Justice Greets Two Graphics-Chip Makers

Nvidia, AMD subpoenaed by the Justice Department.
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Government regulators have spent the last few years cracking down on various players in the memory-chip industry.

Now graphics-chip makers are under the spotlight.

On Friday,

Nvidia

(NVDA) - Get Report

said it had received a subpoena from the Department of Justice's antitrust division in connection with potential violations in the graphics-chip business -- 12 hours after

Advanced Micro Devices

(AMD) - Get Report

made a similar confession.

Both AMD and Nvidia said that no specific allegations have been made against them.

The news caught many Wall Street analysts by surprise, and the limited details left many puzzled about what the inquiry might entail.

AMD closed its $5.4 billion acquisition of Canadian graphics-chip maker ATI in October without triggering any government action under the Hart-Scott-Rodino Antitrust Improvements Act, one of the statutes that governs mergers.

AMD spokesman Drew Prairie said that the subpoena was not related to the merger, but rather to graphics processors and cards, a business AMD was not involved in prior to its acquisition of ATI.

Shares of AMD were off 4.1%, or 88 cents, at $20.69, and Nvidia slipped 3.9%, or $1.45, to $35.54, in a down day for all semiconductor stocks.

AMD's Prairie said the company was served with a subpoena Wednesday to hand over internal documents. He said the subpoena did not provide much detail about what the investigation involves.

A Justice Department spokesperson would not comment on which companies were under investigation or any other aspect of the matter, other than to say it involved the possibility of anticompetitive practices in the graphic processing units or cards industry.

Intel

(INTC) - Get Report

, which makes chipsets with integrated graphics capabilities but exited the standalone graphics-chip market several years ago, has not received a subpoena from the Justice Department, according to spokesman Chuck Mulloy.

The absence of an Intel subpoena had some industry insiders speculating that the Santa Clara, Calif., chipmaker might have had a hand in piquing the government's interest in the graphics industry.

According to an antitrust attorney in Washington, D.C., Justice Department antitrust investigations often are prompted by complaints from other companies.

Intel and AMD have a long history of legal disputes, with AMD most recently suing Intel for anticompetitive behavior in the microprocessor business.

Asked about whether Intel had complained to the DOJ, Intel's Mulloy said the company does not comment on speculation.

In any case, the fact that subpoenas have been issued suggests that the investigation is of a criminal nature, said the D.C. attorney.

"Usually other words are used to describe the process if it's a civil investigation," said the attorney, who asked to remain anonymous because he wasn't sure if his firm was involved with any of the parties.

The Justice Department's ongoing investigation of the DRAM industry has centered on price-fixing between the various players, including

Samsung

,

Hynix Semiconductor

and

Infineon Technologies

(IFX)

, resulting in jail sentences and hundreds of millions of dollars in fines.

According to the Justice Department, the DRAM price-fixing harmed PC makers who bought the chips, such as

Dell

(DELL) - Get Report

,

Hewlett-Packard

(HPQ) - Get Report

and

Apple Computer

(AAPL) - Get Report

.

The Graphics Rulers

The standalone graphics-chip industry, which is dominated by Nvidia and ATI, is somewhat different.

The fierce level of competition between the two players, and their diverging profit margin levels, does not immediately suggest obvious pricing collusion.

On the other hand, the limited number of participants in the market could present a claim that other players have been excluded, be they smaller graphics-chip makers or companies that sell the circuit board cards that contain the graphics chips.

Representatives of

S3

, a small graphics-chip company that competes with Nvidia and ATI, were not immediately available for comment.

Fred Weiss of Atlantic Trust SteinRoe said there was no way to know what the investigation involved at this point, but he said he was not overly concerned.

"This will take not days, but years to investigate," said Weiss, whose firm has a position in Nvidia. He added that even if the company ends up paying a large fine, it most likely will not be that significant to the long-term value of a company.