Toshiba ready to sell microchip business

January 27, 2017

Toshiba, Desperate for Cash After Scandal, Will Sell Microchip Business

http://www.asahi.com/ajw/articles/SDI201701277926.html

By JONATHAN SOBLE/ © 2017 The New York Times

January 27, 2017 at 17:16 JST

TOKYO--Ill-fated investments in nuclear power projects by Toshiba of Japan have already precipitated an embarrassing accounting scandal at the company. Now the company is selling its most valuable business to try to undo the damage.

Toshiba, one of Japan’s oldest and proudest technology conglomerates, said on Friday it would spin off its microchip division. The business makes the information-storing “brains” inside millions of smartphones, digital cameras and other devices, and it has been the biggest contributor to Toshiba’s profits in recent years.

The move is evidence of Toshiba’s desperation for cash after the punishing nuclear-related losses came to light last month.

In December, Toshiba warned it was preparing to write off “several billion U.S. dollars” because of ballooning expenses at its American nuclear subsidiary, Westinghouse. That followed Toshiba’s admission in 2015 that it had inflated its earnings by $1.2 billion over seven years--a scandal that company investigators attributed in part to nuclear-project managers, who they said had disguised faltering revenues and cost overruns.

Toshiba is expected to detail the extent of its write-downs next month. Analysts have suggested they could amount to $4 billion to $7 billion, enough to put Toshiba’s future at risk. Banks have indicated they will keep lending money so the company can pay its bills, but without that lifeline, Toshiba, a 140-year-old business, could collapse.

Toshiba said it had not yet decided what form the semiconductor spinoff would take, or how much of the business it would sell to outsiders. But there is not much time to figure it out; the company said it wanted to complete the process by March 31, the end of its fiscal year.

Analysts estimate the semiconductor business could be worth between 1.5 trillion and 2 trillion yen, or $13 billion to $17 billion, if Toshiba sold all of it. One option would be to sell shares to the public, though a private sale to another technology company would be quicker and easier to arrange, particularly if Toshiba chose to keep part of the company.

Damian Thong, an analyst at Macquarie Securities, said bringing in a minority investor was “clearly the default option” for Toshiba, which is eager to stay in the semiconductor business.

“Undermining that core business would be anathema in Japan, not just for Toshiba, but for the government and the whole technology ecosystem,” he said. “It needs to sell just enough to give creditors peace of mind, but not enough that it loses control.”

Some see broader national interests at stake.

Getting out of semiconductors entirely would not just deprive Toshiba of a crucial future revenue stream. If a foreign buyer swooped in, it would also take one of Japan’s few remaining semiconductor producers out of domestic hands. The business’s most successful technology, NAND flash memory, was developed by Toshiba decades ago.

One public declaration of interest in Toshiba has come from Canon, the Japanese camera company, which uses Toshiba’s chips in its products and bought a medical device producer Toshiba spun off in 2015.

Canon’s chairman, Fujio Mitarai, is a former head of Keidanren, the lobbying group representing Japan’s largest corporations, including Toshiba. He said last week that the semiconductor business was a valuable asset for Japan and “must be protected” and that Canon “would positively consider” investing.

Other potential buyers include Western Digital, the American semiconductor company, which works with Toshiba in some areas; Tokyo Electron, a Japanese company that produces equipment for semiconductor factories; and Foxconn of Taiwan, the contract manufacturer that recently took over Sharp, another ailing Japanese technology brand.

Terry Gou, Foxconn’s billionaire founder, said in an interview with Toyo Keizai, a Japanese business weekly, that he was interested in purchasing assets sold off by Toshiba, potentially including the semiconductor operation.

(Jan. 27, 2017)

Toshiba to review nuclear ops, spin off cash-cow chip business

January 27, 2017 (Mainichi Japan)

http://mainichi.jp/english/articles/20170127/p2g/00m/0bu/068000c

Toshiba Corp.'s headquarters are pictured in the Shibaura district of Tokyo's Minato Ward in this July 21, 2015 file photo taken from a Mainichi Shimbun helicopter. (Mainichi)

TOKYO (Kyodo) -- Toshiba Corp. said Friday it will review its struggling nuclear operation and spin off its cash-cow chip business, as it faces massive write-downs in the U.S. nuclear business.

Toshiba Chief Executive Officer Satoshi Tsunakawa said the company is looking to sell a stake of less than 20 percent in the new chip company to raise funds needed to offset a massive loss in the nuclear business and to avoid falling into negative net worth.

Its flash memory operation will be turned into a separate company at the end of March, pending approval at an extraordinary shareholders' meeting, the Japanese industrial conglomerate said.

"We will do whatever it takes, including increasing capital," Tsunakawa said at a press conference. "I really feel responsible (for what has happened). Whether or not I'll resign is left to the nominating committee's decision but will carry out my responsibilities till March" when the current business year ends.

The CEO said that Toshiba will re-examine its domestic and overseas nuclear operations to focus more on growth businesses such as decommissioning and tighten cost controls.

"We had been most committed to our nuclear operations in the energy business but that positioning is going to change," Tsunakawa said.

He added that he will directly oversee the nuclear division to enhance risk management and strengthen corporate governance, especially at its U.S. nuclear business which is the source of the huge write-downs.

Last month, Toshiba said that it could book an impairment loss of "several billion dollars" in its U.S. nuclear business with plant project delays leading to cost overruns.

But the loss stemming from writing down the value of its nuclear division could reach 700 billion yen ($6.2 billion), sources familiar with the matter subsequently said.

The write-down could wipe out the company's shareholder equity, which stood at 363.2 billion yen as of Sept. 30.

Toshiba said earlier this week that it will finalize the impairment loss by Feb. 14, when it reports financial results for the April-December period.

Toshiba, the world's second biggest producer of NAND flash memory after South Korea's Samsung Electronics, said the chip operation logged an operating profit of 110 billion yen for the year to March 2016, when the company posted a group operating loss of 708.74 billion. The chips are used in devices such as smartphones.

Actually, Toshiba has been undertaking sweeping restructuring steps since 2015 when an accounting scandal erupted. It has already sold another profitable operation, its medical equipment unit, to Canon Inc. and cut more than 30,000 jobs in an effort to avoid falling into negative net worth.

Its board on Friday approved spinning off its chip business, with possible buyers for the minority stake offered including U.S. data storage company Western Digital Corp. -- a joint operator of Toshiba's Yokkaichi flash memory plant -- and private equity firms such as Bain Capital and Permira.

Canon Chairman Fujio Mitarai also said last week that the maker of printers, cameras and office equipment is considering buying a stake in the memory chip maker.

Toshiba has also been scrambling to sell other assets and operations to raise an additional 300 billion yen, the sources said.

Earlier this week, its main creditor banks decided to maintain their loans to the struggling company until the end of February.

The Tokyo Stock Exchange has already put Toshiba shares on its watch list, making it hard to tap equity markets to bolster its capital.