Valuation is only $5.2 billion, NAND flash giant Kioxia's IPO unexpectedly met with a cold reception.

The listing of Kioxia was supposed to be a highly anticipated debut in the Japanese market, signaling the rise of a domestic chip manufacturer with strong supporters and a legendary lineage. However, the company's IPO may receive a more lukewarm response than expected. The pioneering company in the NAND flash memory field (chips used for smartphones and data center servers to store information) debuted on Wednesday after years of complex and extensive negotiations involving Bain Capital, SK Inc., Western Digital Corporation (WDC.US), and the Japanese government. Its IPO was once hailed as the start of the revival of this company spun off from Toshiba. Toshiba invented the Toshiba chip in the 1980s and helped lead Japan's economic miracle. However, Kioxia is still overshadowed by its past shadows. Struggling amid Toshiba's years of scandals and the severe losses of nuclear giant Westinghouse Electric, hindered its technological progress and impacted investments. This, in turn, helped the rise of Korean competitors Samsung Electronics and SK Hynix, both of which received strong support from the Korean government. Ultimately, the global smartphone market downturn after the COVID-19 pandemic wiped away growth. On December 18, Kioxia will enter the market with a valuation of $5.2 billion, far below the $18 billion bid led by a consortium led by Bain Capital in 2018. Apart from the fundamentals of the business, many investors still remain cautious about buying Japanese semiconductor-related stocks because the Trump administration could disrupt global trade and further escalate attacks on the Chinese semiconductor market, the world's largest market and a destination for the flourishing Japanese chip companies. Kioxia's IPO is priced only in the middle of its indicative range. Data from Japan Exchange Group shows that out of 75 IPOs conducted in Japan this year, only this company and one other were priced below the upper limit of the range. Taku Ito, chief stock fund manager at Nissay Asset Management, said, "Price tells everything. We strongly believe that the stock lacks short-term catalysts. With the expansion of data generation demand, the company should achieve growth in the medium term with the increasing demand for NAND. But unlike other memory, NAND is a commodity, with supply and demand and price fluctuations being very unstable." Investors are most concerned that NAND memory has not completely recovered from long-term price declines. Due to a significant decline in global mobile demand, demand for these components has slowed since the peak of the COVID-19 pandemic. However, the recovery of data center construction has helped support prices, although the industry has not shown a strong rebound. Western Digital Corporation recently warned that pricing for NAND chips in the fourth quarter remains weak. It is understood that Kioxia has established a longstanding partnership with Western Digital Corporation through a manufacturing joint venture in northern Japan. Bloomberg Intelligence analysts Masahiro Wakasugi and Takumi Okano stated, "Western Digital Corporation's comments on weak pricing for NAND chips in the fourth quarter through December... suggest that Kioxia's sales may also be affected. However, Kioxia has stated that it expects a 5% decrease in sales this quarter, while Western Digital Corporation forecasts a 5% increase. Western Digital Corporation is maintaining its sales target, so the impact on Kioxia may not be too significant. While Kioxia can find growth in the current global artificial intelligence boom. Flash memory is now widely used in storage devices in servers and high-end computers, replacing old magnetic hard drives. Like other storage chip companies, Kioxia should benefit from the trillions of dollars in global data center spending driven by large tech companies such as Microsoft Corporation (MSFT.US) and Amazon.com, Inc. (AMZN.US). However, in the long run, Kioxia's business touching only one type of storage chip could have an impact. The company may not benefit like the high bandwidth memory (HBM) needed to power NVIDIA Corporation's (NVDA.US) most powerful artificial intelligence accelerators. The question investors face is whether Kioxia has raised enough funds to expand capacity to keep pace with Samsung in increasing production and reducing production costs. Another key question is how much research is left in the next generation of storage chips as artificial intelligence becomes more widely deployed. "Due to the uncertainty of external factors and the volatility in company profits, the momentum to add this stock to our portfolio has weakened," said Nissay's Ito.