Western Digital Spins Off Flash Memory Business After Kioxia Merger Talks Fizzle

WD Black drives on a reflective blue surface.
In a surprise move, Western Digital is splitting its hard disk drive (HDD) and flash memory storage businesses into separate companies, effectively spinning off its solid state drive (SSD) division. The move comes around the eight-year anniversary of when Western Digital announced plans to acquire SanDisk for $19 billion (the deal closed in May 2016), which  helped the company become a major player in the NAND flash memory market.

Western Digital says the separation will put each franchise in a better position to innovate and develop future products, as well as operate more efficiently courtesy of distinct capital structures. The split is expected to be complete by the end of the 2024.

"Our HDD and flash businesses are both well positioned to capitalize on the data storage industry’s significant market dynamics, and as separate companies, each will have the strategic focus and resources to pursue opportunities in their respective markets. Importantly, separating these franchises will unlock significant value for Western Digital shareholders, allowing them to participate in the upside of two industry leaders with distinct growth and investment profiles," said David Goeckeler, CEO, Western Digital.

Western Digital slide on having two independent public data storage companies.

In a press release, Western Digital alluded to rumors that it was in talks with Kioxia about a potential merger—the two companies have a 23-year business relationship. The company said it "thoroughly evaluated strategic transactions" that were on the table but ultimately decided that a standalone separation made the most sense for its shareholders.

"We are now emerging from a historic cyclical downturn in storage where all the changes made in the past several years are evident in how well each business performed relative to peers. Moving forward, as we progress through fiscal year 2024, we see an improving market environment in both businesses, and we will remain open to strategic opportunities that unlock further value in both our HDD and Flash investments and assets," Goeckeler added.

News of the split comes at the same time Western Digital announced its fiscal first quarter 2024 financial results. Overall revenue fell 26% year-over-year, leading to a $685 million loss. That includes a $161 million loss from its NAND flash memory business, versus a $273 million profit for its HDD division.

It also comes amid a market downturn in NAND flash memory sales that has major players looking at ways to stop the bleeding, primarily by scaling back production. For consumers, this has led to a continued decline in SSD pricing at retail, though a recent analysis by TrendForce projects that SSD prices will rise by as much 13% this quarter. Still, NAND flash memory pricing on the supply is far lower than what manufacturers would like to see it at.

Going forward, Western Digital's HDD business will continue as an independent publicly traded company under the same name. Its flash business will be spun-off via tax-free dividend to Western Digital's shareholders and operate under a new name that is yet to be determined, subject to final approval from the company's Board.