by Anna Filatova
04/07/2006 | 11:58 AM
X-bit labs: Thank you very much, Paul, for agreeing to meet with us today and for the opportunity to ask you some questions. Before we start, I think it would be great if you could introduce yourself to our readers and tell us a little bit about your background. How did this whole thing with the PDP Systems get started? I am sure that the details might be quite exciting.
Paul Jones: Well, that might be a long a boring story for your readers :) But, I will try to make it interesting. First of all, my name is Paul Jones. I am one of the founders of PDP Systems. PDP Systems started in 1985 and we are one of the oldest memory companies in the world. The PDP’s name is derived from myself – Paul, my partner – Doug and my third partner – Phil, who is the wise one. He left the company in 1986. We have been focused on memory for a little over 20 years now.
X-bit labs: There is always a lot of confusion about the two names: PDP Systems and Patriot Memory. What is the difference and the relation between these two names? Could you please explain?
Paul Jones: When PDP started, we were focused mainly on memory distribution and manufacturing. In the 1990s, when the memory modules were invented, PDP was a contractor for many of the memory module manufacturers located around the world. When the memory market had its difficulties in 2001, when the memory market lost 40% of the revenues from 2000 to 2001, many of the bigger manufacturers split their business. They started focusing on video or they took their manufacturing facilities over to the Far East. At that time, PDP had to make the decision on where it wanted to go with its business. Now, we still had a lot of the contract business with many of the U.S. module manufacturers. At that time, PDP brand was a conflict of interest for some of our customers. On the other hand, our customers were selling products into a channel we thought was fairly attractive. We were selling our product, engineering and manufacturing into that channel without the name “PDP” attached to it. It had our customer’s name attached to it. We wanted to keep the conflict away from our customers, so we came up with the name Patriot. PDP would still be the manufacturer for many of the customers we were building for, but Patriot was the branded product. The product was exactly the same. There was no difference. Patriot was the brand name we chose. We are not hiding the fact that PDP and Patriot are two different companies. They are the same company. Patriot is the branded part of the corporation.
X-bit labs: If I understand correctly, you may be selling exactly the same products to some customers under the PDP brand name and to other customers under the Patriot brand name?
Paul Jones: Yes, this is actually very true. Some customers that we are still building for obviously have their own brand name attached to their product. We don’t put Patriot on there, or quite honestly do we put PDP. They take our product after it comes off production and they put their packaging, or possibly we do the packaging for them, and resell the product. I think to me it is similar to something like Foxconn and Dell. If you are in the computer industry, I think a lot of people know Foxconn. If you are a consumer and you buy products, really, everyone knows Dell, but maybe the consumer doesn’t know Foxconn. But, Foxconn is a large contractor for Dell. I think that Foxconn is making an attempt to brand their company; therefore, they are branding their name “Foxconn” much heavier than the channel that they did in the past years. Now, Patriot and PDP are much smaller companies than Foxconn and Dell. It is the same analogy where Patriot is branding itself but PDP is still partnering with some of the module manufacturers in the industry.
X-bit labs: How do you estimate Patriot’s position in the today’s memory market? What companies do you regard as your primary competitors in this market?
Paul Jones: As I have already said, we have been in business for over 20 years. Our core competency is manufacturing high-quality products at a cost-effective price. That is why we have been able to supply the industry with the particular gaming modules or high-end modules at a competitive price. Our core competency is R&D, supply chain, manufacturing and delivery. Our competition is very broad across different fronts. We have different competitors in retail space, e-tail space and box space. We have different competitors in United States versus the Far East, and Western versus Eastern Europe. In the memory space, there is no one true only competitor out there. There are many competitors in many different spaces. Many of these competitors have been or are our customers. It is a very fine line how we engage with these particular different channels.
X-bit labs: Since some of these companies are your competitors and at the same time your customers, there will certainly emerge certain conflict of interest. For example, you can not release into the market a new product that is better or more powerful than the one you have just shipped to your customer, because they will immediately ask you: hey, why didn’t you ship us a better product? How do you resolve these situations?
