Japanese 3D NAND maker Kioxia has proposed a deal to its investor SK Hynix, which also happens to be its 3D NAND maker competitor from South Korea, inviting it to produce non-volatile memory at its Kioxia plant in Japan, according to the news agency. The move is aimed at getting SK hynix to change its mind about Kioxia's merger plan with Western Digital. At the same time, it remains to be seen whether SK hynix will be interested in this.
Talks between Kioxia and Western Digital came to a standstill last year when South Korean company SK hynix expressed opposition to the formation of a large 3D NAND memory chip conglomerate by U.S. and Japanese companies. SK hynix has a reason to stop merging because Kioxia and Western Digital will create a much larger company than SK hynix.
To overcome this obstacle and gain support from SK Hynix, Kioxia proposed to allow SK Hynix to use a 3D NAND factory in Japan jointly operated by Kioxia and Western Digital for chip production. The strategic offer is intended to pave the way for the approval of the merger, which will ultimately create a major player in the global 3D NAND memory chip market.
With some additional capacity in Kioxia, SK hynix can significantly increase its 3D NAND memory production without having to invest in expanding its fab or building a new one, which seems to be an attractive deal. At the same time, the financial terms of such transactions are completely unknown.
Based on the market share of the third quarter of 2023 tracked by TrendForce, the combined Kioxia and Western Digital companies will control approximately one-third of the global 3D NAND market revenue (31.).4%) This is significantly higher than SK hynix's 202% share, with Samsung 31A share of 4% is equivalent. At the same time, even if some of Kioxia's (or the combined entity's) production capacity is transferred to SK hynix, the new company is likely to be larger than the South Korean storage giant, which is why the latter may still see it as a significant threat.
It should be noted that neither Kioxia nor SK hynix have confirmed the discussion about capacity, so this information should be taken with a grain of salt.
SK hynix confirmed its opposition to the merger of Western Digital and Kioxia
SK hynix confirmed its opposition to the merger of Japan's Kioxia and the U.S. at the end of October, adding more uncertainty to the landmark deal that has been years in the making.
Earlier this month, it was reported that SK hynix opposed the merger and was considering a partnership with Japan's SoftBank Group to invest in Kioxia. SK hynix later issued a statement saying that the content of the report "does not correspond to the facts." ”
But SK hynix's chief financial officer, Kim Woohyun, told analysts at a conference after the earnings release on Thursday that the deal undervalues its stake in Kioxia and that SK hynix "does not currently agree to the deal" given the impact on the overall value of the company's investment in Kioxia.
Western Digital and Kioxia have been discussing a possible merger for years, but the discussion has revolved around issues of control, leadership, economics and politics. In theory, merging the two companies will help the two companies compete with the biggest players in the memory chip industry.
The two companies are now looking to conclude talks this month and hope to announce the deal ahead of Western Digital's Oct. 30 earnings report. Kioxia has approached Japan Investment Corp to inject capital to expedite the deal.
When a consortium led by Bain Capital acquired a controlling stake in Kioxia from Toshiba Corporation, SK hynix became an indirect shareholder of Kioxia. It is unclear how SK hynix's opposition will affect the outcome of the acquisition.
Bain Capital and Kioxia are working on a solution that could still be announced despite opposition from SK hynix, according to people familiar with the matter. While many people said that SK hynix did not have veto power over the deal, others said that SK hynix, as a major investor, must obtain its consent.