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The $20b merger that can bring order to the global chip shortageINTL

The $20b merger that can bring order to the global chip shortage

Western Digital (WDC), the US data storage manufacturer, is currently in talks with Japan’s Kioxia Holdings, a leading memory chips manufacturer, regarding a potential merger. Eat or be eaten seems to be the mantra in the semiconductor chips industry right now as a number of players in the sector have been on the M&A train over the past few years – AMD’s (AMD) $35b purchase of Xilinx and Nvidia’s (NVDA) $40b buyout of Arm Holdings, for instance.

While companies experience a global chip shortage due to higher than usual demand from consumer electronics and unexpected factory closures during Covid-19, mergers like Kioxia and WDC’s give manufacturers the route of pooling resources and increasing production capacity. Post-merger, Western Digital and Kioxia’s combined market share in the smartphone memory chips segment would come to 34% — giving them a significant edge over competitors. The merger is estimated to buy out Kioxia, which is privately owned, by a group of investors (including Bain Capital and Toshiba) at a $20b price.

why it matters

Even though talks are in advanced stages, nothing’s locked in as of yet. Kioxia was thinking about an IPO as well last year, and if its investors receive more attractive returns through an alternative exit route, the merger could fall through. Despite the uncertainty, WDC shares still shot up by 7.8% as news broke out.