Fountain Valley’s Kingston Technology Co., long the world’s top maker of memory boards, is facing a growing threat from leaner, meaner Taiwanese rivals, according to a report.
“Taiwan-based (memory products) makers have substantially boosted their presence in the global market,” said Jonathan Liu, analyst at DRAMeXchange Tech Inc., a market research group.
Memory products makers assemble memory chips into circuit boards that go into computers, networking gear and consumer electronics.
Five of the top 10 memory products makers now are based in Taiwan, according to a recent report on 2006 market share from DRAMeXchange.
A year ago, four Taiwanese companies were in the top 10, the report showed.
The report ranks memory products makers by market share and sales of name-brand parts only, which doesn’t include parts sold to computer makers who build them into their own products.
Counterweight to Kingston
Taiwanese makers in the top 10 had 21% of the market. Together, they are a counterweight to Kingston, which also had about 21% share last year.
Among the top 20, there were nine Taiwanese companies with a combined market share of 37%. That’s up from 23% in the first quarter of 2006.
“The (Taiwan companies) are very good and very nimble,” said Mike Sager, a Kingston spokesman. “We do exactly the same things as the smaller guys, but we just got a head start. We are just as afraid of them as they are of us.”
Taiwanese makers are climbing the ranks, likely helped by steep price declines in the chips used to make memory boards.
The first half of this year alone saw prices for memory chips, the building blocks of memory boards, fall by about 25%.
The low prices hit Kingston and others hard since it squeezes profits and lowers the value of chips on hand.
Smaller Taiwanese companies, who don’t buy chips in bulk like Kingston, likely were able to take advantage of the price drop by buying chips on the spot market.
On a global scale, the Taiwanese players have been more successful than U.S.-based rivals in tapping emerging markets in the Middle East, Russia, India, China and South America, according to Liu.
Kingston and other U.S. memory products makers tend to focus on North America and Europe, where the growth is slowing as the market matures, he said.
In response, Kingston has gotten a lot more aggressive in terms of production in Asia in recent years.
It’s opened three plants there,in Taipei in Taiwan, Shanghai in mainland China and in Penang, Malaysia,where almost all of its manufacturing is done by about 1,200 workers.
Most of the memory boards it makes stay in the area and are sent to computer makers’ factories in Asia.
The company’s Fountain Valley site, primarily a hub for engineers, is used as a backup assembly plant and to create prototypes and test designs, according to spokesman David Leong.
Without Kingston, other eight U.S.-based memory products makers command about 40% of the market, according to the report.
Rankings
The big three makers of memory products held their spots last year.
No. 1 Kingston still is the 800-pound gorilla by any measure,sales totaled $3.7 billion in 2006.
Kingston makes the most profit on its private label line of memory products, which are used by companies in their corporate networks of computers made by Hewlett-Packard Co. and Dell Inc., among others, Sager said.
About $1.8 billion of privately held Kingston’s sales are in private label branded memory products, according to the DRAMeXchange report.
“The thing that keeps us ahead of them is our brand name,” Sager said. “It is very competitive. It’s a never-ending sprint race. If you slow down for one second, these guys will catch up to you.”
Rounding out the top three last year were No. 2 A-Data Technology Inc. of Taiwan and No. 3 Fremont-based Smart Modular Technologies Inc.
No. 4 Taiwan’s Transcend Information Inc. shot up the list last year with about 4% market share. It was No. 9 in 2005.
No. 5 San Jose-based MA Labs Inc. had about 3.8% market share and moved up one spot from 2005.
No. 6 Taiwan’s Apacer Technology Inc. climbed into the top 10 with about 3.5% of the market. A year earlier, Apacer ranked No. 14.
“Apacer has started to enjoy the benefits from years of hard work in cultivating the European and Australian markets,” Liu said.
Meridian, Idaho-based Crucial Technology, a unit of Boise-based memory chipmaker Micron Technology Inc., slipped down two spots to No. 7 with the rise of the Taiwanese rivals. Crucial had about 3.3% of the market last year.
The rest of this list is made up of two Taiwan companies with about 6% of the market combined.
Buying Power
Kingston stays on top year after year because of its sheer size, Sager said.
“Procurement is an important part of our strategy,” he said. “Everything over there is price, price, price. We make sure our manufacturing processes are as fine-tuned and efficient as they can possibly be.”
Another strategy is to diversify.
Both Kingston and Smart Modular have been ramping up sales of flash memory, cards full of chips that are used mainly in consumer electronics such as mobile phones, digital cameras and portable memory sticks.
In the next year or so, Kingston wants sales of flash products to make up about a billion dollars of its revenue,a bit more than a third of annual sales, Sager said.
Kingston is able to work with its existing suppliers,mostly Asian and European chipmakers,to get good prices for flash memory supplies.
“I guarantee that if we relax, the (Taiwanese makers) would catch up with us,” Kingston’s Sager said. “Even though we have a big lead, we are constantly vigilant about our position in the marketplace. We are constantly trying to make a bigger gap between the number two company and us.”
