Monday June 16, 2008
Phison finds new growth area
Stories by ELAINE ANG
NEVER in his wildest dreams did Malaysian Pua Khein-Seng expect to own one of the most successful information technology (IT) companies in Taiwan.
The 33-year old Pua is the president and one of the founders of Taiwanese pen drive maker Phison Electronics Corp, the world's number one in terms of market share for pen drives and products related to NAND flash memory.
It manufactures about 65 million to 75 million pieces of pen drive and memory controller a year and has a 35% market share globally.
Pua's success story started when he arrived in Taiwan in 1993 to further his studies in electrical control engineering in National Chiao Tung University.
“My plan was to graduate and go back to Malaysia to get a good job. To be an engineer with a salary of RM3,000 to RM4,000 per month – this was still good for 1993 standards,” he told StarBiz during a company visit in Taiwan.
However, fate had other plans for Pua who hails from Sekinchan, Selangor.
In 1997, a professor at the university offered Pua a salary of NT$5,000 per month to research and develop memory controllers for him. Pua then worked for the company after graduation.
Due to some friction in the team, Pua and some of his fellow engineers moved on to another company, a spin-off from the first.
“The original shareholders promised to invest in the spin-off company but the money never came and it closed in 2000. We decided to source funds from other investors and started Phison.
“We had no intention in the beginning to start our own company. We just wanted a place to work in,” Pua recalled.
Phison was set up in November 2000 by Pua and four engineers – a Malaysian and three Taiwanese – all from Chiao Tung University with an initial investment of US$1mil.
The name Phison was derived from the fact that five persons started the company.
Within six months, the young entrepreneurs came up with their first invention: a USB storage device called pen drive. Business began to boom and the company grew by leaps and bounds.
At last count, market capitalisation has grown to over US$700mil from about US$65mil when Phison was listed on the over-the-counter market in Taiwan in December 2004.
Despite their success, Pua and his partners – who are still involved in the company – realised that they would need to position the company strategically to weather a global slowdown due to the US subprime crisis and for continued business growth.
According to Pua, the way forward for Phison would be to focus on developing products based on NAND flash memory (electronic memory) applications.
“It will be the next big market for us from this year. We started supplying the product in a small way last year,” he said, adding that Phison was looking at manufacturing NAND flash memory for notebooks which currently used hard drives.
The hard drive usage makes them heavier, consume more power and crash easily.
“The use of NAND flash memory will reduce the weight and power consumption of the notebooks as well as make them more cost-effective to produce,” Pua said.
A NAND flash memory drive has the capability to hold and store data even when the power is off.
This makes it an excellent storage solution for many applications such as MP3 players, USB drives, removable storage cards and cell phones where mobility, power use, speed and size are the key factors.
Pua said Phison was also developing memory controllers for cell phones in collaboration with Japanese tech giant Toshiba Corp, a major shareholder of the company with some 17% stake.
“We are also on the lookout for vertical integration,” he said.
“We have invested in two start-up companies – one involved in software development such as anti-virus programmes and application software for cell phones for NAND flash application and the other in semiconductor packaging. This will help add value to our products.”
Pua said Phison's investment in a 40% stake in the software company, which started one year ago, was less than US$1mil while its investment in the semiconductor packaging company was over US$10mil.
He expects the semiconductor packaging company, which started in March 2006, to be listed in the first quarter of next year.
“It is very profitable as it is supported by Phison, which owns a 25% stake in the company. The other shareholder is a US customer.
“Competition is very tough, especially with the lower cost producers in China; hence we are using vertical integration to add value to our products,” he said.
Pua said it was also important to grow the business via new products to penetrate other markets such as South America and the Middle East.
“The slowdown in the US is expected to affect the company. However, the IT business in Taiwan is the best in the world and I believe many people worldwide will still come here to get very advanced technology,” Pua added.
Phison recorded a net profit of US$45.9mil last year, up some 30% from 2006, while revenue grew to US$667mil from US$380mil during the period.
Pua said about 90% to 95% of the company's revenue was from overseas – 35% from Europe, 30% from the US, 12% to 15% from Japan, and the balance from elsewhere.