[Peace&Chips] NAND Market 'Buzzing' Over Kioxia Merger Rumors

Kioxia-Western Digital Merger Talks
Aiming for 'Economies of Scale' but Possibility ↓
"NAND Market to Grow as Large as DRAM"

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[Peace&Chips] NAND Market 'Buzzing' Over Kioxia Merger Rumors

[Asia Economy Reporter Kim Pyeonghwa] Recently, the NAND flash market, a major item in memory semiconductors, has attracted industry attention with rumors of mergers and acquisitions (M&A) emerging at the start of the new year. The main players are Japan's Kioxia and the United States' Western Digital.

Kioxia and Western Digital are the 2nd and 4th largest players in the global NAND market, respectively. They are competitors battling against domestic companies Samsung Electronics (1st) and SK Hynix (3rd). As the two companies are rumored to merge and secure a significant market share to challenge for the top spot, the merger speculation has drawn attention.

According to market research firm Omdia's market share data for the third quarter of last year based on sales, Kioxia held 21.1%, and Western Digital held 12.4%. Although a simple sum, their combined share amounts to 33.5%, which is higher than SK Hynix's (19.0%) and even Samsung Electronics' (31.6%).

If the merger actually happens, it is expected to cause a significant shift in the NAND market. However, the industry believes the merger will not be easy. Since semiconductors are a core part of national technological security, regulatory authorities in each country conduct stringent reviews. There are also opinions that the Japanese government, which is enthusiastic about nurturing its domestic semiconductor industry, would find it difficult to approve transferring Kioxia to an American company.

Nevertheless, the reason to pay attention to this merger speculation is Western Digital's persistent challenge. Western Digital has already been building a close relationship by cooperating not only in NAND technology development with Kioxia but also in operating production facilities. Not satisfied with this cooperation, they also held merger discussions once in 2021, but it fell through. They continue their efforts despite knowing the challenge is not easy.

Source=Western Digital website

The semiconductor industry interprets Western Digital's actions as driven by the characteristics of the NAND market. Unlike the DRAM market, which is dominated by three major players, the NAND market involves more than six companies, and although the market size is smaller than DRAM, competition is fiercer due to the higher number of players. In this context, mergers and acquisitions are key means to increase competitiveness by growing in scale.

Especially in the memory semiconductor industry, including NAND, mass production of a few product types is essential. Since economies of scale are realized here, operating factories 24 hours a day to produce large quantities of semiconductor chips and improve cost competitiveness is necessary to gain a competitive edge in the market. As production capacity (capability) increases, companies can gain more decision-making power in the market, including pricing.

Source=Kioxia Homepage

Given this situation, the industry expects that even if not Western Digital, additional mergers and acquisitions among players in the NAND market may occur. "Only Samsung Electronics has completed economies of scale, and other companies have not, so various forms of alliances and mergers can happen," said an industry insider. "SK Hynix's acquisition of Intel's NAND business unit (now Solidigm) can also be seen as part of this trend."

Another point of interest is that the NAND market is growing as much as the DRAM market. Omdia forecasts that the NAND market will grow at an average annual rate of 6.3% from 2021 to 2026. In 2025, it is expected to grow by 26.3% compared to the previous year, reaching a market size of $84.378 billion (approximately 106.3163 trillion KRW). This is projected to surpass the DRAM market size for the same year ($83.397 billion, approximately 105.0802 trillion KRW). If the number of market participants decreases, the profits to be shared from the increased pie will also grow, right?