NAND consolidation update: could Kioxia be the next domino to fall?

At the Flash Memory Summit (FMS) in August of 2019 (To get the presentations, click here), Yole Développement’s presentation included a slide that showed a consolidation scenario that moved the NAND market structure closer to that of the DRAM industry. Part one of this scenario included the combination of SK hynix Inc.’s and Intel Corp.’s NAND businesses, while the next part involved some combination of Micron Technology Inc., Western Digital Corp., and Toshiba Memory Corp. (which is now Kioxia Corp.).

“We labeled that as the ‘End-game Consolidation’ scenario, with the hope that the industry would become healthier, allowing the suppliers to generate sustainable profits to support the billions of dollars of investments needed each year to keep moving the technology forward,” says Walt Coon, VP of NAND and Memory Research at Yole Développement (Yole).

According to Coon, he believed Intel was the first supplier that would exit the NAND market, and the most likely buyers for Intel’s NAND business would be either Micron or SK hynix. “But given the recent history between Micron and Intel, the relationship between the two companies may have been strained. Because of that, we believed SK hynix was the most likely suitor for them at the time,” he says.

With the announcement on October 20, 2020 of SK hynix’s acquisition of Intel’s NAND business—including its Dalian factory in China, its NAND-related IP, and its SSD business—for $9 billion, that analysis by Coon’s team at Yole turned out to be correct.

Step one of the ‘end-game consolidation’ scenario as presented at FMS 2019 is nearing closure; now recent press reports indicate that step two may be on its way to happening.

Recall that step two involves a tie up between Micron, Kioxia, and Western Digital, likely happening in phases with Micron acquiring Kioxia or Western Digital first, and then later consolidating the remaining player. If Western Digital were to acquire Kioxia this would likely complicate and lessen the odds of the final ‘end-game’ consolidation step involving Micron.

A combination of Kioxia and Western Digital would have a significant impact to the market. In this scenario the combined entity would challenge Samsung for NAND market share leadership. However, the company would lack DRAM, which limits access to the huge mobile multi-chip package (MCP) market and leaves it without the DRAM profits that its peers can utilize to withstand NAND market volatility, which could increase in the coming years as YMTC becomes a bigger part of the market.

Micron acquiring Kioxia would significantly alter the structure of the NAND market. In this scenario the two large players, Samsung and Micron (+Kioxia), would have considerably more scale than any of the other suppliers. Western Digital would be a relatively small player, dropping to 4th place in terms of market share, and be the only major remaining player without DRAM in its memory portfolio. As a result, Western Digital would be left in a very vulnerable position if NAND profitability remains challenged.

This scenario provides the cleanest and quickest path to the final ‘end-game’ outcome, where only three major players remain (plus YMTC): Samsung, Micron (+Kioxia+Western Digital), and SK hynix (+Intel).

While NAND market consolidation is likely to occur eventually, several hurdles remain, including the massive cost to the acquiring company (news reports suggest a valuation of around $30 billion for Kioxia) and likely challenges with regulatory approvals, with strained relations between the US and China acting as a potential roadblock.

Given these challenges, it seems equally likely that a tie-up will not occur in the near-term, and instead Kioxia will proceed with an IPO in the not-too-distant future. Regardless of the outcome, the need for consolidation is clear.

A more balanced and consolidated industry should lead to healthier market dynamics, as we have witnessed in the post-consolidation DRAM industry, providing the suppliers the financial resources to support the massive investments required to continue driving the technology forward.

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About the author

As VP of NAND and Memory Research, Walt Coon joins Yole Développement’s memory team, part of the Semiconductor, Memory & Computing division.
Based in the US, Walt is leading the day-to-day production of both market updates and Market Monitors, with a focus on the NAND market and semiconductor industries. In addition, he is deeply involved in the business development of these activities.

Walt has significant experience within the memory & semiconductor industry. He spent 16 years at Micron Technology, managing the team responsible for competitor benchmarking, and industry supply, demand, and cost modeling. His team also supported both corporate strategy and Mergers & Acquisitions analysis. Previously, he spent time in Information Systems, developing engineering applications to support memory process and yield enhancement.

Walt Coon earned a Master of Business Administration from Boise State University (Idaho, United-States) and a Bachelor of Science in Computer Science from the University of Utah (United-States).

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