Rescued by the AI Boom, Japan’s Kioxia Faces a Capex Race

Article content

This granted Kioxia enormous pricing power. In January, the company extended its deal to provide Sandisk Corp. access to its proprietary technology at its Yokkaichi plant through 2034. Under the new agreement, Sandisk agreed to pay Kioxia $1.165 billion over the next four years — the first time Sandisk has paid a premium fee for such access in their decades-long partnership, according to Executive Chairman Stacy Smith.

Article content

“I just wish Dr. Naruke were here to see this,” Smith said.

Article content

Despite these windfalls, Kioxia’s executive team remains haunted by past market busts. “The single most important factor is the overall balance of supply and demand,” Chief Executive Officer Hiroo Ota warned reporters at the Kitakami plant in early July, cautioning that misreading AI demand could easily tip the market into “oversupply and price collapse.”

Article content

In today’s hyper-competitive chip industry, though, such caution comes with its own risks. Falling behind allows rivals to offer higher-capacity storage at lower costs, squeezing Kioxia’s margins and its ability to invest in the next upgrade.In the consumer space, Kioxia’s long-standing ties with Apple are coming under pressure from YMTC. Apple has sought to procure supplies from the Chinese maker, although it has so far been blocked by Trump administration officials. Meanwhile, YMTC is gradually increasing its share of the overall NAND market over the last year, according to market research firm Counterpoint.

Article content

Article content

Falling behind on capacity or improvements can also prompt customers to look for workarounds — including other suppliers. 

Article content

During a recent meeting in Tokyo with investors, Nvidia co-founder Jensen Huang delivered a subtle warning. If memory shortages persist, Nvidia could tweak its architecture to lower its reliance on scarce components altogether, according to people familiar with the exchange. To ensure it isn’t bypassed, Kioxia is now shipping samples of fast flash-storage designed to sit closer to Nvidia graphics processors inside AI servers. The new devices will give the Santa Clara-based chipmaker a way to do more with less by routing data across all its memory and storage layers more efficiently. 

Article content

Even with such innovation, Kioxia faces the capex race at a disadvantage. Its South Korean rivals benefit from the speed and aggressive financial backing of families with commanding stakes and government connections. Samsung and SK Hynix consistently out-invest Kioxia, whose executives tend to shy away from big gambles, according to Yasuhiro Kobayashi, deputy senior researcher at the Itochu Research Institute.

Article content

Article content

Another cause for concern: As of June, SK Hynix, having been a member of Bain’s consortium, holds a claim to a 14% stake in Kioxia, a possible conflict of interest that the Japanese company explicitly lists as a risk factor in its annual report.

Article content

The window to catch up to its rivals in market share will not remain open for long. Some analysts say the next several months — as data centers ratchet up orders to fulfill roaring demand for storage — may determine if the Japanese company can cement its technological edge.Earlier this month, Samsung began mass production of a rival data center storage drive for use inside Nvidia’s upcoming Vera Rubin platform, offering it alongside the Korean company’s next-generation HBM and a low-power memory module.

Article content

Kioxia should quickly mass-produce its advanced products and lock in long-term agreements with clients like Nvidia, said Kazuyoshi Saito, senior analyst at Iwai Cosmo Securities. “It’s important to get ahead of rivals and make your technology the de facto standard,” he said. 

Article content

Inside the boardroom, there are some signs of such ambitions resurfacing. “We invented NAND storage, and yet, sadly, we are no longer No. 1,” Ota said at the shareholder meeting. “I don’t know how long it will take, but I want to see us reclaim the top position.”

Article content

—With assistance from Masatsugu Horie and Natsuko Katsuki.

Article content