With mounting writedowns from its nuclear business, Japan’s Toshiba Corp. is looking to sell part of its core semiconductors business, a world No. 2 in the flash memory chips used in smartphones.
But its rush to plug a hole in its US nuclear business that Japanese media now estimate at as much as $6 billion may complicate any asset sale.
Toshiba, which warned last month of multi-billion dollar charges for US nuclear project cost overruns, wants to boost its capital base by the end of the financial year in March.
Failure to offset the nuclear hit could wipe out already thin shareholder equity and push the company into negative net worth — jeopardizing its role in public infrastructure projects and its place on the Tokyo Stock Exchange’s “first section,” for larger companies.
Following a 2015 accounting scandal, the conglomerate is barred from raising fresh funding on equity markets. Selling assets, though, could help it win broader financial support from its main banks.
Toshiba could sell 20-30 percent of its chip business, according to media reports.
The business, worth more than $10 billion, is the world’s second largest after Samsung Electronics in flash memory chips — and it is Toshiba’s most profitable.
People familiar with the matter have said potential buyers of a stake include Western Digital Corp., both a rival and a business partner, with a pledge to invest $5 billion to jointly produce memory chips. Western Digital has declined to comment.
Any deal with Western Digital, however, could trigger a time-consuming antitrust review.
Selling part of the chips business, formally called Storage & Electronic Devices Solutions, may also fuel concerns of earnings dilution.
Buoyed by its chip business, Toshiba shares had risen 85 percent last year before its warning on its nuclear business. The stock ended 2016 up just 13 percent.
Toshiba scored a success last year in the race to make chips smaller and more powerful, beating Samsung in producing sample shipments of so-called 64-layer 3D flash memory chips.
“It used to be said we were two years behind Samsung (in 3D chips),” Yasuo Naruke, head of Toshiba’s chip business, told Reuters last month. “But we were faster in (64-layer chip) sample shipments, so we believe we have caught up with Samsung technology-wise.”
Naruke noted, though, that Toshiba still has less experience in mass-producing the new chip.
A stake sale could help with that, as Toshiba plans to increase its investment in chips to around 1 trillion yen ($8.7 billion) for the three years from April 2019, up from 860 billion yen for the previous three years.
As Toshiba has ruled out ceding control of the chips business, it may also seek state help, as other troubled Japanese technology companies have done in previous restructurings, the sources said.