RealTime IT News

Infineon Price-Fixing Probe Tip of Iceberg?

Infineon's admission of price fixing has the rest of the chip-manufacturing sector scrambling to steer clear of the government's ongoing probe.

The U.S. Department of Justice announced a settlement with the German-based Infineon who admitted Wednesday to overcharging for its Dynamic Random Access Memory (DRAM) between July 1, 1999 and June 15, 2002. The deal is part of the DoJ's ongoing investigation of price fixing in the $5 billion a year DRAM market. The $160 million fine is the third largest in U.S. antitrust history and the first time a major manufacturer has admitted to collusion.

Assistant Attorney General R. Hewitt Pate, head of the DoJ's Antitrust Division, declined to name other DRAM manufacturers that may be the targets of the investigation. Infineon's rivals are also vague about their part in the investigation.

"We will continue to cooperate fully with the Department of Justice in this matter," Chris Goodhart, director of marketing communications for Samsung Semiconductor, told internetnews.com. "Samsung has consistently grown its semiconductor business by investing in increased capacity, R&D and value-added technology."

Micron Technologies' spokesman, Dave Parker, told internetnews.com: "From our perspective, Infineon's plea agreement will not affect our cooperation with the Department of Justice and as we've said, we do not expect any fines as a result of the DoJ's investigation." Parker added: "We've always said that market forces, supply and demand, and global purchasing cycles are what drive prices in this industry."

Both Samsung and Micron Technologies have been previously contacted by the Justice Department and Commerce Department as part of a broader investigation of the market. U.S. regulators have been looking into claims of collusion and unfair business practices in the DRAM sector for a little more than two years. The European Commission is also conducting its own investigation.

According to Sherry Garber, a senior vice president and analyst with research firm Semico, between July 1, 1999 and June 15, 2002, prices in the industry were not going up but coming down -- so much so that many manufacturers were actually losing their shirts.

"The whole thing has been difficult to grasp," Garber said. "The DRAM market was healthy all the way through 2000 but between August 2000 and 2001, DRAM was shipping right at cost if not below. But of course that has nothing to do with the prices OEMs were paying. During the bust, prices started going down because there was more capacity to produce memory than [the DRAM manufacturers] had orders. That makes it more of a supply and demand issue."

Although the DRAM market is one of the most volatile industries, a check of prices in the years in question does show huge market swings. Between November 2001 and the first few months of 2002, memory prices spiked to an estimated three times their normal levels after a two-year plunge but then dropped back down, according to the Semiconductor Industry Association (SIA). The trade group said the DRAM marketplace started off as a $20.7 billion industry in 1999 and skyrocketed to $28.8 billion in 2000. That number dropped to $ 11.2 billion in 2001 and started to bounce back in 2002 to $15.3 billion.

These days the SIA reports DRAM prices are especially firm, reflecting a limited supply during the quarter and strong demands for the current PC refresh.

"With new production capacity coming on line, coupled with higher production resulting from the transition to smaller die sizes, it is likely that the supply-demand situation will ease going forward. The likely result will be more intense competitive pressures," SIA President George Scalise said in an August report. Currently, prices on the DRAM spot market sit around $4.50 per chip.

Despite rampant claims of collusion in the marketplace, SIA spokesperson John Greenagel told internetnews.com that stricter regulation of the DRAM sector is not necessary.

"We strongly believe that a free marketplace with all competitors playing on a level field is the best way to assure consumer protection," Greenagel said. "We cannot imagine a government regulatory scheme -- especially one that would involve allowing governments to set or regulate prices for DRAMs -- would be better than free and open competition.

"In fact, the DRAM market historically has been an ideal model for competition in the semiconductor industry. The dramatic drop in the true cost of memory -- as measured in a steady decline the price per bit of memory over time -- coupled with rapid progress in DRAM performance and density clearly demonstrates that free competition works in the interests of consumers."

Infineon's pain may also be Rambus' gain as the company said Wednesday that it was encouraged that Infineon has come forward with its admission. Los Altos, Calif.-based Rambus has filed both a patent infringement suit for DDR memory designs and a civil antitrust lawsuit against Micron, Infineon, and Hynix.

"This helps our argument of collusion as one of the key members admitted that they were a part of a two and a half year cartel that we have alleged." Rambus General Counsel John Danforth told internetnews.com.

Rambus' argument was also highlighted in an e-mail by Micron manager Kathy Radford, who described the efforts of Infineon and Samsung to raise DDR prices, and stated that Micron intended to try to raise its prices to all of the OEM customers. Radford then reported that, "'the consensus from all suppliers is that if Micron makes the move all of them will do the same and make it stick.' Prices did, in fact, increase in the months after Radford's e-mail."

Danforth said Rambus' remanded patent lawsuit against Infineon from an earlier appeal starts in November next month. Similar suits against Hynix and Micron are not scheduled to begin until next year.