Kioxia Holdings was supposed to be an irresistible debutant in a hot Japanese market, heralding the rise of a homegrown chipmaker with big backers and a storied pedigree. It may get a cooler reception than anticipated.
The pioneer in NAND flash memory — chips that store information in smartphones and data centre servers — is listing Wednesday after years of complex and wide-ranging negotiations that involved Bain Capital, SK, Western Digital and the Japanese government.
Its initial public offering has been touted as the start of a comeback for a company born out of Toshiba, which invented the component in the 1980s and helped spearhead the Japanese economic miracle.
Yet Kioxia — whose name combines the Japanese word for memory and the Greek one for value — is a shadow of its former self. Investment faltered as parent Toshiba wrestled with years of scandals and crippling losses at nuclear giant Westinghouse, stalling its technological advance.
That in turn helped the ascent of South Korean rivals Samsung Electronics and SK Hynix, which Seoul heavily supported. And finally, the global post-Covid-19 smartphone slump wiped out growth.
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On Dec 18, Kioxia will enter hit the market valued at US$5.2 billion ($7.02 billion) — a fraction of the US$18 billion that a Bain-led consortium forked over in 2018.
Beyond the fundamentals of the business, many investors remain wary of buying Japanese semiconductor-related shares because of the potential for the Trump administration to disrupt global trade and further escalate an assault on the Chinese semiconductor market — the world’s largest and a thriving destination for Japanese chip firms.
Kioxia managed to price only at the middle of its indicative IPO range. Only it and one other firm ended up debuting below the upper limit out of 75 IPOs in Japan this year that gave a price range, Japan Exchange Group data show.
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“The price says everything. We had a strong impression that the stock lacks short-term catalyst,” said Taku Ito, chief equity fund manager at Nissay Asset Management. “The company should grow over the medium term on increased need for NAND as data-generation demand expands. But NAND, unlike other memory, is a commodity and its supply-demand and price moves are quite volatile.”
Central to investors’ concern is that NAND memory has yet to fully emerge from a prolonged slump in price. Demand for the components has softened since a Covid-era peak because of a severe downturn in global mobile demand. Still, a revival in data centre construction has helped prop up prices, though the industry hasn’t seen a strong rebound.
Western Digital — Kioxia’s years-long partner through a manufacturing joint venture in northern Japan — recently warned that NAND pricing stayed weak in the fourth quarter.
Where Kioxia can find growth is in the current global AI boom.
Flash memory is today used extensively in storage devices within servers and high-end computers, replacing the magnetic hard drives of old. Like other memory chip players, Kioxia should benefit from the multi-trillion-dollar spending on data centres around the world fueled by big tech firms from Microsoft to Amazon.com.
But Kioxia’s exposure to one type of memory may harm it in the long run. It might not benefit as much as high-bandwidth memory essential to driving the performance of Nvidia’s most powerful AI accelerators.
The question for investors is whether Kioxia raises enough capital to expand capacity to keep pace with Samsung in the race to raise yields and lower costs of production. Another critical question is how much is then left for research into the next generation of memory, as AI rolls out more broadly.
“With uncertain external factors and the company’s volatile earnings, there’s less motivation to add the stock in our portfolio,” said Nissay’s Ito.
Chart: Bloomberg
