When Kingston Technology Co.,Orange County’s top memory products maker,recently said it would lay off employees for the first time in its 14-year history, it signaled how the technology slowdown and an excess of memory products had hit home. But Kingston is not alone.
OC’s second- and third-largest component makers,Viking Components Inc. and Simple Technology Inc.,both say their businesses have been affected, too.
“We’ve been dealing with this demand correction since July and August. Our pricing has dropped 30% to 40%,” said Michael Nubel, Viking’s vice president of marketing.
Born of slackening demand for computers and networking equipment, the inventory glut has thrown a kink into memory products producers, many of which are based in OC. Revenue in the memory market, into which both Viking and Simple sell, could decline 18% this year compared with 2000, according to a recent report from market tracker International Data Corp.
In those declining sales numbers, OC executives say order sizes have fallen. Manoush Moshayedi, Simple’s chief executive, said that orders of $15 million have declined to $5 million, leaving inventory sitting on manufacturer shelves.
“Before all these cancellations, we had pretty good visibility,” Moshayedi said of Simple’s largest customers: Cisco Systems Inc., Lucent Technologies Inc. and Alcatel Alsthom SA. “That has all changed,” he said. Executives at Simple and Viking say their companies don’t plan layoffs in the coming months. Both say their ships normally run on a lean budget and they don’t have any fat to trim.
But, Viking’s Nubel said, “as the manufacturer of a commodity product, we are always looking for efficiencies.”
Viking has consolidated some operations at one of its factories in Ireland. Company executives say the change frees up their U.S. factories to work on special high-priced products and saves money.
“We’re re-deploying assets into different spots,” Nubel said.
Simple instituted a hiring freeze to keep costs low.
“I don’t think we’ll have any layoffs,” Moshayedi said.
Most in the industry agree that demand for memory will pick up in the third quarter. But IDC predicts prices will not have recovered enough to turn back “negative momentum.”
OC’s memory makers think the worst is over.
“Our opinion right now is that the market has hit bottom,” Nubel said. “We’re starting to hear suppliers say they’ve reached their threshold of pain. If I had to go out on a limb, I would say the market will come back in September or October.”
“The technology business is slowing, and we are not immune,” Moshayedi said. “While we have seen a large slowdown from some of our biggest customers, business should pick up by the third or fourth quarter of this year.”
With the technology sector still sliding, the coming year is critical to the long-term health of OC memory makers.
The road could be difficult for Viking and Simple. Computer memory accounts for about half of each company’s revenue, making a slowdown inevitable for both companies. In fact, Simple’s revenue for the first half likely will be flat year-to-year, Moshayedi said. Viking, which is private, declined to comment on revenue.
“The stage is set for another market restructuring, with the winners and losers clearly being identified over the next year,” said IDC analyst Soo Kyoum Kim. The solution, analysts suggest, is to make newer, higher-priced computer parts instead of the commoditized computer memory.
But Viking and Simple won’t end up in the loser’s column, the companies’ executives contend. To pick up the slack left by a declining computer memory business, both companies are selling memory into higher-growth markets, such as electronic devices and networking.
Executives at Simple and Viking hope to tap into the booms in online music and digital photos. Analysts say the market for flash memory,which goes into electronic devices such as MP3 players and digital cameras,will increase from $717 million last year to $5.3 billion by 2004.
“We’ve always tried to move into higher-growth segments and diversify the business,” Moshayedi said. “Thirty-five percent of our business is in flash memory and another large portion is in (dynamic random access memory) stacking, which is based on our proprietary technology,” Moshayedi said.
Viking said that while half of the company’s sales are generated through commodity memory products, the company also counts flash memory, non-memory cards and modem parts among the products that contribute to the other half of the company’s revenue scheme. Viking executives aim to grab business quickly in all their markets to maintain gross margins.
“We’re focused on gaining market share,” Nubel said. n
