The Korea Fair Trade Commission (KFTC) has ruled that the U.S. semiconductor company Broadcom acted unfairly by forcing unfavorable long-term contracts (LTAs) on Samsung Electronics and disrupting the supply of smartphone components. (Image courtesy of Yonhap News)
SEOUL, Sept. 22 (Korea Bizwire) – The Korea Fair Trade Commission (KFTC) has ruled that the U.S. semiconductor company Broadcom acted unfairly by forcing unfavorable long-term contracts (LTAs) on Samsung Electronics and disrupting the supply of smartphone components. As a result, the KFTC has provisionally imposed a fine of 19.1 billion won on Broadcom’s U.S. headquarters.
The KFTC’s finding that Broadcom exploited Samsung was supported by the fact that even Broadcom employees saw the company as pressuring Samsung through unfair methods.
In contrast, Samsung Electronics seemed to be controlled by Broadcom, expressing concerns about production disruptions and feeling powerless in the situation.
The KFTC made its decision known on Thursday, stating that it had imposed a corrective order and a provisional fine of 19.1 billion won on four companies, including Broadcom Incorporated, Broadcom’s headquarters, Broadcom Corporation, and its branches in Korea and Singapore.
These actions were taken because these companies abused their position as traders when dealing with Samsung Electronics, which goes against the Fair Trade Act.
The KFTC’s investigation revealed that Broadcom pressured Samsung Electronics into signing a three-year LTA for smart device components, effectively shutting out competitors like Cobo and Qualcomm.
In March 2020, Samsung Electronics entered into an agreement with Broadcom to buy radio frequency front-end (RFFE), Wi-Fi and Bluetooth components for over $760 million annually for three years starting in 2021. Samsung also agreed to compensate Broadcom if it fell short of this purchase amount.
The KFTC found that Broadcom aimed to eliminate competition when Samsung adopted components from its competitors as part of its effort to diversify its parts supply. (Image courtesy of Flickr)
The KFTC found that Broadcom aimed to eliminate competition when Samsung adopted components from its competitors as part of its effort to diversify its parts supply.
The KFTC also concluded that Broadcom took advantage of Samsung’s desperation to accept its one-sided demands and used unfair tactics to enforce the long-term contract, including withholding approval for purchase orders and halting product shipments and production.
At that time, Broadcom was the top player globally, holding a dominant market share, especially in products that combined RFFEs into a single product based on frequency bands. It’s believed that Samsung Electronics accepted Broadcom’s demands to avoid disruptions in the production of the Galaxy S20.
In response, Samsung Electronics initially considered using components from a competitor for the Galaxy S21, released in 2021. However, the company later switched to Broadcom’s components, limiting options and leading to the purchase of more parts than necessary.
This prevented Samsung from taking advantage of cheaper alternatives from Broadcom’s competitors, resulting in at least $160 million in additional costs, according to the company.
During the hearing, Broadcom argued that the agreement was voluntary and mutually beneficial, but the KFTC did not agree with this argument.
Internally at Broadcom, the decision to halt approval for purchase orders was described as actions that went against business ethics and were akin to “bombing,” “nuclear bombing,” and “blackmail.”
The KFTC determined that the entire $800 million spent by Samsung on parts to fulfill the LTA through August 2021 counted as relevant sales. The fine was calculated by applying the maximum penalty rate of 2 percent in effect at the time of the incident.
However, since the LTA between Broadcom and Samsung Electronics ended in August of the same year, after the KFTC began its investigation in February 2021, a provisional fine of 19.1 billion won was imposed.
There is industry speculation that Broadcom may pursue an administrative lawsuit to contest the KFTC’s corrective order and fine, while Samsung Electronics is expected to file a civil damages claim against Broadcom. Earlier, Samsung Electronics asserted that it suffered damages amounting to $326.3 million, including additional costs, due to Broadcom’s imposition of the LTA.
Ashley Song (ashley@koreabizwire.com)
