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Kingston Forms Embedded Memory Joint Venture

Fountain Valley’s Kingston Technology Co. has set up a joint venture with one of its Taiwanese suppliers to make and market specialized types of memory that go into smartphones and slim, lightweight computers.

Kingston, the biggest maker of memory products for computers and consumer electronics, has teamed up with Taiwan’s Phison Electronics Corp. to develop what’s called embedded memory.

Embedded memory is made up of flash memory chips, which are used in digital cameras and music players, thumb drives and increasingly in smartphones, tablet PCs and other small computers, such as Apple Inc.’s MacBook Air.

Phison is a maker of controller chips that handle the reading and writing of data on flash drives and other devices.

Kingston and Phison have a long history together.

Phison, which is publicly traded in Taiwan, has been supplying Kingston with controllers for years.

Kingston is an investor in Phison. It first took a stake in 2008 and now owns 6.45% of Phison.

“The two companies are a perfect match as it pairs one of the leading controller technology companies with the independent world leader in memory products,” a Kingston spokesman said.

Kingston, the No. 2 maker of flash memory to No. 1 Sunnyvale-based SanDisk Corp., has branding and marketing heft that Phison lacks.

“Kingston has an outstanding brand image as well as a complete distribution channel and significant purchasing power,” Phison said in a statement. “The new joint venture will take advantage of these capabilities.”

New Company

The new venture, tentatively dubbed Kingston Solutions Inc., is set to be based in Taiwan, where Kingston has sizeable operations and manufacturing.

It’s unclear who will head the company.

Phison said it will invest around $3 million in the venture and get a board seat.

Kingston didn’t disclose how much it’s investing or other details on the makeup of the board.

Some industry watchers say the move is a way for Kingston to get around the perception that it is competing with some of its chip suppliers that make embedded memory products, including Japan’s Toshiba Corp., Idaho’s Micron Technology Inc. and South Korea’s Hynix Semiconductor Inc.

Others say the venture is “a bid to compete with Samsung Electronics,” according to a report in digitimes.com, a technology news website that focuses on Asia.

“Samsung stands a chance of dominating the global market because it is the only one with in-house production of all key components,” Digitimes said.

Kingston declined to elaborate on the venture and said it preferred to keep the news low-key for now.

Solid State Drives

A few years ago, Kingston teamed up with Intel Corp. to make what’s called solid state drives for consumers.

Solid state drives are made up of flash memory chips and have no moving parts. They’re better at some tasks than traditional spinning disk drives.

Kingston markets them as “boot up” drives for consumers that allow older computers to run faster.

Kingston got into the flash memory market in 2003—relatively late in the game. It now counts on flash memory for roughly a quarter of its $4 billion in yearly sales.

Memory Modules

Its mainstay is memory modules—circuit boards loaded with memory chips that get built into computers and servers. Kingston buys memory chips from makers in Asia and Europe and assembles them on to circuit boards.

Kingston counted 46% of the market for memory modules during the first half of 2010, bigger than any other player by far, according to data released last week by El Segundo-based market tracker iSuppli Corp.

That’s up from 40% market share in the second half of 2009, according to iSuppli.

Kingston sold $2.6 billion worth of memory modules in the first half of the year, up 46% from a year earlier, iSuppli said.

The company outpaced the overall memory module market, which grew by 26% during the same period.

Lead Over Rivals

Kingston was able to expand its lead over rivals because “it used its prodigious buying power during a time of rising module costs to gain share,” according to Clifford Leimbach, an analyst covering memory demand forecasting at iSuppli.

“Kingston in the first half effectively used its … market dominance as a competitive weapon against its smaller rivals,” Leimbach said. “Because of its large size, Kingston has more buying power than any other third-partly module maker, allowing it to obtain more favorable pricing. Kingston passed on these lower prices to its customers, undercutting the competition.”

Kingston and other memory module makers benefited from a running start in the first half of the year that boosted PC sales.

PC shipments jumped 23% in the first half of 2010 from a year earlier, according to iSuppli.

After Kingston, No. 2 Taiwan’s A-Data Technology Co. had 7.6% of the module market. No. 3 China’s Ramaxel Technology Ltd. had 7% of the market. No. 4 Micron Technology had 5.9%, followed by Northern California’s Smart Modular Technologies Inc. at 5.8%.

Other small local players that make memory modules include Santa Ana’s STEC Inc., Irvine’s Netlist Inc. and Lake Forest’s Viking Modular Solutions Inc., which each count slivers of the market.

Kingston is eyeing the $6 billion sales mark this year—a record for the company.

The privately held company has about 800 workers here. It doesn’t disclose profits.

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