As reported by multiple Japanese media, including Kyodo News, Nikkei, and Asahi Shimbun on the 13th and 14th of this month, negotiations for the merger between NAND flash memory giants Kioxia and Western Digital have reportedly reached the final stages. There is a high likelihood that a merger agreement will be reached within this month, and the newly merged company is expected to be listed on the NASDAQ in the United States. Additionally, the board of the new company will be predominantly controlled by Kioxia.

The primary objective of this business merger is to prepare for the uncertain conditions in the storage market. By expanding their scale and positioning for future investment competition, they aim to fortify their competitive edge.

Specifics of the Agreement are Still under Review

According to the reports, Kioxia and Western Digital will establish a holding company, KIOXIA Holdings. Western Digital’s storage business and Kioxia will be incorporated under this holding company, focusing on the research and production of NAND Flash. It’s worth noting that Western Digital’s hard drive business will remain an independent entity and will not be part of this transaction.

In terms of the merger’s enterprise value-based breakdown, Kioxia will hold 63%, and Western Digital will hold 37%. However, after considering capital adjustments, the final investment ratio in the holding company will be 50.1% for Western Digital shareholders and 49.9% for Kioxia shareholders.

Toshiba, which currently holds around 40% of Kioxia, will also become a shareholder in the holding company. The President of Kioxia, Nobuo Hayasaka, will assume the role of President of the holding company. Furthermore, the majority of seats on the board will be under Kioxia’s control, granting Kioxia substantial operational authority.

Factors and Potential Roadblocks in Kioxia and Western Digital Merger

Previously, it was reported that the headquarters of the holding company would be located in Japan. However, in order to facilitate fundraising for equipment investments, they plan to be listed on the NASDAQ in the United States. Furthermore, there are future plans for a listing on the Tokyo Stock Exchange. When Kioxia and Western Digital merge, Japan’s three major banks, including Mitsubishi UFJ, and the Japan Policy Investment Bank are considering providing financing in the range of 1.5 to 1.9 trillion Japanese yen.

However, the reality of this merger presents challenges, as influential industry competitors may potentially interfere. The finalized agreement will be subject to antitrust reviews in various countries, and the outcome of scrutiny by Chinese antitrust authorities remains uncertain.

According to data from TrendForce, in the Q2 of 2023, in the NAND memory market, Samsung leads with a market share of 31.1%, while Kioxia holds 19.6% and Western Digital maintains a 14.7% market share. Following the merger of Kioxia and Western Digital, their combined market share may exceed 34.3%, positioning them as the dominant force in the NAND memory market.

Read more:

• Q2 NAND Flash Revenue Up 7.4%, Anticipated to Exceed 3% Growth in Q3, Says TrendForce

Despite facing economic challenges and the impact of high inflation, the flash memory market finds itself in a challenging period. Nevertheless, major DRAM manufacturers continue the pursuit of advanced technology.

For DRAM chips, advanced manufacturing processes mean improved energy efficiency, increased capacity, and an enhanced end-user experience. Currently, in the world of advanced DRAM processes, such as the 10nm class, has reached the fifth generation. Micron refers to it as 1β DRAM, while Samsung calls it 1b DRAM.

Since Micron commenced production of 1β DRAM last October, they have set their sights on producing 1γ DRAM by 2025. This will mark Micron’s first foray into extreme ultraviolet (EUV) lithography technology, and for now, EUV production is centered in their Taichung facility in Taiwan. Therefore, the 1γ process is expected to kick off production there, with potential expansion to their Japanese facilities in the future. Samsung, on the other hand, plans to enter the 1bnm process stage in 2023, achieving chip capacities ranging from 24Gb (3GB) to 32Gb (4GB) and native speeds of 6.4 to 7.2Gbps.

In the NAND Flash business, the technology has now exceeded the remarkable milestone of 200-layer stacking, with storage manufacturers relentlessly striving for even higher layer counts. On August 9th, SK Hynix showcased the world’s first 321-layer NAND Flash memory sample during the 2023 Flash Memory Summit. This innovation has increased efficiency by 59% compared to the previous 238-layer 512Gb NAND. SK Hynix plans to further refine the 321-layer NAND Flash and intends to commence production in the first half of 2025.

Furthermore, Micron has ambitious plans beyond 232 layers, with products like 2YY, 3XX, and 4XX on the horizon. Kioxia and Western Digital are also actively exploring 3D NAND technology with more than 300, 400, and 500 layers. Samsung is planning to introduce the ninth generation of 3D NAND in 2024, possibly featuring 280 layers, followed by the tenth generation in 2025-2026, potentially reaching 430 layers. Their ultimate goal is to achieve 1000-layer NAND Flash by 2030.

