Talking with A Force Technology

By Chris Hall

    While Hong Kong is not an IT manufacturing hub in the same style as Taiwan or Shenzhen, the territory does have its stars, and everyone in the industry is pretty much agreed that A Force Technology is one of them. A Force has been around for some 25 years, manufacturing and distributing memory modules, building a reputation for quality and service in a segment infamous for its dizzying cyclicality.
    EUROTRADE recently had the opportunity to speak with Andy Lau, Managing Director at A Force, about the company’s development and the business perspective.

Q: A Force Technology is a well established company. Could you indicate some of the most important milestones in the company’s development?

A: A Force started out in 1985. We’ve done well to survive that long In the memory module manufacturing industry! Between 1985 to 1991 we were involved in trading, but in 1991, I established a production line for memory modules and began to reduce our involvement in trading. We also gained the trust of the IC makers, and we became their only key account in Hong Kong. In fact we were the sole customer of memory ICs in Hong Kong for companies such as IBM, Fujitsu, Siemens and Micron.
    In 1993, I started out in retail, and I wanted to gain more understanding of the complete memory market, whether upstream or downstream. Later A Force became a retail distributor in Hong Kong. Around 1998, I launched the Rambo brand for A Force products. And in 1999, I launched a new digital brand, Muse Digital, a second A Force brand but for unique or niche products.
    Then in year 2000, we wanted to gain some advantage from our resources in mainland China, so we started a second factory, in Shenzhen. Today, we have two factories, one in Hong Kong and one in China, handling parallel operations. Our Quality Control team is based in Hong Kong, but the China facility is close to the border, so we are able to offer good quality products at an economical price.
     In 2001 A Force became Infineon’s agent for the China market.
     Then in 2005, we became the sole agent for Toshiba in Hong Kong and Macau. We handle the company’s flash memory products such as memory cards and USB drives.
    Around 2009, we entered into a strategic partnership with some PCB manufacturers. The arrangement allowed us to provide our customers with PCBs that would meet their special requirements. It meant we could offer them a one-stop solution. We could tailor the PCB exactly to their needs and then assemble the memory module for them. Usually, this was simply a case of the size and shape and general appearance of the module, and usually we offered this PCB service on an OEM basis. But whatever the design of the PCB, electronically we always follow the JEDEC standards.
     Our percentage breakdown is 50~60 percent OEM business, and 40~50 percent brand.

Q: Do you in fact offer some boutique, special memories, perhaps high speed memories?

A: Sometimes, possibly a request for overclocking, or, for DDR3, a thermal sensor. Thermal sensors started to appear in the market in the second half of last year. What happens with these is that when the memory module heats to a certain point, the computer can control the speed, ensuring that the module is always running at optimal stable performance. For A Force, a typical product might be a 4GB DDR3 module, with ECC, and with a thermal sensor. That combination is something you won’t see too often in the industry. Normally, you will see products such as a 2GB DDR3 module, with no ECC, and no thermal sensor. Our 4GB DDR3 module with thermal sensor is for the high end, such as the Mac Pro series, and some higher end PCs that require fast performance with ECC error checking.
     The thermal sensor feature can also be applied to our DDR3 SODIMMs for notebooks. It can be applied for both notebooks and desktop systems. Thermal sensors are not exclusive to A Force products, but we have a good relationship with the sensor maker, and we are one of the first to market with this feature.

Q: Have there been any major changes in the manufacturing of the PCBs for memory modules?

A: From time to time we need to upgrade our equipment, buying in new SMT machines for example, and that’s particularly true whenever we have expand production. For example, two years ago we expanded our production lines in both Shenzhen and Hong Kong, and in this industry that’s quite common. Every generation we need to invest in new technologies. We couldn’t survive without doing that!

Q: Have you seen any dramatic increase in the demand for DRAM?

