INTC Intel Corporation

By Jacky Wong 

Go big or go home. That's the reason for deals in the memory-chip market.

Memory-chip makers Micron and Western Digital are weighing bids to buy rival Kioxia, which could value the Japanese company at around $30 billion, according to people familiar with the situation. Kioxia, formerly Toshiba Memory, is the second-largest maker of NAND flash memory, used in storage, according to Trendforce.

Consolidation in the capital-intensive industry is inevitable. Total capital expenditure for the memory-chip business in 2020 amounted to $39.3 billion, more than a third of the total for the semiconductor industry, according to IC Insights. Spreading that enormous fixed investment over a larger volume helps lower costs. Fewer players in the industry also means better pricing power and more disciplined spending.

Similar consolidation has already happened in another corner of the memory-chip market. In DRAM, used for processing, three companies-- Samsung Electronics, SK Hynix and Micron--have nearly all of the market.

Toshiba, which owns 40% of Kioxia, gained 5% Thursday, but SK Hynix also went up 6%, probably because a more consolidated market benefits everyone remaining.

SK Hynix's $9 billion purchase of Intel's NAND flash memory business announced in October kicked off the wave. The combination will transform SK Hynix into the second-largest supplier in the NAND market in 2020--the two together had 21% market share in 2020. That has put pressure on smaller players like Western Digital or Micron to pursue deals to expand their scale.

For Kioxia, the deal offers a price too good to refuse. The Japanese company failed to list its shares in Tokyo in September at a valuation of $16 billion. The company blamed the pandemic and stock-market volatility, but investors probably snubbed the deal because the valuation was seen as too high. Market sentiment has improved since then: Micron and SK Hynix have both gained more than 60%. But Kioxia is likely worth much more as part of a rival's empire than it would be if it tried to list again as a stand-alone player.

Western Digital, which has a joint venture with Kioxia, looks like a natural buyer. But Micron, bigger and more financially sound, could potentially proffer a better bid. Micron's market value is five times that of Western Digital, and it is sitting on net cash and generates higher operating cash flow.

Assuming some sort of deal goes ahead, whoever fails to buy Kioxia would become the smallest player in the NAND flash industry, pitted against three much bigger players--a precarious and probably untenable place to be.

An intense fight for the prize is all but guaranteed.

Write to Jacky Wong at JACKY.WONG@wsj.com

(END) Dow Jones Newswires

April 01, 2021 04:53 ET (08:53 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.