(Image: SK Hynix)

DRAM Spot Market:

As China’s National Day holiday approaches, the frequency of buyers making transactions has dropped. However, transaction prices remain fairly high, and there are no clear signs indicating that prices in the spot market will buckle in the near term. The average spot price of mainstream chips (i.e., DDR4 1Gx8 2666MT/s) rose by 0.33% from US$1.500 last week to US$1.505 this week.

NAND Flash Spot Market:

Participants of the spot market have slightly dropped in transaction frequency as the National Day Golden Week is just around the corner, with overall concluded prices maintained on an ascending trend, and a continuance of subsequent purchase willingness will depend on the market sentiment and the actual level of demand after the long holiday. 512Gb TLC wafer spots have climbed 3.47% this week, arriving at US$1.818.

DRAM Spot Market

In the spot market, prices have been rising noticeably in the recent period, and demand has also rebounded marginally. Also, because the supply of rebelled used chips has shrunk slightly, price hikes have been most significant for chips belonging to the bottom of the price range. On the other hand, spot buyers have become somewhat hesitant in the past two or so days because the price hikes are too rapid. They are now less willing to accept higher prices than before. Since the overall demand for DRAM products has yet to turn around, spot prices are expected to continue to fluctuate. The average spot price of the mainstream chips (i.e., DDR4 1Gx8 2666MT/s) rose by 0.13% from US$1.498 last week to US$1.500 this week.

NAND Flash Spot Market

A price increase is seen among finished products, including memory cards, USB flash drives, and eMMC, from the spot market recently due to the diminished supply of wafers, which resulted in a significant rebound in spot quotations for NAND Flash. With that being said, buyers are not all that willing to follow up with the corresponding prices that had a significant jump within a short period and have slightly stagnated in procurement. 512Gb TLC wafer spots have climbed at 3.96% this week, arriving at US$1.757.

Report to Voice, After the release of the Huawei Mate 60 Pro, various components have begun to experience the long-lost sensation of surging demand, replenishment, and stockpiling. With the launch of the Apple iPhone 15, the once sluggish global consumer electronics market has suddenly come back to life. The current mindset among storage manufacturers is clear: regardless of whether there is a real or perceived shortage, the goal before the year-end is to raise prices until they are no longer incurring losses.

Leading storage giants have gone through a series of price drops, losses, and production reductions, and are now officially entering the “price hike” phase. Samsung, SK Hynix, Micron, and others have already expressed their intention to raise NAND Flash contract prices.

According to TrendForce latest price projection on NAND Flash, in response to persistent softening in demand, Samsung has taken a decisive step: a sweeping 50% production cut from September, with the focus mainly on processes under 128 layers. Other suppliers are also expected to follow suit and increase their production cutbacks in the fourth quarter to accelerate inventory reduction. With this maneuver in play, Q4 NAND Flash average prices are projected to either hold firm or witness a mild surge, possibly in the ballpark of 0~5%.

YMTC now is facing surging demand from both smartphone and module manufacturers. It is reported that the production capacity for the period up to 1H24 has already been fully booked, with PC and server manufacturers sharing the capacity, while module manufacturers may receive a smaller share.

The current NAND Flash market situation is such that trying to negotiate increased supply with NAND Flash manufacturers like Samsung, Micron, and YMTC may yield little new capacity, and accepting higher prices may be inevitable.

The sudden pre-sale launch of the Huawei Mate 60 Pro has undoubtedly acted as a major catalyst for the current smartphone market. Without it, many smartphone supply chain companies believed that the smartphone market wouldn’t recover until the second half of 2024, and the most pessimistic among them even doubted if it would improve by 2024. The release of the Huawei Mate 60 Pro and the Apple iPhone 15 has injected a long-awaited warmth into the global smartphone market, reinvigorating the entire smartphone component supply chain.

In recent times, the top-tier iPhone 15 Pro Max from Apple’s iPhone 15 series is expected to be available only in November, which some interpret as a sign of strong demand. However, it is more likely due to production bottlenecks, particularly related to technologies like CIS, which have resulted in limited shipments of the iPhone 15 Pro Max. Overall, the estimated shipment volume for the iPhone 15 series may still reach up to 80 million units.

Is this resurgence in smartphone demand a lasting trend with increased consumer willingness to upgrade, or is it a temporary phenomenon? Optimists and conservatives hold differing views, but what is certain is that the global smartphone shipment volume has entered a mature phase, with limited room for significant growth driven solely by new features. However, the storage capacity in each smartphone continues to increase, providing substantial opportunities for existing supply chain manufacturers.

While new opportunities like automotive and AI have emerged, there is still no demand in any new field that can entirely replace the massive smartphone market. Therefore, the consensus within the global tech industry is that for the economy to rebound, the consumer electronics sector, particularly smartphones, is indispensable at this stage. AI and electric vehicles alone cannot take the place of smartphones. (Image credit: YMTC)

(Source: https://mp.weixin.qq.com/s/cb0kRUpWU6MElLNh9CR9eA)