Kingston Pushes Past $2B

A few months ago, Kingston Technology passed the $2 billion mark in revenue, even as it declared plans to expand its flash memory activities. Now, the Fountain Valley, Calif.-based vendor has reached $2.4 billion in annual revenue and expects to generate $500 MILLION to $600 million in sales this year from flash memory products. In an interview with Editor in Chief Michael Vizard, Kingston co-founder and COO David Sun talks about what will drive growth in 2005.

CRN: Now that you're over the $2 billion mark, what are your goals?

>> 'Fifteen years ago, we committed to distribution. We won't go direct. We're going to support the channel. Maybe ultimately you could be more profitable being like Dell, but I would rather not take the risk. I don't want to be in the distribution business. We would rather talk to the distributors about being more efficient.'

Sun: We just want to make money. We are a very casual [private] company. A lot of other companies have high pressure. We're pretty relaxed. If the market grows, we grow. If the market doesn't grow, we don't. Our goal is to keep the door open to get to 2006. Today we're $2.4 billion, but if there is anything wrong, it's now a worldwide problem. It's not so easy. One recall means you lose profit and time to market. Our first priority is to convince the employees to continue to do the same things they have always done. Part of the execution plan is how to keep the company going and then expand if the market takes off. If the market doesn't take off, then we just continue on. We don't want to kill anybody. We just want to survive.

CRN: One growth area for Kingston is flash memory products. What's driving this market for Kingston?

Sun: Since 2003, we decided to get into the flash card business. Last year, we closed about $300 million in business. This year we think we can do $500 million, maybe $600 million. The thing about flash is that it is a storage device, compared to DRAM, which is a computer device. In the DRAM area, you have to have a computer. In the flash area, it's a storage device so you can do backup or have a portable storage device. A removable storage device means you can use this with your computer, camera, cell phone or medical equipment. It's a small, compact, removable storage device so the applications are way beyond DRAM. [Flash cards] are also disposable, so the replacement business is quite good. The market demand for flash devices is going to explode.

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CRN: Why did you decide to enter this market?

Sun: The DRAM business is tied to the computer. The manufacturers of DRAM also produce flash. The most important thing about entering a new market is having the vendor support. I always think the most important things are the vendor [support] and then the employees. Customers only buy product. It's people that service them. As long as we have vendors and people, we don't have to worry about the customer being happy.

CRN: Are there security applications tied to flash memory products?

Sun: Our high-end USB devices will have security software. Those products are really aimed at corporate America.

CRN: How much interest is Kingston seeing in terms of demand for memory in the white-box server arena?

Sun: We have high-end, medium and low-end memory. The high-end memory is what we test to make sure it works 100 percent of the time. We're seeing third-party companies participating aggressively in the white-box server space. Customers are trying to get into the server business because in the low end, there is no more profit where they have to compete more against Dell and HP.

CRN: There's been a lot of discussion concerning the role DDR and DDR2 memory will have in the market. What are your expectations?

Sun: DDR2 is a migration. The problem with DDR2 is that below 533MHz, there is no performance difference between DDR and DDR2. So the user then chooses whichever one is cheaper. For the average low-end desktop, where price is the issue and there is no performance difference, they will choose DDR1. In the mobile area, we are starting to see DDR2 because the power consumption of DDR2 is less, so battery life is better. In the new 400MHz notebooks, we are seeing DDR2. DDR2 will be the standard in high-end servers and notebooks, but I don't see it being the standard for desktops or low-end servers.

CRN: If memory is a commodity, why should people buy memory from Kingston as opposed to, say, the vendor that originally sold them the system?

Sun: I would not say our memory is better than IBM, HP or Dell. Our memory is equal to theirs. People should not buy Kingston memory because it is faster, better or higher quality than what they get from the OEM. When you buy from Kingston and the memory fails, however, our much smaller company will be able to better service you than the OEM vendor. I guarantee that we will service you better. We only do memory. Their customer service is focused on the computer. We're only focused on the memory. Plus, our price is less expensive.

CRN: What do think will be the next big thing to drive sales in this industry?

Sun: One day, between now and 2008, we'll have a 64-bit operating system coupled with applications on a 64-bit system. When you have that, I predict a huge revolution will occur. It will be just like when Windows 95 came out. But we are waiting for Microsoft. I think 32-bit is running out of steam, and that's why the PC industry is kind of stalled.

CRN: Have you ever considered selling memory direct?

Sun: Fifteen years ago, we committed to distribution, and 15 years later, we're still committed. We won't go direct. We're going to support the channel. Maybe ultimately you could be more profitable being like Dell, but I would rather not take the risk. I don't want to be in the distribution business. We would rather talk to the distributors about being more efficient.