On the day that it announced a profit fall of 30% it has been revealed that Samsung Electronics has agreed to pay $394 million for its role in an international price fixing plot.
The price fixing scam artificially raised prices for a technology essential to computers and electronics devices, the US Justice Department has said.The settlement is the second-largest criminal antitrust fine in history, the department said, and comes at the end of a three-year federal investigation of manufacturers who build “dynamic random access memory” chips, a market that was worth $7.7 billion in the United States last year. Samsung, based in Korea, is the world’s largest maker of memory chips.
The Justice Department investigated the pricing of “dynamic random access memory” chips, left. Companies affected by the price-fixing included Dell Inc., Hewlett-Packard Co. and Apple Computer Inc. And consumers likely paid more for a long menu of electronics products, according to the Justice Department.
Thomas O. Barnett, acting assistant attorney general in charge of the Justice Department’s Antitrust Division, called the case “one of the largest cartel prosecutions in the history of the antitrust division” because the arrangement, among four of the top makers of the memory chip, “raised the price on a technology used in almost every office and home in America.”
Samsung confirmed that it had reached a settlement with the Justice Department yesterday. Spokeswoman Chris Goodhart said, in a statement, that the fine “will in no way affect Samsung’s day-to-day operations.”
Samsung is the third semiconductor maker to agree to plead guilty to the charge of fixing prices, following Korean manufacturer Hynix Semiconductor Inc. and German memory maker Infineon Technologies AG. Those two companies were also fined hundreds of millions of dollars; one Hynix employee and four Infineon employees are serving jail time for their involvement in the conspiracy. An employee at a fourth company, Micron Technology Inc., pleaded guilty and spent time in jail for withholding and altering documents after he was served a subpoena related to the investigation.
Barnett would not say if the Justice Department is pursuing more cases against employees of Samsung or the other companies.
The particular technology, known as DRAM, is used in electronics equipment ranging from printers to cell phones to digital music players.
As early as 2002, Dell founder Michael S. Dell was complaining of “cartel-like” behavior by semiconductor manufacturers of DRAM memory, when prices for the technology failed to drop at similar rates as other components. The computer maker declined to comment on the investigation yesterday.
Ashok Kumar, a managing director and tech analyst at the Raymond James investment firm, said the fine Samsung will pay could be “relatively trivial” compared to the amount of money the company made. The Justice Department investigation covers a period from April 1999 to June 2002. More recently, Kumar said, Samsung has been accused by competitors of underpricing a different memory chip in an aggressive effort to win a potentially lucrative contract to supply that component for the Apple iPod.”It’s kind of ironic,” he said. “We’ve come full circle.”
Samsung third-quarter profit declined 30 percent amid lower chip prices and because it set aside funds to pay its antitrust fine. South Korea’s biggest company by market capitalisation said it earned US$1.8 billion in the three months ended Sept. 30, $2.6 billion in the same period a year earlier.
The third-quarter result was worse than expectations. A survey of 10 analysts by Dow Jones Newswires predicted Samsung’s profit would total 1.97 trillion won ($1.89 billion).
Samsung Senior Vice President Chu Woosik told investors on a conference call in Seoul on Friday that net profit would have been higher were it not for setting aside about 200 billion won ($192 million) to pay the fine. The company had previously set aside $100 million.
“If you exclude that, net profit would have gone over 2 trillion (won),” he said.
Sales during the quarter rose 1.4 percent to 14.54 trillion won ($13.94 billion) from 14.34 trillion won ($13.74 billion) a year earlier, the company said.
Prices for Samsung’s mainstay businesses — chips, mobile phones and liquid crystal displays used in computer monitors and televisions — peaked in the first half of last year. Profit margins in the industry have since been eroded by a global oversupply of dynamic random access, or DRAM, chips and LCDs, and stiffer competition in the mobile phone business.
Samsung is the biggest producer of DRAM and NAND flash memory chips in the world. It is the second-largest semiconductor maker after Inte and is also one of the largest makers of LCDs along with domestic rival LG.Philips LCD. .DRAM chips are most widely used in personal computers, while NAND flash chips are used in electronic devices such as MP3 players and digital cameras. LCDs are increasingly replacing the bulky, conventional cathode ray tubes used in PCs and high-priced television sets.