Japan to give $1.6B to WD and Kioxia in subsidies to boost memory capacity

Japan is preparing a subsidy package worth $1.64 billion for Kioxia and Western Digital as the memory market is poised for a comeback, but challenges remain.

Japan’s industry minister Ken Saito was quoted as saying in a Reuters report that the memory market is expected to register significant growth, largely driven by demand fueled by generative AI.

The aid package by Japan is intended to match a $4.8 billion investment by Western Digital and Kioxia into new facilities. 

This move by Japan comes days after reports that said Western Digital and Kioxia have resumed behind-the-scenes negotiations over a possible merger. 

The two companies were in merger talks for most of 2023, but the plan ultimately fell apart in October of last year as a consensus could not be reached with SK Hynix, which holds a stake in Kioxia.

Some analysts worry about the level of consolidation in the market should a merger have gone through, and demand resumes. A Japanese subsidy package would allow for competition to remain in the market while providing a bridge that brings these companies to the next part of the market cycle.

Japan is also exploring the possibilities for more subsidies to boost foundry capacity within the country as nations around the world build up sovereign AI capabilities.

AI driving demand

Most of 2021-2022 proved to be a considerable challenge for companies in the NAND space, as they fought off a weak PC and smartphone market.

TrendForce data showed a significant oversupply of NAND memory, with global NAND flash revenue plummeting 45% year-over-year in the fourth quarter of 2022.

However, there does seem to be light at the end of the tunnel for these companies.

During its most recent earnings call, Western Digital reported an increase in Average Selling Prices (ASPs), attributed to what it calls strategic inventory management and portfolio optimization.

The company said it anticipates generative AI to drive demand and potentially increase ASPs across its flash portfolio, with the technology expected to trigger a refresh cycle in PCs and smartphones.

Micron also flagged generative AI as a way to boost ASPs in its most recent earnings call.

In December, TrendForce reported that NAND Flash suppliers plan to raise prices by over 50% to surpass breakeven points, driven by production cuts and a strategic wafer allocation reduction amid a structural supply shortage.

TrendForce also predicted that new AI-ready servers will require 17% more DRAM and 13% more SSD capacity, given the heavy workload from AI, driving up demand for chips.