Western Digital (WDC)-Kioxia Potential Deal Could Hit Roadblock
Western Digital's (WDC) potential acquisition of Kioxia could face several political and regulatory roadblocks, per sources.
Last week, The Wall Street Journal reported that Western Digital was eyeing Kioxia in a deal worth more than $20 billion. There has been no official word on the matter so far from the companies involved.
Citing sources familiar with the matter, WSJ added that the deal could be announced as early as mid-September. The combined company will likely be run by Western Digital’s CEO David Goeckeler. The deal could also fall flat and Kioxia could go ahead with its proposed plans of floating initial public offering (IPO), noted the report.
Headquartered in Tokyo, Kioxia is one of the prominent global suppliers of flash memory and solid state drives (SSDs).
Western Digital Corporation Price and Consensus
Bloomberg noted that the deal could be shunned by the Japanese government. The Japanese government is looking to pump billions of dollars into its domestic semiconductor industry amid a surge in global demand for chips.
Western Digital’s acquisition of Kioxia — one of the most valued Japan-based semiconductor companies — will not go down well with the Japanese government, according to sources cited by Bloomberg.
Amid strained U.S-China relations, Chinese regulatory authorities are likely to oppose a U.S acquisition of Kioxia.
Kioxia is looking to float an IPO and it is likely that the company’s senior management would like to go ahead with the plan as soon as next month, per Bloomberg.
For Western Digital, the deal is a bit challenging as well. The proposed value of the Kioxia deal is higher than the company’s market capitalization of approximately $19.3 billion as of Aug 27, 2021.
At the end of the last reported quarter, the company’s long-term debt (including current portion) stood at $8.725 billion, while cash and cash equivalents were $3.37 billion.
What the Kioxia Deal Means for Western Digital
The acquisition of Kioxia will provide Western Digital a competitive edge in the NAND flash memory market, which is dominated by the likes of Samsung, SK hynix and Micron. Kioxia and Western Digital currently work together for flash NAND memory production.
According to Mordor Intelligence report, the NAND flash memory market is expected to witness a CAGR of 11.3% between 2021 and 2026 and reach $85.36 billion. The market is being driven by rebounding smartphone market.
Pandemic-induced work from home and online learning is driving demand for laptops and PCs which is another factor driving the NAND market along with spurt in video gaming activity, globally.
NAND flash memory improves web browsing experience as well as aids in faster loading of games and other apps. Higher need for storage capacity in smartphones is driving demand for NAND flash memory. The accelerated deployment of 5G technology is also expected to boost demand for 5G smartphones, which will fuel demand for NAND memory, added the report.
Zacks Rank & Key Picks
At present, Western Digital carries a Zacks Rank #3 (Hold).
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