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Toshiba to Build Chip Plant Without Partner Western Digital

Aug. 3, 2017
Installation of fabrication equipment to produce so-called 3D NAND flash will begin in December 2017.

Toshiba Corp. is moving forward with plans to build a new memory chip plant without longtime venture partner Western Digital Corp.

The electronics maker will spend 195 billion yen (US$1.8 billion) on construction of Fab 6 of its Yokkaichi semiconductor facility in western Japan, the Tokyo-based company said in a statement Thursday. Toshiba, which owns the land, buildings and the production know-how at the factory, has split investments in the equipment with SanDisk Corp. since the joint supply venture started in 2004. Western Digital acquired SanDisk last year.

Toshiba and Western Digital are locked in an escalating legal fight over Toshiba’s plan to sell its share of the business to make up for multibillion-dollar losses in its nuclear power operations. Western Digital is arguing that it has a say in the sale, as well as right of first refusal. Further legal wrangling could delay the sale to a group of preferred bidders, putting Toshiba at risk of being delisted.

'Vast Differences of Opinion'

“Toshiba has held discussions with SanDisk over several weeks, but could not arrive at an agreement because of the vast difference in opinions over capital spending,” said Kaori Hiraki, a spokeswoman for Toshiba. “We need to boost our production capability to meet increasing demand for Nand flash.”

Toshiba said it is spending 15 billion yen more than originally planned, but going it alone will not impact production or development. Installation of fabrication equipment to produce so-called 3D NAND flash will begin in December 2017 and output will ramp up to 90% of capacity in the fiscal year ending March 2019, Toshiba said.

“While we are disappointed by Toshiba’s announcement, the agreements governing the JVs give us the right to participate in investments,” Western Digital said in a statement. “That is exactly what we intend to do.”

Shares of Toshiba closed 0.8% lower in Tokyo Thursday, paring losses prior to the announcement. The stock is down 8.5% this year.

Toshiba clinched a preliminary agreement in June to sell its memory chip unit to a group led by the Innovation Network Corp. of Japan, Bain Capital and other investors. The consortium of preferred bidders is offering 2.1 trillion yen, people with knowledge of the matter have said.

Legal Spat Continues

Western Digital in May invoked an arbitration clause in the business agreement, seeking to block Toshiba’s transfer of ownership of the unit to a separate legal entity in preparation for a sale. Toshiba, which has since reversed that transfer, then had its lawyers send a letter demanding that the U.S. company stop its “harassment” as it seeks to sell the business.

The legal spat is threatening the very existence of the venture, according to people familiar with the matter. The breakup would increase the financial burden on Toshiba and reduce cost advantages that come with scale. It would also deprive Western Digital of access to advanced chips necessary to compete in the storage business.

If Toshiba is forced through arbitration to sell its stake in their venture to Western Digital, the move could trigger the dissolution of their legal partnership, according to regulatory filings. That would cancel the supply agreement under which the U.S. company gets chips and make it the owner of only some equipment, according to people close to Toshiba and the terms of their relationship. That equipment would be useless without other machinery and the plant itself, which would remain Toshiba’s property. Production of memory chips for Western Digital would stop, the people said.

“Any slowdown of the joint development projects -- even if temporary -- could result in severe and lasting consequences,” Mark Long, chief financial officer of Western Digital, told a California court last month.

By Pavel Alpeyev and Yuki Furukawa 

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Licensed content from Bloomberg, copyright 2016.

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