WASHINGTON U.S. antitrust enforcers last week lowered the boom on the global memory industry as they sought evidence of anticompetitive behavior in a rapidly consolidating DRAM arena.
The probe launched by the Justice Department's Antitrust Division came in response to allegations of price fixing. Antitrust experts said that the assembling of a federal grand jury in the Northern District Court in California to consider alleged criminal violations of U.S. antitrust law is a serious threat to memory manufacturers.
"It sounds as if [the Justice Department] saw a spike in the DRAM prices and decided to take a look at it," said Mary Azcuenaga, an antitrust attorney and former Federal Trade Commissioner. "If they find evidence of price fixing, I expect them to be aggressive in pursuing a case" against DRAM makers.
Word of the Justice Department probe surfaced when Micron Technology Inc. (Boise, Idaho) confirmed that it had received a subpoena last Monday from a federal grand jury in San Francisco as part of "an industrywide investigation into alleged anticompetitive practices among DRAM manufacturers." Industry sources said investigators are examining possible collusion in DRAM pricing and manipulation of manufacturing capacity.
Micron will cooperate in the investigation, a spokesman said, adding that the company "does not believe it has violated U.S. antitrust laws." The spokesman also emphasized the volatility of the DRAM market and recent historic low prices on the spot market.
Also confirming that they have been contacted in connection with the probe were industry leaders Samsung and Infineon. By week's end the U.S. antitrust probe was known to have spread to other DRAM manufacturers, including Elpida, Hynix, Nanya and Winbond Electronics.
In acknowledging it had been subpoenaed, Samsung Semiconductor Inc. (San Jose, Calif.) said that Justice Department investigators are seeking documents and records related to its DRAM products. Samsung said the subpoena did not implicate the company, adding that Samsung "is not a target of the investigation."
During the first quarter, analysts said, component costs rose as DRAM contract prices moved four times off their December lows of less than $1. Due to the sudden rise in pricing and the declining demand, many hardware vendors suspended their promotions for DRAM upgrades and began to adjust PC pricing to reflect the higher component costs.
At one point, memory-per-box figures stabilized as contract prices moved toward the $4 to $5 range. But according to a report by Dan Niles of Lehman Brothers, contract prices have since dropped off to about $3, with spot market prices at just above $2.
Other than confirming an investigation was in progress, the Justice Department declined to provide further information about the inquiry. John Kelly, president of the DRAM standards group Jedec, said most of the industry is "completely in the dark" about the details of the probe.
The Justice inquiry was sparked in part by published reports of meetings in Asia among the major DRAM vendors, including the apparent admission by a Mosel-Vitelic officer of price-fixing meetings that appeared in Taiwan's Commercial Times on May 29.
According to an online version of the story, Mosel-Vitelic vice president T.L. Chang allegedly "confirmed that his company had reached an agreement with Hynix Semiconductor Inc. and Samsung Electronics to push up DRAM prices to $3 a chip by stopping dumping of the chips. Hynix and Samsung executives visited Mosel-Vitelic and Nanya Technology Corp. recently to discuss the agreement," the newspaper reported. "Since then, the 128-Mbit DRAM price has rebounded 62 percent, from $1.60 to $2.60 a chip."
Kenneth Flamm, a former Defense Department official who now teaches public policy at the LBJ School of Public Affairs at the University of Texas-Austin, said any collusion among the major DRAM makers if it did occur may parallel the price floors set by the U.S. and Japanese governments in the mid-1980s, the key difference being that these "fair-market value" prices were deemed legal by two sovereign nations. Washington imposed sanctions against Japan, in part for allowing Japanese-made DRAMs to move out to gray marketers at less than the fair-market value.
Then, as now, computer makers resisted any hint of price collusion or exaggerated consolidation in memory chips, a major cost item in PCs.
Dell Computer Corp. chairman Michael Dell has publicly voiced his displeasure at excessive consolidation in the DRAM business, which has 40 percent fewer players now than in the mid-1990s. And Dell has voted with his checkbook: In early June Dell Computer and Taiwan's Nanya signed a five-year agreement that calls on Nanya to supply up to $3 billion worth of DRAM modules to Dell.
Push to 300 mm
Nanya, which is roughly the size of Japan's Elpida Memory, recently signed a licensing agreement with Infineon Technologies for 300-mm manufacturing technology and 512-Mbit-and-beyond DRAM technology. Part of the Formosa Plastics Group, Nanya intends to invest in 300-mm capacity in a drive to become one of the major DRAM makers, said Ken Hurley, president of Nanya's U.S. operation.
Flamm at the University of Texas said the Nanya deal with Dell, the largest DRAM customer, probably means more cost to Dell to qualify multiple suppliers. Given the consolidation in the memory sector, Dell may qualify more vendors as a form of protection, he said.
In the late 1980s, during the movement to establish a U.S.-based DRAM company tentatively named U.S. Memories, "We asked people if they were willing to pay more for DRAMs to ensure the presence of a U.S. supplier," Flamm said. "Dell was not interested then, and since the PC industry is so cutthroat now, I'm sure nothing has changed in that sense."