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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?
The "article" on the blog this story points to is full of "may" "could have" "possibly" and other weasle-word disclaimers. Nothing to see here.
planet texture maps and more
> Analysts also speculate the computer maker got a significant discount from Samsung in order to hit the Nano's $199 and $249 prices.'"
They can speculate that all they like, but the $199 2GB nano has Toshiba chips, not samsung.
Try again.
Don't most - indeed, if not all - electronics suppliers give substantial volume discounts? I'd say buying up 40% of stock would qualify for a discount. IANAL, but I don't see why that is an issue.
I may be stupid, but how does it "add a new layer"? If Apple is to buy a very substantial amount of Samsung flash chips (40%?) then what's in it for Samsung to sell it at "below-market prices"?
Also - WTF is "below-market prices"? I believe that does not mean that Samsung is gonna sell it at below the cost to produce, no?
have gotten at leas one thing wrong
"Analysts also speculate the computer maker got a significant discount from Samsung in order to hit the Nano's $199 and $249 prices"
the $199 model uses flash chips from toshiba (2* 1gb) whereas the $249 model uses flash from samsung (2* 2gb)
Is just as out of touch and unlikeable as the other FTC
There is truth in humor.
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.
;-) But I wouldn't put too much behind a statement like "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"... The original iPods still looked, felt, and functioned much better than the competition, and after those 1.8" drives hit wider availability said competition STILL hadn't whipped up anything much that's par, let alone a few swings under.
;-)
You got that right.
Those talking about Apple's superior engineering and aesthetics still have quite the point.
Dirty? About as dirty as any restaurant that only sells Coke or Pepsi products.
Apple got Hitachi to sole-source the HDs it used in the iPod. Big woop. Not necessarily dirty. Others had their chances at a slice of the 1.8" drive, too.
And Apple agreed to buy a big-ass load of NAND chips for the Nano to very favorable terms. Again, big woop.
If you are selling a commodity product, and someone comes along and says, "Hey, I'll buy all of your production for the next 18 months," and you still make money on it, you tend to bite on it.
Since we don't know what pricing level the KTC is looking into, it could be that Apple just committed to a magnitude larger memory buy than other buyers had done up until that point. Instead of selling several lots of 1 million SKUs, maybe, at varying price points over time, Apple says, "Hey, we'll buy 10 million SKUs over the next year at $5.00/10000 (when "the market price" tends to be $5.5/1000, or whatever) with half of the total up-front, and the rest delivered monthly upon delivery...", which is guaranteed money for Samsung (and pissing off AMD, Intel, Xylinx et al).
Again, not a big deal.
Want to buy a couple of animals from a farmer, but it'll take a week or two? OK. But if someone comes along and offers to buy everything he has for sale a couple of days after you talk to him, too bad!
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?
Price supports for memory chips in Korea?
In Korea, only old people understand your comment!
Aside from Apple's competitors complaining, where exactly is the monopoly behavior, or the unfair business practice? I'm no expert on Korean antitrust law -- I know zero -- but if it's like our monopoly law, then nothing wrong happened. A successful maker of mp3 players went to the maker of a new kind of memory -- or at least, very good memory -- and asked for a huge purchase. Samsung sold it at a discount, by which I infer there were competitors to whom Apple could also have gone, and they wanted the big sale. Samsung will make more of this memory, and I imagine the other 60% of the stock is also for sale to the other companies. So, what's the monopolistic practice? MS was nabbed because they told computer makers, install our OS and you must also take IE and keep Netscape, etc., off of your computers, or we will stop giving you a price break on Windows. This is using market power to compel another company to exclude your competitor. Apple buys a heck of a lot of memory and will no doubt be back for more, because the nano is selling like, er, nanos. Did they say, "And don't you dare sell any to Creative?" Another instance of possible monopolistic practice is what AMD alleges: that Intel forces Dell and other makers to sell only Intel-based computers, or lose their discount. See? Less competition. Unfair practices. But unless there's some secret coercion involved, and it's not obvious here, then Apple and Samsung have just committed capitalism. The company at the top of sales bought up a sizable number of chips. They had the money to plunk down, and the maker of the chips said, here, thank you. Competitors are upset, I suspect, because they can't keep up with the big dog. Boo-hoo.
It's Toshiba, not Hitachi.
Apple has never used Hitachi 1.8" drives in iPods. Rio did, in the Karma.
