TOKYO / WASHINGTON – On Friday, Toshiba’s former memory unit Kioxia Holdings held an online board meeting with executives in the United States. This item was removed from the agenda.
The IPO was approved by the TSE in 2020, but the plan was derailed by trade tensions between the United States and China, which hurt profits. Since then, new options have appeared, including a merger with Western Digital.
But while the creation of a US-Japan semiconductor tie-up fits the narrative of fighting China’s rise, allies are sensitive to the idea of ceding too much control to such a key industry. . Semiconductors are the lifeblood of the data society, and both countries are keen to strengthen their respective chip industries. The deal is likely to be a test of what the US-Japan alliance will look like in the years to come.
At the US-Japan summit in Washington on April 16, headlines focused on how President Joe Biden and Prime Minister Yoshihide Suga discussed the situation in the Taiwan Strait. But another key topic was semiconductors.
“We will be working together in a variety of areas,” Biden said at the joint press conference, “from promoting secure and reliable 5G networks to increasing our supply chain cooperation for critical industries like semiconductors, conducting joint research in areas such as AI, genomics, quantum computing and more. “
The US side has proposed to create a common fund with Japan and the European Union to develop advanced semiconductors.
The reason Washington wants to collaborate with Tokyo is to compete with China, which is sweeping the global high-tech market. Many US chip companies are now factoryless, and the US market share in global production fell to 12% in 2020 from 37% in 1990.
This highlights the risk of dependence on China for vital supplies.
The Biden administration and Congress are considering a bill that will allocate more than $ 50 billion to boost semiconductor production. The idea is to invest in the production of advanced semiconductors in the United States, while increasing purchases of memory chips from allies such as Japan and South Korea.
It was around the time of the Biden-Suga summit that discussions about a business integration between WD and Kioxia gained traction. Such a merger would fit perfectly with the US-Japan semiconductor collaboration envisioned by the executives, it was thought.
“I think we have a great partner in Kioxia and we look forward to realizing the future together,” WD CEO David Goeckeler told Nikkei in an interview after the Biden-Suga summit.
Goeckeler has visited Japan several times despite obstacles from COVID-19.
A major player in hard drives, WD entered the memory field with the acquisition of SanDisk in 2016. If it succeeded in integrating with Kioxia, the scale would be comparable to market leader Samsung Electronics.
But Kioxia was reluctant to be swallowed up by WD. She made a counter-offer in which the Japanese company would be the main partner. Meanwhile, major shareholders Toshiba and Bain Capital – eager to deliver shareholder returns – would have preferred an IPO, which would have been the easiest route to monetization. Progress has stalled.
However, talks continued, resulting in several compromises, such as an equal partnership and a sharing of board seats for the new merged entity.
The main sticking point was the location of the headquarters. WD is believed to have insisted the company be American for tax purposes.
But the desire to revive the semiconductor industry is just as strong in Japan. The global market share of Japanese manufacturers fell to 10% in 2019. Already 64.2% of domestic demand depends on imports. The Ministry of Economy, Trade and Industry is eager to attract chip factories from countries without security concerns.
Within METI, many officials believe that factories as well as high value-added research and development functions should remain in Japan.
A caucus within the ruling Liberal Democratic Party, launched in May to focus on chip strategy, is also closely monitoring developments. “If the merged company remains a Japanese entity with equal investment, we would welcome that,” said a member, noting that moving the head office to the United States would be unacceptable.
China has a massive subsidy program to increase the domestic semiconductor ratio to 70%. An American industrial group calculates that the costs of building and operating advanced factories are 30% cheaper in China, half of which is due to public funds.
Japan and the United States, on the other hand, depend on Taiwan for their production. Taiwan also accounts for over 90% of advanced logic semiconductor production capacity and 20% of all semiconductors. As China increases military pressure on the island, the United States and Japan are in a hurry to find alternative sources.