Western Digital announced on Monday that it will spin off into two independent publicly traded companies focused on the hard drive and flash memory markets after merger talks with Kioxia stalled.

Western Digital’s stock price has risen by more than 10% before the market opens.

The company launched a review last year after activist investor Elliott Management disclosed its nearly $1 billion stake in Western Digital and pushed it to separate the businesses.

The deal became complicated last week after reports emerged that merger talks between Western Digital and Kioxia had stalled due to opposition from Kioxia investor SK Hynix.

According to reports, Western Digital has been grappling with a global chip glut and weak demand for flash memory products, which in turn has increased pressure on chip manufacturers to consolidate.

If the deal between Western Digital and Kioxia is successful, the combined company will account for one-third of the global NAND flash memory market and will be on par with the leading manufacturer Samsung Electronics. This situation will inevitably have a negative impact on SK, the world’s third largest NAND flash memory manufacturer. Hynix’s position poses a threat.

“Given current constraints, it has become increasingly clear to the Board in recent weeks that a spin-off is the right next step in Western Digital’s evolution and will best position the company to unlock value for our shareholders,” CEO David Goeckeler said.

The separation of the businesses will occur on a tax-free basis and is scheduled to be completed in the second half of 2024, according to the company’s plan.

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“Given the impact on the value of our investment assets, we do not agree to the merger at this time,” SK Hynix Chief Financial Officer Kim Woo-hyun told analysts on a conference call on Thursday, according to the Financial Times. “But we will provide for all Decisions are made by stakeholders, including Kioxia and shareholders.”

▲Image source Financial Times

James Lim, an analyst at U.S. hedge fund Dalton Investments, said the reason why SK Hynix opposes the merger of Kioxia and Western Digital is that SK Hynix does not want to see a stronger competitor emerge. “The combined entity’s market share will be twice that of SK Hynix”.

Western Digital and Kioxia have been discussing a possible merger for years, and the companies are seeking to wrap up talks this month and hope to announce a deal before Western Digital reports earnings on Oct. 30. Kioxia had previously been in contact with Japan Investment Corp., hoping to inject capital to speed up the transaction process. However, SK Hynix has publicly expressed its opposition to the merger, so the overall plan is now facing new variables.

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According to reports, the selling point of this series of drives is not the fast speed, but the 1PB/ 1U application capacity support. The company also had several other hyperscale SSDs on display at the show.

This is a high-capacity SSD in the E1.L form factor with a capacity option of 30.72TB or 15.36TB, which means that a 1U chassis with 32 disks can realize 983TB or about 1PB/U of capacity.

U (unit) is a rackmount server height dimension unit, industrial control chassis and server chassis are based on U. The standard height of 1U is 1.75 inches or 44.45mm, and the length is basically 19 inches, or 482mm, with indeterminate width.

The company is also showcasing a number of other products at the OCP Summit, such as its E1.S NVMe SSD product, the Kioxia XD7P. This PCIe Gen5 drive is designed to deliver faster speeds in a smaller form factor and at a lower capacity point.

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Western Digital acquired solid-state storage manufacturer SanDisk for $19 billion in 2016 and also gained control of its joint venture with Kioxia (formerly Toshiba). Western Digital is currently preparing for a new stage of transformation and plans to sell its storage business to Kioxia.

According to the Nikkei Asian Review, after careful negotiations between the two companies, a new holding company will be established after the merger. After exchanging the number of shares required by the new company, Western Digital will retain 50.1% of the assets and the remaining 49.9% will belong to All owned by Kioxia.

The president of Kioxia will manage the business, and the Japanese representative company will occupy the majority of the board seats. The new company will be registered in the United States but will be headquartered in Japan, and its shares will be listed on the U.S. and Tokyo stock exchanges.

Western Digital and Kioxia combined controlled 32% of the flash memory market last year, trailing only leader Samsung Electronics’ 34%.

