Western Digital set to raise flash game with HDD business spinoff

While the melodrama of Kioxia’s merger with Western Digital’s NAND flash business isn’t over, the U.S. data storage company is splitting its hard disk drive (HDD) and NAND memory businesses into two separate public companies. The HDD business will retain the company name after the split.

The news comes days after SK hynix, a Kioxia investor, vetoed the Kioxia buyout from Western Digital. A combined company would become the world’s largest maker of NAND flash and a formidable rival for SK Hynix, currently the third largest producer of NAND flash chips.

Kioxia was spun off in 2017 as Toshiba Memory Corp., comprising the Japanese conglomerate’s memory and NAND products; it was later renamed Kioxia. Not a publicly traded company, Kioxia is owned by a consortium led by Bain Capital, which is keen to create a U.S.-Japan memory chip titan.

It’ll be interesting to watch how SK hynix’s objection plays out in Western Digital’s bid for Kioxia’s NAND flash business. Here, it’s important to note Western Digital’s existing relationship with Kioxia’s NAND operations. Kioxia and Western Digital jointly design and manufacture the BiCS NAND chips currently used in both companies’ solid-state drive (SSD) products.

Moreover, while Kioxia built the fab, both companies share the capital expense of equipping and running the fab. The strategic deal allows Western Digital to take up to 49% or less of the factory output. However, during periods of oversupply, Western Digital can choose to take less supply of NAND chips, leaving Kioxia to deal with the surplus capacity.

Figure 1 Western Digital’s NAND flash business fortunes are closely tied to Kioxia, with or without a merger.

Coming back to Western Digital and its bid to reinvent itself from a traditional storage company to a memory powerhouse, the 53-year-old firm based in Silicon Valley plans to complete the split by the second half of 2024.

Next step in Western Digital’s evolution

Western Digital has been conducting a strategic review since May 2022 when activist investor Elliott Management pushed it to spin off flash memory unit from hard drive business. Western Digital’s CEO David Goeckeler called split the best executable alternative at this time. “Given current constraints, it has become clear to the board in recent weeks that delivering a standalone separation is the right next step in the evolution of Western Digital.”

Western Digital’s journey in NAND flash began in 2016 when it acquired SanDisk to expand its storage market reach. The acquisition also brought vast software and flash controller operations alongside NAND memory production facilities. Goeckeler, a former Cisco executive, also created a separate business unit focused on each technology soon after he took over as CEO in 2020.

The next logical step was the separation of HDD and flash businesses, and here, Elliott Management became a key catalyst for what Western Digital’s chief calls the right next step in the company’s evolution. On the other hand, the issue of the new NAND company’s potential merger with Kioxia still looms large amid SK hynix’s opposition.

Figure 2 While HDD is considered a mature product for bulk storage of large quantities of data in data centers, a lot is going on in the NAND flash realm.

While mergers, acquisitions, and spin-offs are a common affair in the semiconductor industry, Western Digital’s constant maneuvering to tidy up its diverse business operations is worth noting. Part of this maneuvering may be owed to the company’s CEO, a veteran of Cisco, which transformed itself from a small router startup to an Internet communications giant through acquisitions during the 1990s.

The split of the HDD and NAND flash business seems to be a move in the right direction, as it will refine the focus on unique market opportunities and technological innovations. But Western Digital’s liaison with Kioxia is still a work in progress. It will be interesting to watch how SK hynix’s opposition impacts Western Digital’s years-long bid to snap Kioxia and its NAND flash business.

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The post Western Digital set to raise flash game with HDD business spinoff appeared first on EDN.

Western Digital set to raise flash game with HDD business spinoff

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