Sourcing Silicon: Kingston Technology's Irresponsible Abrogation
Commensurate with the in-progress industry migration from magnetic hard disk drives (HDDs) to flash memory-based solid-state drives (SSDs), and to some degree constraining the pace of this transition, is a substantial upheaval in mass storage raw materials sourcing. It’s an issue I’ve alluded to in several of my past SSD-themed writeups, and one that I most recently spoke with a vendor (Micron Technology) about at January’s Consumer Electronics Show. And it’s an issue that, judging from a recent blog writeup by Andrew ‘bunnie’ Huang, a highly respected and technical industry source who I’ve mentioned several times in the past, brand-name companies like Kingston Technologies are already struggling with.
Off my head, here’s an alphabetized list of today’s leading ‘bare’ HDD manufacturers:
- Seagate (including the Maxtor brand)
- Toshiba (including Fujitsu), and
- Western Digital
All of them have, to one degree or another, have cultivated brand recognition with consumers in recent years. And as such, they’ve entered the retail channel with external drives (combining a HDD, enclosure, and software package), NASs, and the like. In doing so, they’ve squeezed out third-party companies that, formerly acting as partners, provided such products. But several of them are about to get squeezed.
Look at the above list again. How many of the companies on it, via semiconductor subsidiaries, also manufacture flash memories? I count two NAND suppliers: Samsung and Toshiba. At one time, Hitachi might have also been on the list via its AND technology, but the company abandoned it several years ago. Seagate attempted for a number of years to internally develop a MRAM-like nonvolatile memory leveraging its magnetic material deposition expertise with HDD platters, but this R&D project was similarly abandoned last year.
Samsung and Toshiba are, not surprisingly, providers not only of flash memory components but also of OEM- and retail channel-targeted SSDs based on those component building blocks. Intel and Micron, the latter via its Crucial and Lexar Media subsidiaries, are similarly ramping up highly visible retail presences. Sandisk, another notable retail brand name, is in a unique situation by virtue of its longstanding industry presence and consequent robust patent portfolio. Although it relies on partner Toshiba for NAND technology development nowadays, the patent licensing agreement it crafted with Toshiba many years ago provides it with a percentage of Toshiba’s fab network output at lowest-possible costs.
And everyone else? They need to buy flash memory components from other companies, either as part of a long-term contract or as needed on the open market, and then pass along those costs to their customers, hopefully still turning a profit in the process. While such a scenario may be desirable in times of semiconductor over-supply, it becomes fiscally problematic when supply constraints kick in. And given the sales aspirations of Apple (with new iPods, iPhones and now even iPads in the queue), pacing hopeful economic recovery, constraints are expected to be the rule versus the exception for some time to come.
The travails of branding and selling products developed and manufactured by others is a situation now faced by companies such as Corsair Memory, Kingston Technology (who currently sources SSDs from both Intel and Samsung), PNY Technologies and Super Talent. And it’s a situation that several of today’s leading HDD suppliers will increasingly encounter as the market increasingly migrates to solid-state storage. Consequent margin pressure, coupled with unrelenting shareholder pressure for sustained-to-improved profitability, will encourage suppliers to cut corners whenever possible. And undesirable situations like the one ‘bunnie’ recently experienced, wherein failing Kingston-labeled microSD cards were revealed to be ‘gray market’ goods (see here for Slashdot reader comments), are increasingly going to be the unfortunate result.
I encourage you to read ‘bunnie’s’ report in detail, but here’s a one-paragraph summary extract from it to whet your appetite:
Significantly, Kingston is revealed as simply a vendor that re-marks other people’s chips in its own packaging. Every Kingston card surprisingly had a Sandisk/Toshiba memory chip inside, and the only variance or “value add” that could be found is in the selection of the controller chip. Oddly enough, of all the vendors, Kingston quoted with the best lead times and pricing — better than SanDisk or Samsung, despite the competition making all their own silicon and thereby having a lower inherent cost structure. This tells me that Kingston must be crushed when it comes to margin, which may explain why irregular cards are finding their way into their supply chain. Kingston is also probably more willing to talk to smaller accounts like me because as a channel brand they can’t compete against OEMs like Sandisk or Samsung for the biggest contracts from the likes of Nokia or RIM. Effectively, Kingston is just a channel trader and is probably seen by SanDisk/Toshiba as a demand buffer for their production output. I also wouldn’t be surprised if SanDisk/Toshiba was selling Kingston “A-” grade parts, i.e., parts with slightly more defective sectors, but otherwise perfectly serviceable. As a result, Kingston plays a significant and important role in stabilizing microSD card prices and improving fab margins, but at some risk to their own brand image.
I reached out to my contact at Kingston yesterday for comment on ‘bunnie’s’ situation and this morning received a terse reply; "Kingston will not respond to this blog posting." Is corporate silence an unspoken admission of guilt? I leave that possible interpretation for you to ascertain.