Toshiba’s board on Friday approved plans to make its core memory chip business a separate company and seek outside investment in it, aiming to avoid being crippled by an upcoming multi-billion dollar writedown for its U.S. nuclear business.
The drastic step will be only one of many tough choices the Japanese conglomerate must take to survive, as the proceeds are set to cover just part of the charge for cost overruns at a newly acquired U.S. power plant construction business – a figure that local media has put at 680 billion yen ($6 billion).
Toshiba’s memory chip business – the world’s biggest NAND flash memory producer after Samsung Electronics – is its crown jewel, accounting for the bulk of its operating profit.
Toshiba is looking to sell roughly 20 percent for more than 200 billion yen and potential investors include private equity firms as well as business partner Western Digital and the government-backed Development Bank of Japan (DBJ), sources have said.
It aims to complete the sale by the end of the financial year in March as failure to do so will likely mean that shareholder equity – whittled down to just $3 billion in the wake of a 2015 accounting scandal – would be wiped out by the charge.
Mark Newman, an analyst at Sanford Bernstein in Hong Kong, said the move would only be a short-term band-aid.
“The NAND business is the only one with value, as it makes up all of the semi-conductor profits, which comprise 75 percent of the overall company’s profit. I won’t be surprised if they sell another 20 percent in a few years time and then another 20 percent.”
Toshiba will hold a news conference at 4.30 Tokyo time (0730 GMT). It may give an estimate of the size of the writedown, a person familiar with the matter has said.
The final figure for the writedown will be announced on Feb. 14 when it reports third-quarter results.
Toshiba estimates the value of its memory chip business at 1-1.5 trillion yen ($9-13 billion), a person with direct knowledge of the matter has told Reuters.
The business generated sales of 845.6 billion yen and operating profit of 110 billion yen for the year ended in March 2016.