Built on Speed

Kingston Technology shot up to $230 million in sales and the top spot on the 500 with no debt and no outside equity. How? By getting ideas into production and getting product out the door faster than anyone else.

David Sun is a hard man to track down. One moment he is at his desk in the midst of a room of salespeople. The next he is striding through the shipping department, before heading upstairs for a brief but intent conversation with an engineer. The best place to stake him out is in the cafeteria, where sooner or later he is sure to show up for a smoke and some banter with whoever happens to be around. Equal parts ebullience and energy, Sun creates the impression of speed in his daily hands-on whirl around Kingston Technology Corp., located in Fountain Valley, Calif.

That is apt. Kingston is built on speed, and it is that characteristic that has helped the company break well out of the pack and taken it to the top of this year's Inc. 500. Kingston designs and manufactures memory, processor, and storage upgrades for personal computers, laptops, laser printers, and workstations. In that cutthroat world, manufacturers crank out stripped-down, underpowered, low-cost machines that produce profits as marginal as the machines' performance. The real money is made on product upgrades, much the way car manufacturers cash in on the plethora of options that inevitably add the shock to the sticker price.

Enter Kingston. As brand-name machines roll out the door at the likes of IBM, Compaq, and AST, little-known Kingston sprints to design the upgrades that will turbocharge those stock machines with added memory and processing power so they can handle the latest hot and powerful piece of software hitting the market. Kingston moves with such speed that it can often design and produce the upgrade for a product before that product is even in the hands of the end-user. (Kingston's customers are distributors and resellers of computer equipment. For the most part, it does not sell direct to end-users.)

Kingston was founded in 1987, the result of creative engineering's meeting the fast-changing needs of an explosive market. That year there occurred a shortage of a certain type of chip used in memory-upgrade modules. Sun and his cofounder, John Tu, realized they could alter another chip in ample supply to produce a similar product. Suddenly, memory-starved distributors were beating a path to Kingston's door. "This was like gold at the time," recalls Tu. "People were offering to pay us in cash." But Tu figured it wouldn't be long before competitors caught on to what he and Sun had done and simply copied their feat. He bet Sun a Jaguar that Kingston would be out of business within the year.

Sun won a new set of wheels, and in 1988 Kingston's sales leapt to more than $12 million. By then the PC market was bursting with manufacturers starting to produce computers that ran on their own proprietary systems. Thus, each required its own unique memory upgrade, and Kingston's market expanded exponentially. Then in 1990 Microsoft introduced its wildly popular Windows 3.0, a program requiring more memory than was then available with off-the-shelf PCs. Kingston stepped in to provide the necessary additional memory. In recent years the same thing has happened in the memory-intensive workstation market. A year ago the company created a division to address that market. It already accounts for 10% of sales.

Last year sales rocketed to $141 million, and this year Kingston, with just 130 employees, is on track to reach $230 million in revenues. That works out to almost $1.8 million per employee. The company has no debt, no venture capital, and no plans to go public. And still it keeps piling up cash in quantities that verge on the embarrassing. It distributes 5% of pretax profits quarterly as a bonus to full-time employees, which came to $400,000 in the latest quarter. It also matches employee contributions to the 401(k) plan dollar for dollar up to a combined total of $6,000 a year. Today Kingston, which competes with about 15 other companies, commands a 45% share of the memory-upgrade market, and it shows no signs of slowing down.

So how exactly does Kingston do it?

Kingston has institutionalized speed at every level. David Sun, 41, and John Tu, 51, are quick, intuitive thinkers who've been known to decide to build a product on the 30-second walk between the parking lot and Kingston's front door. Their hit rate -- the ratio of successful products to product introductions -- is 90%, a phenomenally high number given the fast-changing world of personal computing.

Sun, a 10-year veteran of the PC industry, thrives on vibes. His desk sits out in a bull pen in the center of the sales department. Kingston's distributors call in daily from all over the world, placing orders, asking when the latest product will be out. (International sales account for 39% of revenues.) When the salespeople start hearing often enough that distributors are looking for a certain upgrade on a certain machine, and Kingston doesn't have it, that is often signal enough for Sun to decide to build that product. From there, it can take as little as one week before the product is ready to ship.

Kingston fills all purchase orders the day it receives them. That is unheard of in the high-volume, thin-margin, commodity-oriented world of PC manufacturing, where typically PC producers stockpile orders, shop around for dirt-cheap inventory, and then ship a ton of products every four to six weeks.

That kind of pace conflicts with the needs of end-users, who always want their upgrades yesterday. As a result, many original equipment manufacturers, unable to meet the needs of their customers in a timely way, simply refer people to Kingston, which can.