Kingston Opens $105-Million Chip Plant
Kingston Technology Co. will unveil a $105-million plant in Orange County today, the company’s largest investment in manufacturing ever and one that will transform the way the company 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 have made famous with their generous employee bonuses. 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 several manufacturing, assembly and testing processes under one roof, Kingston officials say the plant will be able to reduce the delivery time from what is often eight to 10 weeks to seven to 10 days.
The plant, which rolled out its first batch of chips June 2, is moving into full-scale production. Company officials expect it to be fully equipped by the end of summer and capable of producing up to 6 million chips a month.
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.
Kingston already has lined up its first customer, Toshiba America Electronic Components Inc., in nearby Irvine.
Tu, the 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 last fall, when the pair bought back 80% of Kingston 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. Work started last fall.
Sun said he was so enthusiastic about the project that when a Toshiba Corp. 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 a 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 over time.
The agreement will be beneficial to both companies, said Mario Morales, director of semiconductor research at IDC in Mountain View, Calif.
“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.”
Kingston is the world’s leading manufacturer of DRAM memory modules, Morales said. The market for such modules, the main memory component in personal computers, is roughly $7 billion, he said.
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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 currently has 138 employees, some culled from the ranks of Kingston and Toshiba, and 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.”
Although manufacturing costs may be higher in the United States, “the closer you can get to the customer for that final step is good, even if it does cost a bit more,” said Steve Cullen, principal DRAM analyst for In-Stat.
“The savings in inventory and distribution more than makes up for it.”
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 the wafers would be returned to Toshiba, which would send them to Kingston for assembly, said Stephen Marlow, a senior vice president 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 some $78 million in bonuses to their workers, which, for some, amounted to three times their annual salaries. While the $100-million pool is dwindling, another round of bonuses is rumored to be on the way.
