Silicon Storage Technology: Uncommonly successful
Silicon Storage Technology carves out a unique and flourishing niche.
Caitlin Kelly -- Movers & Shakers, 8/15/2002
Few companies are able to boost earnings to $36.3 million from $450,000 in one year . But Silicon Storage Technology (SST), under the leadership of founder Bing Yeh, hasn’t made its name by being common. Instead of focusing its energies on nonvolatile flash memory chips with high storage cap acities, this fabless flash-memory company, working with Asian partners who build, package, and test its chips, sells low-capacity devices —more than 200 million of them a year.
 “I believe we are in the early
stages of recovery, but everything is very volatile. We need to be one step ahead of our competitors to
book production capacity, but we don’t want to be too aggressive.” Bing Yeh, President and CEO, Silicon Storage
Technology |
SST’ s proprietary flash-memory technology , SuperFlash, is a CMOS-friendly , NOR-based architecture that uses small-sector erase blocks for code- and data-storage applications. The low-voltage architecture is suit able as an embedded memory thanks to its ability to program far more bytes in p arallel than those of its competitors, which it does by storing thousands more electrons per floating gate, according to SST.
While higher-density code-storage applications, requiring up to 64 Mbits, are the fastest-growing market for SST, the company earned more than $30 million last year in royalties from lower-density devices —those needing only a few kilobits of flash.
"The number of applications there is much broader, " Yeh says. SST offers more than 20 dif ferent flash products with 2 Mbits or less of storage capacity. Wireless-LAN products, among the industry’s hottest items, use only 1 or 2 Mbits of flash memory, as do ever-popular DVD players.
The company relies on more than 12 licensees, among them IBM, Motorola, National Semiconductor, Samsung, TSMC (which has more than 100 customers who use SST’s products), NEC, and other chipmakers. SST offers more than 85 different products—up from four in 1998. It is the leading supplier of PC BIOS chips, with a market share Yeh estimates at 65 percent. In 2001, it sold more than $100 million of its "firmware hub" BIOS chips for Pentium 4-based PCs.
The firm, which has 500 employees, saw sales fall 41 percent last year , to $290 million. "Some of SST's success has been that they’ve taken over the old Intel business," says John Joseph, chip analyst with Salomon Smith Barney. SST also faces competitors whose budgets and revenues easily dwarf its own, including Intel, with a 2000 market share of 23.6 percent to SST's 4.3 percent, Joseph says.
"There are some real heavyweights in this area, but they’ve done OK going up against some of the most powerful players in the industry," Joseph says. "What their success does show is they’re doing a great job with a much smaller purse than their competitors."
Joseph praises Yeh for carving his own path: “He’s got a clear vision of what he wants and he’s not going to budge from it,” Joseph says.
“It’s a bottom-feeder kind of approach, but there’s a market there,” says Kalpesh Kapadia, an analyst with C.E. Unterberg Towbin. “It costs less to make their chips, but they can also sell them for less. That’s a unique advantage and it makes them competitive. Flash is a commodity market.”
Kapadia praises Yeh’s foresight in building excellent relationships with manufacturers and investing in China before demand there takes off. “When the cycle turns up, it’s crucial for a fabless company to be ready. With six foundries worldwide, they’ve got good relationships in place.”
As Yeh himself has acknowledged, Kapadia says, SST must jump into the high-density market. The highest-capacity chips being made now store only 16 Mbits; SST plans to introduce 32- and 64-Mbit flash chips later this year. The company’s plan to develop higher-density flash products relies somewhat on multilevel cell (MLC) technology acquired from Santa Clara-based Agate Semiconductor. SST plans to introduce its first MLC chips late in 2002. MLC technology is already in use by Intel and AMD.
Yeh is also strengthening SST’s IT infrastructure, committing 2 percent of revenues to the project. “We’re nine to 12 months away from where we want to be,” he says of the intranet and e-commerce tools under development. Admitting that SST still can’t make online transactions, Yeh says “we’ll feel much more comfortable a year from now.”
One of Yeh’s greatest challenges is estimating how much production time he needs to book with his fabs. “I believe we are in the early stages of recovery, but everything is very volatile,” he says. “We need to be one step ahead of our competitors to book production capacity, but we don’t want to be too aggressive.”
Thanks to his long-established relationships, though, Yeh is able to commit to production on the strength of a handshake. Free of contracts and legal red tape, he is free to make decisions without fear of losing access when he needs it. “It’s really a long-term partnership where both parties benefit,” he says, although he concedes that more than two bad calls might jeopardize this.
In March 2001, SST invested $50 million in Grace Semiconductor Manufacturing Corp (GSMC), a new foundry in Shanghai scheduled to start production in 2003. In October, SST also announced an additional $10 million investment in its Chinese subsidiary, with the goal of working with mainland designers developing embedded flash products such as smart cards, national ID cards, and consumer-electronics products.
The Chinese market “is crucial to our future growth, Yeh says. The firm’s investment in GSMC has secured about 30 percent of its production capacity, and Yeh feels confident that his connections there will serve him well as demand accelerates for SST’s products.
Yeh is ready to tap a huge market—the 1.3 billion chips needed for new national identity cards every Chinese citizen will eventually carry. He does not expect to see revenue from the cards, which are still being designed, until 2005. But the cards, once delivered, will also likely need upgrades as they store more and more personal information.
“We already do $100 million worth of business in China, but because so many Taiwanese manufacturers are moving to China, in the long run it will be our largest market.”
