Japanese chipmaker Kioxia Holdings Corp. and its U.S. peer Western Digital Corp. are expected to agree on a merger as early as this month, sources familiar with the matter said Friday, a deal that would create the world's leading producer of memory chips for PCs and smartphones.

The two companies plan to set up a holding company to integrate their operations of producing NAND flash memory chips, widely used in electronic devices. They aim to list the new company on the Nasdaq stock exchange in the United States, according to the sources.

The move comes as chipmakers are facing stiff global competition amid weakening demand for semiconductors, the sources said.

The new company will be more than 50 percent owned by shareholders of Western Digital while those of Kioxia will hold the remaining stake.

Kioxia shareholders include Japanese conglomerate Toshiba Corp., which owns about 40 percent of the chipmaker.

The combined market share of Kioxia and Western Digital for NAND memories stood at 35.4 percent as of March, larger than the top maker, South Korea's Samsung Electronics Co., which accounted for 34.3 percent.

Still, it remains unclear if overseas regulators, including Chinese authorities, approve the merger as semiconductors have been increasingly important in ensuring economic security across the globe.

To expedite the merger, Japanese megabanks including MUFG Bank and state-backed Development Bank of Japan are considering providing loans of up to about 1.9 trillion yen ($12.7 billion), the sources said.

Kioxia's spokesperson declined to comment on the potential merger.

Currently, Kioxia and Western Digital jointly operate plants in Japan's Iwate and Mie prefectures.

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Japanese chipmaker Kioxia, Western Digital in merger talks