Paul Jones: You are absolutely right. We have some customers that we build for. When we announce a new product, the marketing information tends to go to everybody pretty quickly. Patriot makes an announcement that we have the latest DDR2 modules available. Many of our customers that are in that space will ask how come you are not building that for us as well. Quite honestly, my style of business is to open that up to all my partners. There is actually a difference between a customer and a partner. A partner is someone I want to engage with. I will open up our engineering and R&D resources to our partners. A partner is more of a longer-term business that we will have or have had anticipated going forward. We certainly will do that with our partners. I have no problems with that because the industry is very large and we want to support our partners. Even if it is possible to the detriment of Patriot, we still will engage with certain partners. A partner is not necessarily a customer and this difference is important to understand.
X-bit labs: Does Patriot have a lot of partners at this time?
Paul Jones: Well, in life and in business, you tend to have some very close allies, and some who are more acquaintances. We are one of the oldest companies in the business. I would say that we have probably more partners in the industry than most companies out there. Our involvement of the company is very unique. Not many companies have had partnerships with their current competitors. Quite honestly, I can not think of any company that has had the type of partnerships that we have had with competition. Yet, we are still engaging with them. Our style in business I would like to think from top down is very open, we are not trying to trick the consumer, or trick our partner, or trick our customer of what we are and what we intend to be. We are what we are – a very straight-forward company but our strength is again R&D, supply chain, and getting a quality product out to the market. That said, yes, we have many partners and we do have many customers. We certainly want more partners, as everyone wants more closer relationships in life than acquaintances. We are always trying to get more companies interested in partnership with Patriot.
X-bit labs: With so many partners and customers, you certainly need quite a bit of a production volume to satisfy them all. Could you please tell us a little bit about Patriot’s production facilities? Where are they located? How big is the turnout?
Paul Jones: Well, a lot of people get wrapped up in “how many units you can phase out, what are your quantities, etc”. Being a manufacturer, you really look at it as a number of placements you are able to make. Some manufacturers claim that they can produce X amount of memory modules per day/week/month, and that may sound very impressive. When you find out the amount of placements that you need to make and the amount of test time you need to spend on this particular module, it is not so good, then maybe that number if is a little bit misleading. As a manufacturer, you always look at how many placements you can make, and that dictates how many units you can actually produce. In the United States, we can place 5,000,000 units a day. I would say that amount of placements in the industry is one of the larger ones out there. Now, memory module manufacturers tend to be privately held, and it can be really difficult to get real data. But I know it very well that 5,000,000 placements a day is our capability. In the Far East, our placements are roughly 50% of this number which is about 2,000,000 placements a day.
X-bit labs: And where are the production lines located?
Paul Jones: We have production lines here in Fremont, California (Sunny Fremont, generally sunny, but not really that sunny lately :)) and in Taipei, Taiwan.
X-bit labs: A lot of production facilities are being moved to China these days in search for lower production costs and better-value labor. Any intention to follow this trend and do the same thing with Patriot production lines?
Paul Jones: That is what was happening in 2000 to 2001 and that is where the Patriot brand came out. A lot of partners moved their production facilities to China. There are few reasons. One reason, you have already mentioned, is the cost, the labor cost, which is much cheaper in China than in the U.S. The other reason would be to infiltrate the local Chinese market, especially when you realize that it is a large market and there is a lot of desire to be in that market. Our Taiwan facility is focused on getting into the China market. The reason I have put so much time and effort and money into the U.S. market is because I think it is very important to have a U.S. manufacturer servicing the U.S. market. Generally speaking, the memory market is driven heavily by the supply chain. If you don’t get parts to your end-partner or end-customer, they will look elsewhere to find the product. If you don’t have the local manufacturing to service the market, it is difficult to service your customer. I think it is very-very important to have manufacturing in the United States. Now, let’s talk about cost. If you are looking at memory products that are labor intensive, sure, China makes sense. If you are doing any product that is labor intensive, then you should go to China. Our memory products are fairly automated. Not totally automated, but fairly. I will compete with China very well from a cost stand point when it comes to our modules. Because I am able to place so many products fairly automated. I am an old guy in the industry. All my machines are paid off and we are producing modules with a labor force that is not as cheap as China in the beginning, but because of the automation, it is as cheap as China in the end. If you take your labor person in the U.S. versus China but you look at the automation here in the United States versus the labor cost in China, and then you factor in shipping cost, and lead times, I would say that our costs are actually lower.
