According to Reuter’s report, the merger negotiations between Western Digital and Japan’s Kioxia Holdings have been terminated as the two companies could not reach an agreement on the terms. This potential merger aimed to create one of the largest memory chip manufacturers globally but faced obstacles in its path.

Notably, South Korea’s SK Hynix, a significant investor in Kioxia, expressed its opposition to the deal, citing concerns about its impact on investment asset value.

TrendForce’s Insights:

While the merger talks between Western Digital and Kioxia faced obstacles, primarily involving a major shareholder, SK Hynix, and disagreements over the acquisition price, it is still anticipated that such acquisitions will eventually materialize. This expectation is rooted in the broader context of the NAND Flash industry.

NAND Flash global demand has seen a decline in its growth rate, shifting from approximately 30% before 2020 to around 20% in recent years. Furthermore, TrendForce’s data reveals that in 2023, all NAND Flash suppliers have experienced their most significant operating losses since 2014. Given these challenges, NAND Flash suppliers are compelled to explore strategies to sustain their competitiveness in a changing industry landscape.

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• After a Low Base Year in 2023, DRAM and NAND Flash Bit Demand Expected to Increase by 13% and 16% Respectively in 2024, Says TrendForce

Is the merger between NAND flash memory chipmakers Kioxia and Western Digital (WD) , which was expected to be finalized this month, facing a twist? According to media reports, South Korean memory giant SK Hynix is opposing this merger and is considering a collaboration with Japan’s SoftBank to invest in Kioxia.

As reported by Yomiuri Shimbun on the 18th, insiders reveal that the merger negotiations between Kioxia and WD might be at an impasse. Although both sides aimed to reach a merger agreement this month, SK Hynix, which plans to indirectly invest in Kioxia, doesn’t concur with the merger. In anticipation of negotiations collapsing, SK Hynix considers partnering with SoftBank to invest in Kioxia.

Kioxia, a spin-off from Toshiba’s memory business, was sold in 2018 to a Bain-Capital-lead consortium, including SK Hynix, and Hoya. At that time, regulations stipulated that the largest shareholder, Bain, must secure the consent of contributors like SK Hynix to promote this merger. It’s reported that SK Hynix is apprehensive that WD’s dominance will increase in this merger.

Reports suggest that SoftBank is currently bolstering its AI-related ventures. Therefore, by investing and enhancing relationships, SoftBank may secure a stable memory supply from Kioxia and SK Hynix.

Throne Shift for memory business? Mergers May Reshape Rankings

Nikkei reported on the 17th that SK Hynix does not approve of the Kioxia and WD merger. At this stage, SoftBank is not directly involved in the merger talks between Kioxia and WD. Kioxia and WD aim to secure a financing agreement with financial institutions this week to facilitate the merger. However, the lack of consent from SK Hynix may impact negotiations with financial institutions.

The report points out that in the NAND flash market, SK Hynix is the world’s second-largest manufacturer, trailing only Samsung. If Kioxia, the world’s third-largest manufacturer, and WD, the fourth-largest, were to merge, they would nearly match Samsung’s scale. This would create a significant gap between SK Hynix, which holds the third position, and raise concerns for SK Hynix.

Toshiba, currently holding approximately 40% of Kioxia, will also become a shareholder in the holding company, with Kioxia’s President, Nobuo Hayasaka, assuming the role of President for the holding company. Additionally, Kioxia will have the majority of seats on the board, granting substantial operational authority

According to data from TrendForce, In Q2 2023, Samsung leads the NAND memory market with 31.1% market share, while Kioxia holds 19.6%, and Western Digital has 14.7%. After the Kioxia-WD merger, their combined market share could exceed 34.3%, establishing them as the dominant force in the NAND memory market.

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• Q2 NAND Flash Revenue Up 7.4%, Anticipated to Exceed 3% Growth in Q3, Says TrendForce

(Image: SK Hynix )

As reported by multiple Japanese media, including Kyodo News, Nikkei, and Asahi Shimbun on the 13th and 14th of this month, negotiations for the merger between NAND flash memory giants Kioxia and Western Digital have reportedly reached the final stages. There is a high likelihood that a merger agreement will be reached within this month, and the newly merged company is expected to be listed on the NASDAQ in the United States. Additionally, the board of the new company will be predominantly controlled by Kioxia.

The primary objective of this business merger is to prepare for the uncertain conditions in the storage market. By expanding their scale and positioning for future investment competition, they aim to fortify their competitive edge.

Specifics of the Agreement are Still under Review

According to the reports, Kioxia and Western Digital will establish a holding company, KIOXIA Holdings. Western Digital’s storage business and Kioxia will be incorporated under this holding company, focusing on the research and production of NAND Flash. It’s worth noting that Western Digital’s hard drive business will remain an independent entity and will not be part of this transaction.

In terms of the merger’s enterprise value-based breakdown, Kioxia will hold 63%, and Western Digital will hold 37%. However, after considering capital adjustments, the final investment ratio in the holding company will be 50.1% for Western Digital shareholders and 49.9% for Kioxia shareholders.

Toshiba, which currently holds around 40% of Kioxia, will also become a shareholder in the holding company. The President of Kioxia, Nobuo Hayasaka, will assume the role of President of the holding company. Furthermore, the majority of seats on the board will be under Kioxia’s control, granting Kioxia substantial operational authority.

Factors and Potential Roadblocks in Kioxia and Western Digital Merger

Previously, it was reported that the headquarters of the holding company would be located in Japan. However, in order to facilitate fundraising for equipment investments, they plan to be listed on the NASDAQ in the United States. Furthermore, there are future plans for a listing on the Tokyo Stock Exchange. When Kioxia and Western Digital merge, Japan’s three major banks, including Mitsubishi UFJ, and the Japan Policy Investment Bank are considering providing financing in the range of 1.5 to 1.9 trillion Japanese yen.