A: Over the past few years, everyone in the industry has been facing a price war. Our strategy has been, from time to time, to make micro adjustments to the business plan for the quarter, and to start new partnerships, and work with new vendors, new customers, new employers. That was the case when, for example, we began shifting from DDR2 to DDR3 SDRAM, starting in Q4, 2009. No matter what the state of the market, we are always looking for new opportunities.
    During 2008 to early 2009, the DRAM market was in a downturn, and you can see this as part of a twenty-year cycle. The IC makers and the financial institutions would like to plan their investments in such a way that in future we can avoid another price war and the cutthroat competition we have seen in the past. We think that, in the future, if we offer good quality and good service, we can form many partnerships with our customers and suppliers, and there will be many opportunities in the market. We are not sure whether demand is picking up quickly, but we do feel the situation is not as bad as we thought. With recovery from the financial tsunami, we think there will be demand for new machines and new models. Because we are already known for good quality, because we already have a good reputation, we think we will finally see growth.
    Year 2008 was the low point, but starting in Q3, 2009, we began to see a re-bound. We are still not quite sure about the strength of the re-bound, but nevertheless we are well prepared for this year, 2010. In the memory industry, demand is always there, but it is always shifting, for example with the shift we are now seeing from DDR2 to DDR3, maybe shifting from long DIMMs to SODIMMs. Nowadays, if you look at netbooks, or now e-books, or if you look at cell phones, more and more people have computers, some have two or three computers in their home, and that’s a recent development, so globally demand is higher.

Q: Whereas in the past we might have had a PCI based PC with 512 megabytes of memory, now it’s perfectly normal to have 2GB of memory, and possibly four or eight gigabytes.

A: Yes, depending on which OS you run. In 2008, for example, we began to offer DDR3 in 4-gigabyte modules, with thermal sensor.

Q: If you can meet system memory requirements with just the one module, does that mean you are going to have greater stability in your system?

A: Not necessarily. But to optimize stability, as we mentioned earlier, we can offer 4GB with ECC error checking and with the thermal sensor. If the computer is capable of reading the information, that combination helps to further stabilize the system. There are ways to make the IC more stable, by adding things, adding more chips, adding the sensor.

Q: I’ve been advised never to mix brands of memory module at these higher speeds.

A: Yes, even within the same brand, the user should buy a pair at a time. That’s because the chips are made in lots, and with each separate lot the timings, the performance may be slightly different even though very close.

Q: How does A Force see the situation from the point of view of demand and volume sales? Presumably DDR2 is still the volume leader, with growing demand for DDR3.

A: From our point of view, we think there will continue to be increasing demand for higher capacity memory modules because additional applications will enter the market. We think the demand is there and still growing. So to be competitive, we think we need to maintain our reputation for good quality and good service, and for keeping pace with technology development. At the same time, we need to enter into more partnerships with our customers and suppliers, so we can maintain a leading position in the market.
    We think DDR2 is still the volume leader, right now, but we are watching the IC and PC makers closely, trying to figure out the market trends. Our planning depends on our correct interpretation of market trends. In particular, if the pricing of DDR3 begins to make it a more economical choice than DDR2, we think at that point DDR3 will become the volume leader. We think that may happen later this year, perhaps starting in Q3, depending on the IC and PCB makers and their strategic planning.

Q: What are the major technical challenges in building quality memory modules, nowadays? How does A Force respond to these challenges in manufacturing, test and packaging, QA/QC? For example, I’m wondering whether the PCBs themselves have increased in complexity.

A: With the technological changes that came with new memory module designs, we installed new-generation SMT machines and testing equipment, to handle DDR2, DDR3 BGA IC packaging, to ensure the accuracy required, in terms of quality and quantity. PCB complexity has evolved from 4 layers in DDR1 to 10 layers in DDR3 R DIMM modules, to ensure top performance.

Q: Does this mean the PCB is now more difficult for you to make?

A: Well, put it this way, it’s higher cost. And it requires higher skilled labor.

Q: What about the equipment? Do you have to buy laser drilling machines for 8-layer PCBs?

A: We are using SMT machines. Two years ago we invested in high precision SMT machines, machines with very low pitch, so we are already well prepared for the requirements of DDR3. However, we are not directly involved in the manufacturing of the PCB itself. We have partnerships with PCB manufacturers.

Q: You partner with two or three makers?

A: Mainly with three PCB manufacturers in Taiwan. Our company’s No. 1 focus is quality, so we try to get the best available for every single component. We are trying to project an image of high quality, so we select the best PCB makers in Taiwan.
    As well, some of our manufacturing is quite unique and confidential. We are not aiming to be what you might call a “supermarket” business. We often need to maintain confidentiality about our manufacturing processes, and we think we can maintain better control over IP and industrial design if we manufacture in Hong Kong, rather than China. That also applies to the USB flash drive market because there some customers request their own unique designs. We can ensure their design remains unique, rather than copied, and we can do that while maintaining our reputation for good quality at a good price. We can maintain control over our industrial design, and, in addition, we are using some special, unique materials that the “supermarket” manufacturers will find very difficult to duplicate. Or if they did use these special materials, they would find they would be left with no profit margin.
    Another point I would make is that in the USB drive market, more and more companies only focus on well known, public domain design. But at A Force we focus on our own design, projecting our own product image and identity because we strongly believe that we need to be unique. We don’t sell products that are identical to those of other manufacturers or use the exact same housing. We develop our own product identity, and that becomes the basis for marketing partnerships.
With just two factories, one here in Hong Kong and one in Shenzhen, we can keep tight control over product quality, and offer good quality at competitive pricing. This is how we support our customers, many of whom want to keep the product source confidential.