And there were no other drives available because Apple was buying them as fast as they could be made. That's the only reason. The drives were available before the iPod came out (in 2.5 and 5 gig configurations), so anyone could have got them. And anyone perhaps could have gone for an exclusive. But they didn't, Apple did. Toshiba could have made an mp3 player of their before Apple made the iPod (they made one later instead).
You're off your rocker. Even if Apple is the only one who could get these drives, that's not even Apple's fault. Any company would like an exclusive. It's Toshiba's fault for granting them one.
Apple innovated a lot with the iPod. A company that was there before Apple like Creative or Archos could have made a device with the 1.8" drive before the iPod even came out. They didn't. That's the Apple difference.
Anyway, I thought this horse got beat to death when Apple killed Mac clones. Is there really anything left to be said about Apple's willingness to compete as a commodity after that?
http://lkml.org/lkml/2005/8/20/95
It's the market economics for you, as simple as that. SJ probably called up Samsung and said, OK folks, I'm ready to buy a shitload of 2GB chips, and I do mean A SHITLOAD (ten million), what's the price you can offer to me so that I don't go to Toshiba. And they made an offer SJ could not refuse.
Now imagine Cowon audio (BTW, what's up with their company name? "Cowon"? Hello?) calls up and says, we're ready to buy ten thousand chips. Of course there will be a different price than for ten million chips! And it of course will be a lot higher, because 10K chips is like a single batch, whereas 10M chips is two years of non-stop production.
Nevermind the Toshiba (not IBM/Hitachi) 1.8-inch hard drives had existed for quite some time before Apple made the iPod. Hell, IBM/Hitachi's Microdrive (later used in the Mini) had been out for years. No one else saw their potential, so prior to the iPod the best you could get was a Nomad, which used 2.5-inch hard drives. After all, capacity was everything, right? Apple took a huge risk on a completely new and unproven product and bought their remaining stock. What is "anti-competitive" here?
As for your last paragraph, Microsoft's "superior engineering"? Nevermind that Apple's entire history back to the Apple II (and the Wozniak-designed controllers) has been about superior engineering, and Microsoft's has always been about purchasing/licensing/controlling other software and making it "good enough", all the way back to Microsoft BASIC.
I don't know what kind of crack I was on, but I suspect it was decaf.
They're a monopolist with a 3-5% market share? It may come as a surprise to you, but a company in that position cannot be a monopolist. Legally. Unfair trade practices? Yes, that could be. If Samsung sold below cost to sink a competitor? Unfair. Dumping, or something like that. If Apple somehow dictated the price to Samsung, that might be wrong. If Apple, say, threatened Samsung with being excluded from future iPods, that could be wrong. None of which is, as lawyers say, "in evidence" here. As for Apple being "just the same," well, it may come as a surprise to you, but Apple is a corporation, not an order of monks. Without profitable computers and software, they're gone. So, yeah, the computer business is very tough. But I can just tell, you mean, "Microsoft isn't so bad, Apple is just the same," and there you're wrong. Learn what monopoly is. See why the courts found it guilty of being a monopoly, and suggested its breakup into three parts, I believe. Then see if you can still say, "Apple is just like Microsoft." Genghis Khan isn't just like Microsoft. Both Stalin and Roosevelt were on the left -- was FDR just the same as Joe Stalin? Just a small contemporary example: the MSNBC channel and website. I can, on my Mac, watch CBS, ABC, AP, BBC, CNN -- all kinds of web-based video. The only one I can't watch? MSNBC. I have the Mac version of WMP. I have Flash, javascript, all kinds of stuff. But somehow, the geniuses at MS put up a a notice that their video is "incompatible with my OS." That's monopolistic behavior. By the way, the latest reorg by MS seems suspiciously like a mammoth company preparing bite-sized bits to... split up and sell. So maybe Judge Jackson was on to something.
Samsung sold lots of chips to Apple. If it was price-dumping, they lost lots of money.
Nobody else was willing to sell chips at that cut-throat price, so nobody else should care.
Lots of people bought an iPod for a good price. They are happy now.
If any company should in the future sell chips for another price, where's the problem? It's not that the sale by Samsung will forever result in Samsung having a monopoly or anything. Seriously, maybe they even LOST money...
Not below cost, "below market prices"?
