It was late Friday afternoon, and the 170 new laptops in the New York headquarters of Arthur Andersen had to be up and running by Monday. Bad luck! The Kingston memory upgrade boards that arrived the day before wouldn’t function.
An urgent call went out to Kingston Technology Corp. in Fountain Valley, Calif. Senior Engineer David Chen boarded the red-eye and arrived early Saturday, tools in hand. The problem, he found, was dirty connecting slots in the laptops. Chen could have quit then–it wasn’t Kingston memory fault. But he spent the day cleaning the slots and installing the boards. The fee? Nothing.
Founded by Sun and by President John Tu, 53, Kingston last year sold $433 million of memory upgrade boards, more than any other firm except for Samsung ($1 billion) and Toshiba ($466 million), both electronics giants. Tu and Sun are talking about topping $800 million this year, continuing their pattern of doubling sales every year since they opened for business in 1987.
Kingston memory, of course, is sitting right in the middle of a lot of action. Millions of computers lack the memory needed to run the newest software. Microsoft’s coming Windows 95 operating system will need 8 megabytes of memory. Garden-variety application programs, like spreadsheets and word processors, are also turning into memory hogs.
By 1998 personal computers will probably need 32 megabytes to run the latest software. Yet the vast majority of the 58 million PCs in the U.S. have no more than 4 megabytes. Their owners will eventually face three choices: stick with antiquated software, buy a new machine or upgrade what they have.
But memory is a commodity–a megabyte is a megabyte. Anybody can go into business selling memory up grade boards. Many of the 70 or so firms doing this operate with little more than an 800 number, a soldering gun and a supply of chips and boards.
That’s why John Tu and David Sun put so much emphasis on service. Others can match their prices–$320, for example, for an 8-megabyte board that turns around data in 70 nanoseconds–so they strive to deliver better service.
Immigrants from Taiwan, the two started and sold Camintonn, a small memory upgrade company, to PC maker AST for $6 million in 1986. The next year they lost the bulk of their capital speculating in stock futures just as the 1987 crash was coming on. Looking to recoup their losses, Sun devised a memory upgrade using an outdated chip just as a shortage developed in the more advanced and popular chip. Suddenly, the new company, Kingston, couldn’t build boards fast enough; and in two years had sold $40 million of them.
But Sun and Tu knew it wouldn’t take long for supply to overwhelm demand, and so they set about creating a brand identity for their memory boards. They hired an advertising agency and a marketing director, offered five-year warranties, guaranteed compatibility and same-day shipping. Kingston sells to big wholesalers and to corporate resellers like Computerland and Micro Age.
“What makes for success in a commodity business” asks Sun. “It is good service and a good price. Good service comes from employees, if you treat them right.
“How do you get the price? Volume. I buy 10,000, but my competitor only buys 100. If I get it for 10 cents less, I will kill him.” In fact, the two, service and volume, go together. Good service helps build volume; volume helps keep prices down, which creates more volume.
Certainly no company could quickly replicate Kingston’s offering of 1,500 products, compatible with 800 different models from 30 manufacturers. In a typical day, it ships 7,000 units, filling two Federal Express trucks floor to ceiling.
Privately held Kingston has no debt outstanding and no shareholders except the two founders. What’s it worth At one times sales, it would make Tu and Sun worth $400 million apiece–qualifying them for a place on The Forbes Four Hundred.
And, of course, providing a moral: You can make a lot more money building a business than you can speculating on the stock market, an activity that almost busted the partners.