The Search for SRAM Scams

The Justice Dept. is investigating whether anticompetitive practices took place among companies that supply the memory chips

After storming through the computer memory chip industry with the biggest antitrust investigation in U.S. history, the Justice Dept. is focusing on a new chip industry sector in its battle against price-fixing.

Companies including Japan's Sony (SNE) and Mitsubishi, South Korean chip giant Samsung, and Cypress Semiconductor (CY) in the U.S. have recently disclosed that they've been tapped by Justice on the subject of Static Random Access Memory chips, or SRAMs.

Fast and versatile, SRAM chips act as a workbench for other chips in a system, and are called upon for a wide array of simple data transfer functions.

A Justice spokeswoman confirmed Nov. 1 that an investigation is under way concerning the possibility of anticompetitive practices among SRAM suppliers, but declined to name any specific companies involved.

Additionally, Samsung disclosed that European Union antitrust officers had raided the offices of its German subsidiary in Frankfurt on Oct. 11. The European Commission confirmed that investigation, but declined to name the other companies involved.

Companies Charged

The latest probe is occurring on the heels of what has turned out to be the largest antitrust investigation in U.S. history, into the fixing of prices on another type of chips, Dynamic Random Access Memory, or DRAM, the main memory chips used in personal computers and servers (see, 6/1/06, "Rambus: We Were Price-Fixing Target").

In that effort, the Justice Dept. has leveled $731 million in fines against four companies: Samsung, Hynix, Japan's Elpida, and Germany's Infineon. Of those fines, the largest was $300 million at the industry's biggest supplier, Samsung.

Additionally, 16 people have faced criminal charges, with some serving prison time. That number includes two Samsung executives and one Hynix executive indicted just this month by a federal grand jury in San Francisco. These executives were charged with conspiring to suppress competition in the DRAM industry in violation of the Sherman Antitrust Act. Four executives from Infineon (IFX) have served jail time. Four other Samsung employees and four other Hynix employees have also been charged and sentenced to fines or jail time. A former employee of Micron Technology (MU) was sentenced to six months of home detention after destroying evidence requested in the investigation. Micron has been operating under a corporate leniency deal, and has said it expects no fines in the matter.

Chip Concerns

DRAM chips account for about $25 billion to $30 billion in revenue annually, while SRAM chips make up a much smaller business—about $3 billion a year globally. DRAM chips are an essential component inside PCs and servers. Launch a program or open a document on your PC, and the data is loaded into the machine's active memory, which is comprised of DRAM chips. When your machine has more DRAM chips, the other chips in the system have more elbow room to work with that data.

The SRAM chips are used less often now, says analyst Mark DeVoss with market research firm iSuppli, of San Jose, Calif., because chipmakers are increasingly building the SRAM directly atop other chips instead of using a dedicated SRAM chip. "It's a good case of socket attrition," DeVoss says. "The places where it actually makes sense to use a separate SRAM are decreasing as SRAM features are integrated into other chips. That has lowered demand."

Samsung is the top supplier, followed by NEC (NIPNY), Cypress, Toshiba (TOSBF), Micron, Renesas, and Sony. Other notable SRAM suppliers include STMicroelectronics (STM), Freescale Semiconductor (FSL), and chipmaker IDT (IDTI).

Class Action Threats

One nasty side effect of any Justice Dept. antitrust investigation are class action lawsuits, says attorney Andy Kleveorn, with Chicago law firm Eimer, Stahl, Kleveorn & Solberg. "There have already been 12 class action cases filed in the Northern District of California alone, and all the companies involved will face an arduous legal process to fend off those suits," Kleveorn says.

It is unclear whether any of the companies being investigated are operating under leniency deals similar to the one Micron has received in the DRAM case. Under a corporate leniency deal, a company may come forward and confess to the government that it has been part of a conspiracy to fix prices, and then receive a lighter punishment from the courts, Kleveorn says. "If you're a participant in a cartel and you're the first to step forward, you're not prosecuted, and ultimately if there are civil suits, the damage awards are limited because you don't have to worry about paying treble damages."

For Sony, the revelation of the investigation is only its latest public headache, following a massive recall of notebook PC batteries, manufacturing delays of its forthcoming PlayStation 3 gaming system, manufacturing problems with its Blu-ray DVD drives, and plunging profits.

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