On December 18, Kioxia Holdings Corporation (Kioxia, formerly Toshiba Memory) completed an initial public offering (IPO) on the Tokyo Stock Exchange Prime Market. The company plans to use the funds raised (29.1 billion yen) to invest in the development and increased production of memory for data centers. Kioxia’s IPO may also have a significant impact on the restructuring of Toshiba, which is a shareholder of the company.
If Kioxia can increase its global market share in high-precision memory for data centers, its relationship with stakeholders will improve. However, when it comes to memory units for AI, the demand for high-bandwidth memory (HBM) stacked DRAM is expected to rise significantly.
A decade of Toshiba’s management crisis
Kioxia has been strong in flash memory, but it is expected to take considerable time and money to make a full-scale move into HBM. The timing and method of how the company’s management proceeds with this new business will determine its fate. This will also significantly impact Toshiba’s business restructuring.
Depending on future developments, South Korea’s SK Hynix, currently the leader in AI memory, may acquire Kioxia shares. The influence of foreign capital could lead to a restructuring of Japan’s semiconductor industry.
Originally, Kioxia was involved in the design, development, and production of memory semiconductors as Toshiba’s memory business (Toshiba Memory). Currently, the company holds the third-largest share (about 15%) in the global NAND flash memory market, behind South Korea’s Samsung Electronics (about 35%) and SK Hynix (about 20%).
Over the past decade, the business environment surrounding Kioxia has changed dramatically. The biggest impact was the management crisis at Toshiba. In April 2015, Toshiba was found guilty of accounting fraud, including inflating laptop sales figures. Toshiba revised its financial statements and fell into the red, but its insistence on maintaining its listed status delayed reforms.
Reasons for delay in listing, scheduled for 2020
In 2016, Toshiba’s acquisition of the US company Westinghouse caused a huge loss. This loss was decisive, and Toshiba fell into debt. Toshiba carried out a small-scale restructuring, selling off its medical equipment business, one of its growth areas, and reducing its workforce. At the time, Toshiba was forced to sell Toshiba Memory, one of its main revenue sources. That’s how desperate Toshiba was.
In June 2018, Toshiba sold Toshiba Memory to a Japanese, American, and Korean consortium, establishing Kioxia. At the time, Toshiba and HOYA invested 50.1%, maintaining majority ownership by Japanese parties. One reason for this was the desire to capture the growing global demand for memory. The government’s intentions also appear to have influenced the investment balance. Having semiconductor companies, which are strategic materials, under domestic control is crucial to Japan’s economic security.
After that, Kioxia’s business conditions remained unstable, although there was a temporary “special demand for memory” due to the COVID-19 pandemic. In September 2020, Kioxia postponed its initially planned IPO due to the US-China conflict’s impact. With the decline in memory demand as teleworking trends ended, the company posted net losses for five consecutive quarters until the October-December 2023 period.
Relocating the head office, laying off 4,000 employees, selling subsidiaries
In December 2023, Toshiba was delisted from the Tokyo Stock Exchange. Under the umbrella of Japan Industrial Partners (JIP), which raised funds from a consortium of domestic companies, the restructuring of Toshiba’s business operations began in earnest. In May 2024, Toshiba announced a medium-term management plan called the “Toshiba Revitalization Plan.”
Toshiba’s main policy was restructuring. It moved its headquarters from Hamamatsucho in Tokyo to Kawasaki City. It also cut fixed costs, including laying off up to 4,000 employees. Nine years had passed since the accounting fraud was discovered, and some saw this as the company’s reconstruction finally getting underway.
In November 2024, Toshiba announced the sale of Toshiba Materials to NGK Spark Plug Co., Ltd. Toshiba plans to reallocate the funds acquired through this IPO and other initiatives to social infrastructure, such as energy and defense, with the aim of restoring profitability and relisting as soon as possible. Toshiba would like to avoid selling Kioxia shares at a low price, but the priority of quickly paying off debt appears to have taken precedence. Toshiba had no choice but to aim for an early listing of Kioxia.
Toshiba rushes for IPO vs. profit-focused investment funds
On the other hand, Bain, an investment fund, seems to focus on Kioxia’s medium- to long-term growth. The plan is believed to wait for Kioxia’s business recovery and then sell its shares at the highest possible price to maximize profits. Over the past three years, the global NAND flash memory market has been unstable due to the Chinese economy’s slowdown and the saturation of smartphone demand.
Demand for advanced NAND flash memory for AI data centers is expected to increase from the fiscal year 2025 onwards. One market forecast predicts that the market size of NAND flash memory will reach 91.1 billion dollars (approximately 14 trillion yen) in 2025, up 50% from 2024.
At the time of planning the IPO in 2020, Kioxia’s market capitalization was expected to reach around 2 trillion yen. However, due to the global memory market’s softening and sluggish demand for Kioxia shares from major investors, it has become difficult to aim for a market capitalization of 1 to 2 trillion yen with this IPO. Bain appears to have aimed to maximize profits by waiting for the global NAND flash memory market to recover. It has reduced the number of shares to be sold in this IPO. The interests of Kioxia’s major shareholders are not necessarily aligned.
Can next-generation memory be put to practical use quickly?
Kioxia needs to strengthen its profitability by establishing a system to capture memory demand in cutting-edge fields such as AI. Kioxia, which has withdrawn from the DRAM business, is currently working on the practical application of a new type of flash memory called storage class memory (SCM).
Combining SCM with a new interface called Compute Express Link (CXL) is expected to reduce transfer speed and power consumption on AI servers. SK Hynix, Samsung Electronics, and Micron Technology of the United States are also focusing on the practical application of the new memory device.
To manufacture new memory units, Kioxia will need to increase fundraising from financial institutions and make capital investments. Depending on the situation, government-affiliated financial institutions may lend Kioxia funds to help shoulder the risks. Kioxia’s business strategy for the time being will focus on commercializing next-generation memory and expanding business performance. To achieve growth, Kioxia will also need to collaborate with domestic and overseas semiconductor companies and AI startups.
If we hesitate, we will suffer the same fate as Toshiba
If these efforts progress and growth expectations rise, Kioxia will generate more free cash flow in the medium to long term, boosting its stock price. This should also make it easier for Toshiba and Bain to sell their Kioxia shares. As the business environment changes at an accelerating pace, decisive decision-making by management to achieve growth is increasingly important.
Conversely, if the company cannot make swift decisions in line with environmental changes, the stakeholders surrounding the company could become even more complicated, such as SK Hynix acquiring Kioxia shares. There is also a risk that activist shareholders, who were one of the factors behind the difficulties in Toshiba’s reconstruction, could intervene in Kioxia’s development of new memory chips for AI, mass production systems, and collaboration with other companies, making it difficult to implement its growth strategy.
We look forward to seeing whether Kioxia’s management will be able to tackle the research and development of next-generation flash memory, put it into practical use, and realize increased profits and a rise in the company’s stock price.
