Western Digital said in a press release:

 After completing its strategic assessment, Western Digital, after comprehensively considering various options, believes that to realize its maximum value, the best and most feasible option at present is to spin off its flash memory business. To this end, Western Digital believes that the timing is favorable to implement an independent separation strategy to create value for shareholders as industry conditions improve.

Western Digital CEO David Goeckeler said in a press release that the company has established “independent flash and HDD product business units and separated operating capabilities” over the past few years. He believes this new initiative will “further position each company for long-term success in the coming years.”

It is noted that the plan to spin off Western Digital’s flash memory and HDD businesses still needs to be approved by the board of directors, as well as other conditions, such as the availability of financing and a way to make the separated structure tax-free. The divestiture is currently expected to be implemented in the second half of 2024.

This follows Western Digital’s recent merger talks with another flash memory company, Japan’s Kioxia. However, those talks stalled last week after SK Hynix, one of Kioxia’s investors, expressed opposition to the merger, according to Reuters. Western Digital made no mention of deal talks with Kioxia in today’s press release or financial call. .

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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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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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This problem first broke out in May this year. Many consumers who bought SanDisk Extreme mobile hard drives reported on e-commerce platforms and social platforms that there were various strange problems such as sudden data erasure and inability to read.

Western Digital subsequently released a firmware update that, far from curbing the issue, affected more models.

Krum said that on May 19 of this year, he bought a 2TB SanDisk Extreme Pro for $179.99, and then there was a data wipe problem.

Krum said he had to spend money to restore the data and wouldn’t accept a replacement or a full refund.

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WD acknowledged the above issue, saying that the problem appeared on a batch of hard drives mass-produced at the end of 2022, mainly affecting the 4TB model, and has recently released a firmware update to address the reliability issue of its SanDisk Extreme and Extreme Pro SSDs.

The Verge, PetaPixel and other foreign technology media reported that Western Digital sent a firmware update to the 2TB and 4TB models of SanDisk Extreme V2 and Extreme Pro V2, instead of curbing the problem, more models are affected.

Reports claim that SanDisk Pro-G40 SSDs are also experiencing data loss issues after a firmware update, causing DaVinci Resolve to crash repeatedly.

Reddit user Filmmaking_David reported that due to this issue, dealers have started to sell these SanDisk portable hard drives with the attitude of clearing out inventory, and according to foreign tech media Tech News Space, even up to 30% discount.

Related reading:

Western Digital promises to release a firmware update for malfunctioning SanDisk Extreme Portable hard drives

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WD said it will take full advantage of energy-efficient perpendicular magnetic recording (PMR) and the latest version of “tiled” magnetic recording (UltraSMR) technology to further increase the storage capacity of the hardware.

In an interview with analysts and investors, WD CEO David Goeckeler said the following.

• We are about to begin qualification of our 28TB UltraSMR hardware. This state-of-the-art product builds on the success of ePMR and UltraSMR technologies and delivers the performance and reliability that customers around the world trust.
• We will be delivering this drive product to customers soon after completing the qualification and expansion.

WD’s 28TB hard drive is based on second-generation ePMR technology with an improved recording head that allows for higher recording densities and thinner tracks.

UltraSMR technology increases storage density by 20% compared to conventional magnetic recording (CMR) technology, which is why the company needed to implement a 28TB UltraSMR drive on top of the 24TB drive.

With at least 1.5 years until WD’s HAMR-based hard discs enter the market, the company intends to deliver higher capacities to the market in the coming quarters using a combination of second-generation ePMR and UltraSMR technologies.

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Now, this SSD has been listed on JD.com, and the 2TB model starts at 799 CNY.

The specifications of the SN580 organized are as follows:

The SN580 is available in four capacities, from 250GB to 2TB, with a single-sided chip design and a 5-year warranty.

In terms of speed, compared with SN570, the sequential read/write speed of SN580 is increased from 3500 MB/s to 4150 MB/s, and the random write speed is increased from 600K IOPS to 750K IOPS.

In terms of price, the Jingdong page shows that the series SSD 2TB starts at 799 CNY, 1TB 419 CNY, and 500GB version at 279 CNY.

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Revenue in the fourth quarter was US$2.67 billion, a 5% decrease from the previous quarter, and analysts expected US$2.52 billion. Cloud revenue was down 18% year-over-year, client revenue was up 6% year-over-year, and consumer revenue was up 3% year-over-year. The revenue in fiscal year 2023 is 12.3 billion US dollars (currently about 87.945 billion yuan).

Fourth quarter GAAP EPS of $2.27 and non-GAAP EPS of $1.98 included $211 million of underutilization related charges in Flash memory and HDD. Fiscal 2023 GAAP EPS of $5.44 and non-GAAP EPS of $3.59.

▲ Quarter-on-quarter data for the fourth fiscal quarter

▲ Year-on-year data for the fourth fiscal quarter

▲ Year-on-year data for fiscal year 2023

Western Digital CEO David Goeckeler said: “Throughout the fourth quarter and fiscal year, Western Digital continued to optimize our operations and successfully execute our innovative product roadmap. When the demand for hard disk and flash memory rebounds, we will gain Greater profitability. Through these efforts, we have exceeded revenue expectations and provided our customers with an industry-leading range of products.”

Western Digital officially expects revenue in the first quarter of fiscal year 2024 to be between US$2.55 billion and US$2.75 billion. Non-GAAP EPS is expected to be in the range of $2.10 to $1.80, which includes an underutilization charge of $200 million to $220 million in flash and hard disk.

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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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