Japanese chipmaker Kioxia Holdings and its U.S. peer Western Digital 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.

The two companies plan to set up a holding company to integrate their operations producing NAND flash memory chips, widely used in devices such as PCs and smartphones. 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 new company will be more than 50% owned by shareholders of Western Digital while those of Kioxia will hold the remaining stake.

Kioxia shareholders include Toshiba, which owns about 40% of the chipmaker.

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

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

A Kioxia spokesperson declined to comment on the potential merger.

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