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  Intl. & NRI News |
| Lata Krishnan - Highest Paid Women Executive |
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Intl. & NRI News |
| Lata Krishnan - Highest Paid Women Executive |
By: Monua Janah
Source: San Jose Mercury News; July 17, 1999
When Lata Krishnan met Ajay Shah in London in 1986, they had at least one thing in common: Their families had left East Africa in the 1960s and 1970s, before a wave of resentment against Indian settlers peaked with Ugandan President Idi Amin expelling anyone with South Asian blood.
Krishnan and Shah married, and went on to found a company in Fremont with their friend Mukesh Patel, another East Africa-born Indian, whose family had left Uganda in the 1960s. The company, Smart Modular Technologies Inc., turned the unglamorous business of making memory modules and cards for computers and other devices into a glittering Silicon Valley success story. All three are now among the highest-compensated of the executives of the largest publicly traded companies in the Valley.
``Most of those people who had to leave would probably write Idi a thank-you note today,'' says Shah. ``At the end of the day, what opened up to them was a much bigger opportunity.''
Fueling the rapid growth of Smart Modular Technologies is an enormous increase in demand for memory, as computers and other electronic equipment has become speedier and more sophisticated.
``Demand for memory is growing,'' says Amy Chesek Lubas, an analyst at S.G. Cowen Securities Corp. in Boston, because the average number of memory modules is increasing ``in everything from personal computers, to consumer products such as digital cameras, to high-end telecommunications equipment.''
Shah and Krishnan figured out a business plan that would allow them to tap this huge demand, but primarily as a design specialist, not a manufacturing operation that can end up with low margins. And with Krishnan, a chartered accountant by training, as the chief financial officer, the company crunched costs -- by always buying used furniture, for example.
``We became profitable in the second month of operation,'' Krishnan says. ``Our profits have grown steadily ever since, and sales have grown from $3 million in 1989 to a run rate of $1 billion this year.''
Smart Modular still makes most of its money -- about 85 percent of sales -- from memory modules for computers, communications gear, industrial control, medical, storage and printing equipment. But it has over the years diversified into making communications products, such as wireless modems. It also designs and makes embedded boards, which go into various networking and other specialized devices. Its customers include Compaq Computer, Apple Computer, IBM, Hewlett-Packard, Cisco Systems, Lucent Technologies and 3Com.
Before starting the company, Shah tried to persuade his then-employer, Samsung Semiconductor, to get into the memory-module business, but Samsung wasn't interested. So Shah, Krishnan and Patel decided to launch their own business.
What happened to them, with what was seen as a low-margin, unexciting business trying to shop for financing in the much tougher environment of a decade ago, is a complete contrast to the lavishly-funded, ``cool idea'' Internet start-ups of today. They couldn't raise any venture capital.
``A business plan about memory modules wasn't sexy enough,'' Krishnan said. ``And also, we were only looking for about $500,000. That didn't seem enough money to them.''
So the trio went the traditional way: they bootstrapped. Krishnan's father, a banker, helped them raise money from a network of Indians who had left East Africa, and they used their own savings to set up shop in 1988.
Quickly finding customers -- including Shah and Patel's old employer, Samsung -- Smart Modular prospered. It went public in November 1995.
The company builds its memory modules and cards by mounting standard memory chips on miniaturized circuit boards. It does the design, manufacturing and testing.
``We focus on the value-added design and manufacturing,'' Shah says. ``We didn't ever try to control the supply of raw memory, which are a commodity item.''
In addition to the Fremont headquarters, the company opened a design center in Bangalore, India, and set up more manufacturing centers in Puerto Rico, Scotland and Malaysia. ``We believe in manufacturing wherever our customers are,'' Shah said.
Analysts say that because the company doesn't ever own the actual chip, it is less-exposed to swings in the chip market than some of its competitors.
``They found a way to take their products to market that eliminates their memory-chip pricing exposure,'' says J. Keith Donne, an analyst at BancBoston Robertson Stephens in San Francisco. ``The chip is stocked on site, but it is owned by the maker of the device until they pull it from stock. It becomes a pass-through item without inherent risk.''
Even though the market last year was volatile and the company had a tough year, it still managed to post increases in both sales and profit. Net sales in the company's 1998 fiscal year reached $714.65 million, up from $163.8 million in fiscal 1994. Net income grew from $6.2 million to $51.48 million during that same period.
S.G. Cowen's Chesek Lubas has a buy rating on Smart Modular's stock, but adds two key caveats. ``About 62 percent of Smart Modular's sales come from Compaq,'' she says, and Compaq is going through turmoil as the company struggles to find a new chief executive and boost its online selling effort.
Lubas says that new memory-chip technologies are expected late this year, and there may be an intervening period of uncertainty and a memory-chip shortage midyear.
Management has remained relatively stable over the years. Shah still is the chief executive officer. Krishnan, who started out as chief financial officer, then became vice president of business development, is now vice president of human resources. Krishnan last year cashed in some stock options. Her total compensation was $3.9 million, which made her the highest-compensated woman executive among the largest publicly traded companies in the Valley.
One change, though, is that Patel earlier this year stepped down from running the memory-module product line to become a consultant.
In March the company hired Keith McDonald, a senior vice president of sales and marketing at Samsung Semiconductor, as president.
Krishnan still remembers what she describes as the strong racial prejudice against Indians in London, compared to the much more open attitudes she found when she first came to California.
``Indian entrepreneurs have been very successful here, and it should be an important part of their strategy to give back to the community. There are so many vehicles to do that.''
The company contributes to schools in all its locations. In Fremont, it has donated a computer lab to Irvington High School. Shah and Krishan also have provided scholarships for college students. Krishnan is on the board of the San Jose Tech Museum of Innovation and the Children's Discovery Museum.
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 Intl. & NRI News |