It’s easy to feel sorry for memory companies these days. But Kingston Technology Co. doesn’t want pity.
Even as the Fountain Valley memory maker has watched the once-heady memory market go anemic, Kingston is looking to a year-long effort to sell more memory to consumers and increase contract manufacturing services as way to ride out one of the industry’s worst slowdowns in recent memory,no pun intended.
And Kingston is betting that its focus on newer, high-growth areas should help position the company to take advantage of an upturn in the memory market.
“The market is down about 30% overall, yet our sales are down only 15% year-over-year on a unit basis,” said Kingston Chief Executive John Tu. “This means that we are taking market share, which is key to surviving a down market.”
Kingston’s overall revenue is on course to be slightly up from last year’s $1.5 billion, Tu said.
One key: Kingston has begun making memory boards for other companies instead of peddling its own branded boards. In the past year, Kingston has invested in its manufacturing capabilities and has brought nearly all of its plants online for contract manufacturing.
Last year, Kingston invested more than $100 million in Payton,a wholly-owned subsidiary that is one of the first processors of semiconductor wafers, the building blocks for the company’s memory module products.
The results have been good: the company is a contract manufacturer for nine of the 10 major memory module makers and is seeing contract manufacturing sales grow some 30% annually, according to Tu.
Kingston also is stepping up its sales to consumers. Along with a campaign launched in 1999 to sell a product called ValueRAM,generic memory products sold through retail stores,Kingston recently launched ShopKingston.com. The site is geared toward consumers looking to buy memory products to speed up their computers.
The Web is another avenue for the company to peddle memory products as computer makers,which buy memory in huge volumes,have slowed their purchases.
Kingston has put a huge marketing push behind the new site, but has gone through some growing pains, according to Stephen Rodriguez, Kingston’s director of strategic initiatives.
“We just launched it, so we’re still learning how to run a Web business,” he said.
Kingston has had a hard time raising awareness about the site and has launched banner advertisements and public relations campaigns to help shore up sales.
Kingston also plans to announce a deal in the next month to make flash memory,which is used in MP3 players and digital cameras,following an announcement by Orange County rival SimpleTech Inc. that it will make flash memory with Japan’s Hitachi Ltd.
The sum of these efforts gives Kingston “a prime position for continued expansion once the market recovers,” Tu said.
But until these plans start to yield real results, Kingston said it will continue to rely on sales of the silicon boards that contain dynamic random access memory, or DRAM, which account for about 80% of the company’s total revenue.
And when the market might recover is a big question. As consumers have stopped shelling out the bucks for slicker, faster computers, and businesses have halted new computer purchases to see how the economic slowdown plays out, makers of the memory inside those PCs,many of which are based in OC,have taken it on the chin.
With shipments of DRAM memory modules down, all memory makers have watched inventories at PC manufacturers such as Dell Computer Corp, Compaq Computer Inc. and Hewlett-Packard Co. skyrocket.
And it doesn’t look like it will get much better. Total DRAM sales will decline 18% this year to $23.8 billion, according to a report from market research firm International Data Corp.
“The DRAM market suffers from a combination of sluggish demand in the PC industry and a harsh inventory correction in the overall supply chain,” said IDC analyst Soo Kyoum Kim.
Kingston sells 2,000 types of memory modules for products that range from printers to personal computers. Company executives contend that its reputation for integrity,spearheaded by founders Tu and Executive Vice President David Sun,gives it an edge against its competitors. And with no outstanding debt and the cash to make investments in new technology, the company is doing better than most.
But it could get worse before it gets better. Last year, Kingston made an expensive bet that businesses and consumers would want systems powered with Rambus,a new type of memory from Mountain View Calif.-based Rambus Inc. that transfers data faster but is expensive to make.
While other OC memory makers contended that Rambus would be too costly to become an industry standard, Kingston said the performance in systems suped up with Rambus would woo computer buyers. Kingston said it would sell memory for Intel Corp.’s new Pentium 4 chips,which were designed exclusively for Rambus memory,and earmarked $75 million for rebates to buyers of the new systems.
The droves of buyers never came.
Where Intel had expected to sell about 20 million Pentium 4 processors this year, “they’re on track to do about 5 million,” Rodriguez said. Prices for Rambus memory have fallen to about $80,about one-third what they were six to eight months ago.
“There is some interest, of course,” Rodriguez said. “But in the grand scheme of things, it’s not where we want to be.”
The company also chose to make cheaper, Rambus-like memory called double density RAM, or DDR. In March, the company unveiled a new line of DDR products and an exclusive marketing agreement with Taiwanese chipmaker Nanya Technologies.
But as of now, Rambus and DDR sales combined account for only 20% of Kingston’s total revenue.
“We expect some recovery to occur by the beginning of 2002, but at a growth level more moderate than was experienced over the past few years,” Tu said. n
