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Kingston Shores Up Supply in Taiwan Deal

Kingston Technology Co. has quietly shored up its supply of key memory chips in another deal with a manufacturer in Taiwan.

The Fountain Valley-based company paid about $200 million to acquire some assets of Powerchip Technology Corp. and then inked a separate deal to pay the company some $380 million over the next two years for foundry services.

Kingston is the world’s largest memory products maker for computers and consumer electronics, with an estimated $5 billion in annual sales. It employs about 800 workers at its Fountain Valley headquarters and 4,200 companywide.

The company is owned by David Sun and John Tu, both members of the annual OC’s Wealthiest list that appears in this edition of the Business Journal (related stories this page; special report, page 41; list, page 54).

The latest development for the company underscores the need for Kingston and other competitors to acquire DRAM chips—the most common type of memory used in computers and the company’s biggest source of revenue—as industry consolidation crimps supply.

“The tightness looks to be here for awhile,” said Mike Howard, senior principal analyst for DRAM & Compute Platforms for Englewood, Colo.-based market tracker IHS Inc. “It makes total sense that they would go out and secure dedicated supply. It may be the only way it can remain viable in the DRAM game.”

Ongoing consolidation since the late 2000s has left Boise, Idaho-based Micron Technology Inc.; Samsung Semiconductor, a unit of South Korea-based Samsung Electronics Co.; and SK Hynix Inc., also based in South Korea, as the primary makers of DRAM chips.

“With a tight market and just three main suppliers, there looks to be little excess supply available for Kingston,” Howard said. 

A spokesman for Kingston declined to comment for this story.

Kingston has relied on Taiwan suppliers in the past and has a longstanding relationship with Powerchip.

It took a minority stake in the company in 2009, paying about $60 million for shares.

The global recession, coupled with sagging PC sales, has forced smaller memory chip makers such as Powerchip to sell or exit the highly commoditized DRAM segment, which typically sees razor-thin margins.

Powerchip exited the DRAM segment in 2011 after entering a supply agreement with Tokyo-based Elpida Memory Inc. and now provides only foundry services.

Elpida, which filed for bankruptcy protection last year, is set to be acquired by Micron for about $2.5 billion.

Other recent examples of consolidation among DRAM producers include Taiwan-based ProMos Technologies Inc., which exited the PC DRAM business in 2011 to focus solely on specialty DRAM and LCD drivers. The move failed after ProMos was forced to halt production as heavy debt mounted.

That followed a bid by several struggling survivors to form Taiwan Memory Co., backed with an $860 million bailout from the government in Taipei. That plan met heavy resistance as the recession raged, and it was ultimately scrapped in 2010.

Qimonda AG in Germany was one of the first dominoes to fall when it filed for bankruptcy in early 2009.

Kingston has had a role in the consolidation trend as a buyer. It paid $4.9 million for a 21% stake in Panram International Corp. in Taiwan last year, becoming its largest shareholder. That followed the company’s purchase of some 274 million shares of Rexchip Electronics Corp. from Powertech Technology Corp. for an estimated $128 million.

Media reports pegged Kingston as Rexchip’s largest shareholder, although its total stake is unknown.

Prices for memory chips fell sharply in 2012 but have been moving up this year as smartphone demand surges, coupled with Samsung’s growing consumption of its own chips used across its diversified product lineup.

The average price of DRAM chips has risen every month this year and is expected to hit $2.53 this quarter, up 50% from the same period a year ago, according to Scottsdale-based IC Insights Inc.

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