The last few years have seen NAND prices crater before rebounding. The next few years may see the major players in the market go public, split or merge.
Over the past three years, flash prices dropped and then rebounded. But major NAND makers are discussing IPOs, companies breakups and lingering mergers that might lead to consolidation and more stable pricing.
There are five major NAND makers now: Samsung, Micron, SK Hynix, Western Digital and Kioxia. The latter three could be experiencing growing pains that include splitting up business, spinning off business and going public. How this affects the flash storage industry is yet to be seen. But it is certain to make things interesting, experts said.
This could be an opportunity for the market to change its past cycles of boom-and-bust, according to Joseph Unsworth, an analyst at Gartner. There is a demand upshoot that leads to an oversupply followed by a NAND market downturn every few years.
"I don't think there's going to be any near-term change in fundamentals in terms of how this plays out," Unsworth said.
But if companies split and go public, their directions will be driven by investors' postures that might change the boom-and-bust cycle. Potential mergers would consolidate the NAND industry.
NAND market recovery
The NAND market took a large dip in 2022, partially due to the pandemic, Unsworth said. When people began to work from home, there was a reorientation of money toward consumer electronics followed by an update in large-scale data centers and cloud providers' infrastructure to support this shift.
"I call this a gorging period for the hyperscalers," Unsworth said. "You gorge during the holidays. What do you do [after]? You probably need to tighten your belt and go on a diet."
Hyperscalers tightened their belts in late 2022 into 2023, he said. They got as much value as they could out of existing assets by incorporating better utilization rates through things like data reduction. In 2023, the hyperscalers bought 54% less flash than in 2022. At the same time, consumer demand dropped for NAND, and there were geopolitical issues around inflation and wars to contend with.
"The NAND industry didn't add reckless amounts of supply," Unsworth said. "So this isn't a supply-driven downturn. This was really a demand-driven downturn."
NAND vendors responded by cutting production, with Kioxia cutting up to 30%. Samsung announced a reduction as well, with some sources reporting reductions as high as 50%, he said.
"They were in negative operating margins and negative gross margins," Unsworth said. "It was brutal -- worst ever year in net flash."
In 2023 and into 2024, the emergence of generative AI hit the NAND market further, with companies focused on compute power. But the market is expected to benefit from AI as the demand for data storage grows, Unsworth said.
NAND is used in both client and enterprise SSDs, with enterprise SSDs seeing a turnaround in price recently. Enterprise pricing has risen substantially in 2024, according to Jeff Janukowicz, an analyst with IDC. SSD prices were up 22% quarter-on-quarter in the first quarter of 2024 and up another 20% on the second.
"It's coming off a period 2023 where most of the SSD vendors were selling essentially at a loss, so the industry was not healthy," Janukowicz said.
Potential IPOs
Kioxia intends to file a preliminary application to list shares on the Tokyo Stock Exchange with intention to be listed later this year, according to Reuters. In July, Kioxia secured continued financing commitment from the Development Bank of Japan as the company anticipates growth in the flash memory market,
There will be little change on the day-to-day business side if the company goes public, according to Jim Handy, general director and semiconductor analyst at Objective Analysis.
I don't think there's going to be any near-term change in fundamentals in terms of how this plays out.
Joseph UnsworthAnalyst, Gartner
Unsworth agrees that the overall market won't change. But the IPO will give Kioxia another way to raise money for new equipment or possible future fabs.
"Money isn't as accessible as it used to be," Unsworth said, noting worldwide inflation and the Federal Reserve raising core interest rates in 2022 and 2023.
The talk of an IPO for Kioxia isn't new, Unsworth said. Kioxia has had investors since it spun off from Toshiba in 2019. These investors are looking for a return on their investments and likely want to see an IPO.
"They can get a return on their investments, but also, [Kioxia] can support themselves in the future," he said.
Another IPO rumor centers around SK Hynix's NAND offshoot, Solidigm. SK Hynix acquired Intel's NAND business in 2021 for $9 billion and named the new SSD division Solidigm, headquartered in San Jose. SK Hynix is expected to list Solidigm on the NYSE to raise funds for expanded production facilities.
SK Hynix is doing well compared to the other flash vendors, Unsworth said. Solidigm has succeeded in taking Intel's enterprise SSDs and selling the technology to enterprise customers. While the deal closed a few years ago, geopolitics have since changed, which might lead to an IPO and spin off.
"If we look at where the market is today and the geopolitics getting access while there's been some reprieve and relaxation of the equipment restrictions. … It's a little challenging to say, 'Let's go and build and expand in Dalian, China,' when you don't know if you can get the equipment long term," he said.
Unsworth also noted that SK Hynix owes Intel $2 billion in March of 2025 that could complicate the IPO.
Handy sees a Solidigm spin off less likely. The formation of Solidigm gave SK Hynix an entry into the enterprise SSD market. SK Hynix has also replaced Solidigm's management with its own employees.
Splits and mergers
In October 2023, Western Digital (WD) said it would split its business into two separate companies -- one focused on HDDs, the other on SSDs -- by the end of this year.
This won't be significant to the market as WD is already one of the major NAND manufacturers, Handy said. Those who bought NAND from WD can buy it from the separate entities.
"It's like having a hungry kid, and you can even either give them a hot dog inside a bun, or you can give them the hot dog and the bun separately from each other," he said. "If the kid eats both of them anyway, the kid's going to be equally full."
Amongst all the changes in the NAND market, the potential of a newly spun-off Western Digital and Kioxia merger still looms. The "will they or won't they?" of the two companies goes back to 2021.
Handy doubts a merger due to the better deal WD gets on the joint manufactured NAND. This deal allows WD to take up to 49% or less of the wafer produced, meaning an overproduction is dealt with by Kioxia. Merging wouldn't be in WD's favor.
Unsworth noted that a merger makes sense between the two companies as they share the same fab. He sees the two companies stronger together but notes geopolitical issues.
"No matter what happens, China would need to approve this. And I don't know if they do," Unsworth said.
Adam Armstrong is a TechTarget Editorial news writer covering file and block storage hardware and private clouds. He previously worked at StorageReview.
