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

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Western Digital has announced plans to split in two, more than a year after activist investor Elliott Management pushed the US data storage company to make such a move.

The $14bn tech group said on Monday it would spin off its flash memory unit from its hard drive business. The announcement comes days after it emerged that Western Digital had abruptly abandoned long-running merger talks with Kioxia of Japan, formerly Toshiba’s semiconductor unit, which is owned by a consortium led by Bain Capital.

South Korean chipmaker SK Hynix, another investor in the Kioxia consortium, said last week it opposed a merger with Western Digital, dealing a blow to Bain’s ambitions to create a US-Japan memory chip champion.

Shares in Western Digital, which fell as much as 16 per cent on Thursday after news broke about its Kioxia talks, rose 10 per cent in early trading on Monday.

Silicon Valley-based Western Digital has spent more than a year conducting a strategic review after shareholder Elliott wrote to its board urging it to consider a split in May 2022. It reached a settlement with Elliott in June last year.

The 53-year-old memory maker said its plan to form two independent public companies would “unlock significant value” for shareholders and “also provides strategic optionality for both businesses”. The transaction is expected to be completed in the second half of 2024.

David Goeckeler, Western Digital’s chief executive, said that spinning off its flash business was “the best executable alternative at this time”, after evaluating “material opportunities for each of our businesses”.

“Given current constraints, it has become clear to the board in recent weeks that delivering a standalone separation is the right next step in the evolution of Western Digital,” he said.

The decision comes as trading conditions in the memory chip market begin to improve after a protracted downturn caused inventories to stockpile across the industry. Western Digital also said on Monday that fiscal first-quarter sales fell 26 per cent year on year to $2.75bn.

Western Digital’s hard drive business, which will retain its current name following the split, primarily serves cloud computing customers. Its Nand flash memory unit also sells to consumers, including through its SanDisk brand and by bundling its storage technology into laptops and smartphones.

Goeckeler, a former Cisco executive, created a separate business unit focused on each technology soon after he took over as chief in 2020. He has also sought to stabilise its finances by paying down debt, suspending its dividend, settling a longstanding tax dispute and, earlier this year, making job cuts.

Elliott said on Monday it supported the decision, which it described as a “value-accretive transaction that would enable both HDD and Flash [businesses] to take full advantage of their industry leadership positions as storage demand normalises”.

Additional reporting by Leo Lewis in Tokyo

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