2024-05-02 - tech

Western Digital released the latest news on the company's split

Western Digital's split and merger plans are intricate, involving multiple companies and product lines.

Western Digital is executing its plan to split itself into separate hard disk and NAND flash memory businesses, providing today with the latest information on the status of the split, as well as the company's next steps. Western Digital's ultimate goal is to divide the company into two independent publicly traded companies, reporting that they have made significant progress in key transaction items, and they also announced preliminary leadership appointments for the post-separation businesses.

Western Digital announced the split on October 30, 2023, aiming to create two companies focused on hard disks and NAND flash memory, as well as product lines based on NAND flash memory. The company claims that this move is expected to accelerate innovation and bring new growth opportunities. At the same time, due to independent capital structures, the operational efficiency of the two entities will be higher compared to a unified company.

In the early 2010s, Western Digital acquired HGST, several SSD and flash memory companies, and in 2016, it acquired SanDisk to expand NAND flash memory capacity, leading the consolidation of the storage industry. As a result, in the late 2010s, the company became a vertically integrated storage technology company. However, the company faced challenges in increasing revenue. The 3D NAND and SSD markets are highly competitive commodity markets, and thus they tend to fluctuate based on supply and demand conditions. Meanwhile, the demand for HDDs is declining, and products based on 3D NAND and nearline hard disks have offset the decline in unit sales, which is challenging. At the same time, to avoid competing with large storage solution providers such as Dell, HPE, and IBM (who purchase Western Digital's HDDs, SSDs, and NAND memory), Western Digital had to divest its storage solutions, presenting additional challenges.

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Therefore, since the end of 2020, Western Digital's HDD and NAND flash memory businesses have been largely independent, and it became clear that the merged company failed to become larger than the sum of Western Digital and SanDisk parts. So far, considerable progress has been made in preparing for the split, including establishing legal entities in 18 countries, preparing independent financial models, and completing regulatory filing preparations. Western Digital states that the company is still on track to complete the split in the second half of this year.

In terms of post-split leadership, David Goeckeler has been appointed as the incoming CEO of the NAND flash memory spin-off company. He has expressed enthusiasm for the potential of the NAND business in market growth and the development of new memory technologies.

Western Digital CEO David Goeckeler said: "Today's announcement highlights the significant steps we have taken to complete an extremely complex transaction involving more than a dozen countries, encompassing consumer data storage technology brands, professional content creators, world-leading device OEMs, and the largest cloud providers. I am pleased with the outstanding work the separation team has done so far in creating a rotation-ready foundation, which will ensure a successful transition of our flash and HDD businesses into independent, market-leading companies."At the same time, the current Executive Vice President of Global Operations, Irving Tan, will take on the role of Chief Executive Officer of the independent HDD company, which will continue to operate under the Western Digital brand. It is unclear where Ashley Gorakhpurwalla, currently in charge of Western Digital's hard disk drive business unit, will end up, or whether he will remain with the company.

Goeckeler added: "Once the separation is complete, both Western Digital companies will have strategic focus and resources to pursue exciting opportunities in their respective markets, while the flash business offers exciting possibilities, with market growth potential and the emerging development of disruptive new memory technologies. I am very much looking forward to the next steps for the spin-off team."

Rumors suggest that Western Digital and Kioxia will resume merger talks at the end of April.

At the end of October 2023, after merger talks with Kioxia reached an impasse, Western Digital officially announced plans to split the company into two, sparking industry buzz. The industry believes that the failure of the Kioxia merger plan is an important reason for the business split. It is understood that since 2021, Western Digital has been negotiating with Kioxia on the merger plan. According to the plan, Western Digital needed to announce the deal before the financial report on October 30, 2023. After the merger plan was opposed by SK Hynix, the merger talks officially ended on October 26.

Recent reports indicate that merger talks between Western Digital and Kioxia will resume at the end of April. The negotiations between the two companies broke down in October last year due to opposition from South Korea's SK Hynix. It is understood that SK Hynix is an investor in Kioxia and also a competitor of both Western Digital and Kioxia.

Since 2021, the merger talks between Western Digital and Kioxia have been on and off.

Reports suggest that SK Hynix had stated that it disagreed with the merger of Kioxia and Western Digital's flash businesses due to the impact on the company's investment value.

Before Western Digital considered separating its flash and HDD businesses, activist investment firm Elliott Management disclosed its stake in Western Digital in May 2022 and pushed the company to explore the possibility of separating the businesses.

Recently, Kioxia seems eager to resume negotiations with Western Digital, but it needs SK Hynix's approval. According to sources, the Tokyo-based manufacturer is preparing to offer its South Korean competitor a favorable non-volatile memory production agreement.Kioxia's best 3D NAND production facilities in Japan can support SK Hynix's designs, but it is still too early to determine whether this bid will be accepted.

The Yokkaichi factory and Kitakami factory will receive a government subsidy of 150 billion yen, and the joint venture between Kioxia and Western Digital is expected to enter the cutting-edge semiconductor production field. It is also not difficult to see that the Japanese government wants to ensure the continuity of its domestic business during the industry's turbulent period.

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