Long dominant as chip center, job exodus hits Orange County. (Media & Technology).

Executives at Orange County memory products makers like to joke that if they moved production to Asia their products would be two times the quality at a fifth of the cost.

With low chip prices and Asian governments courting production, they may not be joking much longer.

The memory products sector is known for its cycles, but this one's a doozy. In the past four months, the price of the most basic form of memory for computers has fallen by half.

Prices for memory boards are closely tied to chip prices. So while local board makers are paying less for chips, computer makers and consumers also are paying less for memory boards. That's squeezing profits at companies such as Fountain Valley-based Kingston Technology Co. and Santa Ana's SimpleTech Inc.

The downturn is making memory products makers rethink how they produce their goods, said Matt Godfrey, an analyst with SemiCo Research Corp. in Phoenix. "On a bottom line it comes down to a cost basis," he said. "Right now, it's cheaper overseas."

Production stays here

Nearly all of the major memory products makers are based in Orange County, except for Parsippany, N.J.-based PNY Technologies Inc. and Fremont-based Smart Modular Technologies Inc., part of Solectron Corp.

Memory products makers, which buy chips from Asian suppliers and assemble them onto circuit boards, employ nearly 2,000 people in Orange County and lease or own hundreds of thousands of square feet of space for plants and administrative operations. So far, they have kept most of their production here -- largely because computer memory has been an expensive product until recent years.

But some have begun a quiet exodus.

Kingston, the largest memory component maker, employs about 800 people in Fountain Valley, has moved two of the 12 production lines at the company's Orange County plant to a new one in Shanghai. The company also has facilities in Taiwan and Malaysia.

"Some of the staff reductions were due to changes in our business mix where we shifted more focus to our generic value memory line," said Steve Rodriguez, Kingston's director of strategic marketing. "That required fewer resources to manage. It's a low-margin business, so we moved more production from Fountain Valley to our plants in Shanghai and Taiwan."

Kingston and other memory product makers salivate over China's supply of cheap labor. Another plus: no taxes. Since Shanghai is a tax-free zone, Kingston, IBM Corp. and others don't pay taxes or tariffs on the products they make and export. And China benefits from the tax-free areas, or "research zones." Only five months after China was admitted to the World Trade Organization, Kingston opened a factory in Shanghai's tax-free zone, jointly operating it with Chinese computer maker China Great Wall Computer Shenzhen Co.

Drawbacks to Asia

Not every memory maker is moving just yet.

While setting up production in Asia might make sense later, Viking Components Inc.'s local facilities are good enough for now, said Michael Keddington, executive vice president of sales and marketing. "As we expand, we'll look to do manufacturing elsewhere, especially at low cost places," he said.

Both Viking and SimpleTech tried their hand at producing in Europe, but those efforts didn't fare as well as expected. SimpleTech opened a plant in Scotland in 1996 but closed it in 2000. Viking still has a facility in Ireland, but it's not operating it at full capacity.

Moving to Asia has its drawbacks. With cheap prices and low demand, orders these days often are small and require quick turnaround. That makes opening an Asian plant a bad idea --it can take up to four weeks for door-to-door delivery from Asia via ocean shipping. Going by air takes only days, but it's costly.

Mexico is more expensive than Asia, but turnaround is quick. Modern plants just across the border produce much of the electronics sold in the United States. Several Orange County companies have operations there, including Newport Beach's Jazz Semiconductor Inc. and Irvine-based Mitsubishi Digital Electronics America Inc., part of Japan's Mitsubishi Electric  Corp.

After seeing several electronics makers flee to Asia, Baja officials are playing up their proximity to the U.S. as a key reason why companies should operate there.

Viking officials are open to the idea of a Mexico plant, but the company has another option since being acquired earlier this year by Sanmina/SCI Corp. Sanmina/SCI, which reported sales of $2.6 billion for the quarter ended June 30, has facilities in Asia, Europe and Latin America, as well as in the U.S.

Because of the memory products sector's roots here, there's reluctance among many to just pack up and leave.

Kingston, a company fabled for its treatment of workers, says it plans to keep a factory here because it will need a place to produce orders that need to be filled quickly. "We'll always be here," said a Kingston spokeswoman.