Kioxia proposes that SK hynix produce chips in Japan

[Courtesy of Kioxia]

SK hynix Inc. is in the spotlight after it was reported that Japanese NAND flash manufacturer Kioxia Holdings Corp. made a proposal to the South Korean chipmaker to use its NAND production facilities in a bid to break through to a merger with its U.S. peer Western Digital Corp. (WD).

According to foreign media reports on Monday, Kioxia proposed that SK hynix produce NAND flash memory at its fab in Japan. The offer is believed to be part of the Japanese memory chipmaker’s efforts to gain approval from SK hynix for its merger with WD, which is currently underway.

SK hynix invested 2.7 trillion won ($2.02 billion) in a fund organized by U.S.-based Bain Capital, LP and acquired 1.3 trillion won in convertible bonds (CBs) when Kioxia was spun off from Japan’s Toshiba Memory Holdings Corp. in 2018.

The consortium formed by Bain Capital holds a 56 percent stake in Kioxia, and while SK hynix does not have management rights, it can express opinions on matters such as selling its stake.

Semiconductor industry observers believe that the merger talks between Kioxia and WD stalled in October 2023 because SK hynix did not agree to the merger.

Kioxia recently restarted merger talks with WD to address its deteriorating profitability, and it is believed that the Japanese company made the proposal to SK hynix to obtain the Korean chipmaker’s approval.

According to the Nikkei, Kioxia reported a loss of 254 billion yen from April to December 2023.

For its part, SK hynix denied receiving a specific proposal from Kioxia, but if the company receives a concrete offer from the Japanese memory chipmaker moving forward, it is highly likely that the Korean chipmaker could face the dilemma of being forced to choose between maintaining market competitiveness and minimizing investment losses.

If SK hynix agrees to the merger, it will create a NAND flash company that surpasses SK hynix. Nevertheless, the Korean chipmaker cannot simply ignore Kioxia’s significant losses which will be reflected in its financial statements. SK hynix’s evaluation loss from Kioxia’s investment assets in 2023 amounted to 1.43 trillion won and exceeds 2 trillion won when combined with the loss of 620 billion won in 2022.

SK hynix President Kwak Noh-jung said at a meeting with reporters after the Korea Semiconductor Industry Association’s regular general meeting in Seongnam, Gyeonggi Province, on Monday that there was “no change in our position” regarding the Kioxia-WD merger talks, but added, “We are always open to cooperation. If there is a good way for us and Kioxia to cooperate for a win-win situation, we are open to considering it at any time.”

“It sems to be the public opinion in Japan that SK hynix is the reason behind the collapse of the Kioxia-WD merger in October 2023,” a semiconductor industry insider said. “From SK hynix’s perspective, all of its options are burdensome.”