However, the reality of this merger presents challenges, as influential industry competitors may potentially interfere. The finalized agreement will be subject to antitrust reviews in various countries, and the outcome of scrutiny by Chinese antitrust authorities remains uncertain.

According to data from TrendForce, in the Q2 of 2023, in the NAND memory market, Samsung leads with a market share of 31.1%, while Kioxia holds 19.6% and Western Digital maintains a 14.7% market share. Following the merger of Kioxia and Western Digital, their combined market share may exceed 34.3%, positioning them as the dominant force in the NAND memory market.

Read more:

• Q2 NAND Flash Revenue Up 7.4%, Anticipated to Exceed 3% Growth in Q3, Says TrendForce

Due to factors such as high inflation, sluggish demand in the consumer electronics sector, and other influences, the memory market has experienced a downturn. Major manufacturers like Kioxia and Micron began reducing capacity in the fourth quarter of the previous year, and in 2023, Samsung announced its entry into the production reduction trend. However, as market demand continues to weaken, the memory market in 2023 has yet to show signs of recovery, with prices continuing to decline and manufacturers facing operational pressure.

In this context, some memory manufacturers are hoping to stabilize prices and rebalance market supply and demand by continuing to reduce production.

According to reports from Taiwan’s media The Commercial Times,” DRAM manufacturer Nanya Technology is following the footsteps of major players by adjusting production capacity, lowering utilization rates, flexibly adjusting product portfolios and capex, and dynamically adapting to customer demands and market changes to cope with the weak market conditions. It is expected that production capacity will be adjusted dynamically, with reductions of up to 20%.

Previously, TrendForce’s research showed that due to DRAM suppliers initiating production cuts one after another, overall DRAM supply bits have decreased quarter by quarter. Coupled with seasonal demand support, this has eased the pressure on supplier inventories. It is expected that the price decline in the third quarter for DRAM will converge to around 0-5%. However, due to the fact that supplier inventories remain high throughout the year, there is still significant pressure for DRAM prices to bottom out and rebound, with the actual stabilization and recovery likely to occur in 2024.

As for NAND Flash, recent surveys by TrendForce indicate that, in response to the continued weakening demand, Samsung has announced an increase in production cuts starting from September, with reductions mainly focused on processes below 128 layers. Other suppliers are expected to follow suit and expand production cuts in the fourth quarter to accelerate inventory reduction.

As NAND Flash manufacturers expand their production cut efforts, TrendForce estimates that NAND Flash prices in the fourth quarter are expected to remain stable or see a slight increase, with an estimated increase of approximately 0-5%. However, if the upward trend in NAND Flash prices is to continue into 2024, it will still rely on sustained production reductions, as well as the observation of whether Enterprise SSD purchase orders will see a significant resurgence.

(Photo credit: Micron)

According to TrendForce research, demand continues to weaken due to modestly high inventories maintained by buyers and sellers, coupled with the recent impact of the Russian-Ukrainian war and rising inflation on PCs, laptops, and smartphones. However, overall NAND Flash supply has been significantly downgraded in the wake of raw material contamination at Kioxia and WDC in early February, becoming the key factor in a 5~10%  NAND Flash price appreciation in 2Q22.

In terms of Client SSD, the Russian-Ukrainian war has compelled PC OEMs to adopt a conservative stocking strategy for orders in 2Q22, which may continue affecting orders during peak season in 2H22, and revising 2022 shipment targets downwards. This year, SSD output has officially stepped out from the shadow of the semiconductor shortage. As Kioxia’s production capacity gradually recovered to supply SSD products in May and production capacity continues to roughly meet customer demand, suppliers have adopted a more aggressive pricing strategy. Price growth in 2Q22 is forecast to moderate to 3~8% compared with original expectations.

In terms of Enterprise SSD, as procurement capacity and orders for servers and hyperscale data centers grow and lead times on Enterprise SSD products balloon due to material contamination at Kioxia and WDC, clients immediately turned to Samsung and Solidigm looking for supply. Since the supply of PCIe 4.0 products is limited, suppliers have adopted a tough price negotiation policy which will drive the price of enterprise SSD up by 5~10% in 2Q22.

In terms of eMMC, demand for consumer products such as TVs, Chromebooks, and tablets continue to weaken, limiting demand for low- and medium-capacity eMMC products to a marginal level. Although the primary supply of low-capacity 2D NAND output has yet to be affected by raw material contamination, the overall deal-making atmosphere of the market remains transformed by the contamination incident. In addition, the plan of suppliers to gradually reduce 2D production capacity has not changed. Therefore, suppliers are eager to maintain profits by increasing the price of relatively low capacity eMMC products. eMMC contract pricing in 2Q22 is forecast to rise by 3-8%.

In terms of UFS, the Russian-Ukrainian war, high inflation, and other factors have weakened demand for the most important UFS applications such as smart phones. Likewise affected by the contamination of raw materials, the total output of 3D NAND has been significantly reduced. For UFS products with larger capacity and higher layer counts, the downgrade in supply far outstrips movement on the demand side. UFS pricing in the 2Q22 is forecast to increase approximately 3~8%. In terms of NAND Flash wafers, although demand for products such as flash drives and memory cards is weak, these are low priority products in the supply chain. Since raw material contamination has seriously affected the supply of NAND Flash wafers. 3D NAND Prices are forecast to move upwards by 5%~10% in 2Q22.