRAM.

The charges alleged that Samsung, together with German manufacturer Infineon and Korea’s Hynix, agreed to set DRAM prices at certain levels for certain customers. The three also issued price quotations in line with their agreement and exchanged sales information about those customers so each could monitor and enforce the set prices.

The companies who were victims of the cartel were the biggest names in US computer manufacture at that time including Dell, Compaq, Hewlett-Packard, Apple Computer, IBM and Gateway.

Today DRAM memory is found in almost every high technology device from music players and digital cameras through to PCs and video recorders up to the largest mainframes. Naturally, it is big business. Sales of DRAMS in the US totalled $7.7 billion in 2004. However, memory is a notorious boom and bust industry in which companies have to invest billions in R&D and new plants upfront to catch the next wave.

Companies which are first to market can make huge returns on their investments. Equally they can lose billions if the market slumps or are caught with surplus stock and plant as the technology commoditises. The temptation for DRAM manufacturers is to ‘regulate’ the price of chips to make higher returns while they can and prevent prices collapsing through cut throat competition.

The other members of the price fixing cartel have also pleaded guilty and have faced big penalties. In May 2005, Hynix was handed a $185 million fine after its guilty plea. In October 2004, Infineon also pleaded guilty and faced $160 million fine. In addition four Infineon executives were found guilty of price fixing and handed a $250,000 fine and a jail sentence.

Earlier this week – Apple’s Samsung deal facing investigation – Korean authorities announced they looking into Apple’s Flash memory deal with Samsung whereby it acquired an estimated 40 per cent of Samsung’s output. South Korea’s Fair Trade Commission is considering whether to launch an enquiry into allegations that Samsung sold the NAND flash chips at less than the market price.

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