Toshiba's woes continue to get worse. The company announced today that it is taking a $6.3 billion write-down due to losses in its nuclear business, and as a result, it may sell a majority stake in its semiconductor business.
We've already covered the company's announcement that it is spinning off its semiconductor business and planned to sell a 20% stake in the new outfit. At the time, Toshiba predicted its write-down to total "a few billion." The revised $6.3 billion projection, and the news that the company might sell a controlling stake of its NAND fabs, promises to send shockwaves through the semiconductor industry.
The latest Toshiba scandal has already claimed its first high-level victim. Shigenori Shiga, a Toshiba chairman that hailed from the failed U.S.-based Westinghouse Electric nuclear plant subsidiary, tendered his resignation. The resignation implies that the current losses may go beyond a bad investment and tread into scandal territory. Toshiba's already on shaky ground with regulatory agencies due to a previous accounting scandal, so its options are severely limited.
Toshiba was faced with cost overruns and construction delays in the wake of the 2011 Fukushima nuclear disaster, so it acquired nuclear construction outfit CB&I Stone and Webster in 2015. Unfortunately, Toshiba pegged the "goodwill" booking at $87 million, but then restated the charges as "several billion U.S. dollars."
Toshiba's initial answer was to spin off its semiconductor business, which generates 80% of its operating profit, and sell a 20% stake to investors, thus raising enough capital to keep the company afloat. Most analysts predicted the 20% stake would only generate around $2.5 billion, which falls well short of the $6.5 billion loss.
Toshiba emergency semiconductor spin-off is also taking a different path than many expected. In light of the heavier-than-expected losses, Toshiba announced it is prepared to take a more aggressive stance with its spin-off, which could include selling a majority stake of its operations instead of 20%. The company delayed its financial disclosures, but then hastily released the preliminary results today outlining the losses. The results come with the caveat that it isn't a final reporting and could change.
WD and Toshiba partner in NAND production, and as such, it is in WD's best interests to protect its joint venture with Toshiba. Recent comments from WD's CEO indicate the company might step in to assist its ailing partner. However, recent reports indicate that Toshiba is exploring other offers from various funds due to concerns that a WD intervention would trigger a long regulatory approval process. Other potential investors include several NAND fabs, such as SK hynix and Micron, but those investments would likely also trigger a regulatory overview. Unfortunately, Toshiba doesn't have an extended time period to recover. Seagate has also been suffering due to its woeful lack of SSD market penetration, so it might also attempt to buy into the new spin-off.
Toshiba selling a majority stake of its semiconductor business could alter the NAND landscape entirely. The company is one of the world's largest NAND producers, and Tsinghua Unigroup, one of the many tentacles of the Chinese state-controlled Tsinghua University, has been listed as a possible investor. Tsinghua is investing heavily in new NAND fabs, but isn't currently shipping NAND-based products and lacks the IP and experience necessary to make a quick entrance into the market. Of course, procuring a majority stake in Toshiba's memory business would solve that nicely, while also helping the Chinese government finally attain its publicly stated goals of indigenous semiconductor production.
Toshiba also announced it is halting all of its bids for new nuclear projects. The company will likely announce its spin-off investor in the coming weeks.
