When the 1987 stock market crash on Black Monday left John Tu and his partner almost penniless, another door opened. For the, at the time, philosophical owner of memory maker Kingston Technologies, that door was the rebirth of the company as a module manufacturer.
Kingston's subsequent metamorphosis from being an organisation with two guys in a garage to becoming a $1.4bn (£995m) corporation caused a revolution in the memory market by opening up it up to lucrative distribution deals.
Back in 1987, a serious shortage in worldwide DRam often meant that if a user or enterprise required more memory, they could wait weeks or months before it would be shipped. The solution that Tu and his partner Davis Sun came up with, was to build a compatible, yet more readily available, memory module for machines of different types throughout the channel.
Partners also implemented a 'just-in-time' manufacturing business model to cut down on large channel inventories.
"Customers were not happy with one type of memory configuration," said Wai Szeto, Kingston's vice president of strategic business development.
Because these customers wanted choice, Kingston created a catalogue to make it easier for resellers to sell different memory configurations into key accounts. The rest, as they say in showbiz, is history.
But last week, Tu shed light on another door that has opened for the company - the entrance to the old Ricoh building that sits opposite Kingston's headquarters in Fountain Valley, California. Kingston purchased the building for $100m (£70m) using Tu's substantial cash reserves and refitted it to make it a clean-room environment. The investment also included PC manufacturer AST's refitted building as well.
The Ricoh building now houses a Kingston subsidiary - Payton Technology - which aims to revolutionise the memory market by helping Kingston to play a more active role in its own supply chain. This ranges from wafer delivery to chip production. With the Payton fabrication plant, Kingston claims it can reduce lead times by up to eight weeks - something that is currently benefiting long-term strategic partner and first customer, Toshiba.
Toshiba previously outsourced back-end functions related to its DRam production to various locations round the world. It will now ship its wafers to Payton, where Kingston will look after everything else. More customers are expected to sign up, but Tu said the company wants to perfect the scheme with its long-standing partner before taking on any new business.
Just a wee DRam
He also hopes the company's new supply chain model will stabilise the often volatile memory market. "Supply chain is the key, inventory is the killer," he said. Citing Dell as his inspiration for how to improve supply chain efficiency, Tu added that Kingston was forced to adopt a similar model simply to stay ahead of the game.
But he also claimed that the supplier now offers a one-stop shop because Payton will not only process SDRam as well as DRam, but also Rambus and DDR memory. To avoid memory over- or under-production, which affects price and market volatility, the plant will provide manufacturers with "volume flexibility" and also enable DRam manufacturers to "stay at the core of what they are doing", he attested.
"Payton is a major innovation. What we are trying to create here has never been done in the semiconductor business by a module manufacturer," said Tu. "Price reductions, better margin and greater efficiency will give everybody more breathing space."
Yasu Morimoto, Toshiba's chief executive, agreed with Tu's sentiments. "Having the best technology is not enough," he said. "To be successful in this extremely competitive market, it is essential to have the most efficient and flexible method to service the customer, where the customer need arises."
The next phase of development is likely to see Kingston expanding this supply chain model into Europe, where it already has a manufacturing plant in Dublin. Although executives have already confirmed the scheme, no clear date for a go-ahead has been given.
The Rambus is coming
With regard to the vendor's Rambus memory module, which it jointly developed with Rambus Inc and which it hopes to produce in high volumes at Payton, Szeto insists that it will not become a mainstream channel product until prices come down because the market perception is that memory should be cheap.
But he refused to be drawn on whether the management strategy of Rambus Inc, which manufactures memory chips, was holding back the development of the fewer-pinned, narrow-bandwidth, high-speed bus module. The 133Mhz speed of the bus, which links central processing units and memory, has been greatly improved, he added.
Although Rambus has been under development for the last five years, oversupply and poor DRam sales between 1996 and 1998 mean that there has been no investment in the technology. But Szeto hopes that applications which require fast memory, such as streaming video, will drive demand, although over the next year at least, SDRam will see greater volume shipments.
In addition, Kingston also manufacturers high capacity DDRam, which it has already shipped to original equipment manufacturer customers for testing. According to Szeto, the chip builds on the performance of SDRam, but has more pins and is wide-band. Although he envisages that DDRam will sell in volume in large servers, as an engineer he says he believes that Rambus is a better desktop option.
Whatever happens, Kingston appears to be covering all the options, including the production of CompactFlash and ValueRam for system builders. By 2001, with its Payton plant running at full capacity, it could be producing six million integrated circuits, which would also be packaged at its module making and testing facility.
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