Q4 Component Demand Dives; Uptick Pushed to 2H 2020
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Kingston Technology Corp. shipped more than 10 million solid-state drives (SSDs) last year and plans to boost production of the speedy data-storage devices to 14 million units in 2016. The Fountain Valley, Calif., company vaulted past Intel Corp. in 2015 to become the world’s third-largest SSD producer, according to IHS Technology, with 9.8 percent of worldwide unit shipments, compared to Intel’s 7.7 percent.
Granted, Kingston’s market share is still a percentage point less than that of No. 2 SSD maker SanDisk Corp. and far behind industry leader Samsung Electronics Ltd., which accounted for a dominant 40 percent of worldwide SSD shipments in 2015 (see “Top SSD Manufacturers” chart below). Nonetheless, it’s clear that Kingston has come a long way since entering the market less than a decade ago.
Ariel Perez, SSD Business Manager, Kingston Technology
“It’s been a fun ride,” says Ariel Perez, SSD business manager for the privately held Kingston, which employs more than 4,000 people worldwide. “Competition has been pretty fierce, but we have still managed to increase our sales volume and market share and grow the business.”
SSDs store and retrieve data on flash memory chips, rather than on the spinning magnetic disks used by traditional hard disk drives (HDDs). And because SSDs have no moving parts, they can read and write data much faster, use less energy and are less prone to physical damage than HDDs. Those qualities make them attractive for use in portable notebook and tablet PCs, as well as in computer servers, where they can speed operations and cut electricity use. The market is still in its early stages, but it is gaining momentum and DRAMeXchange, a division of Taiwan’s TrendForce Corp., expects more than 30 percent of notebook PCs produced this year to be equipped with SSDs.
Getting started
Kingston started out in the SSD business in 2008 by re-selling Intel’s first-generation X18 and X25 SSDs. As the world’s largest aftermarket supplier of DRAM memory modules, Kingston already had a large base of corporate and consumer customers interested in PC upgrade products. So it only made sense to work with Intel to introduce them to the advantages of solid-state storage.
Louis Kaneshiro, Senior Technology Manager, SSD Product Engineering, Kingston Technology
SSDs were much more expensive at the time, with 80 gigabyte (GB) drives selling for about $600. “But we were able to open some doors by talking with customers who were already familiar with our level of support, service and reliability,” recalls Louis Kaneshiro, senior technology manager for Kingston’s SSD product engineering group.
Today, a 256 GB SSD with three times the data-storage capacity of those initial Intel drives sells for as little as $85. And as prices continue to fall, SSD sales are taking off. IHS expects the $14 billion worldwide SSD market to grow nearly 36 percent to $19 billion by 2020.
Differing market strategies
While Intel has focused much of its recent attention on developing and marketing high-performance, high-reliability enterprise SSDs for corporate data centers and cloud storage providers, Kingston has chosen to address a more diverse audience that skews more towards higher-volume consumer SSDs. Intel’s profit margins in the enterprise SSD sector are probably bigger, but its addressable market is almost certainly smaller than Kingston’s more mass-market-oriented customer base.
Kingston currently sells four lines of consumer SSDs, aimed primarily at replacing HDDS and ranging in capacity from 60GB to 960 GB. It also sells several other lines of business- and enterprise-focused SSDs with additional performance and durability features, as well as smaller-format drives for use in specialized embedded applications, such as video surveillance systems.
Perez says that although some PC makers – mostly smaller, second-tier suppliers – build Kingston’s SSDs into their systems as original equipment, the majority of Kingston’s business is in the after-market channel. Currently, the company’s most popular SSD capacity is 120 GB, but 240 GB drives are gaining popularity and are expected to soon become the leading capacity.
Risky chip supplies?
Kingston’s success in SSDs is somewhat surprising because, unlike most of its leading competitors, it does not manufacture its own flash memory or controller chips. That could put the company at risk of component shortages or escalating costs if industry supplies run low.
On the other hand, as a diversified $7 billion electronics manufacturer that buys semiconductors from multiple sources, Kingston is an important customer that commands the attention of its suppliers, who supply it with DRAM as well as NAND flash and other chips.
“We don’t worry about them not having enough NAND supply,” says storage analyst Don Jeanette, research vice president for Trendfocus, Inc. “Vendors like to sell to buyers like Kingston. That’s good business to have over multiple years.” Besides, he adds, less than 40 percent of worldwide NAND flash production is used in SSDs, with the rest going into cellphones, flash drives and a variety of other products that help to moderate imbalances in supply and demand.
“It helps that there’s a good relationship between us and those vendors,” says Kingston’s Perez. “They can come to us when there is excess supply and we can try to help, and vice versa.”
Kaneshiro says that one advantage of having multiple chip suppliers is the ability to use a wide variety of components and software to meet SSD buyers’ specific product needs. Kingston’s SSD buyers can choose between controllers from LSI, Marvell or Phison, for instance, or request changes to a drive’s firmware to improve its performance or battery life.
That kind of flexibility can be hard to obtain from SSD makers whose drives use only their own chips. But Kingston is happy to deal with special requests, he says, adding: “If a customer needs us to tweak or customize a drive we will.”
Company: Kingston Technology Corp.
URL: www.kingston.com/
Headquarters: Fountain Valley, Calif.
Employees: 4,000+
Business: Kingston Technology was founded in 1987 by immigrant engineers John Tu and David Sun to produce DRAM memory modules. Since then, the privately held company has grown to become the world's largest independent manufacturer of memory products, with 2015 revenues of more than $7 billion.
Customers: Kingston serves an international network of distributors, resellers, retailers and OEM customers on six continents, and also provides contract manufacturing and supply chain management services for semiconductor manufacturers and system OEMs.
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