In brief: The chip shortage has accelerated the consolidation of the semiconductor industry, leading to a massive wave of mergers and buyouts. Western Digital is only the latest company to consider such a move, and its eyes are set on Kioxia, its longtime partner in making 3D NAND.

If you thought Nvidia purchasing Arm would forever change the semiconductor landscape, you wouldn't be wrong---we're talking about a $40 billion deal that doesn't involve chips. What it does involve is blueprints for RISC chips used throughout the tech industry to design custom silicon for a variety of uses. Then there's AMD's $35 billion acquisition of Xilinx, which adds important capabilities to the former and further consolidates the semiconductor industry.

However, there's been another big deal brewing in the background that made some splashes today. Western Digital is reportedly in advanced talks to merge with Kioxia Holdings Corp in a deal valued at over $20 billion. The acquisition would mark a major shift in the flash storage industry. Manufacturers have been under enormous pressure over the last few years to deliver faster storage, higher bit densities, and all of it at high volumes and profit-margin-eroding lower prices, leaving fewer opportunities for smaller companies to grow.

Western Digital has had its eyes on the Japanese company for some time. Back in 2017, when Kioxia spun off from Toshiba's burning business group, Western Digital was willing to pay as much as $18.2 billion, but Toshiba rejected the offer at the time. Fast forward to today, and Western Digital is valued at over $19 billion while Kioxia is getting ready for an IPO. Micron, who until recently was a potential bidder, decided the idea is too wild and dropped all discussions of a merger.

That leaves only Western Digital, which has a 20-year history of working with Kioxia on various projects, the most recent of which is persistent memory. At the same time, Western Digital CEO David Goeckeler told Nikkei during a recent interview that "we have a tremendous partner in Kioxia, and we look forward to making the future happen together." Furthermore, he rightly pointed out that when you combine Western Digital and Kioxia's market positions, you end up with a giant the size of Samsung, with the potential to get even larger over time.

Even if the deal doesn't materialize, the two companies still have a strong partnership with joint ventures around 3D NAND manufacturing, such as a factory in Yokkaichi and another in Kitakami, Japan. With SK Hynix buying Intel's NAND business, a merger between Western Digital and Kioxia is looking increasingly worth it.