If selling below market prices is illegal, how do market prices ever fall?
http://lkml.org/lkml/2005/8/20/95
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."
http://www.thebricktestament.com/the_law/when_to_
it wouldn't be unheard of if they were actually dumping it on apple at or below production cost for the moment.
why? to ensure that they get at least something and that they get a huge cut of the market while still being able to run the factories while losing the least amount of money(what's the point in running a factory like that? to keep it in business so you can reap the rewards later when competition is less fierce and product cheaper to make, same thing happening with flat panels now).
of course this would make it hard for competitors who have to pay full price + profit margin for the memory chips because they can't buy so much that they can ensure the factorys existance alone.
now this might or might not violate competion laws in korea. usually flooding the market with loss doing products to get others out from the market is illegal, though it might be unsure if this is that kind of a thing even.
world was created 5 seconds before this post as it is.
As for your last paragraph, Microsoft's "superior engineering"?
I do believe he's just making wry commentary on the likelihood of their positions swapping in ALL cases. And there's certainly something to be said for that, as an unchallengable market leader tends to stagnate while the up-and-coming try to compete on whatever grounds they can.
Dirty? Hell yeah.
Hell, no. Apple made a deal to buy all the drives they could make. They placed a big enough order that Toshiba brought up a second factory just for those drives. Nobody put a gun to Toshiba's head, and if someone else wanted to buy those drives, so what? Every deal has two sides, and if Toshiba would rather deal with a single customer for the first year (or more), that's their prerogative.
That while every other large coorperation will lie, cheat, and steal to get ahead -- Apple is somehow different.
Show me an example of Apple lying, cheating or stealing, cause this isn't it.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
"Selling under market price" OTOH is what the free market is all about: if Samsung can produce more cheaply, they should be allowed to sell for less, too. It wouldn't be their fault if their competitors where too expensive.
The thing here is, these articles about Samsungs competitors' complaining have been going round almost since the launch of the Nano. And never did they contain anything about "dumping", only about "Samsung selling at too low prices for us". This sounds like they
a) sold their flash drives etc. at inflated prices and
b) are now asking for help to continue doing that.
If that's the case, I cannot find any sympathy for them.
"...allegations that Samsung sold the memory chips to Apple at below-market rates"
Doesn't the fact that a company was prepared to sell 10 million chips at that price make that price the "market price" for 10 million chips? How else do you define a market price except as what a seller and a buyer agree on?
Unless Steve Jobs used a focused Reality Distortion Field or blackmail to get the deal, I don't really see the problem. Unless (shock horror), CNet is misrepresenting the story again.
First of all, I was incorrect. It was toshiba. It wasn't until hitachi started making 1.8 drives that someone was ABLE To compete with apple. My appologies for that mix up.
Second of all, my point isn't that this was some awful thing that Apple did. This is how business is played. It's not nice and friendly, its down and dirty, and Apple plays the same game as everyone else.
If Microsoft had used their clout to buy up all of Toshibas drive to make a slim mp3 player that took the market by storm, and companies like Apple were uanble to get any 1.8 drives to make players with your collective outrage would know no bounds. You would bitch and moan to no end that Microsoft was not playing fair. While I fully expected my original post to be unfairly moderated down (my karma can take the hit), it surprises me that so many of you could be so hypocritical.
I don't take issue, really, with how Apple condudcts itself, simply with the ultra-unrealistic impression that many of you seem to have about it. Apple is not some peace-loving commune where flower children lovingly hand-craft gadgets for your enjoyment. It's a business and it's run just like every other business.
Everytime they're accused of breaking the rules (as businesses will often do), there's a torrent of people anxious to rush to Apple's defense to tell us why it was "totally ok" for Apple to cheat. It's not ok for ANYONE, no matter how sexy their latest toy may be, to cheat wether it's Microsoft, Apple, or anyone else.
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.
Blarney Quality Restaurant, Plants
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.
Article test:
Korea's top antitrust regulator reportedly said on a local radio show that authorities there may look into whether Apple's purchase of flash memory from Samsung Electronics may have violated any of that country's competition laws.
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.
An Apple representative did not immediately have a comment on the report.
Now, forgive me, but what is newsworthy about this? Not only is it heresy published on a blog, but it's not even saying anything definite.
I (and I'm not alone here) would hope that Apple got a damn good break on the price for buying the flash in the kinds of quantities that they will need to satisfy demand for the Nano.
Specialist Mac support for creative pros, Melbourne
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.
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
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.