Intel Customers to Get Kingston Memory Parts

Computer memory manufacturer Kingston Technology Co. is expected to announce today that it has an exclusive agreement with Intel Corp. to distribute memory modules to support the new Pentium 4 chips for second-tier computer makers.

Under the agreement, more than a million Kingston modules will be shipped to Intel customers worldwide over the next several quarters. The contract is expected to generate $200 million to $300 million in revenue for Kingston.

Kingston, based in Fountain Valley, said it has committed $75 million to offer the memory modules at a discount to help build market share for itself and the Pentium 4.

The targeted customers are personal-computer makers that fall outside the industry’s top-tier manufacturers: Compaq Computer Corp., IBM Corp., Dell Computer Corp., Gateway Inc. and Hewlett-Packard Co.

Kingston said it will be the exclusive supplier of memory modules to all other potential Pentium 4 customers, a group primarily composed of computer makers in Europe and Asia, such as Legend Computers, and smaller computer makers such as Irvine’s EMachines Inc.

Kingston does not manufacture its own memory chips but specializes in bundling memory into modules for sale to third-party computer makers.

Intel, based in Santa Clara, Calif., will either refer the second-tier customers directly to Kingston or will ship the Kingston products along with its microprocessors.

Designed for high-performance personal computers, the new processor will be the fastest in the world, according to Intel. Kingston will start shipping its modules in the next few weeks, in time for the official launch of the Pentium 4 late this month.

Privately held Kingston also builds memory modules for some of the top-tier computer manufacturers but does not disclose those relationships.

The second tier is an important market for Intel, as well as for Kingston, because it makes up about 60% of the PC market, according to Wei Szeto, Kingston’s vice president of strategic business development.

“We will give discounts to customers to make these modules very competitive,” Szeto said. He did not specify the scope of the discounts.

The deal is likely to prove attractive to the second-tier customers who otherwise would have to bid for memory chips directly from the manufacturers, said Steve Cullen, a semiconductor-industry analyst at Cahners In-Stat Group. With Kingston’s considerable purchasing clout, the customers may find it easier to obtain parts through Kingston than if they were left to themselves.

He said memory manufacturers also could benefit by working with Kingston, rather than a scattering of small customers. “In dealing with Kingston, they will have a much more stable, predictable level of demand,” Cullen said.

The Kingston discount will help Intel compete against Advanced Micro Devices Inc., its chief rival, whose high-end Athlon microprocessor is considered comparable with the Pentium 4.

“Intel is trying to find a way to get the cost of the package comparable, so the second-tier guys won’t be tempted to migrate to AMD,” Cullen said.

Intel declined to comment on the agreement.

Szeto said he expects Kingston to ship from 1 million to 4 million modules under the agreement. He said the partnership will last at least for the next two quarters or until the $75 million set aside for discounts is exhausted.

With annual sales of more than $1.5 billion, Kingston is the world’s largest independent third-party memory manufacturer.