SAN JOSE, Calif. It has the makings of the biggest scandal in the history of the semiconductor industry. Or perhaps it's much ado about nothing. Most guess that the vast majority of the case will get swept under the rug.
Perhaps the most underreported yet one of the biggest stories of the year involved the DRAM price fixing case and its ongoing aftermath. Back in 2002, Hynix, Infineon, Micron, Samsung and other memory makers confirmed that the U.S. Justice Department undertook an industry-wide investigation into alleged price fixing practices (see June 19, 2002 story).
Reports surfaced that Japan's Elpida Memory Inc. also received a subpoena over price fixing practices. And two Taiwan DRAM makers Nanya Technologies Corp. and Winbond Electronics Corp. were also added to the list, according to sources.
At the time, rumors were running rampant about price fixing in Asia. Some observers also believed that major DRAM houses conspired to fix prices, reportedly in a move to squeeze out some of the weaker players. In effect, DRAM prices subsequently collapsed and forced some DRAM vendors into losses.
Up to now, details about the investigation have been scant. The DRAM industry, not surprisingly, tends to act as though the events never happen. Most are afraid to talk. And it's unclear if the Department of Justice has ended the investigation or is still in the middle of a major probe.
In any case, the shoe has dropped to some degree. Germany's Infineon Technologies AG (Munich) has agreed to pay a hefty penalty and four lower-level employees face fines and prison sentences.
One sales manager from Micron Technology Inc. (Boise, Ida.) has been fined and faces a prison sentence. Another sales manager from Samsung Electronics Co. Ltd. (Seoul, South Korea) has been implicated.
Then, with little fanfare and just two days before Jan. 1, 2005, Samsung said that it has set aside a $100 million provision against a DRAM price fixing scheme that has rocked the industry, according to published reports.
"The outcome of this matter cannot be predicted at this time. The company is unable to comment on an ongoing government investigation," according to a statement from Samsung, which was reported by U.K.-based The Times (see Dec. 30 story ).
And that's all at least for now. Perhaps a few rouge sales types attempted to fix prices at an OEM account or two. But many wonder how a few lower-level managers could have attempted to fix DRAM prices without the prior knowledge from top executives.
Some speculate that a "few good men" are taking a fall for a widespread scandal. Perhaps the paper shredders are working overtime at certain companies. But at the end of the day, the U.S. government appears to be slapping some wrists and sweeping the case under the rug.
A few, if any, heads will roll among top executives. Some wonder, however, if former Infineon CEO Ulrich Schumacher took a fall over the case. In March, Schumacher resigned over what was believe to be disagreements with the board.
Analysts disagree over the impact and future of the DRAM price fixing case. "We have not seen a big impact in this case," said Nam Hyung Kim, a principal analyst with iSuppli Corp. (El Segundo, Calif.)
Even if vendors or a few individuals attempted to fix prices it had little or no impact on the industry, Kim said. "The market is too volatile," Kim said.
Still others believe that the worst is yet to come for DRAM vendors. "I think we're past the mid-point of the case," said Ted Parmigiani, an analyst with Lehman Brothers (New York). "I think we'll see more judgments in Q1 or Q2."
In any event, the case has taken some strange twists and turns. In November, Micron clarified and corrected a recent story about the company that appeared in the November 3, 2004, issue of Electronics Weekly.
"Although a recent Electronics Weekly article suggested that I believe it is not possible to control prices in this industry and that the DOJ's investigation is theoretical, neither is the case," declared Steve Appleton, president, CEO and chairman of Micron, at the time.
"The DOJ's investigation revealed evidence of price fixing by Micron employees and its competitors on DRAM sold to certain computer and server manufacturers. Nevertheless, if Micron fully complies with the Corporate Leniency Policy, Micron will not be subject to criminal sanctions or fines, notwithstanding Micron's involvement in the misconduct," he said (see Nov. 11 story).
There is a smoking gun at Micron. Late last year, Alfred Censullo, who was responsible for Micron's sales efforts in the upstate New York region, "was charged with obstructing justice by altering and concealing documents that contained competitor pricing information," according to a report. Censullo, one of 50 regional sales managers at Micron, could face up to 10 years in prison and a $250,000 fine, according to the report. Micron has accepted Censullo's resignation, the report said (see Dec. 17, 2003 story).
Then, a federal grand jury is seeking evidence from a former business manager at Samsung Semiconductor Inc. regarding possible antitrust violations by global DRAM makers, according to a report in June.
The former manager, Devin Cole, is fighting the investigation and has refused to turn over evidence, according to a report. He could be found in contempt of court in the U.S. District Court in San Francisco, according to the report (see June 7 story).
In December, four executives of German semiconductor maker Infineon agreed to plead guilty to participating in a conspiracy to fix DRAM prices. According to the one-count felony charge filed in U.S. District Court in San Francisco, Heinrich Florian, Gunter Hefner, Peter Schaefer and T. Rudd Corwin were found guilty of conspiring to fix DRAM chip prices between 1999 and 2002. Except for Corwin, a U.S. citizen, the executives are all German citizens.
Each has agreed to pay a $250,000 criminal fine and serve prison terms ranging from four to six months. In addition, the executives agreed to assist an ongoing government probe into possible price fixing in the DRAM industry (see Dec. 2 story).
The pleas come two months after Munich-based Infineon agreed to plead guilty to price-fixing charges in the DRAM industry and pay a $160 million fine, the third largest in antitrust history (see Sept. 15 story).
What's next? It's unclear, but DRAM makers face tough times in the market. iSuppli predicts the DRAM market will enjoy revenue growth of 56.2 percent to reach $26.7 billion in 2004. The DRAM market will grow by a marginal 1.3 percent in 2005, according to the firm.
(Return to the 2004 Top 10 story list or go to No. 6).