According to British research company Omdia, if merged, the global market share based on value in the NAND field would be 35.4% as of the end of March this year, surpassing South Korea’s Samsung Electronics (34.3%) to rank first in the world.

Negotiations are ongoing with potential creditors including Japan’s major banks who could provide $10 billion to $12.7 billion in funding.

In order to promote the merger, the three major banks including Mitsubishi UFJ Bank and the Japan Policy and Investment Bank are considering providing approximately 1.9 trillion yen in funds, which are planned to be issued as soon as the 20th of this month. A “certificate of credit” that commits financing. Kioxia Holdings and Western Digital will finalize the details of a merger agreement after receiving funding guarantees.

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According to reports, this series of SSDs uses 3D flash memory “BiCS FLASH TLC”, with sequential read speeds up to 5,000MB/s, sequential write speeds up to 3,900MB/s, random read speeds up to 770,000 IOPS, and random write speeds up to 950,000 IOPS. , the total write capacity is 1TB 600TBW, and 2TB is 1,200TBW.

It was noticed that Kioxia’s new EXCERIA PLUS G3 SSD has not yet been launched on domestic e-commerce platforms. The old EXCERIA PLUS G2 is a PCIe 3.0 SSD and currently sells for 699 CNY for 2TB.

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▲ Picture source Kai Xia

After inquiries, it is learned that this new product will provide 64 and 128 GB samples. It is said to “integrate the company’s latest version of BiCS FLASH 3D flash memory and controller in a single package,” thereby reducing the workload of the processor. volume and improved ease of use.

It is reported that compared with the previous generation device, the “sequential and random write” performance of the new sample has been improved by about 2.5 times, and the random read performance has been improved by about 2.7 times. In addition, TBW (Total Bytes Written) is increased by approximately 3.3 times compared to the previous generation device.

Kioxia believes that although the market is shifting to UFS, in some cases, some manufacturers may still use e-MMC, such as tablets, personal computers, point-of-sale devices and other portable handheld devices, as well as smart TVs and smart network cards. “Consumer products for mid-range storage needs.”

Kioxia is currently testing samples of this e-MMC device, and it is expected that related products will be mass-produced in the spring of 2024.

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Note: CXL is a technology jointly developed by Intel, AMD and other companies, which supports memory sharing and cache sharing, and can be used in cloud computing, artificial intelligence, high-performance computing and other fields.

As shown in the figure, Kioxia has two different CXL series products, one is CXL + BiCS traditional flash memory, and the other is CXL + XL-Flash (Kioxia’s SLC NAND SLC solution).

In fact, it’s interesting to see if the specs of this series of flash memory, and this will be one of the first CXL x4 products. According to reports, it can be read using CXL.mem and written using CXL.io.

In August last year, Kioxia launched its second-generation XL-FLASH product, which is a storage (SCM) solution based on BiCS FLASH 3D flash memory technology, which can greatly reduce unit cost while providing high performance and low cost. Delay.

According to reports, in addition to the SLC unit of the existing model, the second-generation XL-FLASH has added an MLC part per unit, which greatly reduces the cost, but its capacity is only 256 GB.

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According to Kioxia, the CD8P series SSDs are designed for mixed-use and read-intensive workloads, with the 24/7 reliability features expected from data center-class SSDs.

The KIOXIA CD8P series is available in E3.s and U.2 form factors, offering capacity specifications from 1.6 TB to 30.72 TB:

 Sequential read speeds up to 12000 MB/s

 Sequential write speeds up to 5500 MB/s

 Random read 4K IOPS up to 2,000,000

 Random write 4K IOPS up to 400,000

CD8P SSD uses Kioxia’s proprietary SSD platform, including its own NVM 2.0 compatible master control, firmware and 112-layer BICS 5 3D TLC NAND particles, supports 7th generation flash memory chip failure protection to ensure reliable data storage, power loss protection and end-to-end data protection.

