SK hynix opposes Kioxia and Western Digital merger in major blow to deal

SK hynix said it opposes to the merger of Kioxia and Western Digital’s memory chip operations, a stance that is expected to be a significant blow to the deal.

SK hynix [YONHAP]

SK hynix said it does not agree with the merger of Kioxia and Western Digital’s memory chip operations, a stance that is expected to have an impact on the landmark deal.

“[SK hynix] does not consent with the deal due to multiple reasons including the value of our investment in Kioxia,” said Kim Woo-hyun, chief financial operator (CFO) of SK hynix on Thursday during a conference call.

“We will be making the decision for the sake of all stakeholders including Kioxia," said Kim, adding that further elaboration cannot be made due to confidentiality issues.

SK hynix holds an indirect stake in Japan’s Kioxia by participating in a global consortium that purchased about half of Kioxia’s stake in 2018 at $18 billion.

The Korean memory chipmaker had injected about 4 trillion won ($3 billion) into the Korea-Japan-U.S. consortium led by Bain Capital, 30 percent of which was financed through convertible bonds which could later converted into stake equity of up to 15 percent, according to the company.

Technically, SK hynix does not hold a stake in Kioxia currently.

SK hynix has been given the right to agree to the deal which means that the chipmaker's decision can influence the deal. SK hynix has not exercised that right yet.

The Korean chipmaker's opposition comes as it holds second spot in the NAND flash memory chip market, trailing behind Samsung. If the Kioxia-Western Digital deal goes through, it should put SK hynix in third spot with a large gap to second spot.

Samsung grabbed 31.1 percent of the NAND flash market in the top spot during the third quarter this year, according to TrendForce data, followed by Kioxia with 19.6 percent, SK hynix with 17.8 percent and Western Digital with 14.7 percent.

Japan’s Nikkei Asia last week reported on SK hynix’s approach toward SoftBank to collaborate in case the merger falls through. SK hynix denied the report.

Recovery in DRAM

SK hynix logged its fourth consecutive net loss during the July-September period posting 2.2 trillion won, failing to meet the market consensus of loss of 1.5 trillion won.

Its DRAM chip business, however, turned to profit in the third quarter, after losing money in the previous two quarters, the company said.

It posted 1.7 trillion won in operating loss and 9.1 trillion won in revenue for the cited period. Compared to the previous quarter, its revenue was up by 24 percent and operating profit narrowed down by more than 1 trillion won.

SK hynix hinted on facilities investment expansion next year.

"We think it would be hard to respond to increasing demand and maintain technology competitiveness with the same level of investment as this year in 2024," said CFO Kim during the conference call.

"Investment is inevitable in order to aptly respond to client demands in the area of products that we have an edge in."

SK hynix downsized investment by more than 50 percent this year compared to last year when it made a 19 trillion won investment.

The Korean memory chipmaker showed confidence in its high-performance memory chips HBM3 and HBM3E on the back of AI hype.

"The capacity of HBM3 and HBM3E has been sold out until next year," said Park Myoung-soo, head of DRAM marketing at SK hynix.

"We are discussing potential technical cooperation and capacity with our key partners not only for 2024 but also for 2025."

Park forecast that NAND flash market will continue to struggle for a while longer.

"NAND has a higher inventory level than DRAM because the impact from AI demand is limited so it will take longer for the market to recover demand for NAND," he said.

SK hynix will continue with conservative production of the NAND next year, Park added.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]