Korean FTC May Investigate Apple/Samsung

freaktheclown writes "Samsung may have sold Apple flash memory chips at below-market prices, possibly violating the country's competition laws. From the article: 'According to a report by Yonhap News, Korean Fair Trade Commission (FTC) Chairman Kang Chul-kyu said that his agency could look into allegations that Samsung sold the memory chips to Apple at below-market rates. Apple reportedly grabbed a significant share of Samsung's flash capacity in order to introduce its new iPod Nano. Analysts also speculate the computer maker got a significant discount from Samsung in order to hit the Nano's $199 and $249 prices.'" Adds a new layer to a previous story, eh?

Not the First Anti-competiveness from Apple

[Cyberllama]

When the ipod first came out they used their buying clout/muscle to ensure they were the only ones able to buy Hitachi's supply of 1.8 inch hard drives. Sure there were other companies that could have made products to compete with the ipod. There's a reason Apple was the only one to put out a small/sleek player when everyone else was still putting out clunky nightmares and its not becuase Apple is the only company to employ competent engineers -- no one else simply had access to Hitachi's hard drives to make it possible.

Legal? Probably, I am not a laywer. Dirty? Hell yeah. That's business. What baffles me is that some of you out there seem to think that Apple is somehow above the fray. That while every other large coorperation will lie, cheat, and steal to get ahead -- Apple is somehow different.

I'm sure I will get moderated down by some of the rabid Apple fanboys out there, but the fact of the matter is that Apple is NOT different. They make some lovely products, but at the end of the day they run their business just like everyone else. If Mac OS had become the dominant platform back in the day instead of Windows, you'd all be talking about Microsoft's superior engineering and decrying Apples anti-competetive tactics.

How is this Apple's foul?

[JoeGrind]

Can someone explain to me how this is reflects badly upon Apple? I'm asking sincerely. When I go shopping I look to find the cheapest price. Seems as if Apple was just doing the same. If they can negotiate a better rate from Samsung, I'd consider it foolish not to. It more sounds as if Samsung might have broken some Korean law, no?

Cost Of Materials

[putko]

When you buy enough of the chips, you are essentially paying for the raw materials only, plus whatever wear and tear you've got on the factory. This is because another way to get the same thing would be to rent a factory for the time period, buy the raw materials, and run the equipment to produce the finished goods. If the price asked for diverges much from the alternative, you'd take the alternative -- e.g. you'd see Apple renting a factory for a few years, and renting staff and IP in order to produce the goods.

However, I can't for the life of me figure out why the Korean FTC would have a problem with Samsung. I have to figure that Samsung peeved someone in the Korean govt. (or US govt.) and someone with a political beef with Samsung is making up some ridiculous charges. Because it boggles the mind why Samsung would do something so awful for business like selling crap below market.

The only scenario like this that I can see is that having a guarantee of massive volume from Apple allowed Samsung to invest even more heavily into their production, putting them ahead of their competitors. So they figured, "even if we lose a bit on Apple, we'll get our costs per item lower so we'll survive the coming price war."

Re:Not the First Anti-competiveness from Apple

[blackest_k]

I take it you don't know that coke and pepsi supply fridges to cafes ect. The deal is we give you a fridge and you don't put our competitors products in it.

it's like the myth of a pub being a free house in the uk. yes the brewery doesn't own the pub but quite often they do help finance a mortgage to allow the owner to buy the pub usually with a proviso that so much beer is bought from the brewery.

these are cases which are supplier controlled.

on the otherhand supermarkets usually control the deal they get from farmers and packhouses.

how many suppliers do you think are told to produce x for a supermarket produce it and then get told actually we don't want so much. the production is done and often its a case of unload the truck and either rework it or dump it. rework means relabel so your best by date was the 17th that product now gets packaged in best by the 18th.

who's master in this deal hitachi or appple i dont know but if hitachi can't supply much more than apple require without building more lines. then apple will get the production. commonsense really especially if the other customer is trying to compete with apple.

Korean christmas, liquid lunch and options.

[tabbser]

Perhaps the issue at heart here is not that Apple bought chips at below market levels (Yes, I've seen the Toshiba posts), but perhaps that some Korean company has complained (lobbied the government) that they now are having to buy chips at an increased rate and the christmas goodies are not in jeopardy.

This seems more likely to me.
I'm sure apple has bought futures on flash and can ride out any price differential, just like the smart airline companies (should) have done with jet fuel (not American, United, Southwest etc).

I'd be surprised if apple does not have people that work global analysis of such purchases and buy up options.
I know I would if I were buying up 40% stock of flash from some companies.

If it were me (and I'm not a finance person) I'd buy up options on more than I needed and sell those options at many times the face value once the world realized (as we approach christmas) that there is a shortage of flash because "apple" is buying them all. I bet Apple is not only making $199 on your ipod nano purchase, but also a few extra bucks per nano on the futures market just because your ipod is sucking up flash.

I wish I'd taken finance at school instead of dicking around with a liquid lunch and an irrational particle accelerator.

Re:Not the First Anti-competiveness from Apple

[lmlloyd]

So the iPod only has a 3-5% market share? Funny, I thought it was more successful than that.

You know, at the time they were ruled as a monopoly, Microsoft only had 3-5% of the PDA market, so how could they be a monopoly? For that matter, IBM has always had a 0% share of the home video game console market, yet they operated under an anti-trust decree for many years. I wonder why that is? Oh, right, because a monopoly is decided on a per-market basis! It may come as a surprise to you, but I think that a company with over 90% of the DAP market, just might be in contention for investigation as a monopoly in the DAP market, regardless of their dismal performance in the desktop OS market.

By the way, I love how on /. Apple is an unstoppable juggernaught, constantly gaining desktop market share, right up until it is convenient for the current argument for them to be the beleaguered underdog, at which point their market share drops to the very low single digits.

A little bit more explanation

[ihavnoid]

First, you should know that the other companies, such as Cowon (never heard of?) or Iriver (maybe?) doesn't buy something like 10k flashes, they buy MILLIONS of them. Although that's still a lot less than Apple's product, that's still an awful lot of chips. You should know that iPod's market share in Korea is completely disappointing, http://www.cdfreaks.com/news/12253 [cdfreaks.com]
and companies like iRiver still sells millions of players every year.

The Korean manufacturers claim that Samsung never sell flash memory chips directly to them, no matter how many chips they buy. (unlike Apple, which gets flashes directly from Samsung) Adding an additional layer on sales means more cost. Additionally, they claim that Samsung never ever sells 2Gig chips to any Korean mp3 company, no matter how much they pay. Though I don't know much about Korean law, but they claim that it's against the Korean law (Looks like some antitrust/fair trade bill).

The second problem is that there is a serious flash shortage (probably due to Apple's nano), and many companies (especially smaller ones) claim that they are treated unfairly, compared to the larger corporates.

What the Korean mp3 companies, plus many other people claims is that Samsung's strategey to sell flash chips with near zero margin, or even with loss, is:

1) Kill hard disk companies, such as Toshiba or Hitachi, that sold disks to Apple. Note that Samsung also sells hard disks, and pressurizing competitors HARD will definitely be good for Samsung's hard disk business.

2) Suggest an appealing price to Apple, and lock them to flash-only players,

3) Kill the local mp3 business, and kill competition in Korea. That will help Samsung's mp3 business (plus, the cellphones with mp3 player capability). After all competition is gone, they can deal with Apple by stop providing flash with huge discounts.

Although none of these claims are proven to be true yet, it's clear that the Samsung-Apple deal pressurizes both hard disk manufacturers and mp3 player manufactures.