Infineon busted? Play it again, DRAM
RENAULT: I am shocked, shocked to find that gambling is going on in here!
This display of nerve leaves Rick at a loss. The croupier comes out of the gambling room and up to Renault. He hands him a roll of bills.
CROUPIER: Your winnings, sir
RENAULT: Oh. Thank you very much.
(Casablanca, Warner Bros, 1942)
The news that Infineon has been fined $160m (£88m) for conspiring with "unnamed DRAM manufacturers" to fix the price of memory chips is notable for the size of the US Department of Justice's Antitrust Division's winnings -- the third biggest criminal fine in its history -- but for little else.
Chip makers have conspired together to fix the market since sand was first turned to silicon. Memory chips are close to being the perfect commodity: interchangeable parts and a huge demand combined with an incremental production cost of pennies make prices fluid. If you and the other chaps can keep an extra few dollars on the ticket, my, how the money rolls in.
All it takes is an understanding; sometimes not even that. In 1993, a fire at a chip packaging plant caused immediate price rises across the board from $40 a megabyte to $80, even $120. Conspiracy, or the natural play of the free market anticipating shortages? Were there phone calls?
It's notoriously hard to work out the bottom line for DRAM makers. Costs are huge, variable and secret. New chip fabrication plants cost billions and the market you expect when you draw up the blueprints may be very different to the one that exists when you get into production. Even then, the number of working chips a fab can produce -- the yield -- can vary dramatically. This is not a game for the nervous: it's white-knuckle free market economics.
But when Michael Dell goes from manufacturer to manufacturer with his chequebook and finds no difference that makes any difference, then forces other than the free market are at work. To prove this is a slow and expensive business -- today's fine relates to market movements in 2001 -- but eventually a memo will be found, a salesman subpoenaed, a confession extracted. Everyone says sorry, shuffles away and doesn't do it again. Until the next time.
This may be the only way this market works. The price fixing can't be made overt, as with OPEC: the stakes aren't that high. Nor can it be illegal for individual companies to raise their prices, even if it seems against the run of the game. As for stopping that quiet email, the muttered conversation: that's down to corporate ethics, the detection of which requires electron microscopes many times more powerful than yet exist, even on 90nm fab lines.
In the short term, this is painful. In the medium term -- well, that $120 megabyte of 1993 is now twelve cents. Good enough, And in the long term, John Maynard Keynes has -- as always -- the last word.