As I stepped into the dazzling realm of electric appliances in Akihabara after a hiatus of one year, I was greeted by a striking sight—an overwhelming dominance of one hue on the shelves: redThe only products I could find were from KIOXIA, a name formerly known as Toshiba Memory CorporationThe once varied array of electronic brands had dwindled alarmingly, painting a stark picture of Japan's waning power in the semiconductor industryThis lack of diversity and the inflating prices clearly indicated a troubling decline in sales, reflecting the difficult landscape that domestic manufacturers now face.

KIOXIA rose from the proverbial ashes of Toshiba's semiconductor divisionFollowing catastrophic losses linked to nuclear power investments, Toshiba was compelled to divest its most lucrative assets to help offset the financial hit

Thus, KIOXIA was established in June 2017 as an independent entity, though attempts to go public have, until now, met with failure.

This time around, KIOXIA is set to make another attempt at an Initial Public Offering (IPO) on December 18, 2024, provided there are no significant disruptionsHowever, the anticipated fundraising through this IPO is expected to be meager at best.

The Japanese government has extended substantial support to the semiconductor sector, and KIOXIA has undoubtedly benefited from various policies and financial incentivesYet, even enterprises drenched in favorable governmental backing are finding it difficult to secure the desired capital in the stock market.

A significant impediment lies in the long-anticipated decline of the semiconductor industry in Japan—spanning more than two decades

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The government's current economic policy aims to revitalize the sector through measures like economic security and a strategic decoupling from the Chinese marketHowever, many investors remain skeptical, believing these actions can only lead to further isolation of Japanese semiconductors, reinforcing their dwindling market appeal and jeopardizing the industry's future.

The lofty goal set for KIOXIA's IPO stands at an astronomical 2 trillion yen (approximately 948 billion RMB). In April 2022, the Tokyo Stock Exchange underwent a revamp, creating three distinct market categories: the Prime Market, Standard Market, and Growth MarketKIOXIA is poised to list under the Prime Market, which has implications that suggest higher standards and expectations.

Investing in Japan's securities markets requires a keen understanding of the underlying risks

The term 'Prime' implies not just suitability but also readiness for extensive preparationsHowever, it does not guarantee profitabilityMerely portraying an idealistic version of potential returns masks the real dangers associated with investing in these stocks, particularly when examining KIOXIA’s precarious financial track record over the last few years.

Recent years have seen KIOXIA grappling with significant losses and an unstable profit trajectoryWithout a robust smartphone or electric vehicle sector, Japan’s presence in the global IT landscape remains negligibleSimilarly, the semiconductor market has struggled to crystallize despite its historical significance.

In recent years, countless firms have dismantled their central research units, drastically cutting back on R&D investments

This, coupled with a diminishing state investment in education, severely hampers Japan's ability to innovate and explore new applications for semiconductor technology.

These elements establish a grim backdrop under which KIOXIA's challenges intensifySales figures spiked in 2021, peaking at a staggering 1.5265 trillion yen (approximately 72.3 billion RMB), only to spiral downward to 1.0766 trillion yen (approximately 51 billion RMB) by 2023, resembling levels last seen in 2019. Notably, 2023 showed negative earnings in both operating profit and net profit, illustrating the steep financial decline that marks KIOXIA’s recent history.

With an operating profit loss of 246.4 billion yen (around 11.7 billion RMB) and a net loss amounting to 237.4 billion yen (approximately 11.3 billion RMB) in 2023, KIOXIA finds itself in a precarious position leading up to its IPO

Cumulatively, the company has amassed a staggering net loss of over 110.3 billion yen (approximately 5.2 billion RMB).

Faced with such dire financial performance, it’s easy to predict a rocky stock price trajectory post-IPOThe projected share price is set at 1,455 yen, which would result in a market capitalization of around 780 billion yen (approximately 37 billion RMB). Such figures starkly contrast the ambitious 2 trillion yen (approximately 948 billion RMB) goal set years prior, with the more modest target of 1 trillion yen now appearing overly optimistic.

Reflecting on KIOXIA's history, the context becomes even clearer; after its split from Toshiba was sealed in a deal with Bain Capital in September 2017, the price tag was a whopping 2 trillion yen, showcasing just how different the landscape has become.

Following the deal, Toshiba re-invested 350.5 billion yen into KIOXIA, solidifying its ties with Bain Capital and other stakeholders, including tech giants like Apple and Dell.

The 2 trillion yen acquisition comprised 1 trillion yen from direct buyer capital and another trillion yen sourced through loans and preferred stock

For KIOXIA to operate sustainably, it must achieve at least 1 trillion yen on the market post-IPO to break even on the acquisition cost.

The loans and preferred stocks inscribed in the acquisition are essentially a ticking clock for KIOXIA’s financial viabilityFailure to meet these expectations could translate into unavoidable losses for its investors, which now appear somewhat inevitable as market assessments place KIOXIA’s worth considerably beneath the original valuation.

Despite the rigorous scrutiny typically applied to companies seeking to go public, KIOXIA finds itself in the peculiar position of receiving expeditious approvals to list, reflecting the urgency of its situation.

Meanwhile, the fallout from Toshiba's disastrous nuclear ventures echoes through KIOXIA, casting a shadow over the very conditions necessary for a revival

Moving through 2022 and 2023, KIOXIA's performance flailed, despite a tentative recovery forecasted between April and September 2024, suggesting they might only rectify missing profits from prior years, not leverage gains.

Moving away from KIOXIA, the construction of the new semiconductor manufacturer, Rapidass, is gaining urgencyThe future of Japan's semiconductor industry remains shrouded in uncertainty, with few bright paths visible ahead.

Amidst these hardships, the recent political winds under Prime Minister Kishida have pivoted the cabinet towards a more accommodating economic relationship with China; however, the rigidity of Japan’s economic security policy towards China shows little sign of retreating.

In November, the newly appointed cabinet unveiled a blueprint for an economic strategy, pledging to allocate an astonishing 10 trillion yen (approximately 474 billion RMB) for subsidies aimed at AI and semiconductor sectors

This comes in the context of military spending increasing significantly and a tight overall fiscal situation, illustrating the weight Japan places on restoring its semiconductor industry.

Yet, these measures fall short of what’s deemed necessary for revivalThe government aspires to leverage national debt to provide financial backing for businesses, including Rapidass, in their ambitious plans to recalibrate the semiconductor market.

Recent reports confirm that the government of Japan has already allocated 920 billion yen (about 44.8 billion RMB) in subsidies to Rapidass, but they will need an estimated additional 4 trillion yen (around 194.9 billion RMB) by 2027 just to begin mass productionUnlike KIOXIA, Rapidass has no immediate entry plans for the stock market or banking loans, aiming solely to rely on public funds.

One former Liberal Democratic Party MP expressed skepticism about the government’s strategy: "Japan has tried public-private ventures before, but the scale of spending on semiconductors feels excessively cautious and far removed from capitalist norms, as the risks are steep."

While KIOXIA may cultivate affordable storage solutions like USB drives and SSDs, its growth has been stilted within a market constrained by operational struggles, development challenges, and apprehensions tied to its upcoming IPO.

Reiterating the hardships, it’s noteworthy to highlight Japan’s deleterious dependence on a thriving smartphone or electric vehicle industry—a sector lacking sufficient growth