Samsung may face probe on Apple memory deal

Samsung is facing a possible investigation by South Korea's Fair Trade Commission regarding a flash memory deal with Apple.

Samsung Electronics is facing a possible investigation by South Korea's Fair Trade Commission following press allegations that it sold NAND flash memory chips to Apple Computer at below-market prices.

"We have not started an investigation yet," head of the Competition Policy Division of the Korea Fair Trade Commission (KFTC), Yi Seuk-joon, said. "But we are reviewing the case."

He said that while there had been no complaints from competitors, the commission was following up on local press reports alleging unfair pricing of chips, which could hurt smaller rivals.

Yi expected the commission to decide whether or not to launch a full-scale investigation after next month. Declining to mention the penalties Samsung could face if found in breach of regulations, Yi said it was too early to discuss the issue.

A Samsung spokesperson said it was co-operating with authorities but would not make further comment.

Samsung began supplying NAND flash memory chips, as used in music players and digital cameras, to California-based Apple in the third quarter. The chips are used in Apple's new iPod Nano music player, which stores data on flash memory.

It has been an up-and-down week for the Korean company.

This week, Samsung extended an agreement with Apple by signing a long-term contract to supply NAND flash chips through 2010. Apple will pay Samsung $US500 million in advance. On the same day, Korea's number two chipmaker, Hynix Semiconductor, also agreed with Apple to supply NAND chips in a long-term contract.

Then Samsung announced an agreement with US-based fabless semicon designer Qualcomm to produce Code Division Multiple Access (CDMA) and Wideband CDMA (WCDMA) chipsets. The deal strengthens Samsung's non-memory operations, while granting Qualcomm a stable outsourcing outlet for chips. South Korea, Japan and the US are the main markets for Qualcomm's mobile chips.

This week's controversy with the KFTC, is not Samsung's first.

Samsung Electronics is the flagship of Samsung Group, Korea's largest, most successful and most powerful conglomerate. The group, has filed a lawsuit with the Constitutional Court against the KFTC, which has called it shareholdings in financial affiliates excessive. Though widely respected in Korea for its world-beating brand management, business acumen and technological prowess, many allege Samsung is too powerful. Some media have even dubbed South Korea "The Republic of Samsung".

The group head, Lee Kun-hee, was this year implicated in an alleged bribery scandal that resulted in the recall of the US ambassador to Washington. Lee has refused summons to appear for questioning before two separate National Assembly committees.

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Andrew Salmon

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