Western Digital closing in on merger with Kioxia

Disk drive and SSD maker Western Digital is said to be in advanced merger talks with Kioxia, in a deal that may close as soon as mid-September.

The news comes from a report in The Wall Street Journal, which claims that long-running discussions between the companies have “heated up” in the past few weeks. The talks may be leading up to a deal likely to be valued at more than $20 billion and see further consolidation in the global chip industry.

Earlier in the year Blocks & Files reported that both Micron and Western Digital were considering bids for Kioxia, formerly known as Toshiba Memory Corporation. It now appears that Micron is out of the running, leaving Western Digital — which already has a joint venture with Kioxia for the manufacture of NAND flash chips — to press ahead.

However, the WSJ cautions that there is no guarantee that Western Digital will manage to seal an agreement, and Kioxia could instead opt for an initial public offering it had previously been planning, or take a different path. Kioxia was set to IPO in August 2020, but this was called off due to the pandemic and issues with US-China trade restrictions.

Any such merger would also need to be approved by the Japanese government before it would be allowed to go ahead, and governments around the world are becoming increasingly concerned about foreign takeovers of tech companies.

Because of the NAND flash joint venture Western Digital has with Kioxia, the merger would give it sole ownership. According to 2Q21 figures from TrendForce, Kioxia has an 18.3 per cent share of the NAND flash market, while Western Digital stands at 14.7 per cent. A merged company would theoretically come within spitting distance of market leader Samsung, which currently has a 34 per cent share.

According to Wells Fargo analyst Aaron Rakers, this would be seen as a good outcome in the industry.

“Consolidation in the cyclical NAND flash industry will likely be viewed as a positive. The combined WD + Toshiba would account for around 30 per cent to 35 per cent of NAND flash industry bit production and revenue,” he stated.

There is also an expectation that acquiring Kioxia and taking sole ownership of the NAND flash joint venture will allow Western Digital to improve its execution in enterprise SSDs, according to Rakers. It remains to be seen if this will happen.