X-bit labs: How fast does your company grow right now? You have been in this business for over 20 years, but what is the growth rate during the last couple years that you observe?
Paul Jones: Quite honestly for the last couple of years, we have been very flat. It has a lot to do with the reinvention of PDP versus Patriot. We have seen a lot of share shift from PDP part of the company to Patriot part of the company. The growth on Patriot has been running close to 75% annually. That is done to the detriment of PDP. Our revenues have been relatively flat for the past two years.
X-bit labs: What are your forecasts? Do you expect things to change in the next couple years?
Paul Jones: Absolutely! Our focus, of course, is on the gaming industry and gaining some market share. We have taken some market share in certain areas. I think as people get to know Patriot and know the background of the company and get a chance to evaluate the product and to engage with us as a partner. I think we will take more market share in the different areas we are trying to penetrate. I am extremely optimistic on Patriot.
X-bit labs: You have mentioned the gaming market. In this respect it would be really interesting to hear what the current sales statistics in relative percentage is, namely, how big is the share of enthusiastic solutions versus mainstream memory?
Paul Jones: If you are factoring in guys like Alienware, which belong to the enthusiast market segment and we are building product for them. I would say that roughly about 35% of our sales are for the enthusiasts in the Patriot product line. The other 65% would be more of a mainstream desktop standard DDR I/DDR II or SDRAM products. Yes, we are still manufacturing SDRAM, and the share of this type of memory is south of 10%. There is a fair amount of upgrades in the retail market and some of these older computers still require SDRAM. For example, we have an account that manufactures ATM machines – and this gives you some idea of how old PDP is. We build 16MB EDO products for this ATM manufacturer. It is really-really old technology, but because our BOM is designed into this ATM we have to build it. In the 1990s, it was a product of choice and we built a lot of it then. I want to stress that it is still within our product category and we build a really wide range of products.
X-bit labs: How would you estimate the Patriot’s sales split in terms of DDR vs DDR II these days? DDR II seems to have finally taken over the bigger part of the market, do you feel like this product is picking up in Patriot’s sales as well?
Paul Jones: I think it depends on the space you are looking at. Let us talk about Dell, for instance. Dell has made a switch on DDR II many-many quarters ago. Their primary focus is definitely on DDR II. If you look at the retail space, as far as DDR II is concerned, there is not a lot of sales of DDR II. If you look at the enthusiasts market, of course more DDR II sales are going that way. It depends on what space you are looking at. Now, from clockability and speed and systems for the enthusiasts, DDR II of course is the product of choice and Patriot is putting its R&D and efforts into DDR II much more that DDR I.
X-bit labs: Do you currently invest more time and efforts from the development as well as production standpoint into DDR II, or DDR I is still the primary focus as the product bringing highest sales volume to the company?
Paul Jones: Our R&D and engineering is totally focused on DDR II. We are focused on getting DDR II latencies as low as possible, speeds as fast as possible. Our focus in engineering is on DDR II. Even though it is pretty premature, we are already talking to Intel about DDR III right now. We are working on the latest technology. When it comes to requirements, DDR I is still there. There is still a fair amount of demand on DDR I. The technology for DDR I from the fab level on down. We are not putting much more R&D on DDR I any more.
X-bit labs: Speaking about the overclocking-friendly solutions for enthusiasts. Does Patriot currently offer a wider choice of overclocker’s products in the DDR II space or still DDR I?
Paul Jones: Patriot has bigger variety of products than – I cannot say all companies – most companies out there. On DDR I overclocking, I do think we hit almost every single possibility. I know we came out with a 700MHz DDR I down to a 400MHz 2-2-2-5 latency. Because of the speed differentiation, I think DDR II has more choices, but I am not positive about that. In the longer term, DDR II will have many more choices, with the spec standpoint at 1066MHz. DDR I clocked at 400MHz, so there was really only a couple of choices for the enthusiasts for DDR I. On DDR II, the range is all the way from 400MHz to well over 1GHz in speed. There is going to be many choices for the enthusiasts in DDR II. When AMD comes enabled somewhere close towards the end of Q2, there is going to be a plethora of choices for DDR II.
X-bit labs: What are the signature features, the advantages of Patriot’s overclocker’s solutions? What are the major distinguishing traits of Patriot’s overclocker’s products?
