The partnership between memory giants Longsys and Kingston seems to have hit a major obstacle.
After announcing a joint venture to enter the Chinese embedded memory market in late 2023, Kingston is reportedly looking to exit the Chinese market, with its Shanghai plant rumored to be up for sale for over $1.2 billion. This development has stalled the collaboration, although China-based Longsys insists it will continue to push ahead with the venture.
The extension of Longsys
In recent years, Longsys has been striving to expand and transform its business. In addition to the Foresee brand, the Lexar consumer brand, which it acquired in recent years, has steadily gained a foothold in the Chinese market.
Longsys also acquired Longforce Suzhou (formerly Powertech Technology Suzhou) and Zilia Brazil (formerly SMART Brazil) in 2023. Although Longsys has a test production line in Guangzhou Zhongshan, the company has so far lacked an independent manufacturing and sales system.
By acquiring the Suzhou and Brazil plants, the company has significantly increased its product self-sufficiency, including SLC NAND and eMMC packaging services from the Suzhou plant, thereby expanding its capabilities in the mid-to-high-end product segment. This move meets end customers’ expectations for a stable supply chain and strengthens its attractiveness in the capital market.
JV encounters obstacles
The strained relations between China and the US in recent years have led many large US companies to gradually relocate their manufacturing bases, prompting Kingston to join the wave of China exit.
The sale of Kingston’s Shanghai plant has attracted interest from several Chinese memory module manufacturers, with Longsys being the strongest competitor.
As a result, Longsys announced its partnership with Kingston to form a joint venture in 2023. Many believed that Longsys was about to take over the Shanghai plant, with Kingston expected to help Longsys expand its market presence in China and overseas.
According to the original plan, the joint venture would be owned 51 percent by Longsys and 49 percent by Kingston and would primarily supply embedded memory products to the Chinese market. Longsys would focus on product development and technical support, while Kingston would handle sourcing and branding.
But more than six months later, the joint venture’s progress has stalled, with rumors in the Chinese storage industry suggesting the collaboration is nearing its end.
Longsys then stated that work on the joint venture was still ongoing, but increasingly complex geopolitical factors required better preparation by both parties, but there was no concrete timetable.
Industry insiders point out that while Kingston’s Shanghai plant is large, its production lines have not been operating at optimal capacity since the market downturn. At its peak, the plant employed about 2,000 workers, and recently the number has risen to several hundred.
If the joint venture proceeds smoothly and the Shanghai plant is acquired, it would be a strategic boost to Longsys’ ambition to strengthen its domestic supply chain and expand its global presence.
However, there are many rumors about the partnership failing. Reports suggest that Kingston is firm on its price, which could be between $1.2 billion and $1.5 billion.
For Longsys, which aims to report annual revenues of over CNY 10 billion (US$1.4 billion) for the first time in 2023, such a price would place a significant burden on its cash flow and debt ratio.
In addition, the continuous rise in NAND flash prices is putting a strain on the financial resources of memory module manufacturers. NAND prices have been rising since late 2023, and by the first half of 2024, module manufacturers had largely exhausted their inventories of low-cost memory modules, resulting in strong financial performance across the industry.
However, as we enter the second half of the year, demand for enterprise SSDs remains high as upstream NAND manufacturers are reluctant to release wafer resources, pushing the cost of consumer SSDs above their actual selling prices.
This has led memory module manufacturers to prefer to hold back their funds to avoid a further increase in inventories. There is no significant time pressure for Kingston to sell the Shanghai plant and the company is not inclined to lower its price.
According to industry sources, both parties are back to square one, which could be beneficial for Taiwanese manufacturers. Kingston continues to dominate the DRAM market, while Longsys leads in NAND prices.
The two companies are expected to operate independently of each other in the future to prevent excessive concentration of market resources.