Q: So your aim is to build long-term customer relationships?

A: Correct. That is our key strategy.

Q: Could you just give you a few facts and figures about monthly production and the resources you have?

A: We have some 30 SMT machines, and daily capacity is 20,000 memory modules. Right now we are running at 70~80 percent capacity.

Q: I understand that A Force is now producing some Flash memory products, including memory cards and flash drives, usually using SLC NAND Flash. How important is the flash memory business for A Force, now? Has there been a negative impact from falling prices in the flash products market? Is A Force likely to produce any solid state hard drives?

A: The focus is mainly on USB flash drives, not cards. And we don’t make any SD cards because we are an agent for Toshiba, and most of the time we find it more cost effective to buy directly from Toshiba. In addition to materials and labor there would also be the question of the technology patent. We would need to pay a fee

Q: I spoke to one maker of USB flash drives who said there was little or no longer any real profitability in flash drives. How about A Force? Do you still see USB flash drives as a viable business segment?

A: Because we have a large customer network and retail base, we are able to locate new market segments for our products. I think USB flash drives are still a very popular device and will remain so. Right now USB 3.0 is coming, so we are looking ahead to making drives for this market. Currently, the demand for USB 3.0 products is not large because USB 3.0 is not compatible with USB 2.0 ports, and users need to have either an adapter or a new machine, so I think demand will need time to build. Still, even so, we think this is the next big opportunity in the flash drive market.
We still see some long-term demand for our USB flash drives, from customers who have their own brand labels. But companies who are manufacturing flash drives for a mass market will probably see very thin margins.

Q: Presumably demand for USB 3.0 will build with end users who need to shift large amounts of data since USB 3.0 is some 10 times faster than USB 2.0.

A: That’s true, but with USB flash drives you have to remember that the bottleneck is not the interface, but the controller inside the USB drive.

Q: You are talking about the design, the quality of the controller?

A: That’s right.

Q: I’ve heard the same thing said of actual solid state drives, SSDs. Is A Force offering an SSD?

A: Right now we are not making a major investment in SSD production. We are partnering with another company, a design house for SSDs, but orders for these drives are only for small quantities. We don’t see high demand for these drives until there is a significant price drop, or some significant technical breakthrough, such as in the design of the controller or the flash IC itself.
We are always looking for new controller solutions, and we always request samples to test. And if we use MLC flash, we would always be very careful to sort the chips, to maintain performance at our own high, A Force, standard.

Q: What is the big picture for A Force now? Is the company aiming to expand, or is it content to play a specialist role?

A: One thing I’d like to mention is our environmental effort. Since year 2005, all of our product lines have been RoHS compliant. We have also been awarded ISO 14000, another environmental standard certifying that all of our production is free of toxicity. At A Force we are concerned to save energy and avoid polluting water. We also have programs to remind workers to do their jobs safely.
    One thing I can say, and this reflects indirectly on our profitability, is that every year, for the past 15 years, we have made donations to charity. And myself I’m involved in social service. I have been the chairman of the Tung Wah Group of Hospitals, running five hospitals, and in 2007 I was awarded the Bronze Bauhinia Star by the Hong Kong Government, for social service.
     Also I am a committee member in Sichuan Province. My role is to give advice on building the economy and improving the life of the people in Sichuan.?
     Really, this is part of our corporate culture at A Force, a culture of balance, where we want to be socially responsible and pro-active. Saving energy and taking care of the environment is one aspect of that.
     Balance is very much our business model, with each part of the business following its own developmental path. For example, we will continue developing our markets in the retail channel, offering more product lines, while also offering and expanding unique manufacturing services on an OEM basis, including the manufacture of both memory modules and USB flash drives.
     We may acquire additional equipment at a later date, but for the moment we are carefully watching the situation in the DDR3 and USB 3.0 markets.
    We will continue to offer good service at competitive pricing for our customers, so that they can pursue their own business more successfully. Whatever they require, we will provide the product. The memory module business is quite high risk, but it can be profitable if we pursue a strategy of long-term stable relationships with our partners.