Paul Jones: Of course, every module manufacturer wants to talk about its latencies and its speeds, and that is very easy to state. If you say your product can achieve CAS latencies of 4-4-4 or can run at speeds above 1GHz… I can tell you my marketing philosophy: we don’t talk about the products that we can not mass produce. There are companies out there that take the marketing stand saying I can produce a 1.1GHz part or a 1066MHz part. The reality is that the production makes only a few units a week or this product works in a specific application. If you do not put it into a specific application or environment, it will not work. I don’t want to say that you got to use it in this environment on Tuesday at 3PM and if you do not use it at that time it is not going to work. There is a lot of things that Patriot can say and can do, but quite frankly, we don’t if it is not going for the masses. We work with all the motherboard people, all the chipset and processor people to make sure our product works across the board not just in one or two applications. When we come out with a product, I don’t want to say ours is the fastest or lowest latency because I don’t think any motherboard manufacturer can claim that, but I would feel like we can mass market it better than most of the competition. I never want to say all, because quite honestly there may be some guys that at a point of time are better than Patriot, but on a consistent basis, I feel that we are very strong when it comes to mass production.
X-bit labs: How the chips are selected for the overclocker’s memory modules? What is the sorting procedure?
Paul Jones: You know, with the DRAM industry back in the 1990s, there were many-many fabs, and many different companies that were producing DRAM, because it was a very lucrative industry. There was a lot of profit in the industry. Unfortunately, from about 2000 on, the industry has been bleeding fairly badly and a lot of the fabs are either redirected or doing something else, or focused on another product line. Now with the fabs in the industry, there is only a few left that are producing DRAM chips and that are suitable for enthusiast specs. We work with every single one of those fabs at the die level and test every single product once they come out with a new revision on the chip and die levels. To make sure when it comes out with a new spec, a new die or new revision, we test that product to see what type of the clockability it will have. We run it through our variety of tests, and then we work again with Intel, AMD, the motherboard people to ensure that it works for the masses. We are constantly reevaluating and qualifying new products. I think most companies that are strong in the memory field would not state that a specific chip will always be in this particular product. If you are decent in the industry, you should be working with every fab.
X-bit labs: What companies are your primary chip suppliers at this time for the DDR II chips?
Paul Jones: The people that are producing DDR II are Samsung, Micron, Nanya, PowerChip, Elpida, Infineon, ProMos. We work with all of them. There is another company called SMIC that is located out of Shanghai. We also work with them, but I don’t believe they are producing DDR II. We work with them on SDRAM and DDR I.
X-bit labs: What about the PCBs? Where do you purchase the PCBs?
Paul Jones: PCBs are manufactured either out of Taiwan or Korea. These are third-party PCBs. We don’t own a PCB house.
X-bit labs: A lot of overclocker’s memory makers increase the working voltage of their memory modules to be able to offer a broader variety of solutions. This in-house overclocking, so to speak, is a pretty powerful tool when it comes to achieving higher speeds. Does Patriot take advantage of what the voltage variations have to offer?
Paul Jones: We definitely take advantage of the voltage variations to achieve certain timings for our overclocking modules. Our main goal is to attain the best speeds and timings using the lowest possible voltage setting. We do this because the voltage settings vary between the various motherboard and chipset manufacturers. We try to accommodate as many users as possible for each new product that we launch. The voltage settings also vary depending on which DRAM we are using and at what frequency/timings we are running. Again, this only applies to our gaming line. For our Signature Line, which includes server, notebook, and desktop memory, we stick to the JEDEC standards for the voltage settings.
X-bit labs: Since you mentioned the server memory, I cannot help asking you how big Patriot’s server business is? I am sure that most of our readers know Patriot mostly as a DDR DIMM, Compact Flash and other consumer memory maker. So it would be really interesting to get to know the other side of Patriot as well.
