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Netlist Transforms With High-Margin Bet

As Hong puts it, Netlist now takes low-grade crude oil and turns it into rocket fuel by use of this proprietary engine it has with HyperCloud, rather than turning the low-grade crude into more low-grade commodity parts. "We kept our head down and got out of the commodity stuff. We got into an R&D mode and we were lucky enough to succeed in creating these very valuable, proprietary controller products," he said.

Netlist stands to benefit mostly from the emerging trend of cloud computing. The technology offers computing power and storage via the Internet, allowing the industry to transition to utility computing. Instead of businesses housing a server room and staff of IT people, the trend is to have offsite servers managed by another company.

"The more important trend in the industry, and probably the biggest trend in the IT industry, is the build out of cloud computing," Hong asserts. "HyperCloud plays off the cloud-computing trend, which is going to continue to grow over the next five to six years."

Hong says that as companies push further into cloud computing, data centers owned by Yahoo! (YHOO), Google (GOOG), Microsoft (MSFT - Get Report), IBM and EMC (EMC - Get Report) will need more servers and more memory in those servers.

"A lot of the search applications are memory intensive, like YouTube downloading. That's all driven off of DRAM memory, as opposed to the hard drive," Hong said. "[Customers] need high-density memory at the lowest cost possible. They want that memory to run fast with low power. And that's what our product does."
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