industry
Entered2023.10.01 20:00 Modified2023.10.01 20:11
Japan’s Kiosia speeds up merger discussions with U.S. WD
The stake is 34%, higher than that of Samsung Electronics.The merger was due to the NAND recession not being able to withstand it.
Positive evaluation as the number of competitors decreases
SK Hynix’s strategy, which invested 5 trillion won, is also of interest.
Photo = Getty Image Bank The competitive landscape of the global NAND flash market is expected to fluctuate. While Samsung Electronics and SK Hynix are ranked first and third in the world, respectively, Japan’s Kiosia, ranked second in the world, and Western Digital (WD), ranked fourth in the U.S., are pursuing a merger. Because the number of competing companies is reduced by one, the ‘positive’ evaluation is dominant for Korean semiconductor companies. However, there is an analysis that it is a ‘burden factor’ in that it is a merger between the US and Japan’s leading NAND flash companies. US President Joe Biden (left) and Japanese Prime Minister Fumio Kishida meet and shake hands at the G7 summit in May. . yunhap news
U.S., Japan ‘must unite to survive’ semiconductor recession
According to foreign media on the 1st, Kiosia and WD are pursuing the establishment of a merged corporation. Kiosia is expected to own 49.5% of the shares in the merged entity, and WD is expected to own 50.5%. To this end, Kiosia is known to have applied for a loan worth 2 trillion yen (approximately 18 trillion won) from major Japanese banks, including Sumitomo Mitsui. Bain Capital, the majority shareholder of Kiossia, is also considering investing an additional 500 billion yen. It is reported that Kioscia and WD plan to recover funds through an initial public offering (IPO) after establishing a joint venture.
The merger of Kiossia and WD surfaced in April 2021 through reports from foreign media such as the Wall Street Journal (WSJ). So far, the merger process has been slow. This is because opinions differed in measuring the value of each company’s shares. The fact that both companies did not have sufficient financial resources was also an obstacle.
The recent acceleration of merger work is due to the recession in the NAND flash market. In the global NAND flash market, five companies, including Samsung Electronics (31.1%), Kiossia (19.6%), SK Hynix (17.8%), WD (14.7%), and Micron (13.0%), account for 96.2% of the market (2nd year this year). (quarterly basis). The situation is different from DRAM, where there are three major players (Samsung Electronics, SK Hynix, and Micron).
Cumulative deficit in the first half of this year exceeds 3 trillion won
As the five NAND flash companies compete fiercely, it is evaluated that its profitability is lower than that of DRAM. In the second quarter, Samsung Electronics, the world’s No. 1 company, recorded a deficit in the trillions of won in NAND flash. The situation for companies ranked 2nd to 5th is even worse. Kiossia recorded an operating loss of 171.4 billion yen (1.5547 trillion won) from April to June (4th quarter of fiscal year 2022). This year’s cumulative deficit alone exceeds 3 trillion won. WD’s operating loss during the same period also amounted to $589 million (about 780 billion won).
Kiosia and others, which do not have as much investment capacity as Samsung Electronics and have a lower market share, declared production cuts early in the second half of last year and reduced facility investment this year by half compared to the previous year. They are trying to hold on while waiting for the market to revive. Western Digital SSD products. Hankyung DB Although more than a year has passed, there is no clear recovery trend in the NAND flash market. The price of general-purpose NAND flash products, which hit $4.81 per unit in May last year, fell to $3.81 in April and has not risen for the next five months. There are also predictions that the market will rebound starting in the fourth quarter of this year as Samsung Electronics and SK Hynix begin to actively reduce production of older NAND flashes. However, there are also observations that the recovery of the industry will be delayed further. This is due to the slow recovery in major demand markets such as smartphones.