Paul Jones: The server business is going more to the larger server customers. It is integrated inside their boxes. We also sell server products out to the channel. There are customers that buy our servers and we sell our products to Fry’s Electronics in the United States, for instance. There are smaller SOHO type of businesses that buy our server modules for their systems, for small home or office servers. The majority of our sales are going to OEMs or server people that build systems and integrate our products inside the box. Unfortunately, we have not worked out any relationships with server people to say “Powered by Patriot”. Many of the server clientele do not want to do that, because they want to have the option to switch the memory. Maybe it is Patriot this quarter and next quarter, it could be one of our competitors. I can not give you the percentage to describe how big our server business is, but we have been doing that for many years. Initially on the PDP side, we were building it for our partners, and they will mark their name on it and sell to the channel, to their customers. On the Patriot side, we totally mark it as Patriot. We are working with a lot of server motherboard manufacturers, and we are posted on their web-site as an approved vendor. This is something not everybody knows about Patriot. With the name Patriot coming out, we want people to know the company because we feel like we have been behind the scene for so many years. We know we build a good product, we know what we advertise and what we bring to the market is true. There is no marketing fluff in there. We know what we are doing. It is a good story that we want the public to know and we want to engage with the public.
X-bit labs: Well, I am sure we can help you with this one here :)
But back to the voltages. There is one more interesting question I am sure our readers would want to ask you. GeIL demonstrated memory modules with the built-in voltage regulator at CeBIT this year. This technology allows them to significantly increase the voltage on the module. Does PDP have any projects like that in the works?
Paul Jones: Honestly, I have not yet had a chance to look at it to evaluate it. I think if GeIL is able to achieve certain timings with this voltage regulator, they have done their due diligence, and it’s great. Great job! We have nothing like that in R&D at this time. Our core competency is to work at the chip level to bring the best value of the product, to hit certain speeds, certain latencies without the chance of frying your system.
X-bit labs: Many companies that manufacture memory solutions for hardware enthusiasts roll out something unique, some new technology every now and then to attract more hardcore users. For instance, OCZ were the first ones with the heat-spreader concept that has become so popular these days, Corsair launched their modules with functional status LEDs, and GeIL has the onboard voltage-regulator we have already discussed. Anything exciting and revolutionary that you are currently working at to attract more enthusiasts?
Paul Jones: I have to repeat again that we try to mass market the product to all consumers. Having said that, of course, we try to constantly come up with a product that we think an enthusiast will like. One of the products we came up with is our bladed technology on the heat shields. We found that heat shields with bladed technology that our engineering team came up with offer about 10% better heat dissipation than the standard heat shields. Instead of charging the consumer for this product and introducing it as a special product line, this bladed technology is on every single product for the enthusiast at no additional cost. Our concept is to bring value and mass market it to everybody and not just to a specific customer who has paid 10% higher. We want this technology to be enjoyed by everybody. It is our job to bring that technology and that type of value to every consumer free of charge.
X-bit labs: Do you see the growing demand for higher capacity memory kits in the market these days? Right now 2GB kits gain the most popularity among hardcore users. How far do you think the capacity will grow during the next year, for example?
Paul Jones: Sure. I think if you look at a typical memory spend from the enthusiast down to a home user, the former will certainly tend to pay a little bit more for the memory to increase the efficiency of their system. That said, there is a certain threshold that any customer will pay. If you are looking at the next generation product, after 2GB, there will be 4GB kits. The price gap between 2GB and 4GB kits is about 6x or 7x right now. Patriot is certainly capable of producing 4GB kits. How many enthusiasts will pay a 7x price to get a 4GB kit? We will bring it to market as the market demands it. The mass market is not demanding a 4GB kit yet. If you look at historical norms, price points in memory tend to drop by about 50% annually. Peak growth goes up 50%, prices drop 50%. At certain price point, you will see 4GB kits coming out but I don’t think it will be this year. Let me re-phrase that they are available, but Patriot has not brought that to full mass production. We just don’t introduce that to the market. The reason we don’t do that is because the price point is not attractive but with time it will be there. Look for instance at the price of 2GB kits 18 months ago, these were relatively expensive. Today, these kits are quite affordable. We all want them. I want one. But, a 4GB kit is a little over our heads.
X-bit labs: What overclocker’s memory modules are Patriot’s best sellers today? And which products would you personally recommend X-bit’s readers?
Paul Jones: Our DDR II 2GB kits are our bestsellers. They are rated above 1GHz. That is what I would recommend for your readers.
X-bit labs: Well, and this is exactly what we have in our labs right now and what is being tested within our DDR II 2GB kits roundup as we speak :)
Thank you very much, Paul, for your time. It’s been a real pleasure talking to you. We look forward to more interesting new solutions from Patriot.