Japan fires shot warning off risky bidders for Toshiba's memory biz – report

'National security' apparently an issue

+Comment Potential buyers of Toshiba’s memory business sale could be restricted by Japanese government national security concerns.

According to Reuters Japan’s government is prepared to use foreign exchange and foreign trade laws to block bidders it sees as a threat to Japan’s national security.

Toshiba is looking to sell a majority stake or possibly all if its memory business to plug a $6.3 Bn festering sore in its finances because of huge cost over-runs in its US nuclear power station business. That business is now facing potential bankruptcy with Westinghouse reportedly hiring the Weil Gotshal & Manges LL law firm to look into bankruptcy options.

The memory business is that part of Toshiba which takes flash chips from the Toshiba-Western Digital foundry joint-venture, and builds SSDs and other components using these NAND chips.

China’s Foxconn had said it was "very confident" about its chances of buying the business, and the Chinese Tsinghua Unigroup has also been mentioned as a potential bidder.

Other possible bidders include SK Hynix from Korea, and Micron, Western Digital and Bain from the USA.

Reuters quotes a source saying: "The United States is the only feasible partner from Japan's national security standpoint.”

An unnamed Toshiba executive says: "It's obvious US players are more suitable bidders. We'll probably need to fight over Westinghouse (with the US), so we could cooperate over chips in exchange.”

The memory business could be a trump (geddit) card to play in talks with US authorities about Westinghouse.

+Comment

It’s damned hard to see any threats to Japanese national security coming from the USA, Taiwan or South Korea. But China is a different story, what with it trying to build military bases in the South China Sea and so radically extend its sphere of influence on trade routes. Japan initiated a record defence budget in December 2016 partly in recognition of this.

Were Micron to buy the Toshiba memory business, it would see the possibility of using its own NAND chips in that business's SSD and other components, thus reducing sales from the Toshiba-WD JV. Even if this was prevented in the (relative) short term by sale contractual conditions, it would be a threat.

WD may well decide it is in its interests to try harder to buy the Toshiba memory business and thus ensure JV foundry chip output sales. A purchase would also catapult it into a much stronger position in the world flash drive market.

Currently Samsung is on top of the branded flash suppliers’ charts with $4.48bn in sales in the fourth 2016 quarter. Toshiba’s sales were $2.2bn and WD’s $2.13bn. Add these two together and we get a WD+Toshiba total of $4.33bn, not far from Samsung at all, and well clear of Micron’a $1.27bn and SK Hynix’s $1.16bn.

That logic looks pretty compelling to an envelope-back-calculating Reg hack like me. ®


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