Why Kioxia’s Ambitious IPO Runs Up Against Reality

The collateral damage from Huawei’s struggles is spreading far and wide, but not everything can be blamed fully on the Chinese company’s woes. Sometimes things are just not priced to succeed: And one of Japan’s largest initial public offerings this year is looking a little dear.

Japanese memory-chip maker Kioxia said Monday it would delay its Tokyo IPO that could raise up to around $3 billion from selling new and existing shares. The company is the world’s second-largest manufacturer of NAND flash memory, which is used for storage. Toshiba sold Kioxia, then known as Toshiba Memory, to a consortium led by Bain Capital two years ago when it was reeling from the blowup of its nuclear-plant business. Toshiba’s stock fell 3% Monday as the delay means its plan to partially cash out its remaining 40% Kioxia stake is also on hold.

Kioxia blamed the pandemic and stock-market volatility for the delay. It already lowered the price range for the IPO earlier this month, citing the impact of U.S. export restrictions on China’s Huawei, which is a customer of Kioxia.

These reasons are valid to certain extent, especially in the short term. But the pandemic has in fact boosted demand for memory chips used in data centers. And some of Huawei’s competitors may take its market share and create new demand.

An expensive asking price for Kioxia seems likely to be the underlying reason for the delay. At the middle of the IPO price range, Kioxia is valued at around $16 billion—already down from around $20 billion before Kioxia’s move to reduce the asking price earlier in September. But Bernstein analysts this month estimated the company’s value at only $11.5 billion.

Bain and Toshiba may have missed a big payday, but a delayed IPO could hurt them in other ways too. Kioxia may have to delay its plan to invest in its business, especially since the company is already loaded with around $13 billion of net debt. Continued investment into new fabrication plants is crucial in the cutthroat industry of memory-chip manufacturing. Apart from capital spending from market leader Samsung Electronics, Chinese memory-chip makers have also ramped up investment as the country seeks to become more self-reliant in technology. “The semiconductor industry is not one known for generating success through underinvestment,” said Mio Kato, founder of LightStream Research publishing on Smartkarma.

Kioxia may want to lower its sights instead of holding out for the big payday.

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