Kioxia is a Must-Have for Both Western Digital and Micron -- Heard on the Street
By Jacky Wong
Go big or go home. That's the reason for deals in the
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
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
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)
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