Foxconn and TSMC attack Toshiba’s memory shares

Recovering from a list of multi-billion dollar writedowns

According to a recent Chinese-language report, TSMC and Foxconn Electronics are partnering up to place bids for shares of Toshiba’s memory business after the company dealt with a major loss in its devices and components business last year amid a drop in global memory prices. And problems with nuclear matters.

In late January, Toshiba’s board of investors met and approved a plan to spin off 20 percent of the company’s memory chip unit, along with its SSD business, into a separate company for between $ 1.77 and $ 2.65 billion. The company’s shares have fallen more than 45 percent since late December, when it revealed heavily losses at its US nuclear power business related to development delays and several cost overestimates. The result was a list of multi-billion dollar writedowns – some estimated around $ 6 billion – that highlight its need to raise funds in order to recover from a reduction of asset values within its nuclear business.

The company was able to recover some of its balance sheet in Q2 2016 following an extensive restructuring over the past year, allowing it to produce profit for the first time in six consecutive quarters. Then in Q4, it posted a nine percent growth in the storage sector, becoming the fastest growing SSD and HDD vendor of last year.

Toshiba is now running a four-part effort to get back to a profitable state. The first plan was a slimming down of its overall business by selling its medical devices operation to Canon. The second is an effort to halt nuclear construction ambitions after announcing the writedowns – that’s losses –  in this sector. The third business up for consideration includes a private hospital in central Tokyo, for which the company has appointed advisers to oversee a fast sale. And last is the “full and careful consideration” regarding which memory business assets to transfer so as to “not interfere with the operation of the Memory business” once an investment partner is acquired.

Foxconn and TSMC prepare document submissions for end of month

The latest reports now claim that Foxconn Electronics and TSMC are cooperating to challenge Samsung’s dominance in the flash memory market by placing bids for the spun-off Toshiba memory business. The collaboration team is currently in Japan working to prepare for document submissions prior to the first round of bidding on March 29th.

Foxconn company chairman Terry Guo said that his company wants to help  Toshiba in using the same “business strategy” it adopted for its partnership with Sharp on LCD television sets back in 2007. He is very serious about having Foxconn form partnership with Toshiba but not trying to force it to happen. With Foxconn, the current worldwide market leader in storage equipment, he hopes demand for solid state storage devices will rise in the future.

As Chinese semiconductor companies begin to ramp up capacity, capital expenditure in businesses including memory chip production are expected to post the longest growth streak in more than a decade. Manufacturers have been locked into an expensive equipment upgrade cycle to remain competitive, though Toshiba has been able to remain a supplier due, in part, to generous financial support from the Japanese  government.

DRAMeXchange expects Toshiba’s decision to spin off its memory business will give it more “operational flexibility” and stronger fundraising ability.

“For Toshiba and Western Digital, the capital-intensive nature of the memory industry and the volatility of the end market will make their operational challenges more difficult compared with similar issues encountered by their rivals,” DRAMeXchange stated.