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Garage band.

Kingston Technology CEO John Tu and business partner David Sun are the classic tech start-up, sweating it out in a garage and looking for their break. They attacked the inefficiency of the computer-memory business, in 1996 selling an 80% stake to Japan's SoftBank for US$1.5 billion. Three years later, they bought back the stake for $450 million. By 2004, the company posted sales of $2.45 billion. Tu, an amateur rock musician, talked with LATIN TRADE Editor-in-Chief Greg Brown about how to start a business with no credit and no cash--not even a clear idea of what to sell--and still win big.

Your own company's history is one of growing and then getting socked by a rapidly shrinking market. What is your outlook on the memory business?

What we see at this moment is that the PC [personal computer] in many regions of the world is kind of in a lull, waiting for the next thing to happen, and at the same time we see the rush of digital media that is really starting to heat up, and it looks like in the next two to five years it's going to be taking over. ... It is a very tough business. You need to be very good at execution and also at the same time you need to be flexible.

What is your strategy?

Flexible means a lot. When we started, the idea was how to get into the business. First of all, it was disastrous what happened to my partner and me. We sold previous companies, very small companies and the little bit of money in our pockets we gave to a stockbroker, who was a friend of ours, and he lost all our money. Black Monday.

In 1987, right?

'87 yes, October. He lost every penny of our money, minus US$1 million each that we didn't have. So, you can tell, we had no idea what we where doing. He was trading in futures. I had no idea what that meant, so we lost that. We needed quickly to start something, otherwise in a month or two we would probably be on the street. We had no idea how we were going to buy food to eat.... We had to do something quick, so we said 'Let's do memory,' and just by talking to a few people we knew that maybe there were some opportunities there. As we got into that, at that time, it was also good timing because there were some constraints on certain components.

The biggest chip makers in the world talk about chip design 10 years from now.

I always compare the chip business to farming. When you plant your rice, it's done, although you still have a lot of things that will affect you: Whether people are buying or not buying, or a natural disaster. If you don't have enough rice by the time you harvest, it's too late, you have to wait for the next season. Or, if no one is buying your rice, your rice is going to rot. It is very similar, the up and down of demand and supply is always there. We came in at the time just when there was less supply and all of a sudden there was huge demand.

So, cash was no longer the problem, then.

We realized that if we turn this thing as fast as possible, then the cash is going to be like this. People were just happy to pay because they wanted the product and we were flexible. You want one, we give you one. You want two, we give you two. You want to return it, I take it back. That scenario lasted for nine or 10 months, and that enabled us to build up the connections, the reputation and cash that we didn't have. What's funny is that we were so busy everyday we'd just go home and always there would be just cash there.

You carried it in your pockets?

Yeah, our pockets. I'd take the money out, pow! on the table. I lived the farthest away. I'd go home because I was tired, so I'd give it to my partner. He lived nearby, so I'd just put it on the table and he would take all the money home and he'd put it on the table at home and tell his wife tomorrow morning to deposit it. She did that day after day for a few weeks. Every morning she comes with ...

Bags of money.

The bank started to talk. 'Well, we think she's a hooker.' Busy at night and back in the morning. So finally, later on, they told her 'We thought you were a hooker.' ... Where is the flexibility coming from? It came from there, so as we grew and continued with the people that we took in from the beginning, this was the culture, that flexibility. We have become now a very different company, but that flexibility is still there. New companies, they say it's easy to be flexible but deep down the company really needs to do that. It's a very difficult thing unless you have the tradition it's already there. You can do it, yes, but it takes that much to make sure the whole company is in sync.
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Title Annotation:Kingston Technology's chief executive officer John Tu
Author:Brown, Greg
Publication:Latin Trade
Article Type:Interview
Geographic Code:1USA
Date:Aug 1, 2005
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