Viking Components Inc., Orange County’s third-largest memory products maker, has retained Los Angeles investment bank Murphy Noell Capital LLC to explore strategic alternatives, according to an industry source familiar with the situation.
An official with Murphy Noell said his firm has a relationship with Rancho Santa Margarita-based Viking but declined to comment further. An industry source said Viking is looking at a number of options, including a possible sale.
“They’ve got some bankers working for them to find a suitor or something else,” the source said.
Glenn McCusker, Viking co-chief executive and founder, declined to comment about the investment bank and any possible sale.
“Viking has been an anchor technology company in Orange County for the past years employing over 400,” McCusker said via e-mail.
Among any possible Viking buyers could be Santa Ana-based SimpleTech Inc., OC’s second-largest memory company after Fountain Valley-based Kingston Technology Co., the industry source said.
Memory business insiders are expecting consolidation with an industry downturn spurred by slower computer and networking equipment sales. The demand shift could have taken some companies by surprise, they say.
“Any company holding inventory right now is going to have trouble,” the industry source said.
OC has long been a computer memory hotbed, counting at least seven players,including Kingston, Southland Micro Systems and SimpleTech.
Industry observers say a shakeout is inevitable in memory products. Not only are companies dealing with slower sales, but their profits on mainstay dynamic random access memory modules have been squeezed.
“The DRAM industry has already lost the momentum to sustain positive revenue growth this year and in 2002, as the market enters an earlier-than-expected bust cycle,” International Data Corp. analyst Soo Kyoum Kim said earlier this year. “The stage is set for another market restructuring, with the winners and losers clearly being identified over the next year.”
Like the broader technology sector, the memory market goes through boom-and-bust cycles, with periods of rapid growth followed by periods of correction. As PC sales plunged in the past year amid the broader economic slowdown, computer memory companies have been forced to cut prices,and forsake profits,on memory modules, the silicon boards that house the memory chips.
“It makes a situation where the only way to make money is to sell by volume,” said SemiCo Research analyst Rich Wawrzyniak.
The drive to volume production stands to fuel any acquisitions, observers say. Memory companies have been vying to win more market share during the downturn. In the end, it’s likely to be the big that survive, according to analysts.
“In the long term, I can see why somebody would want (Viking),” Wawrzyniak said.
Sources say SimpleTech could be looking to grow through acquisitions.
SimpleTech has been undergoing a facelift, starting with the company changing its name from Simple Technology Inc. to SimpleTech. The company also is looking to newer high-growth memory markets, such as flash memory,found in consumer electronics like digital cameras and MP3 players.
But maintaining and increasing manufacturing capacity is among SimpleTech’s biggest concerns,something the company mentions in a recent Securities and Exchange Commission filing:
“Our ability to maintain or increase revenues will depend upon our ability to increase unit sales volumes of existing products and to introduce and sell new products in quantities sufficient to offset declines in sales prices.”
SimpleTech is in a position to make acquisitions. Most notably, in the past two years the company has grown its cash reserve from $3 million to about $40 million, according to the company’s most recent earnings report. SimpleTech counted a market value of about $100 million as of last week. n
