WDC/Kioxia And NAND Flash Industry Consolidation

A recent Bloomberg article, citing knowledgeable sources said that Western Digital will combine its NAND flash business with Kioxia. WDC and Kioxia share a common NAND roadmap and manufacturing facilities. The report says that WDC would gain control of a bit more than half of the joined company with management by Kioxia and likely some people from WDC.

The agreement on a merger is expected by August 2023 with the resulting company based in Japan. Bain Capital, which is a major investor in Kioxia, would receive a special dividend. Kioxia was spun out of Toshiba in 2018 and Toshiba is still a major investor in Kioxia.

Analyst firm TrendForce said that Kioxia had a 21.5% share of the NAND memory market in Q1 2023 with WDC having a 15.2% share. Combined this would represent 36.7% market share, larger than Samsung at 34%. However, storage market share tends to drop with vendor mergers as customers try to rebalance their purchases between the remaining vendors.

The most recent NAND flash industry merger, with SK hynix acquiring Intel’s NAND flash business (announced in 2020 but set to be complete by 2025) had a 15.3% market share in Q1 2023. The other major NAND flash competitor is Micron at 10.3% market share. Other vendors were at 3.9% of the market combined.

Looking at the history of the related HDD industry consolidation in the 2007-2013 time period we can get some ideas about what could happen in the SSD industry. That consolidation resulted in less overproduction and wild HDD price swings and greater profitability in the industry. However it also was coupled to a slowing in the introduction of new technologies and slower of HDD areal density growth.

If WDC and Kioxia’s NAND flash business combine that would leave 4 major competitors in the NAND flash market: Samsung, Kioxia/WDC, SK hynix/Solidigm and Micron. At this level of consolidation there could be significant changes in the industry going forward. Fewer competitors should result in somewhat more controlled investment in new manufacturing facilities.

However, WDC and Kioxia shared their development and manufacturing facilities so this particular merger might not follow this trend, although centralized management for the two operations would result in one less independent decision-making process.

More efficient facility expansion, coordinated by fewer players, could reduce the boom-and-bust cycles in the NAND flash industry, where during good years, with profits coming in, the players all build new production facilities and when these come on-line within about 2 years, production exceeds demand and prices fall, resulting in low or no profit quarters.

This trend was worse over the last year with a bust during the same time as there was a major readjustment in demand following the COVID pandemic (for enterprise and data center users in particular who have spent several quarters using up excess inventory acquired when supply chains were uncertain).

Fewer players could also reduce the level of price competition in the industry, where players aggressively pursued market share, although I expect that it will take elimination of at least one more major NAND flash manufacturer to significantly reduce this price competition. More stable and gradual reduction in prices, following new higher density storage nodes will be more sustainable and result in higher profits for the remaining industry players.

However, an actual merger between Western Digital and Kioxia’s NAND flash business is not a done deal yet and, as pointed out in past articles there are reasons why it might not happen. Time will tell if these latest rumors of an agreement to merge these businesses will occur.

Rumors continue about a WDC and Kioxia NAND flash business merger with a Bloomberg article suggesting an agreement could come by August 2023. If so, this will impact the rest of the NAND flash business, resulting in additional consolidation and industry maturity.