Analysis The NAND fab joint venture between Western Digital and Kioxia is facing strain as both parties go through foundational changes. Private equity-owned Kioxia is pursuing an IPO, and Western Digital is spinning off its NAND and SSD business.
Toshiba Memory Systems formed a joint NAND manufacturing venture with SanDisk in 2000. Disk drive-dominated WD bought its way into the NAND and SSD business when it acquired SanDisk for $19 billion in 2016. It bought various other NAND technology-based businesses, but SanDisk was and is the core of its NAND operations.
Kioxia came into being when Toshiba, then in dire financial straits, sold off 60 percent of its Toshiba Memory Systems business to a Bain-led private equity consortium in 2018. Bain inherited the NAND manufacturing joint venture with Western Digital, and the acquired business was renamed Kioxia in 2019. WD itself made a ¥2 trillion ($18.2 billion) bid for Kioxia when it was being spun off from Toshiba in September 2017. The offer was rejected.
Toshiba still needs cash, and the Bain group needs an exit. A Kioxia IPO would provide that. The IPO should result in a better-capitalized and stable Kioxia business. It has been planned for this month with shares priced at ¥1,455.
On the WD side, and as a result of activist investor Elliott Management’s involvement, the board recognized that virtually all of WD’s stock market value was based on its hard disk drive (HDD) business with investors valuing the NAND and SSD business at zero. Spin it off, the logic went, and its value would be better realized, meaning shareholders could find themselves owning part of a multibillion-dollar asset. WD set about separating the two businesses earlier this year, using the interim “spinco” name for the to-be-spun-off business.
Reacting to the ¥1,455 Kioxia share valuation, Wedbush analyst Matt Bryson points out: “This implies a valuation of slightly over $5 billion, which is modestly ahead of the math we used in our sum of the parts model (which suggested applying a similar EV/S multiple to WDC implies a market cap of slightly over $7 billion). Again, we believe that WD’s current market cap is effectively supported entirely by the HDD division, making any discrete value attached to the NAND business upon a split as likely to represent a net benefit to shareholders.”
The SanDisk part of WD has made an SEC 10-12B filing, necessary when a business is going to register its securities on a US national stock exchange. The final name of the spun-off business has not been disclosed (or possibly decided) yet – we’ll use SanDisk as shorthand – and we think that the spin-off will take place in 2025.
NAND, SSD, and DRAM producer SK hynix is a member of the Kioxia-owning Bain consortium and has previously blocked a potential Kioxia-WD merger. It seems quite possible that an independent Kioxia and SanDisk, linked at the hip by their joint venture, could decide to merge and gain economies of manufacturing scale and more effective and cooperative SSD production, sales, and marketing.
Alternatively, SK hynix could mount a bid for either company. That would effectively produce the largest NAND and SSD business in the world, assuming the JV continued after such a bid. It sure is going to be an exciting 2025 in NAND and SSD manufacturing.
