KFTC to Fine Global Non-Memory Chipmakers Up to 100 Billion Won for Margin Fixing

Global non-memory semiconductor companies NXP and ADI are set to face the Korea Fair Trade Commission (KFTC) over allegations of forcing trade terms by setting sales margin rates for domestic distributors.

If the allegations are proven true, the two companies could face a combined fine of up to 100 billion won.

The KFTC secretariat announced on July 8 that it has submitted an examination report to the commission detailing the companies' violations of the Fair Trade Act and proposed sanctions, and has also sent the report to the respective firms.

The examination report is equivalent to an indictment in a criminal case, and the sanction process begins once the report is delivered to the parties involved.

NXP, headquartered in the Netherlands, is the top player in the domestic automotive non-memory semiconductor market.

ADI, based in the United States, is the world's second-largest company in the analog integrated circuit market, which converts analog signals such as temperature, sound, and video into digital information, and holds significant market influence.

The two companies utilized a so-called "S&D" (Ship and Debit) trading method, where they required domestic distributors to purchase products at a "standard supply price" and then refunded the difference between the standard price and the discounted price if the distributors received approval for selling to customers at a lower rate.

While S&D transactions are common in the non-memory semiconductor market, the issue lies in the companies' alleged abuse of this system.

It was found that NXP, at least from 2012 to the present, effectively granted "exclusive distribution rights" by ensuring that if a specific distributor using the S&D method secured a client, other distributors could not initiate business with that same client.

The company was also found to have restricted free trade by pre-setting the margin rates that distributors could earn.

ADI was also found to have pre-fixed the margin rates for its distributors from at least 2020 to the present.

Furthermore, the company designated and enforced resale prices for distributors when they sold products to their clients.

KFTC investigators determined that NXP’s actions constituted restricting trading partners and interfering with business management under the Fair Trade Act.

In the case of ADI, the commission viewed the pre-setting of margin rates as business interference and also concluded that the company engaged in "resale price maintenance," which restricts price competition at the distribution stage and infringes upon the autonomy of business operators.

In this regard, the KFTC has proposed corrective orders and fines for each company.

The revenue related to the illegal activities was estimated at approximately 880 million USD (about 1.3 trillion won) for NXP’s restriction of trading partners and 660 million USD (about 1 trillion won) for business interference.

For ADI, the revenue related to business interference and resale price maintenance was calculated at 800 million USD (about 1.2 trillion won) each.

The KFTC can impose fines of up to 4% of the related revenue following a formal review. This means NXP could face fines of up to 92 billion won, and ADI up to 96 billion won.

However, the final fines are likely to be lower, as the commission may adjust the amounts if it determines that the effects overlap in the same trading sector and the total amount is excessive.

The KFTC plans to make a final decision after ensuring the companies' rights to defense, such as submitting written opinions and reviewing or copying evidence, followed by a commission deliberation.

(Photo: Yonhap News TV, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.