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Kingston Plans to Boost Stake in Taiwanese Chipmaker

Fountain Valley-based storage products maker Kingston Technology Corp. is poised to boost its stake in another Taiwanese chipmaker as it hedges against rising component prices.

The company plans to buy 5 million shares of Phison Electronics Corp. for nearly $31 million in a private placement that would more than double its 1.5% stake in the chipmaker, according to a filing last week with the Taiwan Stock Exchange.

The price of the shares represents about a 22% discount from where the stock has been trading recently.

Phison’s private placement of 50 million shares was expected to close June 20. The proceeds will fund long-term operations, according to the filing.

A Kingston spokesperson declined to comment on the transaction.

The deal highlights the company’s investment strategy and business model of shoring up key memory-components suppliers in an ever-changing pricing environment that rides wild swings in supply and demand across the globe. The move also provides Kingston with custom chip and storage configurations for smartphone and tablet makers.

Revenue Jump

Revenue for Kingston, the world’s largest memory products maker for computers and consumer electronics, jumped to an estimated $5.4 billion last year, up 8% over 2013. The company maintained its No. 3 ranking on this year’s list of the largest private companies in Orange County (see list, page 12).

It employs about 750 people at its headquarters in Fountain Valley, which specializes in custom and quick-turnaround orders.

Taiwan-based Phison specializes in NAND flash, the primary storage component in solid-state drives that’s also used in cameras, memory cards, laptops, and other products for general storage and data transfers. The drives, which store data on chips instead of spinning disks, are expected to gradually replace hard disk drives in server rooms and data centers. They are also expected to eventually penetrate the consumer electronics market as prices decline.

Phison, established in 2000, is one of the world’s largest NAND flash suppliers, posting revenue of nearly $433 million in the first five months of the year, up 2.1% from the same period a year earlier.

NAND flash prices are expected to jump 2% to 4% in the second half of the year as demand surges for new Apple products, Chinese smartphones, and solid-state drives, according to market tracker DRAMeXchange.

Demand has been fueled by component shortages at big suppliers such as Micron Technology, SK Hynix and others.

The Phison investment is the fourth deal involving Kingston and Taiwanese manufacturers that the Business Journal has uncovered in the past two years.

The company paid about $200 million last August to acquire some assets of Powerchip Technology Corp. and then signed a separate deal to pay the company about $380 million over two years for foundry services. Kingston already had a minority stake in Powerchip, having paid about $60 million for shares in 2009.

It acquired a 21% stake in Panram International Corp. in 2012 for $4.9 million, becoming its largest shareholder. That followed the company’s purchase of about 274 million shares of Rexchip Electronics Corp. from Powertech Technology Corp. for an estimated $128 million.

Media reports have identified Kingston as Rexchip’s largest shareholder.

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