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Implications of a Major Fine Against a Prominent Consumer Electronics Component Supplier

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In March of this year, Taiwan based TFT flat-panel display provider AU Optronics, along with its President, and director of U.S. operations, were convicted by the U.S. Department of Justice in a price fixing scheme that involved seven other suppliers. To date, all seven suppliers have pleaded guilty and fines amounting to more than $890 million have been accessed on these companies.

Today, the Financial Times is reporting (paid subscription or free metered view) that U.S. authorities are seeking as much as a $1 billion fine concerning AU Optronics’s role in this scheme, and this action could represent the largest such anti-trust penalty levied against a foreign producer. A penalty hearing is scheduled on Thursday of this week, and the FT article quotes antitrust lawyers as indicating that the U.S. DOJ may in-essence is utilizing this case to send a stronger message about the levels of fines that will be assessed in price fixing or supplier collusion cases.

AU is a major supplier of displays incorporated in LCD televisions, computer monitors, consumer electronics, mobile devices, tablets and automotive displays. According to its web site, the company reported August revenues of $1.1 billion, setting a 17 month high mark. Large-sized panel shipments, with applications on desktop monitor, notebook PC, LCD TV and other applications, exceeded 11 million units, while small-and-medium-sized panel shipments were noted as almost 15.83 million units. Thus, the company represents a major player in high tech, consumer electronics and other electronics related supply chains involving multiple OEM brands.

Supply Chain Matters calls attention to this important development for two reasons.  First, it is indicator that U.S. and perhaps other regulatory authorities are getting more serious on foreign based price fixing or collusion practices involving groups of related suppliers within an industry.  If the U.S. DOJ proves to be successful in gaining a $1 billion fine, on top of the previous $890 million in fines, it will indeed send a clear message.  For component procurement teams, it is a positive message indicating that price negotiations must be an open process and teams can call attention to non-competitive market conditions.

Second, recent reports from both Reuters and Taiwan based DigiTimes indicate that AU Optronics is one of two designated suppliers for the LCD panels within Apple’s yet to be announced smaller-sized iPad which is reported to include a 7.65 inch display. While non-Retina display suppliers are fading from Apple’s supply chain, AU was an exception because of capabilities for high volume and lower cost capabilities in display technology. DigTimes has reported that shipments of the low cost iPad screens began in June with a monthly volume of several hundred thousand being shared between AU and LG Display. International visibility to a billion dollar anti-trust fine directed at one of its suppliers will add more challenge for Apple in its supplier social responsibility efforts.  Such efforts have been under the looking glass for many months with reports of labor and work practice abuse.  With its supply chain focused auditing efforts focused toward a more positive spin, Apple will more than likely respond to yet less positive news regarding a major supplier with a message of action. Such action will be interesting, given the purchasing power and influence that Apple’s procurement teams garner in component supply circles.  It could force Apple itself to be more open in its price negotiation practices since the unwritten norm usually is “the Apple price” and “the other price.”

All and all, readers residing in electronics related supply chains should keep an eye on the longer-term implications of severe fine for AU Optronics.

Bob Ferrari

 

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  1. Bob Ferrari says:

    Hello Everyone,

    A postscript update to our Supply Chain Matters commentary related to AU Optronics. A federal judge consequently ordered AU to pay a fine of $500 million for its participation in a price conspiracy. The judge also sentenced two senior AU executives to three year prison terms, along with a fine of $200,000 each.

    While the corporate fine was half of what the U.S. Justice Department was seeking, the judgement was characterized as among the sternest on record for an antitrust case.

    Bob Ferrari