South Korea’s Federal Trade Commission (KFTC) has imposed a $14.3 million fine on US chipmaker Broadcom for what it deems “unfair” dealings with Samsung Electronics. The regulatory watchdog will also issue a corrective order in response to Broadcom’s actions.
The Korean FTC alleges that Broadcom, leveraging its market dominance, compelled Samsung to enter into an unfavorable long-term parts supply agreement in 2020.
This move is part of the country’s efforts to address anticompetitive practices. Alongside the fine, a corrective order will be issued to Broadcom by the Korean FTC to ensure fair business practices in the tech industry.
The imposed contract involved Samsung committing to an annual purchase of $760 million of components, specifically those related to RF front-end (RFFE) control interface, WiFi, and Bluetooth, from 2021 to 2023.
Notably, the contract included provisions for compensation to Broadcom in case Samsung failed to meet the prescribed purchase volumes, further emphasizing the constraints placed on the tech giant. Additionally, the agreement effectively bound Samsung to an exclusive relationship with Broadcom, prohibiting it from procuring similar components from competing companies, such as Qualcomm and Qorvo.
The ruling, detailed in a comprehensive 540-page document, asserted that Broadcom had restricted Samsung’s autonomy in selecting suppliers by resorting to coercion and pressure tactics. This extensive contract, which mandated sales targets and loyalty, exemplified the restrictive and imposing nature of Broadcom’s dealings with the South Korean electronics powerhouse.
The Korean Fair Trade Commission (KFTC) has accused Broadcom of using coercive tactics against Samsung, including threats of discontinuing part shipments, withholding purchase order approvals, and technical support.
Additionally, the KFTC alleged that Broadcom inflated its pricing, exacerbating the unfavorable terms of the contract. This incident unfolded in a challenging market landscape, with Samsung locked in fierce competition with Apple, especially in the chip sector. The agreement was initially forged in the pre-pandemic year of 2020 when smartphone demand was high. However, the onset of the pandemic led to significant shifts in market dynamics, causing a slump in phone sales.
In response to the KFTC’s decision, a spokesperson from Broadcom reaffirmed the company’s enduring dedication to engaging in fair and lawful business practices with Korean customers. They also emphasized Broadcom’s contributions to innovation and economic growth in South Korea, particularly among its leading technology enterprises.
Broadcom asserted that it had worked closely with KFTC staff to arrive at a fair settlement. However, the Commission did not accept this resolution, partly due to external influences. Despite this, Broadcom remains committed to supporting its Korean clientele. The company also expressed its determination to deliver top-tier products to the market.
The controversial contract between Samsung and Broadcom concluded in August 2021, following the launch of the KFTC’s investigation into its terms. The fine levied on Broadcom was calculated based on the $800 million that Samsung had paid to the chipmaker from May 2020 to August 2021.
To avoid penalties related to the probe, Broadcom proposed in July 2022 that it would voluntarily rectify its business practices and contribute to the advancement of South Korea’s semiconductor industry. The company suggested creating a 20 billion won fund to support small-sized IT companies. However, the KFTC rejected these proposals in June.
The Korean Fair Trade Commission (KFTC)’s decision to impose a fine on Broadcom for its business practices is expected to carry substantial consequences. It includes its potential impact on an upcoming civil lawsuit by Samsung, aiming to secure compensation for damages from the disputed contract. As of now, Broadcom has not issued an immediate response to the KFTC’s ruling.
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