September 15, 2004 2:00 PM PDT

Infineon to admit DRAM price fixing

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Infineon Technologies will plead guilty to taking part in an international DRAM price-fixing conspiracy, which affected such companies as Dell, Hewlett-Packard and Apple Computer, the U.S. Department of Justice announced Wednesday.

Infineon agreed to pay a $160 million fine for participating in the international price-fixing and cooperate with the government's on-going investigation of other DRAM producers.

According to the one-count felony charge, filed in the U.S. District Court in San Francisco, Infineon conspired with unnamed DRAM makers to fix the prices of dynamic random access memory sold to certain computer and server manufacturers between July 1, 1999, and June 15, 2002.

DRAM, a memory semiconductor chip used in computers, consumer electronic products, telecommunications equipment and mobile phones, is more than a $5 billion industry.

"Today's charge and its resulting guilty plea represent an important victory in the (Justice) Department's ongoing fight to break up and prosecute cartels that harm American consumers," Hewitt Pate, who heads the antitrust division for the U.S. Department of Justice, said in a statement.

Infineon fixed prices by participating in meetings, conversations and other forms of communications with competitors to discuss which customers would receive certain prices on DRAM.

The DRAM makers then issued price quotations based on those agreements and exchanged with other makers' information on DRAM sales to certain customers, to monitor and enforce the agreed prices, according the Justice Department.

Computer makers negotiate prices for DRAM with the various vendors, said Sherry Garber, an analyst with research firm Semico.

"The PC (manufacturers) do check to see what other PC makers are paying. So there is always a lot of cross-information on who is paying what," Garber said.

Infineon representatives said the company is happy to put the controversy behind it.

"This has been an ongoing investigation for two years, and we've been happy to cooperate during that time," said Robert LeFort, president of Infineon Technologies North America. "We are happy to have it behind us now. It's good for the company, good for the shareholders, good for our employees. The good news for us is we can focus on our business."

He added the company has also put in place various policies and procedures to head off problems with price fixing.

"Our mind-set is to be a good corporate citizen and put things in place to ensure it doesn't happen again. We will compete on the technologies we have to offer," LeFort said.

Infineon, during its fiscal second and third quarters, set aside nearly $300 million to cover liabilities that may arise from the Justice Department's investigation and from lawsuits from PC makers. That amount is expected to be adequate to cover the Justice Department fine, lawsuits from companies and associated expenses, LeFort said.

In January, Alfred P. Censullo, a Micron Technology regional sales manager, pleaded guilty to a charge of withholding information and altering documents concerning a grand jury subpoena served on Micron in June 2002. Censullo is scheduled to be sentenced later this year.

The Justice Department investigation is focusing on such memory makers as Micron, Samsung and others, which had included Infineon. The European Commission, the antitrust regulatory body for the European Union, is conducting a similar investigation.

2 comments

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And what does than mean for the consumer?
This article makes it seem as though HP and Dell and other computer manufacturers got burned by price fixing, but they just mark-up their prices to consumers and businesses who buy the end product. So what to whom is this fine money paid? Will the people who REALLY got cheated get any rebates?
Posted by stumiller (20 comments )
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Not likely
The fine is paid to the USgovernment (the prosecuting party) and the likelyhood of it passed onto anyone else is about zero.

The companies that got burned - Dell, HP, etc will have to sue Infineon (and any other manufacturer they did business with) in order to get anything out of it.

Obviously, as you said, the actual victim of this price fixing was the consumer. The cost of building the PC is a floating figure, but generally the manufacturer knows well in advance what this cost will be before setting the retail price. So in effect they simply passed on the cost of this price fixing to consumers - although it could be argued they did this unknowingly.

So although the consumers are the ones that paid the price, the money raised from any future lawsuits is unlikely to passed on by these businesses to the people that actually ended up paying a higher cost for their purchase than was necessary. They could argue that by price fixing the ram, they ended with lower than expected profits, but this is mostly bull, as they simply mark up the price of the PC by a fixed percentage. Therefore the higher the cost of the PC, the more they could make from it. Naturally they do have limits set by competition, so they would be partly correct in saying they bore a small portion of this price fixing.

Bottom line is, don't look for free coupons for DRAM in the mail, or a cheque for $2 to cover any purchase that these businesses have records for.

Instead look for class action lawsuits and see if you can get onboard (for free). You might get your $2 this way.

(why $2? - because 99.99% of people involved in class action lawsuits never get more than a couple of bucks - partly due to the numbers of people involved and the limits set on the payout, and mostly because the lawyers take the bulk of the payment for themselves).
Posted by ajbright (447 comments )
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