Western Digital and Kioxia Restart Merger Talks

Western Digital Corp. has restarted talks with Japan's Kioxia Holdings Corp. in a deal that could combine the two technology storage suppliers, according to people familiar with the matter.

While the structure of the potential deal remains fluid, the two sides are discussing a merger into a public company, the people said on condition of anonymity. The current discussions, which resumed late last year, are still in their early stages and could end without a deal, the people said.

As early as 2021, there were reports of negotiations between the two companies, but in the end they failed to finalize a deal that could be as large as $20 billion. Kioxia had considered an initial public offering of shares in 2021, but its president Nobuo Hayasaka said in October last year that he had no IPO plans in the short term.

It is understood that Western Digital, headquartered in San Jose, California, has fallen 51% in the past year and has a market value of about $10 billion. While its revenue for the quarter ended Sept. 30 fell to $3.7 billion from about $5.1 billion a year earlier, net income fell to $34 million from $636 million in the period.

Kioxia, formerly known as Toshiba Memory, was sold by Toshiba Corporation for US$18 billion in 2018 to a consortium led by US private equity firm Bain Capital.

Demand for memory chips has plummeted as major markets (computing and smartphones) have cooled. Western Digital has also been hit by plunging demand for computer components and is expected to post a loss in 2023, according to estimates.

Market interpretation believes that in this environment, companies will face increasing pressure and need to join forces to better compete with Samsung Electronics. If Kioxia and Western Digital merge into one company, the global NAND memory shipments will keep pace with the leading Samsung, and it is expected to compete with Samsung Electronics in the future to reorganize the NAND Flash layout.

"This will create a company with significant scale in NAND flash memory and can structurally improve the broad NAND market. The combined NAND revenue share will reach 33%, comparable to market leader Samsung," the analyst said.

Currently, Samsung dominates the memory industry and has more resources to deal with the soaring costs of building cutting-edge production facilities.

Western Digital and Kioxia declined to comment on the news.