Summer of scandal: accounting tricks, software scams, price fixing make 2002 a tech summer to forget - Business of Technology - Industry Overview

Computer Technology Review, August, 2002 by Joshua Piven

The controversy arose several months ago when an independent state audit found that California was likely to spend $41 million on unnecessary software licenses over a multi-year period--rather than save the nearly $100 million that Oracle had claimed when the contract was signed.. Because the deal was made at the 11th hour and without competitive bidding, and because Oracle:made significant campaign contributions'to' Gov. Davis the month after 'the contract was signed, the debacle :created.the appearance of impropriety, and several Department of IT officials have either resigned or been suspended. Further, many of the state's agencies found themselves out of compliance with Oracle's licensing' agreement, and still owe tens of thousands of dollars to the software maker. (Oracle's share price has been hammered of late, down to $7 from a high of $20 a year ago.)

DRAM Dramatics

As if the memory market doesn't have enough problems, now comes news of a new Department of. Justice investigation into possible price fixing. The DOJ's antitrust division has been investigating. several companies independently for some time, but recent indications are that virtually all major DRAM manufacturers have received or expect to receive subpoenas, including Micron, Infineon, Hynix, and Samsung, according to published reports. (The DOJ refuses to identify the companies under investigation.)

The DOJ is likely examining why prices rose about twoand-a-half times over a recent six-month 'period, according' to Steve Cullen, director and principal analyst for the firm Semiconductor Research at InStat/MDR. "Every significant DRAM firm that sells in the U.S. seems to have been served with a subpoena from a grand jury investigating charges of uncompetitive practices in the industry," Cullen notes in a report on the investigation. "An investigation does not necessarily result in an indictment, but something must have caught the attention of the DOJ."

Cullen points out that the average price per megabit increased from $0.014 in October 2001 to $0.035 in March 2002.But during: the same period, monthly megabit shipments declined by 30%. "Since we did not hear of any factories blowing up, it is unlikely that the price rise was in response to any sudden imbalance between supply and demand."

There has been speculation for months that the DRAM industry has been manipulating prices in some fashion, although such behavior is only illegal if companies agree among themselves to raise prices (collusion), as opposed to reacting to[R]Tghepricing 'structures of their competitors. (The airlines have been engaged in the latter form of pricing, for years, notes InStat's Cullen, and it is perfectly legal.)

In April, Dell CEO Michael Dell said that, "There was some cartel-like behavior by a number of DRAM suppliers. These companies assumed that they could increase the price of DRAM and see an' increase in supply," Dell said, "But the world doesn't work that way." Indeed, as a response, Dell indicated that the company was turning' to Nanya, a Taiwanese DRAM maker offering the computer giant more attractive pricing.