Unveiling Plant, Kingston Says These Are Chips Off a New Block
Kingston Technology Co. plans to unveil a $105-million plant in Orange County today, the company’s largest investment in manufacturing and one that will transform the way it prepares and delivers memory chips.
The investment marks a bold reemergence by Kingston’s multimillionaire founders, David Sun and John Tu, who last summer bought back the company they founded in 1988 and who have made it famous with their generous employee bonuses and family values.
The new plant, a white stucco building as nondescript as its Fountain Valley headquarters across the street, is being touted as the first facility in the United States to offer memory and semiconductor companies one-stop shopping for built-to-order memory modules.
By housing different manufacturing, assembly and testing processes under one roof, Kingston said, it will be able to reduce the delivery time from what is often eight to 10 weeks to seven to 10 days.
At a time when most of the chip-manufacturing industry does its work overseas, an investment of this size in the United States is an anomaly. The cost of the venture (dubbed the Payton Project), which Tu and Sun are financing, will reach as much as $350 million by the end of the year, as more equipment is added.
The plant rolled out its first batch of chips June 2 and is moving into full-scale production. Company officials expect it to be fully equipped by the end of summer and capable of producing as many as 6 million chips a month.
Kingston already has lined up its first customer, Toshiba America Electronic Components Inc. in nearby Irvine.
Tu, a bespectacled 58-year-old emigre from Shanghai, and partner Sun, a native of Taiwan who is 10 years his junior, have been planning the investment since fall, when the pair bought back the 80% of Kingston they didn’t already own from Softbank Corp., which was more interested in Internet ventures than manufacturing, Kingston’s bailiwick.
The relationship with the Toshiba Corp. unit, Sun said, was the key motivating factor in financing the operation, which began last fall.
Sun said he was so enthusiastic about the project that when a Toshiba executive presented him with a memorandum of understanding at an airport in Hawaii, he signed the agreement on the spot, using the palm of his hand for a desktop.
“I don’t have an attorney,” Sun recalled, laughing exuberantly. “I only think about it for 30 seconds.”
Truth is, Sun had already started on the 7,000-square-foot facility before he had the agreement in hand. The plant is modeled after an existing facility in Taiwan that is partially owned by Sun and Tu.
Neither Kingston nor Toshiba would disclose the terms of their agreement, other than to say that it was a multiyear deal with the potential to expand into new memory products.
The agreement will be beneficial to both companies, said Mario Morales, director of semiconductor research at IDC in Mountain View, Calif. “It’s a partnership all around. This will increase and strengthen their capacity for a couple of years,” Morales said. “The markets are starting to tighten up, and prices are going up. This basically guarantees that business will be ongoing,” he said.
Kingston is the world’s leading manufacturer of dynamic random access memory modules, Morales said. The market for such modules, known as DRAMs, is roughly $7 billion, he said.
Kingston’s sales last year were $1.48 billion. More than 1,025 of the company’s 2,000 employees worldwide are in Orange County. The new manufacturing project has 138 employees, some culled from the ranks of Kingston and Toshiba, and many others who are new hires. At full capacity, the facility will have as many as 250 workers.
While many high-tech companies shift their manufacturing operations to plants in Asia, Ireland and Mexico, investing so heavily in a domestic operation is “something the world says we’re crazy to do, but we’re doing it anyway,” said John Sutherland, a company executive, whose formal title is Kingston Fellow.
The plant, which will use silicon wafers from Toshiba’s plant in Manassas, Va., for the memory modules, is catering to North American customers, Sutherland said.
Previously, Toshiba sent its wafers--embedded with Toshiba’s circuits--to Asia for testing. Then they would be returned to Toshiba, which would send them to Kingston for assembly, said Stephen Marlow, senior vice president for demand generation at Toshiba America Electronic Components.
“A lot of Kingston’s expertise is based upon the execution of logistics,” Marlow said. “Now we have a scenario where we can really address some of the costs involved both from a logistics standpoint and a turnaround time, customer satisfaction standpoint.”
Kingston is planning a similar operation late next year in Ireland for the European market. The Taiwan facility covers the Asian market.
Sun and Tu are an enigmatic pair whose reputations for generosity are the stuff of legend in tech circles. After selling 80% of Kingston to Softbank for $1.5 billion, the two set aside $100 million to share with their employees.
Since the deal in 1996, they have given about $78 million in bonuses to their workers, which for some amounted to three times their annual salaries. Although the $100-million pool is dwindling, another round of bonuses is rumored to be on the way.
