The Kingston Crown

I read in one of the journals about Softbank buying a little company called Kingston Memory for almost $2 billion. I couldn’t fathom how a little fabricating IC house could command such valuation. If they had some kind of unique technology — making memory chips cheaper or something — then I could see it. But they were just putting memory chips onto printed circuits and reselling. How could this be worth over a billion?

A few weeks later I ran into Gary Reichel, the Managing Partner at Softbank and a co-investor with us in I/Pro. After discussing an I/Pro matter with him, I asked about this. He responded persuasively: “It’s really about their business model. They are so efficient at manufacturing custom orders with very low inventory that they create tremendous value.”

I contemplated this. Well, they certainly created tremendous value — so much so that the owners distributed shares of this largess worth over a $100 million to their employees. This kind of “after the fact” sharing of wealth was almost unheard-of in a valley known for its competitiveness in the race to personal wealth.

There was nothing proprietary I could see in the technology; and the consumer market – even the low end business market – was too price sensitive to make it a big payoff proposition. Gary was a smart guy, but this one was beyond me. $50 million? Sure. $150 million? Maybe. Over a billion? I just wasn’t getting it.