SK Hynix Puts The Boot Into Kioxia-Western Digital Merger

Memory chipmaker SK hynix looks set to block the planned merger between Kioxia and Western Digital because the move would undervalue its own stake in Kioxia.

This is the latest twist in the complex efforts to bring together Kioxia, the former memory division of Toshiba, with flash memory and storage outfit Western Digital, in a deal originally estimated to be worth more than $20 billion.

SK hynix has an interest because it is a partner in the consortium led by Bain Capital, which owns roughly 56 percent of Kioxia, and its approval is therefore said to be necessary for the merger to move forward.

But the memory maker appeared to pour cold water on the idea during its Q3 2023 earnings conference call.

"The company is not agreeing to the deal at this time, in light of the overall impact on the value of the company's investment in Kioxia," said chief financial officer Kim Woo-Hyun.

SK hynix cannot disclose its specific reasons or comment on the deal process due to confidentiality agreements with Bain, he claimed, but added that it "will be making the decision for the sake of all stakeholders, not only the shareholders but also Kioxia as well."

A potential tie-up between Western Digital and Kioxia is said to have been on the cards since 2021, when Kioxia was also planning an IPO that has since been put on hold because of the downturn in the semiconductor market.

Just last week, it was reported that the two companies had managed to secure $13 billion in financing from a group of Japanese lenders to facilitate the merger.

According to our colleagues at Blocks & Files, the combined Kioxia/Western Digital business would have an estimated 34 percent revenue share of the NAND flash market, putting it ahead of the current market leader Samsung with its 31 percent share, and the merger thus makes sense in this regard.

But this announcement from SK hynix adds more confusion to the situation, with Bloomberg reporting that an agreement might go ahead despite the company's resistance, with Bain and Kioxia said to be working on a resolution.

Meanwhile, SK hynix reported another drop in revenue for Q3 2023, down 17 percent to ₩9.07 trillion ($6.8 billion) compared with the same period last year, leading to a loss of ₩2.18 trillion ($1.6 billion).

But that revenue figure was up on the ₩7.3 trillion ($5.4 billion) it reported for the previous quarter this year, perhaps indicating that the memory market is starting to pick up again.

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SK hynix attributed the growth to increased shipments of both DRAM and NAND, plus a rise in the average selling price. DRAM shipments were up 20 percent on three months ago, thanks to strong sales of high-performance products for server applications such as (inevitably) AI, and the average selling price growing by 10 percent.

The Korean outfit is not the only chip company still suffering from the semiconductor industry slump. Texas Instruments reported Q3 revenue of $4.53 billion, down 14 percent on the same period a year ago, and its shares reportedly fell on its estimates of Q4 revenue in the range of $3.93 billion to $4.27 billion.

However, STMicroelectronics saw its Q3 net revenue increase by 2.5 percent to $4.43 billion year-on-year, driven mainly by strong growth in the automotive semiconductor sector, the company said. ®