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Kingston lands a $200 million order from Intel

Kingston Technology Co. has landed a deal pegged at $200 million annually to supply high-end memory products to Intel Corp. for use with the chip maker’s newest Pentium IV processor.

The Fountain Valley memory products maker is set to announce today that it will be supplying Rambus memory modules to Intel, which will make them available to computer makers using its Pentium IV chip. Kingston expects to meet 60% of Intel’s expected demand for Rambus memory when the Pentium IV launches Nov. 20. nificant, not just for Intel and Kingston but for the whole industry,” said Wai Szeto, vice president of business initiatives for Kingston. “This will be the latest technology that we’ll be producing in Fountain Valley. It’s great for Orange County.”

Kingston is expanding its Fountain Valley headquarters and spending $30 million to $40 million to ramp up production. The company also expects to spend another $75 million marketing the Rambus modules, mostly in the form of rebates.

“This deal alone should bring us over $200 million annually in sales,” Szeto said. “This is a brand new market.”

This year, Kingston officials expect sales of more than $1.5 billion in memory, data storage and computer networking products. The Intel pact is a new direction for Kingston, which traditionally has sold memory upgrades for existing computers. The company now will be building products for new computers.

The pact also is a sign of support for embattled Rambus Inc., the Mountain View-based memory products company. Last week, Samsung Electronics Co. signed on to license a range of Rambus products.

But for Kingston, the move is a risky bet on the future acceptance of Rambus memory, which has split the computer industry. Even investors are divided about Rambus, which has seen its shares plunge in recent weeks.

Rambus is a new type of memory that transfers data faster but is expensive to make. Many of Kingston’s OC rivals contend Rambus is too costly to become an industry standard.

Other memory product makers are pushing a cheaper type of next-generation memory known as double data rate random access memory, or DDR. Licensing fees for DDR memory go to other memory producers, not Rambus.

Even Intel, an early Rambus backer, has tempered its support for the technology. Intel executives have said it was a mistake to focus exclusively on Rambus. The company is considering using DDR and Rambus with the Pentium IV.

But Rambus is expected to find its way into high-end computers and other devices where performance is key. Rambus memory chips are being used in Sony Corp.’s hot PlayStation 2 video game console, which is projected to sell 10 million units in the next year.

At least one analyst believes that Rambus won’t become a major factor for Kingston.

Peter Glaskowsky, a market researcher at Sunnyvale-based MicroDesign Resources Inc., said any memory company can produce Rambus modules and there’s no differentiation in quality. Also the ramp-up for Pentium IV will be slow because of the cost of Rambus, he said.

“Those are a bad combination of factors for Kingston,” he said.

Kingston’s Szeto agreed that the production cost is a factor. But the company is betting that computer users will be won over by the performance gains Rambus has to offer. That’s where the rebates come in, he said.

“Intel tried to move the envelope but the market cannot produce a low-cost Rambus and users are not willing to pay,” he said. “We want to give them a taste of what the latest performance is like. Once in awhile, you have to go to a five-star hotel to find out what the finer side of life is like.” n

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