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Samsung may face probe on Apple memory deal

What a week

Samsung is facing a possible investigation by the KFTC, South Korea’s Fair Trade Commission, following press allegations that it sold NAND flash memory chips to Apple at below-market prices.

"We have not started an investigation yet," said Yi Seuk-joon, who heads the competition policy division of the KFTC. "But we are reviewing the case."

He added that while there had been no complaints from competitors, the commission was following up on local press reports alleging unfair pricing of chips, which could hurt smaller rivals.

Yi predicted the commission would decide whether or not to launch a full-scale investigation "after next month". Declining to mention the penalties Samsung could face if found in breach of regulations, Yi said it was "too early" to discuss the issue.

A Samsung spokesperson said the firm is co-operating with authorities but would not make further comment.

Samsung began supplying NAND flash memory chips, as used in music players and digital cameras, to California-based Apple in the third quarter. The chips are used in Apple’s iPod nano music player, which stores data on flash memory.

It has been an up-and-down week for the Korean company.

On Monday, Samsung extended an agreement with Apple by signing a long-term contract to supply NAND flash chips until 2010. Apple will pay Samsung $500m (about £290m) in advance. On the same day, Korea’s number-two chipmaker, Hynix, also agreed to supply Apple with NAND chips in a long-term contract.

On Tuesday, Samsung announced an agreement with US-based fabless semicon designer Qualcomm to produce CDMA (Code Division Multiple Access) and WCDMA (Wideband CDMA) chipsets. The deal strengthens Samsung’s non-memory operations, while granting Qualcomm a stable outsourcing outlet for chips. South Korea, Japan and the US are the main markets for Qualcomm’s mobile chips.

This week’s controversy with the KFTC, revealed on Wednesday, is not Samsung’s first.

Samsung Electronics is the flagship of Samsung Group, Korea’s largest, most successful and most powerful conglomerate. The group has filed a lawsuit with the Constitutional Court against the KFTC, which has called its shareholdings in financial affiliates excessive.

Though widely respected in Korea for its world-beating brand management, business acumen and technological prowess, many allege Samsung is too powerful. Some media have even dubbed South Korea 'The Republic of Samsung'.

The group head, Lee Kun-hee, was this year implicated in an alleged bribery scandal that resulted in the recall of the US ambassador to Washington. Lee has refused summons to appear for questioning before two separate National Assembly committees.

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