In addition to the regular CD8P model, Kioxia will also offer models that support the Sanitize Instant Erase (SIE) and Self-Encrypting Drive (SED) functions. Also, CD8P will not be FIPS SED capable.

It should be noted that there are two configuration versions of CD8P SSD, which are summarized as follows:

 CD8P-V for mixed-use workloads (3 full disk writes per day): Available in 1.60TB, 3.20TB, 6.40TB, and 12.8TB capacities

 CD8P-R (1 full disk write per day) for read-intensive applications: Available in 1.92TB, 3.84TB, 7.68TB, 15.36TB, and 30.72TB capacities

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Details of the merger are still being kept under wraps, but sources say Western Digital shareholders will control slightly more than half of the combined company. This is contrary to the previous Kyodo News Agency in Japan, which previously stated that Kioxia will lead the new company after the merger.

However, the source also mentioned that during the negotiations between the two parties, it was suggested that Kioxia’s executive team would lead the daily management of the merged company, but Western Digital executives would also play an important role.

▲ Source: Kioxia

As far as the current situation is concerned, although the negotiations between the two sides are progressing smoothly, it may take some time before the final agreement is finalized, during which they may change their minds, and may even end in failure to reach any agreement.

It is said that the new company after the merger will adopt a dual board representation system, and both chipmakers will be members. The new company will be based in Japan and will be listed on Nasdaq and Tokyo; at the same time, Kioxia’s main investor, Bain Capital, will also receive a special dividend.

Previously, Reuters also reported that Kioxia will contribute 43% of the merged company, Western Digital 37%, and the remaining 20% will be held by existing shareholders such as Toshiba. The new merged company plans to list on the Tokyo Stock Exchange in the future. listed.

Note: Kioxia was born out of Toshiba, the “father of flash memory”. Although both Western Digital and Kioxia fabs are producing 3D NAND, each maintains a different business strategy. Kioxia’s main focus is memory chips, while Western Digital tends to supply NAND-based products, that is, SSD products.

As of the first quarter of 2023, Kioxia has a 21.5% share of the NAND memory market, while Western Digital holds a 15.2% share. Samsung, on the other hand, held a 34% market share during the same period. Therefore, the potential entity after the combination of Kioxia and Western Digital’s flash memory business would become the leading supplier in the global NAND memory market, with a market share of more than 36.7%.

It was previously reported that the revenue scale of the new company after the merger is expected to surpass Samsung and become the world’s largest NAND memory manufacturer. Due to the deteriorating market conditions and sluggish performance of storage products used in smartphones and other uses, the two parties hope to merge to improve operational efficiency. The report quoted people familiar with the matter as saying that the merger will be further negotiated on details such as the proportion of capital contribution under the condition that Kioxia has the dominant power.

▲ Source: Kioxia

According to data from the research organization Omdia, Kioxia and Western Digital will rank third and fourth in terms of market share in 2022. The combined NAND memory revenue scale is expected to reach 2.5 trillion yen, surpassing Samsung Semiconductor, the leader in the NAND industry.

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The official stated that the addition of the new R&D center will further strengthen Kioxia’s R&D capabilities in flash memory and solid-state drives. Not only that but other R&D positions in Kanagawa Prefecture will also be transferred to these two new R&D centers in the future to improve research efficiency and promote the birth of new storage technologies.

Introduction to the two new R&D centers of Kioxia attached as follows:

The official opening of the flagship building of the Yokohama Technology Park has helped Kioxia nearly double the size of the Yokohama Technology Park. It is mainly responsible for evaluating the performance of flash memory and solid-state hard drive products to improve the overall product development progress and product progress. The flagship building is equipped with corresponding environmental protection facilities and has obtained ZEB-Ready certification.

Kioxia Xinzi’an Frontier Technology R&D Center mainly focuses on the research and development of pan-semiconductor fields including new materials, new processes and new equipment. The research and development center has a state-of-the-art clean room and also uses an environmentally friendly design.

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