[Photo by Lee Seung-hwan]
South Korea’s Fair Trade Commission (FTC) has imposed a provisional fine of 19.1 billion won ($14.3 million) on U.S. telecom chipmaker Broadcom and its subsidiaries in Korea and Singapore for abusing their dominant position to force Samsung Electronics to sign a long-term contract (LTA) for smartphone parts.
The antitrust watchdog agency said on Thursday Broadcom strong-armed Samsung into signing an LTA and resorting to supply disruptions in 2020. Samsung consequently faced significant interruptions in the supply of essential components vital for its mobile products.
Under the terms of the agreement signed in March 2020, Samsung was obligated to procure smartphone parts such as radio frequency front end (RFFE) modules from Broadcom for at least $760 million annually for three years from 2021 and compensate Broadcom if its actual purchases fell below the specified amount.
The FTC said that Broadcom holds a dominant market share in the production of cutting-edge, high-performance mobile device components used in smartphones and tablet PCs. To secure its position and ensure long-term revenue, Broadcom resorted to unfair tactics, including withholding order approvals, suspending shipments, and cutting off technical support, all of which forced Samsung Electronics into signing the extended contract.
At the time, Broadcom was the world’s top operator holding an overwhelming share of the market, including RFFE, and Samsung had no choice but to comply with its demands unilaterally. As a result, Samsung initially decided to use parts from a competitor in the Galaxy S21, which was released in 2021, but was eventually forced to scrap the plan and use Broadcom parts. Samsung had to purchase more parts than it needed and was unable to use cheaper competitors’ parts, resulting in additional costs of at least $160 million, the FTC said.
The FTC’s decision to impose a 19.1 billion won fine on Broadcom has also sparked discussions about whether the penalty is sufficient, given that Broadcom’s reported second-quarter revenue of $6.15 billion.
Some argue that the fine should have been more substantial, considering that the FTC applied charges of “abuse of transactional dominance” instead of “abuse of market-dominant business position,” which could have led to a higher penalty of around 30 billion won.
However, the FTC’s imposition of a fine on Broadcom could work in Samsung’s favor moving forward when it sues Broadcom for damages. Samsung is expected to pursue compensation claims based on the FTC’s penalty decision.
By Park Dong-hwan and Minu Kim
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]