Western Digital NAND Flash business is rumored to be spun off

Western Digital and Kioxia Holdings plan to reach a merger agreement by August after months of negotiations, according to people familiar with the matter.

The deal will serve as a tax-free spin-off of Western Digital's flash memory business, which will be merged with Kioxia, people familiar with the matter said. The person spoke on condition of anonymity because the details are not public. Western Digital shareholders will own just over 50% of the combined entity, people familiar with the matter said.

Western Digital shares fell more than 14% last year, but rose 6.5% in Friday trading. The stock closed up 0.8% at $39.66 in New York, giving the company a market value of about $12.7 billion.

The company will be run by Kioxia executives, with Western Digital executives also involved, the people added. Financing is already in place, they said.

Both chipmakers will have board representation and the combined company will be registered in Japan, they said. The combined entity will initially be listed on Nasdaq but will eventually be listed in Tokyo, they said. Bain Capital, which backs Kioxia, will receive a special dividend, they said.

A final deal has not yet been reached and the timing could change or talks could still end without a deal, the people added. Kioxia, also a closely held Toshiba-backed company, was spun off from Toshiba in 2018.

Representatives for Western Digital and Bain declined to comment. Kioxia and Toshiba did not immediately respond to requests for comment.

The two companies, which own a joint venture to make flash memory chips, have been competing with each other for years and joining forces would help them compete with Samsung Electronics Co.

Last year, Western Digital announced a review of strategic alternatives following talks with activist investor Elliott Investment Management. Bloomberg News reported in January that Western Digital and Kioxia had restarted merger talks after discussing a partnership in 2021.

According to TrendForce research, original factory production cuts continue to expand, actual demand is unknown, and the NAND Flash market is still in oversupply in the third quarter. Even though there will be seasonal demand support in the second half of the year, buyers still maintain a conservative stocking attitude, which suppresses NAND Flash prices from falling and stabilizing. The average price of NAND Flash Wafer is expected to be the first to rise in the third quarter; module products such as SSD, eMMC, and UFS are expected to continue to fall due to slow shipments from downstream customers. It is estimated that the overall average price of NAND Flash will continue to fall by about 3~3% in the third quarter. 8%, and is expected to stop falling and rebound in the fourth quarter.

In terms of Client SSD, although laptop shipments are expected to slowly pick up in the third quarter, it is still difficult to reverse the oversupply situation of SSD. Since some suppliers believe that the demand from major customers is poor and the overall momentum of purchasing goods is weak, in order to achieve shipment targets, they tend to use aggressive pricing to win customer orders. This will put pressure on other original manufacturers, so the average price of Client SSD is estimated in the third quarter. It will fall 8~13% quarter-to-quarter.

Enterprise SSD方面，由于大陆订单在政府机构及电信业者标案陆续释出，加上二线电商及网路服务商备货动能转好，有机会带动第三季Enterprise SSD对伺服器新平台的出货量，进一步刺激Enterprise SSD採购需求成长。由于各家供应商NAND Flash产品营收仍处于亏损，在NAND Flash价格已低于现金成本的情况下，议价幅度逐渐缩小，但预期减产效益会在下半年逐渐显现，因此预估第三季Enterprise SSD均价跌幅将收敛至5~10%。

eMMC方面，目前需求仍疲弱，其中小容量eMMC在第二季因原厂积极降价，几乎已无跌价空间，故供应商停止削价竞争，预期第三季小容量eMMC价格将持平；大容量eMMC方面，若属于工控及Chromebook应用，因客户用量较少，原厂议价能力较强，价格有机会呈现持平，然由于多数大容量eMMC仍是由智慧型手机OEM採买，价格走势仍会与同容量UFS大致相同，预期仍有下跌可能。

UFS方面，第三季智慧型手机OEM欲利用价格来到相对低点，将零组件库存提升至安全水位，预期对UFS的採购动能将缓步增强，不过下半年UFS需求应仅有季节性拉货及新机发表小幅带动，整体出货仍可能不如预期。由于採购需求无法有效放大，加上第二季结算价格跌幅有部分需认列至第三季，因此预估第三季UFS合约均价跌幅仍有约8~13%。

NAND Flash Wafer方面，预期原厂库存压力将在第三季趋缓，报价态度强势，第三季合约价有相当高的机率落底反弹，此将刺激买方採购意愿，加上年底旺季前的预先备货，预期对NAND Flash Wafer的需求会渐增，有望加速供需平衡，让价格涨势延续。第三季在原厂报价的强势态度下，预估NAND Flash Wafer均价有望季增0~5%。

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