A single business unit has climbed to the top of Japan in just seven years. A consortium led by U.S. firm Bain Capital acquired Toshiba Memory, once merely a division of Toshiba, for about 2 trillion yen (about 18 trillion won) in 2018. That company, Kioxia Holdings, rose to become Japan's largest company by market capitalization last June.
Yuji Sugimoto, head of Bain Capital Japan, who led the acquisition, met with the Nikkei on Friday and said, "If it had gone to the other camp, semiconductor memory companies would have disappeared from Japan."
On reaching the top just a year and a half after listing, driven by the spread of artificial intelligence (AI), Sugimoto said, "Semiconductors are the 'rice of industry.'" He added, "I was confident it would definitely grow over the medium to long term, but I never expected it to be this much." He also noted, "Back in 2018, even the term AI had not yet spread."
Kioxia's revival was not smooth. In the fall of 2020, it withdrew its listing just one week before the offering. Shipments to major client Huawei of China were blocked by U.S.-China trade friction, raising concerns over deteriorating profitability. The biggest crisis came after the pandemic-driven boom faded. In the fiscal year ended March 2024, the company posted a net loss of 243.7 billion yen (about 2.2 trillion won), falling into a management crisis.
Sugimoto recalled, "We nearly ran out of cash on hand," adding, "Bain even resorted to the unusual method of lending funds in the form of a loan." He said, "If we had listed in 2020, there would have been too many stakeholders to get through it."
Even amid the massive losses, capital expenditure of 300 billion to 400 billion yen a year did not stop. There was also pushback from the U.S. headquarters. Sugimoto emphasized, "Headquarters asked whether we needed to go this far, but I persuaded them," adding, "Because we kept investing, there is today's Kioxia."
On the criticism that Toshiba sold too hastily, Sugimoto assessed, "If it had remained under Toshiba, it would have been impossible to keep making large investments while incurring massive losses."
Impossible Under Japanese Governance; Korean Chaebol Ownership a Strength
Sugimoto also cited the strengths of Korean semiconductor companies. "It is because chaebol (large family-controlled conglomerates) such as Samsung and SK have strong top-down and ownership structures," he said. "Semiconductors are a game where you fall behind if you hesitate, and that is difficult under the governance of large Japanese corporations."
Korea's SK hynix also participated in the Bain acquisition, raising concerns over technology leaks. In 2018, SK hynix invested 266 billion yen in Toshiba Memory, the predecessor of Kioxia, through the Bain Capital consortium. That amount corresponds to 19% of the 56% stake held by the consortium. It also holds convertible bonds (CBs) worth 129 billion yen that can be converted into a 14.4% stake. Considering the market capitalization as of the 26th (2.3712 trillion yen), the investment placed into the consortium is expected to see its equity value rise to about 190 billion yen (about 1.7917 trillion won), and the CBs to about 220 billion yen (2.0746 trillion won). That is roughly on par with the investment amount (3.9 trillion won).
On this, Sugimoto said, "SK was very solid, and the feared situation did not occur," adding, "With this rise in the stock price, SK also reaped investment returns."
On the future semiconductor cycle, he forecast, "The silicon cycle itself will continue, but AI demand has raised the baseline by one level," adding, "It will be a cycle on a plateau rather than on flat ground."
Meanwhile, on the current stock price level, Sugimoto said only, "As a sitting director, it is difficult to comment," while noting, "It is a stock price rise based on earnings gains, and the expected price-to-earnings ratio (PER) may still reach only double digits."
