NXP and ADI, two global non-memory semiconductor companies, are set to face review by the Korea Fair Trade Commission over allegations that they controlled the sales margins and trading practices of domestic distributors. If the violations are confirmed, the combined fines imposed on the two companies could reach up to 100 billion won ($65.5 million).

The Fair Trade Commission announced Wednesday that it had submitted investigative reports to its committee detailing alleged violations of the Fair Trade Act by NXP and ADI, along with recommended sanctions, and had forwarded the reports to the companies.

The Korea Fair Trade Commission at the Government Complex Sejong in Eojin-dong, Sejong [Yonhap]
The Korea Fair Trade Commission at the Government Complex Sejong in Eojin-dong, Sejong [Yonhap]

An investigative report is the equivalent of a criminal indictment and triggers formal review proceedings once delivered to the companies involved.

NXP, headquartered in the Netherlands, holds the top market share in South Korea's automotive non-memory semiconductor sector. ADI, a US company, ranks second globally in analog integrated circuits — components that convert analog signals such as temperature, sound and video into digital information.

According to the commission, both companies supplied products to domestic distributors at standard list prices and then operated a mechanism known as S&D (Special Price & Debit), under which they reimbursed distributors for the difference between the list price and the actual discounted price when distributors sold to customers at a discount.

The S&D arrangement itself is widely used in the non-memory semiconductor industry, but the commission believes the two companies exploited it as a tool to restrict competition.

NXP was found to have granted effectively exclusive sales rights to certain distributors at least as far back as 2012, barring other distributors from dealing with those customers once a distributor had secured them. The company also preset the sales margins distributors were allowed to earn, limiting their freedom to operate independently.

ADI was similarly found to have predetermined distributor margin rates at least since 2020 and to have designated resale prices that distributors were required to apply to their customers.

The commission's investigators concluded that NXP's conduct violated the Fair Trade Act by restricting trading partners and interfering in business operations. For ADI, the margin-rate controls were classified as interference in business operations, while the imposition of resale prices was deemed resale price maintenance — conduct that restricts price competition and undermines the autonomy of business operators.

The commission recommended that corrective orders and fines be imposed on both companies.

Relevant sales were estimated at approximately $880 million for NXP's trading-partner restrictions and approximately $660 million for its business-interference conduct. For ADI, relevant sales of approximately $800 million were recognized for each of the business-interference and resale price maintenance violations.

The commission may impose fines of up to 4 percent of relevant sales. By simple calculation, NXP faces a maximum fine of 92 billion won and ADI a maximum of 96 billion won. However, fines could be adjusted downward if the commission determines that overlapping sanctions in the same trading area would produce an excessive total.

The commission plans to guarantee the companies' right to defense — including written submissions and access to evidence — before holding a formal committee review to determine whether sanctions will be imposed and at what level.


y2k@heraldcorp.com