LG, Sharp, Other Accused Price Fixers Need Courage, not Nerve
It's been an interesting time for accusations of price fixing. Late in August, a class action was filed in California claiming that AMD and Nvidia were fixing prices of GPU processors and graphics cards -- just before Nvidia settled a lawsuit on the same topic. And just yesterday, LG Display Co. Ltd., Sharp Corp., and Chunghwa Picture Tubes Ltd. agreed to pay a total of $585 million in fines as the result of a U.S. Department of Justice antitrust investigation into two separate incidents of LCD display price fixing â€" and that doesn't include some other unidentified LCD makers that were involved.
Price fixing hurts the entire industry and all its customers. The only way for things to change is for executives to develop some backbone and not take the easy way out because they're afraid of real business.
This isn't the first time nor the last that high tech will face the anti-competitive action. DRAM has been a fertile ground for the charge. Samsung saw a number of executives charged in DRAM price fixing. In 2005, Hynix Semiconductor pled guilty to price fixing and paid a $185 million fine. Micron settled a class action law suitthat arose after the DoJ investigation into the DRAM market.
I can almost understand some of the pressure executives must feel. On one hand, there is the never ending demand from Wall Street for ever increasing results. On the other, the industry is under pressure from customers who want lower prices while it hits technical walls that prevent the steady march to new levels of efficiency and profitability. As a result, margins in general have plummeted to single digit levels after being close to 20 percent just four years ago. Semiconductors aren't groceries with marketing fees and float on the enormous amounts of cash they take in. Slim margins have to support enormous development costs and capital expenditures that would make almost any company blanch.
But that is almost. All businesses and industries face problems, and all have trouble making enough money. But price fixing is the coward's way out. Instead of pushing for innovation, operational efficiency, and compelling marketing, companies essentially agree to coast. It is like monopoly-light, except instead of one company that achieves domination through hard work, several try to break the system of capitalism. It is the economic equivalent of stacking a deck in a card game -- otherwise known as blatant cheating.
When people cheat in card games where there is betting, they steal money from the other players. When semiconductor companies fix prices, they steal from consumers, industrial customers, and business partners. Not only is that wrong, but in the long run stupid. Sharp's escapade affected Dell, Motorola, and Apple. LG Display and Chunghwa duped a number of OEMs. Think that people don't have long memories when it comes to such tactics?
If prices are too low for semiconductor companies, then they need to talk to customers and explain why they have to rise. Managers who can't have such conversations simply don't belong in positions of authority.
Price sign image via Flickr user Wyscan, CC 2.0.