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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(Image: SK Hynix )

According to TrendForce research, corporate demand for digital transformation including artificial intelligence and high-performance computing has accelerated in recent years, which has led to increasing adoption of cloud computing. In order to improve service flexibility, the world’s major cloud service providers have gradually introduced ARM-based servers. The penetration rate of ARM architecture in data center servers is expected to reach 22% by 2025.

In the past few years, ARM architecture processors have matured in the fields of mobile terminals and Internet of Things but progress in the server field has been relatively slow. However, companies have diversified cloud workloads in recent years and the market has begun to pay attention to the benefits ARM architecture processing can provide to data centers. TrendForce believes that ARM-based processors have three major advantages. First, they can support diverse and rapidly changing workloads and are more scalability and cost-effective. Second, ARM-based processors provide higher customization for different niche markets with a more flexible ecosystem. Third, physical footprint is relatively small which meets the needs of today’s micro data centers.

Influenced by geopolitics and the strengthening of data sovereignty in various countries, major cloud service providers and telecom operators are actively developing micro data centers which will further drive the penetration of ARM-based processors. At the same time, from the perspective of cloud service providers currently adopting ARM-based processors, Graviton, led by AWS, has the largest market scale and began encroaching gradually into the market in 2021. TrendForce also observed that AWS’s deployment of ARM-based processors in 2021 reached 15% of overall server deployment and will exceed 20% in 2022. This forces other major cloud service providers to keep up by initiating their own projects at various foundries. If testing is successful, these projects are expected to start mass introduction in 2025.

In addition, according to the Neoverse Platform plan previously released by ARM, its Platform Roadmap will also be one of the key drivers of penetration. This product line is set up to target ultra-large-scale data centers and edge computing infrastructure. However, it is worth mentioning, since x86 is still mainstream in the market and ARM-based server CPU suppliers only maintain small-batch production orders at this stage and primarily focus on ultra-large-scale data centers, introduction of ARM-based servers into enterprise data centers will be slow going. Thus, TrendForce believes that it will still be difficult for ARM-based servers to compete with x86-based servers before 2025.