Key points
- SK Hynix indirectly became the largest shareholder of Japan's Kioxia, the company that invented NAND flash, passing Toshiba at a 14.17% stake.
- The stake sits inside convertible bonds from a 2018 deal, and a 15% voting cap until 2028 plus antitrust reviews block any real control.
- Combined, SK Hynix and Kioxia would hold about 32% of the global NAND market, ahead of Samsung's 29%.
- Its Solidigm unit is also restarting a stalled plant in China that would lift SK Hynix's NAND output there about 50%.
SK Hynix (SKHY) has quietly become the largest shareholder of Kioxia. It is an unusual position. The South Korean chipmaker owns no Kioxia shares directly, controls no votes and holds no board seats. What it does have is the payoff from a bet it made eight years ago.
The story begins in 2018, when Toshiba sold the memory business now known as Kioxia. SK Hynix joined a consortium led by Bain Capital and invested around 3.9 trillion won, or about $2.8 billion. Most of that money did not go directly into Kioxia shares. Instead, SK Hynix bought convertible bonds held through a Bain-managed investment vehicle. Those bonds can potentially become stock later. As Toshiba and other longtime shareholders reduced their positions, the Bain vehicle moved into first place. It now holds 14.17% of Kioxia, narrowly ahead of Toshiba at 14.06%. That puts SK Hynix behind Kioxia’s largest shareholder on paper, but gives it almost none of the power that usually comes with the title.
A stake with almost no power
The reason goes back to the conditions SK Hynix accepted in 2018. The company agreed to keep its direct voting interest below 15% through 2028. Converting the bonds into voting shares would also require antitrust approval in several countries. Japan is unlikely to welcome a Korean company gaining influence over one of its most important semiconductor businesses. A board seat appears equally difficult to obtain. China may be the bigger obstacle. Kioxia sells a significant amount of memory in mainland China, which means an ownership change would likely require approval from Beijing’s State Administration for Market Regulation.
Kim Yang-paeng, a senior researcher at the Korea Institute for Industrial Economics and Trade, said the odds do not favor SK Hynix “As long as there’s revenue in China, it’s hard to get around a SAMR antitrust review,” he said. “From China’s standpoint, when it needs to build up its own chip industry, allowing a Korean company to strengthen its market power right now would be uncomfortable.”
The market shares explain the concern. NAND flash memory provides storage for smartphones, personal computers and data center servers. Samsung controls about 29% of the market, SK Hynix has about 18%, and Kioxia holds around 14%. Combining the SK Hynix and Kioxia positions would give the pair about one-third of the global NAND market, enough to move past Samsung. It would also remove a major competitor from a business that has already spent years struggling with oversupply and weak margins. That is exactly the kind of change antitrust regulators are supposed to examine.
A second NAND move in China
Kioxia was not the only NAND development surrounding SK Hynix that week. The Seoul Economic Daily reported on August 11 that Solidigm, the NAND business SK Hynix acquired from Intel in 2021, is restarting construction at a stalled facility in Dalian, China. The project is Solidigm’s second plant in the city. Once operating, it is expected to increase SK Hynix’s NAND production capacity in China by about 50%. Work initially began in 2022, but the collapse in the memory market and US restrictions on semiconductor equipment shipments to China forced the company to stop. Equipment could begin arriving as early as November, with commercial production targeted for the first half of next year.
SK Hynix is leaning further into NAND for the same reason the rest of its business is booming. AI data centers need enormous amounts of storage, and demand for Solidigm’s high-capacity enterprise drives has helped pull NAND prices out of a long slump. The company has historically been known for DRAM, especially high-bandwidth memory. SK Hynix leads that market and earns some of its strongest profits there. NAND has been the weaker side of the portfolio, with the company consistently trailing Samsung.
A NAND foothold in the US, China and Japan
Solidigm gives SK Hynix a manufacturing and operating presence in the United States. Dalian provides scale in China. Its indirect Kioxia position gives it a financial foothold in Japan, where NAND technology was invented. Together with the tens of billions of dollars SK Hynix is investing in fabrication plants at home, those positions stretch across three countries. The company is trying to build the same kind of scale in NAND that it already enjoys in the memory products Wall Street values most. Investors liked what they saw. SK Hynix shares rose 5.54% in Seoul on Wednesday, closing at 1,504,000 won, or about $1,062. The move came during a broader semiconductor rally that lifted the Kospi 3.68%.
The Kioxia investment itself remains frozen in place. SK Hynix cannot convert the bonds into ordinary voting shares without clearing the regulatory barriers. That could take years, and approval may never come at all.
Sources
- 서울경제, '낸드 원조' 日 키옥시아 1대 주주 올라, on SK Hynix's Bain fund passing Toshiba to 14.17% of Kioxia.
- 아주경제, 키옥시아 '최대주주' 올라선 SK하이닉스…中 승인 족쇄·15% 캡에 '시너지 제로', on the 15% voting cap, the China antitrust obstacle and the Kim Yang-paeng quote.
- 서울경제, [단독] SK하이닉스, 中 낸드 생산 50% 늘린다, on the Solidigm Dalian plant restart.
- Our earlier coverage: SK Hynix's Solidigm heading toward a Nasdaq listing and how that listing would stack four SK companies in one chain.
Won amounts are converted at about 1,415 won to the US dollar. Quotes originally in Korean have been translated. This article is for information only and isn't investment advice.
