Merger Talks Underway Between Kioxia and Western Digital
Merger negotiations are currently taking place between Japan’s Kioxia, the world’s second-largest NAND flash semiconductor company, and US-based Western Digital, the fourth-largest player in the sector. There are speculations that the two companies are on the verge of integration as Kioxia seeks to secure merger funds.
If successful, this combination would enable the new entity to surpass Samsung Electronics and claim the top spot in the NAND market. Such a development would undoubtedly have a seismic impact on the semiconductor industry. However, both companies must first overcome the challenge of obtaining approval from regulatory authorities.
According to reports from the Japan Times and Bloomberg on the 27th of October, Kioxia and Western Digital are preparing to establish a joint holding company, with investment ratios of 49.5% and 50.5%, respectively. To facilitate this integration, Kioxia has requested a loan of up to 2 trillion yen (approximately 18 trillion won) from three Japanese banks, including Sumitomo Mitsui Bank. Additionally, Kioxia’s major shareholder, Bain Capital, is considering reinvesting 500 billion yen in capital funds. With such financial arrangements underway, industry observers predict that the merger process has already commenced.
Potential Merger Motivated by Challenging Market Conditions
The news of this potential merger has regained significance due to the recessionary conditions prevailing in the memory semiconductor market. These two companies engaged in merger talks in 2021, which ultimately collapsed due to differences in valuation and other matters.
However, the talks resumed last year amid rising interest rates and a decline in global semiconductor demand. This renewed interest can be attributed to the growing importance of a company’s size in withstanding losses as semiconductor prices continue to decrease.
Statistical data from market research company Trend Force indicates that, as of the second quarter, Kioxia holds a market share of 19.6%, while Western Digital commands a share of 14.7%. The combined share already surpasses that of Samsung Electronics, which stands at 31.1%.
The NAND market, still experiencing sluggish demand, observed a decline in average selling prices (ASPs) of 10-15% compared to the previous quarter. Webfit Research, another market research firm, projects that the NAND market for this year will amount to only $34.6 billion (about 46.8 trillion won), a substantial 43% decrease compared to the previous year.
Regulatory Hurdles and the Role of Japan
While both companies exhibit the will to merge, the decision ultimately rests in the hands of regulatory authorities in the United States, Japan, and China. Of particular importance is the approval process in Japan.
Some experts speculate that in an era dominated by semiconductor powerhouses, Japan may face challenges in granting permission for the merger and acquisition (M&A) involving Kioxia, the only memory semiconductor company in the country.
Increasingly, semiconductor nationalism has gained strength globally as countries view the technology not only as an economic asset but also as a matter of national security. Consequently, semiconductor companies seeking to expand their market presence through M&A may find it difficult to navigate the regulatory review threshold.
Previous instances, such as MagnaChip’s failed attempt to sell the company to a Chinese private equity fund, thwarted by US government opposition, and NVIDIA’s unsuccessful bid to acquire ARM, the UK’s largest semiconductor design company, serve as examples of the challenges faced in this space.
Overall, industry insiders acknowledge that the successful merger of Kioxia and Western Digital would undoubtedly bring about a tectonic shift in the memory semiconductor industry. However, the approval process in Japan, where the government’s intervention in the semiconductor industry has been both facilitative and restrictive in the past, is anticipated to be far from straightforward.
Reporter: Min Hye-jeong (hye555@inews24.com)
[아이뉴스24 민혜정 기자] Merger talks are ongoing between Japan’s Kioxia, the world’s second-largest NAND flash semiconductor company, and US-based Western Digital, the fourth-largest. As Kioxia tries to secure merger funds, there is also speculation that the two companies are on the verge of integration.
If the combination of these companies is successful, it will be possible to surpass Samsung Electronics and become the world’s No. 1 in NAND. This is an event that will cause a seismic shift in the semiconductor industry. Of course, for this to happen, both companies must overcome the hurdle of review for approval by regulatory authorities.
According to the Japan Times and Bloomberg on the 27th, Kioxia and Western Digital are preparing to establish a joint holding company with an investment ratio of 49.5% and 50.5%, respectively. For this integration, Kioxia requested a loan of up to 2 trillion yen (about 18 trillion won) from three Japanese banks, including Sumitomo Mitsui Bank. In addition, Bain Capital, Kioxia’s majority shareholder, is considering a plan to reinvest 500 billion yen in capital funds. With Kioxia raising money in this way, there are predictions that the merger of the two companies has begun.
A view of the Kioxia K1 semiconductor factory. [사진=키옥시아 ]
The news of the merger of the two companies has become serious again due to the recession in the memory semiconductor market. The two companies held merger talks in 2021, but they fell through due to differences of opinion on valuation and other issues.
The broken-down talks started again last year as interest rates rose and global demand for semiconductors fell. This is because as semiconductor prices fall, the size of a company that can withstand losses becomes more important.
According to market research company Trend Force, the market shares of the two companies are 19.6% for Kioxia and 14.7% for Western Digital as of the second quarter. If you simply add it up, it surpasses Samsung Electronics (31.1%).
Due to the still slow demand in the NAND market, the average selling price (ASP) in the second quarter decreased by 10-15% compared to the previous quarter. Webfit Research, another market research firm, predicted that this year’s NAND market will be only $34.6 billion (about 46.8 trillion won), a 43% decrease from the previous year.
However, the merger of two companies cannot be decided solely on the basis of the will of the companies. Permission is required from all countries, including the United States, Japan, and China. In particular, permission from Japan is key.
Some predict that in the era of semiconductor hegemony, it will be difficult for Japan to allow the merger and acquisition (M&A) of Kioxia, the only memory semiconductor company.
Semiconductor companies are actively pursuing M&A to expand their market presence, but they cannot pass the regulatory review threshold. This is because semiconductor nationalism is becoming stronger as all countries consider semiconductors to be a security asset beyond technology.
MagnaChip attempted to sell the company to a Chinese private equity fund, but the sale was canceled due to the US government’s opposition to the plan. NVIDIA also tried to acquire ARM, the UK’s largest semiconductor design company, but failed.
An industry official said, “If the merger of the two companies goes through, a tectonic shift is expected in the memory semiconductor industry,” but he also added, “It won’t be easy for the Japanese government, which has given its life once again. and death in the semiconductor industry, to approve this merger.”
/Reporter Min Hye-jeong (hye555@inews24.com)
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