Western Digital to separate in two after abandoning merger talks with Kioxia

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Western Digital has introduced plans to separate in two, greater than a yr after activist investor Elliott Administration pushed the US information storage firm to make such a transfer.

The $14bn tech group mentioned on Monday it might spin off its flash reminiscence unit from its exhausting drive enterprise. The announcement comes days after it emerged that Western Digital had abruptly deserted long-running merger talks with Kioxia of Japan, previously Toshiba’s semiconductor unit, which is owned by a consortium led by Bain Capital.

South Korean chipmaker SK Hynix, one other investor within the Kioxia consortium, mentioned final week it opposed a merger with Western Digital, dealing a blow to Bain’s ambitions to create a US-Japan reminiscence chip champion.

Shares in Western Digital, which fell as a lot as 16 per cent on Thursday after information broke about its Kioxia talks, rose 10 per cent in early buying and selling on Monday.

Silicon Valley-based Western Digital has spent greater than a yr conducting a strategic evaluate after shareholder Elliott wrote to its board urging it to contemplate a break up in Could 2022. It reached a settlement with Elliott in June final yr.

The 53-year-old reminiscence maker mentioned its plan to type two impartial public firms would “unlock vital worth” for shareholders and “additionally supplies strategic optionality for each companies”. The transaction is anticipated to be accomplished within the second half of 2024.

David Goeckeler, Western Digital’s chief government, mentioned that spinning off its flash enterprise was “the very best executable various right now”, after evaluating “materials alternatives for every of our companies”.

“Given present constraints, it has change into clear to the board in latest weeks that delivering a standalone separation is the fitting subsequent step within the evolution of Western Digital,” he mentioned.

The choice comes as buying and selling circumstances within the reminiscence chip market start to enhance after a protracted downturn triggered inventories to stockpile throughout the trade. Western Digital additionally mentioned on Monday that fiscal first-quarter gross sales fell 26 per cent yr on yr to $2.75bn.

Western Digital’s exhausting drive enterprise, which can retain its present identify following the break up, primarily serves cloud computing prospects. Its Nand flash reminiscence unit additionally sells to customers, together with by its SanDisk model and by bundling its storage expertise into laptops and smartphones.

Goeckeler, a former Cisco government, created a separate enterprise unit targeted on every expertise quickly after he took over as chief in 2020. He has additionally sought to stabilise its funds by paying down debt, suspending its dividend, settling a longstanding tax dispute and, earlier this yr, making job cuts.

Elliott mentioned on Monday it supported the choice, which it described as a “value-accretive transaction that will allow each HDD and Flash [businesses] to take full benefit of their trade management positions as storage demand normalises”.

Extra reporting by Leo Lewis in Tokyo