Western Digital, Kioxia could be talking merger

Hard disk giant Western Digital and Japan-based Kioxia Holdings are said to be in advanced talks to merge in a deal that could be valued at over $20 billion.

Citing unnamed sources familiar with the matter, The Wall Street Journal said a deal could be reached as soon as mid-September. It would be a stock transaction and current WD CEO David Goeckeler would be CEO of the combined company.

This is not the first time there has been talk of a potential merger for Kioxia. In March, the Journal reported that both Western Digital and memory manufacturer Micron were looking at a possible acquisition of Kioxia in a deal that might have been valued at about $30 billion.

Which begs the question of how did Kioxia lose $10 billion in value in the last five months? Kioxia was planning to go public last year but cancelled the IPO due to issues surrounding Covid. And The Journal notes Kioxia could still go public and scuttle the deal.

Kioxia was known as Toshiba Memory until the name change in 2019. It is the leading supplier of memory and SSD technologies, including NAND flash memory, NAND with integrated controllers, managed flash with ECC memory, and 3D BiCS FLASH technology. The company claims to have invented flash memory in 1987. It serves both consumer and enterprise products.

The merger would give Western Digital access to top flash memory and SSD technologies, even more than it has now. Don’t forget, WD bought SanDisk a few years ago. The two companies already have a flash joint venture and Kioxia would give WD sole ownership. Which means there is a good chance Kioxia customers will throw a fit much like Arm licensees are objecting to the Nvidia merger.

The deal would also benefit WD at a time when the US government and IT industry are both looking at ways to reduce reliance on overseas suppliers. Granted Kioxia is based in Japan, but the US has a much friendlier relationship with Japan than China.

According to the most recent figures from TrendForce, the memory-market analyst firm, Kioxia has an 18.3% share of the NAND flash market, while Western Digital has 14.7%. The merged company would be right behind market leader Samsung, which currently has a 34% share.

If the deal goes through, that means the NAND flash market consolidates from six players to four; South Korea’s SK Hynix, with 12.3% market share, is in the process of buying Intel’s flash business, which has 6.7% share. And consolidation is rarely good for prices. Maybe for the vendor, but the customer loses with less choice.