DOJ Investigating Sony for RAM Price-fixing

Add to the extraordinarily long list of woes afflicting consumer electronics giant Sony the revelation today that the US Dept. of Justice will be investigating it, along with market rivals Mitsubishi, Toshiba, Samsung, and Cypress Semiconductor, in conjunction with a probe into alleged price fixing in the static RAM (SRAM) market.

It is the latest extension of a federal probe that has already netted some big fish, and cost their employers dearly: Last March, three executives from Samsung agreed to plead guilty to several counts of price fixing in the DRAM market. Even so, they had to spend up to eight months in federal prison, and pay fines of up to $250,000 apiece. Just two weeks ago, two more Samsung officials were indicted in the same scheme, along with a third from Hynix Semiconductor.

This is the first time Sony has been touched by this two-year-old probe, which has also impacted Micron Technology and Infineon. According to the Justice Dept., Samsung was at the center of a DRAM price fixing scheme where officials from that company met with their counterparts with other manufacturers, and agreed upon a basic set of prices they would all charge their suppliers. An official with Micron reportedly served as the DOJ’s informant, in exchange for reduced penalties.

The government has apparently extended the probe to see whether Samsung’s activities, which were apparently at the center of the scheme, extended outside the realm of DRAM. No indictments have been issued, and Sony states it will cooperate fully with the Justice Dept.

If officials from Sony did participate in a Samsung scheme, it apparently didn’t do much good for the company, anyway. Reportedly, Sony’s total SRAM sales last year worldwide amounted to $28 million – literally a half of a tenth of its overall sales.

Semiconductor industry analysis firm iSuppli believes there may be little evidence of manufacturers actually wanting to participate in a price fixing scheme regarding a segment of the memory market that is in such decline. In a report issued two weeks ago, following the DOJ’s announcement of its investigation of Mitsubishi, iSuppli analyst Mark DeVoss reported market revenue for the entire SRAM industry in 2005 was $2.7 billion, versus $25 billion for the DRAM industry. DeVoss went on to forecast a gradually increasing decline in compound annual growth, to the point where SRAM will be earning only $1.9 billion by 2010.

The reason for this decline has to do, iSuppli believes, with changes in the dynamics of computer architecture.

"SRAM...at one time was used extensively as a standalone device, closely coupled to the computer microprocessor," DeVoss writes. "Unfortunately, the SRAM’s high performance comes as a result of its use of a very large four- to six-transistor per bit array, which consumes a large amount of die area.” Flash memory, by contrast, consumes one transistor per bit, which makes it more compatible with shrinking designs as processors move from 90 nm to 65 nm architecture."

"With the stand-alone SRAM market in decline," he goes on, "and with the part not having a significant impact on computer system costs, iSuppli is doubtful whether the DOJ investigation will provide any benefit to anyone – except for the lawyers who are sure to collect fat fees from the ensuing rounds of litigation."

There may be at least one significant impact, being felt right now by Sony, whose sensitivity to such scrutiny may be at an all-time high. Near the end of trading on the NASDAQ exchange, Sony stock value was down about 1% at $41.15, continuing a downward slide that began in April, when trading value peaked above $52 per share.

At that time, concerns over the company’s continuing delays to its PlayStation 3 and Blu-ray products -– once flagged as the keys to the company’s entire future in consumer electronics -– started casting a bleak shadow on the company’s hopes. If no indictments emerge from this investigation, look for Sony to play that story for all it's worth.