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Kioxia aims to sweet talk SK Hynix into letting the Western Digital merger go ahead, with a new manufacturing deal as the carrot this time around

This is a news story that’s been rumbling along for a good while now. Kioxia and Western Digital, two of the largest SSD and USB memory stick manufacturers in the world, have been repeatedly trying to merge into a single company, except that SK Hynix has blocked the attempt every single time. This time, however, Kioxia is trying a different approach and is apparently trying to sweeten the deal by agreeing to let SK Hynix use both Kioxia’s and WD’s fabrication plants for its own line of memory and NAND flash chips.

That’s according to a very brief report by Reuters, at least, but it’s almost certainly the case as Kioxia and Western Digital are out of options with regard to getting the merger to take place. If you’re wondering why SK Hynix has the power to veto the deal, it’s because that company is an investor in Kioxia and has dropped considerable sums of money into the Japanese firm’s manufacturing lines.

SK Hynix is keen on preventing the merger because as things currently stand, it’s second only to Kioxia and Samsung in the flash memory market: Western Digital is the world’s fourth largest supplier but it’s a far way behind SK Hynix. If WD and Kioxia did combine forces, the single group would almost certainly pass Samsung at the top of the sales chart.

One could argue that even if this did come to pass, SK Hynix would still be in third place, so there would be no change in that sense. And there’s also the potential for WD to switch from using Micron’s flash chips to SK Hynix’s, which would help boost its own revenue.

However, unlike WD, Kioxia makes its own NAND flash and the merger is far more likely to result in Western Digital products using those chips rather than anyone else’s. While this wouldn’t affect SK Hynix’s global position in the supplier ranks, it would remove a source of new revenue from them.

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The SSD industry is waking up to the fact that Chinese firms, such as YMTC, are producing perfectly decent NAND flash in large quantities. One of the best SSDs you get at the moment, the Lexar NM790, uses YMTC chips rather than anything from Japan, Taiwan, or the USA.

Kioxia and WD obviously want to be in a position where, as a single entity, they can consolidate their position within the market by getting their chips and products firmly entrenched in as many sectors as possible. SK Hynix, on the other hand, wants a broad and competitive market to ensure its flash sector stands a chance against the influx of new manufacturers.

Will this manufacturing deal be enough to sway SK Hynix? Given how the merger has been knocked repeatedly time and time again, I doubt it will make any difference but stranger things have happened in the semiconductor industry. Best not to drop a few dollars on a bet with this one.

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