It is analyzed that as a point has come where it is difficult to survive alone, Kiosia and WD have begun to accelerate their merger to secure ‘economies of scale’ and increase investment capacity. The growing possibility of a merger between the two companies is in no small part due to the influence of their ‘long-standing cooperative relationship.’ WD processes NAND flash produced by Kiossia into data storage devices (SSD) and sells them. They jointly developed 162-layer NAND flash and also operate the Yokaichi and Kitakami factories in Japan. An official in the semiconductor industry explained, “The two companies can actually be viewed as one entity,” and added, “The establishment of a joint venture is a predictable scenario.”
It is positive that the number of competitors has decreased…the combined market share is likely to surpass Samsung Electronics.
What will be the impact on Korean semiconductor companies such as Samsung Electronics and SK Hynix? In the semiconductor industry, ‘positive’ evaluations are dominant. This is because as the number of players decreases, the possibility of ‘bleeding competition’ also decreases. NAND flash companies also seem to want to reorganize the industry. This is because, like in the DRAM market, the number of competitors must be reduced to three in order to adjust supply to meet demand and maintain product prices at an appropriate level. It is a burdensome fact that Kiosia and WD’s simple joint venture shareholding ratio is 34.3%, ahead of Samsung Electronics (31.1%). The fact that the ‘semiconductor alliance between the United States and Japan’ is expected to be strengthened with the establishment of a joint venture between Kiossia and WD is also considered a point to watch.
The hurdles the two companies must overcome for the merger are not easy. There is talk that the Japanese government will not allow the merger. This is because Kiossia is virtually the last remaining Japanese memory semiconductor company. In a situation where each country is competing for semiconductor hegemony, the prevailing view is that the Japanese government will not allow the merger lightly. Another concern is whether Chinese competition authorities will allow the merger of the two companies. In order for a global company to complete a merger, it must obtain permission from the competition authority (playing the role of the Fair Trade Commission) in each country where it does business. If the acquisition is not approved, the merger process will be canceled.
SK Hynix holds 5 trillion won worth of shares in Kiossia… Pay attention to future response
As rumors of a merger emerge, interest in Kiosia’s shareholding structure is also growing. Toshiba put its stake in its memory division, which had suffered from management difficulties in 2017, on the market. In 2018, the Korea-US-Japan consortium led by Bain Capital took 49.9%. Currently, the consortium’s shareholding has increased to 56.2%. Toshiba currently owns a 40.6% stake, and Japanese company Hoya also holds a 3.1% stake.
SK Hynix invested in Bain Capital Consortium in May 2018. Among the four funds belonging to the Bain consortium, Bain Capital fund ‘BCPE LP’, which holds a 25.9% stake in Kiosia, holds a 73.5% stake. Simply put, it means that it owns 19.0% of Kiosia.
In addition, it holds convertible bonds (bonds with the right to be converted into CBs/stocks) that can secure up to an additional 15% of Kiosia’s shares. Combined, the simple shareholding amounts to 34%. The money spent to initially purchase this stake was KRW 3.9159 trillion, and as of the end of June, its value was estimated at KRW 5.0309 trillion. On the 15th of last month, SK Chairman Choi Tae-won (right) met with SK Hynix Vice Chairman Park Jeong-ho at the Yongin Semiconductor Cluster in Yongin, Gyeonggi Province. Visiting the construction site and looking around. Provided by SK There is also interest in what strategic decisions SK Hynix will make during the future merger and listing of Kiossia and WD. The most recent statement was made in 2021 by then-SK Hynix CEO Seok-hee Lee, who said, “There will be no change in Kiosia’s investment plan, and we will not recover the investment.” SK Hynix Vice Chairman Park Jung-ho, who currently serves as CEO, met with reporters in January and predicted that “the Japanese government will not easily allow” the Kiosia WD merger. At SK Hynix’s conference call (performance briefing) last July, Chief Financial Officer Kim Woo-hyun said, “We are continuously monitoring the merger of Kioxia and Western Digital,” and added, “No specific merger conditions have been discussed yet.” He added, “We are closely examining how the merger will affect Kioxia,” and “We will make a comprehensive judgment to determine our position.”
Reporter Hwang Jeong-su hjs@hankyung.com
2023-10-01 11:00:03
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