NXP and ADI, global non-memory chipmakers, face scrutiny from Korea's Fair Trade Commission (FTC) over allegations that they controlled the client accounts and sales prices of domestic distributors. The FTC concluded that the two companies restricted price competition in Korea's chip distribution market and signaled corrective orders along with fines that could reach up to about 100 billion won.
The FTC said Wednesday that it had sent examination reports on the alleged Fair Trade Law violations by NXP and ADI to the companies and begun deliberation procedures. An examination report, equivalent to an indictment in a criminal case, is a document containing investigation findings, assessments of illegality, and the examiner's recommendations. Once the report is delivered to the parties, the FTC's disciplinary process begins.
NXP is a Dutch company that mainly produces semiconductors used to control various automotive electronic devices. It ranks among the top two in the global automotive non-memory chip market and holds the No. 1 market share in Korea. ADI, a U.S. company, mainly produces signal conversion and processing (data converter) chips used in smartphones, automobiles, and industrial equipment. As the world's No. 1 in the field, it wields significant market influence.
According to the FTC, the two companies interfered with domestic distributors' authority to decide client accounts and sales prices, controlling their business activities. NXP and ADI had supplied non-memory chip volumes to distributors in Korea, who then sold the products to small and mid-sized domestic clients. In this process, NXP, since at least 2012, effectively granted exclusive distribution rights by barring other distributors from dealing with a client once a particular distributor had secured that client. The investigation also found that NXP set in advance the margin rates distributors could obtain. ADI, since at least 2020, is alleged to have fixed distributors' margin rates in advance and further designated and enforced resale prices to clients.
The FTC judged that NXP's conduct constituted restriction of trading partners and abuse of a superior bargaining position. For ADI, it viewed the conduct as abuse of a superior bargaining position and resale price maintenance. The FTC judged that both companies committed serious violations under the Fair Trade Law and recommended corrective orders and fines.
The FTC estimated that NXP earned about $1.54 billion (about 2.3 trillion won) in Korea through these practices. For ADI, related sales were calculated at about $1.6 billion (about 2.4 trillion won). Under the current Fair Trade Law, fines can be imposed at up to 4 percent of related sales. Accordingly, the maximum expected fines could be 92 billion won for NXP and 96 billion won for ADI. However, since these are not final determinations, the fines could be adjusted later.
The FTC plans to reach a final conclusion through committee deliberation after guaranteeing the right of defense, including the submission of written opinions and access to evidence by the accused parties. "In the semiconductor sector, a core foundation of the national economy, we will establish a fair trade order to guarantee distributors' autonomous decision-making over trading conditions such as client accounts and prices, and promote price competition among distributors," an FTC official said.
