Prosecutors Could Seek Charges Against Chip Makers
Manufacturers Attempted To Fix Prices for Memory,
Fresh Evidence Suggests
By JOHN R. WILKE and DON CLARK
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- Newly disclosed e-mail and testimony from industry executives show what prosecutors believe was a global conspiracy among some of the world's largest memory-chip makers to cut production and raise prices before a sharp price spike two years ago.
The evidence -- and new activity before a federal grand jury in San Francisco -- suggests a long-running antitrust investigation may be coming to an end. Prosecutors are expected to seek criminal price-fixing charges against some chip makers, while others are weighing whether to enter plea deals and risk heavy fines, lawyers close to the case said.
Companies that have disclosed they are under investigation include the market leader, Samsung Electronics Co., and Hynix Semiconductor Inc., both of Korea; Micron Technology Inc., based in Boise, Idaho; and Infineon Technologies AG of Germany, among others.
These companies dominate the $16 billion-a-year market for dynamic random-access memory chips, or DRAM, which hold electronic data temporarily and are vital components in every computer. Despite their central role in the industry, memory chips are a commodity -- unlike the more complex microprocessors made by Intel Corp. and others -- and have experienced sharp swings in pricing over the years.
Long-term, prices for memory chips have fallen, putting downward pressure on computer prices and benefiting consumers. But the fresh evidence reflects persistent tension between chip makers and their computer-making customers. Computer makers have at times been whipsawed by temporary production problems and shortages of new memory chips that have further squeezed their already-thin profit margins.
A Samsung spokeswoman declined comment. Infineon confirmed it has provided information to investigators but had no further comment. A Micron spokesman, Dave Parker, said "we have fully and actively cooperated with [the Justice Department] and will continue to cooperate with them." He declined to comment on specific allegations of price fixing. A Hynix attorney familiar with the matter couldn't be reached.
Some of the new evidence was disclosed this week in a separate case brought by the Federal Trade Commission. A Nov. 26, 2001, e-mail sent by a Micron manager described efforts of Infineon and Samsung to raise prices on memory chips and says that Micron planned to raise its prices to all PC makers. "The consensus from all suppliers is that if Micron makes the move all of them will do the same and make it stick," the e-mail said, according to court documents released by the FTC.
The Justice Department's case also got a boost last month when Alfred Censullo, a Micron sales manager in upstate New York who sold chips to International Business Machines Corp. and others, agreed to cooperate with prosecutors, according to a plea agreement filed Jan. 21. In December, he had been charged in U.S. District Court in San Francisco with obstruction of justice for altering handwritten notes that he had taken during weekly teleconferences with other Micron sales managers, in which they discussed competing chip makers' prices.
Micron late last year sought amnesty from criminal prosecution, and in exchange is expected to admit to a role in the alleged conspiracy and cooperate with Justice Department investigators. Infineon is seeking to negotiate a plea or settlement with federal prosecutors, and could be the first to do so, lawyers close to the case said. Initial charges in the case could come as soon as next month, these people said; a Justice Department spokeswoman said only that the investigation is "ongoing."
The grand-jury investigation began in June 2002, after a sharp, across-the-board spike in memory prices, reversing a two-year decline. While the increase turned out to be short-lived, it drew the attention of federal officials after Michael Dell, chief executive of computer maker Dell Inc., complained at an industry conference of "cartel-like behavior" by the chip makers.
The investigation is focused on the months beginning in late fall of 2001 through June of 2002, the lawyers close to the case say. During that period, several Asian chip-industry executives boasted in overseas trade publications that chip makers had reached "an understanding" to cut production in some factories to drive up prices. In the Taipei Times on May 17, 2002, a Taiwan chip maker said that companies had discussed maintaining a price of $3 a chip, according to court documents.
The alleged price-fixing conspiracy has already drawn a number of private lawsuits seeking damages on behalf of companies that bought chips in the first half of 2002. Those suits have been consolidated in U.S. District Court in San Francisco. Other firms, including Boies, Schiller & Flexner in New York, are in discussions with major computer makers that may have paid higher chip prices as a result of the alleged conspiracy.
Some of the newly disclosed documents were released this week as part of a separate antitrust case, pursued by the FTC, against Rambus Inc., a Silicon Valley technology company that has been involved in a series of legal disputes with memory-chip makers over its patents. An administrative law judge, Stephen McGuire, last week dismissed the FTC case against Rambus, though the decision may be appealed.
The FTC alleged in June 2002 that Rambus violated antitrust laws when it participated in an industry group that was setting technical standards for memory chips. The FTC alleged that Rambus encouraged the group to endorse standards while concealing the fact that its own patents covered those standards.
Rambus, which had been backed by industry giant Intel, in turn has accused the memory-chip makers of conspiring to hamper adoption of chips made with Rambus's technology. Documents produced in the FTC case suggest that manufacturers were opposed to Intel attaining too much influence over the industry as well as paying royalties to Rambus.
The new evidence stemming from the Rambus case suggests chip makers already talked frequently before the 2002 memory-chip price spike. An executive from the South Korean chip maker -- then called Hyundai Electronics Industries, and now called Hynix Semiconductor -- wrote an e-mail to other DRAM makers in 1997, stating: "As I have mentioned many times before, Intel does not make DRAMs, we do. And if all of us put our resources together, we do not have to go on this undesirable path. The path of control and domination by Intel." A lawyer for Hynix declined to comment on the e-mail.
Rambus alleged that the DRAM makers later artificially reduced production volumes of chips using the Rambus technology, and overestimated how much more they would cost to make than standard chips. In one e-mail exchange at Micron, in April 1999, executives expressed exasperation at the large production volumes of Rambus chips that Samsung appeared to be ready to deliver. One of the executives wrote that Samsung had "broken ranks with the other suppliers and sold their soul to the devil," according to a message cited by Judge McGuire.
Mr. Parker, the Micron spokesman, declined to comment on details of his company's e-mails produced as part of the FTC case. But he added: "We are very concerned about information like this being taken out of context and represented as fact."
Write to Don Clark at don.clark@wsj.com |
