Strontium eyes Fortune 500 spot

 

Co-founder Anshuman Gupta sees the risk in memory business as a challenge and an opportunity to value add

By Chan Yik Hung, Chua Aik Xin and Mao Xihui - The Business Times, November 14, 2011

TO 'build an organisation which will outlive us and be a Fortune 500 corporation'. That is the vision of Anshuman Gupta and Vivian Singh, the founders of PC and flash memory modules maker Strontium. With a strong vision and management, Strontium has grown tremendously since it was founded in 2002 and has won the Enterprise 50 award. Strontium's global revenue for year 2010 came to $270 million.

When asked about the company's strengths, CEO, Anshuman Gupta's answer is simple. 'There is no winning formula, you need to work hard, make your operations efficient, deliver what you promise and learn to sometimes say no. Being truthful to customers is important, even if it is at the expense of revenue.'

He adds: 'If something cannot be done, tell them (customer) that it cannot be done.'

He believes that Strontium's competitive edge comes from being able to add value to all customers, employees, suppliers and stakeholders economically and intrinsically.

Mr Gupta and his partner, Mr Singh, believe that 'economic activities improve the standard of living for people, and create wealth'. This motivated them to become entrepreneurs with the mission to add value for all stakeholders, both economically and intrinsically. Mr Singh moved to Taiwan last year to set up the operations there and address Greater China markets.

Before setting up Strontium, Mr Gupta and Mr Singh had worked in different companies. Drawing from their working experience, they saw PC memory as a commodity, which could be value added through an efficient supply chain management. Memory prices are volatile and need close monitoring. Memory companies at that time did little in managing the inventory risk for customers.

Based on their connections in the industry, Mr Gupta and Mr Singh managed to secure several customers for Strontium early on. The relationship and trust they built up with clients enabled them to establish themselves in this capital-intensive sector and grow rapidly thereafter. They also received advance payment for orders which boosted their working capital and liquidity, in turn strengthening their operations.

'People thought memory business is risky, but we think that managing that risk is a challenge and an opportunity to value add,' says Mr Gupta. 'It is an oligopoly business.'

The Current Business

A few large players dominate the memory business, with the top DRAM companies controlling more than 85 per cent of world supply. The third-party modules market, in which Strontium is present, is fed by those large upstream DRAM vendors. Strontium is currently ranked 12th globally with 1.5 per cent of the global memory market share.

Furthermore, Mr Gupta adds, just four companies - Hynix, Micron, Samsung and Elpida - account for more than 85 per cent of the world's memory chips. Memory products are largely similar, varying only in the quality and grade of the memory chips used. In this regard, Strontium pledges to use only the top-notch quality chips from manufacturers. Mr Gupta stresses that quality can never be compromised even if the end-product may be slightly more expensive. However, Strontium strives to drive down cost through operational efficiency.

The memory industry has a very high barrier of entry given its capital-intensive nature, its need for technological know-how, and the existence of a few strong players. Nonetheless, Strontium broke into the industry by distinguishing itself through efficient supply chain and inventory management. Like any commodity, the prices of memory products (especially DRAMs) fluctuate depending on demand and supply.

'In 2008, the price of memory modules went down to US$7 from US$24. If our customers didn't manage their inventory, they would have been outpriced,' says Mr Gupta, when illustrating how Strontium helps customers to stay competitive. Strontium's competitive edge comes from expertise in providing up-to-date information to customers and the advice on the optimal inventory level. This saves holding cost for customers and ensures that their profit will not be badly affected by the volatility in the memory market.

When asked why customers should choose them over their competitors, Mr Gupta points to Strontium's logistics and supply chain capabilities. 'Operational efficiency is something that we are ahead of our competitors, definitely.'

Strontium can fulfil orders from New Zealand and Australia within one day given Singapore's strategic location and logistics connection with these countries. Strontium uses FedExto 'drop-ship' to these locations. While it may be more expensive compared to regular freight, insurance premium is lower and turnaround time is faster.

The Road Ahead

Strontium's unique positioning is also another reason for customers to choose them. 'Since memory is only 2-5 per cent of their (customers) business, they cannot invest in developing the expertise required for memory, but price fluctuations have the potential to adversely affect their balance sheet,' explains Mr Gupta.

Strontium manages the memory inventory of most of its clients so that clients can focus on their core business.

Mr Gupta does not worry about the Singapore market size being small. 'Because the market is small, it forces us to look outwards,' he says. Strontium has offices in Brazil, Australia, Taiwan, the US and India, and customers in over 30 countries.

Looking ahead, Strontium wants to increase its quality of engagement in these markets, such as having procurement done locally, instead of going through the Singapore office. For example, Mr Singh heads Strontium's Taiwan office and it is responsible for growth, strategic planning, R&D and new business opportunities in the Greater China region.

In terms of product focus, Mr Gupta sees a huge potential in flash-based memory. 'We expect all our growth to come from flash,' he says. Nearly half of Strontium's $270 million revenue comes from flash and the other half from DRAM. Strontium will be offering more product lines, and recently launched Solid State Drive (SSD) with the fastest I/O speed in the industry. Mr Gupta sees SSD as a complement to the traditional spinning hard disk as SSD helps speed up daily productivity and the traditional hard disk will store the larger media files.

However, Strontium's business is not without obstacles. Mr Gupta says that the company faces limitation in capital for expansion. 'In order to grow, we need more capital, but so far we are only able to grow organically, given the difficulty in obtaining capital.'

It has been difficult for banks to understand their business, as they are neither a pure manufacturer nor a pure semiconductor firm. This makes it harder to obtain capital for growth.

When asked whether public listing is an option to raise the needed capital, Mr Gupta says that Strontium might consider that in the future. He adds: 'IPO (initial public offer) is not a way for us to cash out, we need to have a business model and a business requirement to justify going public. We cannot do injustice to our investors.'

The philosophy for adding value for all stakeholders has indeed been imprinted into Strontium's corporate culture. Even though Strontium's performance has been remarkable, it is only the beginning. Despite the long journey ahead, Mr Gupta's vision to put Strontium into the Fortune 500 list has never diminished.

Mr Gupta: When asked why customers pick Strontium, he points to the company's logistics and supply chain capabilities. 'Operational efficiency is something that we are ahead of our competitors, definitely.'