Taiwanese chipmakers get monopoly warning

The country’s antitrust agency yesterday warned two Taiwanese chipmakers of their possible monopoly in the local market, sparking worries about a backlash from the Taiwanese government and trade conflicts.

The Fair Trade Commission (FTC) expressed a concern about monopolizing practices by Mstar Semiconductor and MediaTek, the world’s two largest chip manufacturers with a combined 57 percent of the global system-on-chip (SoC) market estimated to be $2.2 billion. SoCs are used in digital televisions.

MediaTek reported its purchase of a 48 percent stake in Mstar in August, according to the FTC.

“The merger of the top two chipmakers raises the possibility of exercising a monopoly on local TV makers,” the commission said.

Most Korean TV makers buy SoCs for digital TVs from the two companies. Samsung Electronics and LG Electronics have relied on them for the 10 years. Over 90 percent of the chips they buy were made by the Taiwanese companies.

“There is no choice for local companies to have another supplier as the two giants dominate the entire market, eliminating a fair competition,” the FTC said.

While the two hold a majority of the market, three other chip providers claim a combined 11 percent.

Trident Micro, Broadcom and Zoran, the world’s third-, fourth- and fifth-largest SoC makers have been crowded out from the market.

Under the country’s Fair Trade Act, a more than 25 percentage point difference in market share between a leader and the runner-up allows the antitrust agency to intervene to prevent unfair trade practices.

The antitrust agency told the Taiwanese players not to raise prices in recent transactions with Korean companies. In particular, the FTC ordered them to cut prices of six-month-old SoCs in 2010 through 2012.

SoCs for digital TVs tend to jump in price six months after product launches.

The commission also banned Taiwanese companies from refusing to supply their products to any Korean companies.

Everything from price, technological support and warranty for defects should be written on paper, the FTC ordered.

“There are worries that the chip tycoon could set unfair contract terms for local companies, taking advantage of its dominant position, if documenting isn’t mandated,” the FTC said.

Korea’s FTC is the only government agency to closely monitor the Taiwanese companies’ merger, according to sources. The Japanese authority considered the merger insignificant.

It is considered unprecedented that the FTC orders corrective measures on the merger of foreign companies.

“Since we have been in talks with the two companies and Taiwanese authorities since last August, there won’t be a backlash,” said Shin Young-ho, a director at the FTC. “No response from the two companies has been made yet.”

However, when the FTC in 2005 fined U.S.-based Microsoft 32.5 billion won for forcing consumers to buy instant messaging and media player software together with Windows, there was a wave of criticism from outside the country.

By Song Su-hyun [ssh@joongang.co.kr]