Infineon Executives Pay High Price

One would think being part of a cartel that controls 75% of the dynamic random access memory market would be enough clout to help turn a profit. Yet five years of losses perhaps explains why Infineon Technologies (NYSE: IFX  ) resorted to price-fixing to boost performance. It would seem those chickens are now coming home to roost.

Four executives of the stepchild of German industrial behemoth Siemens (NYSE: SI  ) will be going to prison for four to six months for their role in the DRAM market price-fixing scheme. Although most are German citizens, the Infineon executives will be wearing American correctional facility stripes and will each have to pay $250,000 in fines. That's in addition to the $160 million in fines the company paid two months ago.

Infineon, with Samsung, Micron Technology (NYSE: MU  ) , and Hynix Semiconductor, dominate the DRAM market. Those other three companies have announced that they, too, have received subpoenas from the Justice Department in connection with its price-fixing investigation.

The four sales executives admitted to meeting with other unidentified co-conspirators to discuss DRAM pricing, agree on prices for DRAM chips, and exchange customer information to monitor the prices charged. The customers affected by the price-fixing scheme were Dell (Nasdaq: DELL  ) , Hewlett-Packard (NYSE: HPQ  ) , Apple (Nasdaq: AAPL  ) , Gateway, IBM, and Compaq, but none would comment on the latest events.

Samsung and Hynix were identified as being involved in the price-fixing scheme through court papers filed in a separate court action between the suppliers and Rambus. An executive at Micron plead guilty to obstruction in the Justice Department's price-fixing investigation, and the company has since entered an amnesty program. The department has said the investigation is still "very active and far-reaching."

Infineon went public in 1999 after being spun off from Siemens. After reporting a profit the first year, the company has been hemorrhaging red ink ever since, racking up losses of more than $3.7 billion. Faced also with a CEO who resigned "for personal reasons" earlier this year and the specter of the price-fixing scandal, the company and its stock have been in the doldrums, though the stock price has rebounded some 20% from its summer lows.

The DRAM market is a $27 billion industry, and its chips are found in everything from personal computers and cell phones to PDAs and other consumer electronic devices. Samsung is the market leader with a 30% market share, followed by Micron, Hynix, and Infineon, respectively.

The DRAM maker's U.S. operations are based in San Jose, Calif., not so far from San Francisco Bay -- and Alcatraz penitentiary. Perhaps a fitting reminder for this widening scandal as other birds come home to roost.

Fool contributor Rich Duprey thinks Alcatraz is an excellent model for the penal system. He does not own any of the stocks mentioned in this article.


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