Western Digital Stock leaps on Kioxia merger reports. Why this is such a big deal.

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Western digital

stock jumped late Wednesday afternoon after a report the company is in “advanced” talks to merge with Japanese firm Kioxia Holdings, a deal that could potentially take back about a third of the flash memory market. under one company.

Western Digital stock (ticker: WDC) rose 7.9% to close at $ 65.50.

The potential deal, valued at more than $ 20 billion, follows months of discussions between the two memory companies, and the companies could reach a deal by mid-September, according to the Wall Street Journal. Citing anonymous sources, the Journal said Western Digital would pay for the deal with the shares and Western Digital CEO David Goeckeler would run the combined business.

Western Digital declined to comment. Kioxia did not immediately return a request for comment.

The Journal said the deal had not gone through and that Kioxia could still choose to go public through an initial public offering, which it planned to close last year until it pulled out. his plans because of market conditions.

Kioxia is a private company that manufactures flash memory used in data centers, smartphones and other storage. Kioxia has had talks with Western Digital and Micron Technology (MU), who have become less interested in a potential transaction, the Journal said. Micron shares rose 2.9% to end Wednesday’s regular session at $ 74.04.

A deal would likely involve approval from regulators in Japan, the United States and China.

If a merger were to occur, it would have a positive impact on flash storage prices and supply growth, Baird analyst Tristan Gerra said in a research note. The deal would also give Western Digital ownership of Kioxia’s manufacturing technology.

Wells Fargo analyst Aaron Rakers said in a research note that a combined company would account for between 30% and 35% of global flash storage production and revenue.

Earlier this year, the Journal announced that the deal would be valued at around $ 30 billion. Western Digital has a market value of around $ 18.9 billion, according to FactSet. Kioxia was once

Toshiba

memory chip unit. It is controlled by a group of investors which formerly included Bain Capital,

SK Hynix,

Toshiba and others.

Chipmakers have started to consolidate, as the costs of designing and manufacturing complex silicon-based technology rise dramatically. Companies without sufficient size find it difficult to compete in markets where the most advanced chip design costs more than $ 500 million.

But much of the consolidation has taken place outside of the memory industry. Last year,

Nvidia

(NVDA) has announced plans to buy Arm for $ 40 billion, a deal that has been slowed down by various regulatory inquiries into its implications. Several large tech companies have vocally opposed Nvidia’s plan to acquire chip technology company from

SoftBank Group.

Advanced Micro Devices (AMD)

announced a purchase plan

Xilinx

for $ 35 billion, and Marvell made two acquisitions: he bought Inphi for $ 10 billion, and more recently said he was buying Innovium for $ 1.1 billion.

However, there were also memory agreements.

Intelligence

(INTC) has agreed to sell its memory chip unit to South Korean SK Hynix in 2021.

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