With a generic name such as Memory Devices Ltd, one can safely assume that the company's business is just that -producing memory products. Name aside the China-based company, which was established in 2001, has set its sights far ahead. Memory Devices wants to be the world's second-largest producer of memory products.

    The current world leader is US-based Kingston, whose ubiquitous thumb drives and other memory chips are seen as benchmark products in many markets, including Singapore. Last year, Kingston's revenue was US$2.4 billion ($1 approx US$0.60). There isn't a clear second-ranking player. Instead, there are many competing companies with revenues of between US$500 million and US$1 billion, trailing Kingston.

Big gap, big opportunity

    "There is a big gap, and I see this as an opportunity. We will plug this gap," says Steven Chen Bin-Tsong, the company's co-founder and CEO, in an interview with The Edge Singapore. But Memory Devices has a long way to go.

    For the financial year(FY) ended Dec 31,2004, the company's net profit was US$8.8 million, compared with US$631,000 in the previous year. Revenue in the same periods was US$132.9 million and US$21.04 million, respectively.

    The company, which is offering its shares in an IPO, sees the listing as part of the process in reaching this goal. While the company is relatively new, its co-founders are not. Chen, 56, has held positions in companies within the electronics industry, including Nasdaq-listed siliconware Precision Industrial Co, TwinMOS and Goldentek Display System Co. The other co-founder, executive chairman Casper Lin Yu-Hsin, 59, worked at United Microelectronic Corp, the world's second-largest foundry, between 1981 and 2000.

    The company is offering 177,884,000 shares at 20.5 cents each, of which 164,884,000 are placement shares and the remaining 13million shares are offered to the public in an exercise that ends on Nov 7. At this offer price, it represents a historical price-to-earnings ratio of 6.57 times.

    Memory Devices plans to raise net proceeds of around $21.74 million, of which some $8 million will be used to buy new equipment to increase production capacity, and $4 million to increase research and development facilities. It will also spend $7 million to expand sales and marketing, and the balance as general working capital.

    The company is betting that demand for all kinds of memory products would only grow, as these silicon chips find their way into various electronic devices. "Memory products are always needed, the market is growing," says Chen.

    Trade body Semiconductor Industry Association (SIA) expects that between now and 2008,global chip sales will increase at a compounded annual growth rate (CAGR) of 9.8% to US$309 billion.

    Even though consumer demand for memory products is seemingly endless, investor appetite for shares of such companies is not as strong. Memory Devices is not the first of its kind to be listed in Singapore. Barely two months ago (Sept 15), Advanced Modules Group, a Malaysia-based company that is also in the same market, listed here at 41 cents per share.

    While electronics companies enjoy volume growth, earnings growth is not assured. As with other electronic products, the average selling price is falling, sometimes at a faster rate than volume growth.

    Currently, Memory Devices offers two main kinds of memory products - dynamic random access memory (DRAM) modules, and memory chips used to help run computers It also offers "flash" memory products, or compact devices that store data.

    As at FY2004, nearly 83% of the company's revenue, or US$110 million, came from DRAM modules, with flash-memory products contributing to the remainder, or nearly US$23 million. Flash-memory products gave the company a slightly better gross profit margin, at 10.2% for FY2004, compared with 9% for DRAM modules in the same period.

    DRAM modules are expected to grow at a faster pace, according to the SIA. Flash-memory sales are projected to grow 7.6% to $18.4 billion this year and to $22.3billion in 2008, a CAGR of 9.3%. Flash-memory devices are used in cellphones, digital still cameras and a range of other products. In contrast, DRAM sales, while larger, are expected to clock in this year at US$23.2 billion, and from there, the SIA expects DRAM sales to grow at a CAGR of 3%, hitting US$30.4 billion in 2008.

Flash memory to take share from HDD

    As industry veterans who have ridden through many boom-bust cycles facing the semiconductor sector, Chen and Lin now bet that the flash-memory segment of the market will take share from hard-disk drives (HDD) - currently the dominant data storage medium.

    Compared with HDD, flash memory is faster, lighter and more durable as there are no moving parts. However, flash memory prices are still between three and five times that of HDDs for the same capacity. But, the company's executives expect this disadvantage to diminish over time. "[Flash memory] prices are dropping every year. Sooner or later, prices will catch up," says M J Cho, Memory Devices' vice-president of marketing.

    The industry has been increasing production of flash-memory products for some higher-end applications like PCs. HDDs are still only a form of storage. However, flash chipmaker Samsung has demonstrated an experimental notebook computer that runs on flash disk, which boots at a faster speed compared with a normal notebook that runs on a hard disk. Capacity is not an issue for Cho. Flash-memory capacity can be boosted, but the key is to bring the price down to a level that is competitive.

    For now, Chen has all but written off smaller-capacity HDDs in favour of the flash-memory products on which the company is leaning for growth. "I will kill those below eight gigabytes," he says. But, "hard disks won't disappear. They will just become a very, very mature product", he says.

(BY CHAN CHAO PEH)