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Toshiba plays sugar daddy to SanDisk

Fab financial footwork for flash

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SanDisk is getting almost $300m cash and freeing itself from over half a bilion dollars of equipment lease obligations courtesy of sugar daddy Toshiba.

The two have signed a definitive agreement concerning their flash fabrication joint-venture, following on from a non-binding memorandum of understanding signed in October last year. They each have a half share in this JV, which manufactures flash chips in three fabrication plants. The MoU talked about 30 per cent of the JV transferring to Toshiba via a cash payment to SanDisk and Toshiba taking on equipment lease obligations for plants known as Fab 3 and Fab 4.

The total value at that point for SanDisk was about $1bn. It was fighting off a hostile takeover bid from Samsung at that time, and it was supposed SanDisk needed to strengthen its balance sheet.

The definitive agreement still applies to the restructuring of the Fab 3 and Fab 4 area of the JV but reduces the transferred lease obligation percentage to 'more than 20 per cent', meaning less than 30 per cent. The total worth to SanDisk is 80bn yen ($890m) of which about a third is a cash payment and the rest the reduced lease obligations.

SanDisk and Toshiba will remain equal partners for the JV's remaining capacity and SanDisk has the option to buy back part of the transferred capacity on a foundry basis. It also retains an option to keep investing up to 50 per cent in future Fab 4 expansions and in Fabs 3 and 4 technology transitions. Finally both SanDisk and Toshiba will continue joint technology development in future NAND products and 3D read/write memory.

So, if SanDisk starts to make money again, it can hopefully pay back Toshiba and return to a more equal footing. For now, like a house-owner desperate for cash, it's released some equity in return for cash and reduced mortgage payments. It's nice of Toshiba to oblige, considering that it is facing a world of financial hurt after a tremendously bad final quarter of 2008. It is forecasting a net loss for its current financial year, ending March 31, of 280 billion yen ($3.1bn). In September last year it thought it would make 70 billion yen (c$780m) profit, showing the damage the last quarter inflicted.

It is laying off up to 4,500 temporary workers, cutting spending, reducing output from existing factories and putting off the building of new ones. Reuters is reporting Toshiba is talking to NEC about the merger of some of their chip operations too. Then there is the small matter (not) of buying Fujitsu's hard disk drive operations. In the circumstances, acting as an 80 billion yen bailer-outer to SanDisk seems positively heroic. ®

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