The Memory Company Makes a $100 Million Bid to Speed Production
Forget what you’ve heard about cheap Asian labor. Kingston Technology Co. is making a $100 million move to bring its production process closer to home in a bid to speed output and increase flexibility.
The Fountain Valley computer memory products maker is opening a new 7,000-square-foot facility and hiring up to 200 new workers at its headquarters. The expansion will allow Kingston to process semiconductor wafers, the building blocks for the company’s memory module products.
Kingston officials hope the move will reduce overall costs and cut the time it takes to build memory from eight weeks to about 10 days.
“I don’t know of anybody else in the module business who’s doing that,” said Steve Cullen, a principal analyst for Scottsdale, Ariz., market research firm Cahners In-Stat Group. “It moves that part of the process closer to the customer, and anytime you move something closer to the customer, you have the ability to react quicker and the ability to reduce inventories.”
Wafer processing is an early step in making memory chips and usually takes place in Asia, which offers lower labor and production costs. In some cases, a half-dozen companies can be involved in each step of the wafer production process. So they can spend most of the time in transit or repackaging as the units travel from one plant to another.
With wafer-processing capabilities located at an adjacent facility, Kingston officials hope to cut out most of that extra activity.
Kingston’s sister company Payton Technology Corp., owned by Kingston co-founders David Sun and John Tu, will operate the facility.
According to analysts, Kingston is the first U.S. memory module maker to try such an idea. Most memory product makers get chips from Asian producers and assemble them onto circuit boards. Micron Technology Inc. conducts some wafer production and processing domestically. But even that process is geographically scattered.
Kingston won’t be sure its bet will pay off for a few years. The memory market is flourishing, which makes excess inventory a non-issue for now. And Kingston officials say it could take up to four years to fine-tune the operation.
But a two-week product turnaround, analysts say, could give Kingston a substantial advantage over other memory product makers, especially in a quickly changing market that sees almost daily shifts in demand and technology.
Officials say they will monitor results closely to see whether the model will work for its European and Taiwanese plants and facilities being considered for mainland China.
“This is a crap shoot for us,” admits John Sutherland, a Kingston executive. “If it doesn’t work, we’d rather it didn’t work on a small scale. But we think it will.”
The plant will take in whole silicon wafers imprinted with memory circuitry from chipmakers. In a 14-step process, Kingston workers will cut the wafers into individual chips and create finished memory modules, which will be transferred to Kingston or other memory sellers. The model will allow Kingston to handle customer logistics and build memory on demand.
As before, Kingston will warehouse and ship the finished product to customers.
Kingston went ahead with the plant at the nudging of Japanese computer maker Toshiba America Electronics Corp., one of its largest customers. Kingston executives reportedly first heard about the deal when Sun returned from a business trip and announced: “I think I just spent $100 million. Now what?”
Kingston will focus the bulk of that investment in a single room at its Fountain Valley headquarters, which will hold about 30 testing machines purchased from Toshiba’s facility in Asia. Under the deal, Kingston will ship finished products directly to Toshiba customers.
The facility shipped out its first finished product earlier this month ahead of schedule. At full capacity, the plant can cut 6 million chips per month.
Initially, the plant will manufacture traditional synchronous dynamic random access memory and then move to newer high-speed Rambus memory.
The privately held company is one of the largest sellers of computer memory in the world, with annual revenue of more than $1 billion. n
