Kingston Technology Co. is emerging from a rough patch of plummeting prices and a glut of memory chips.
The Fountain Valley-based company is the biggest maker of memory modules—circuit boards loaded with memory chips that speed the performance of computers and consumer electronics.
Kingston’s growth has been crimped by a year-long surplus of memory chips made by big chipmakers in Asia and Europe.
As the price of these chips fell, so did prices—and profits—on Kingston’s products.
“This was perhaps the worst we have seen,” said Al Soni, vice president of strategic alliances for Kingston. “The declines were very steep and lasted for many months.”
Kingston, which has 25% of the market for memory products, saw 2008 revenue fall 11% to $4 billion. The privately held company doesn’t disclose profits or losses.
The price declines were in part due to a fire sale on memory chips, as chipmakers rushed to get rid of their stockpiles in fear of even lower prices.
Things have improved since then with some predicting better days ahead.
“I think the worst happened at the end of last year,” said Jason Liang, director of supply chain for memory products at Kingston. “The overall price had reached such a level that revenue was hard to sustain.
Our situation is improving, so our overall performance should start to get better.”
Since the start of the year through July, the most recent data available, average selling prices for a gigabit of the most common type of memory chip were up 27%, according to Semico Research.
Overall, prices still are down 19% from August 2008 through July of this year.
Below Cost
For most of this year, the going price of dynamic random access memory chips has been below the cost of producing them, which hovers at around $1.50 per 1 gigabit chip, according to Soni.
The price declines caused a wave of losses and an industry shakeout among memory chipmakers.
Germany’s Qimonda AG filed for bankruptcy in January. It’s set to sell off its U.S. operations in Richmond, Va., to Texas Instruments Inc. for $173 million.
South Korea’s Samsung Group and Hynix Semiconductor Inc. have cut their production and are looking to sell older chip factories.
A handful of Taiwanese chipmakers were forced to consolidate earlier this year to survive. The tiny island was home to some half a dozen memory chipmakers.
They formed Taiwan Memory Co. and took an $860 million investment from the government in Taipei.
The consolidation is helping burn off the oversupply of chips, which in turn bolsters prices.
“These companies lost so much money that they had no stomach for any more losses,” Soni said. “There was a lot of price resistance building up and we started to see prices slowly inch up and become more stable entering the second half of the year.”
Consolidation also removes what industry-watchers call “excess capacity,” or the ability to make more chips than needed.
On the demand side, two technology transitions later in the year are expected to boost sales of computers—driving an uptick in ordering of memory chips.
Microsoft Corp. is set to release Windows 7 during the fourth quarter.
“All of the major PC makers are going to use Windows 7 to boost their business,” Soni said.
Computer makers also are speeding up the adoption of the third generation of memory chip technology, called the double data rate, or DDR3.
DDR3 promises faster data speeds, lower power usage and high performance.
“The PC companies started to apply this first on servers and are now going into other platforms, including notebooks and desktops,” Soni said.
Still, consumers’ appetites for new PCs are uncertain.
“Right now the PC markers are trying to prepare inventory,” Liang said. “Whether they can sell the inventory—that remains to be seen.”
