Sale of Toshiba's NAND Chip Unit Faces Trouble as Western Digital Threatens Legal Action

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Uncertainty over which company will end up with Toshiba's much-sought-after NAND chip unit -- the second-biggest in the world -- has deepened today with a report by Reuters, which states that the Japan-based Toshiba is now facing legal actions from its business partner and chip unit bidder Western Digital. The U.S.-based data storage company is claiming that Toshiba has violated a contract by transferring Western Digital's joint venture rights entirely to the newly formed chip unit, which Toshiba is soon to sell off.

As a result, Western Digital is reportedly asking for exclusive negotiating rights with Toshiba as a means to win the bid and retain its contract with the supplier, and the U.S. company is threatening legal action in the event that it does not. Western Digital currently operates a semiconductor plant in a joint partnership with Toshiba, but it is not seen as a favored bidder in the eyes of Toshiba executives because it has placed a "much lower offer than other suitors."


The legal process set in motion by Western Digital could not only delay Toshiba's NAND chip unit sale, which the company needs to be completed to offset a nearly $9 billion loss related to its overseas nuclear division, but could put an end to the auction altogether. Toshiba has rejected any of Western Digital's claims that it has violated the joint venture contract.

The clash between Toshiba and Western Digital - both its business partner and one of the bidders for the chip unit - risks delaying or even quashing an auction that the Japanese conglomerate is depending on to plug a $9 billion hole in its accounts.

But in a May 3 letter sent by Toshiba's lawyers, the TVs-to-nuclear conglomerate disputed Western Digital' s argument and said it would pursue all available remedies if it saw continued interference in the sale process. Western Digital's "campaign constitutes intentional interference with Toshiba's prospective economic advantage and current contracts. It is improper, and it must stop," the letter, which was seen by Reuters on Tuesday, said.

Western Digital now has until May 15 to sign a few agreements related to its joint venture partnership with Toshiba, and if it doesn't all Western Digital employees will be restricted from facilities, networks and databases related to Toshiba's NAND chip unit. According to Masahiko Ishino, an analyst at Tokai Tokyo Research Center, Western Digital has a solid ground for legal action: "From a commonsense standpoint, it's hard to buy Toshiba's argument that it doesn't need approval from its JV partner because it's almost a 50-50 joint venture."

Outside of the legal battle, Toshiba executives are said to be prioritizing potential bids from what would amount to a consortium of the New York-based private equity firm KKR & Co LP and a few Japanese government-backed investors representing Japan Innovation Network Corp. The Japanese government is said to be "keeping a close eye on the process," and would prevent any deal that could potentially transfer sensitive technological information to another country, namely Foxconn and its deep China ties.

Now, KKR and Japan Innovation Network Corp are preferred bidders, and are expected to enter a joint offer in the upcoming second round of bidding in mid-May. If the duo win exclusive rights to Toshiba's NAND chip unit, the technology would stay in Japan, appeasing the local government, and the new owners of the unit could aim for an IPO down the line.

The two new preferred bidders come after TSMC and Foxconn were originally reported as the main companies interested in Toshiba's chip unit, but TSMC eventually dropped out and then Foxconn faced troubled waters with the Japanese government. Last month, Apple was rumored as willing to spend several billion dollars to obtain a "substantial stake" in the Toshiba NAND chip unit, with enough of a share ownership to allow Toshiba's executives to retain partial ownership in Japan.

Other potential buyers include South Korea's SK Hynix, Amazon, Google, Broadcom, and more, who are all looking for a major foothold in the flash memory market that could allow them to compete with the likes of Samsung. The winning bidder is expected to be revealed sometime in June.

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45 months ago

I'm with Toshiba on this, keep it in the family, no need to risk it getting into china's hands and giving them more IP they didn't invent. WD needs to be patient and they may have blown it.

The problem WD has is that Toshiba is selling all of Toshiba's assets in the joint venture without actually addressing the joint venture. That effectively disolves the JV without negotiating separation terms. If the terms are almost due for renewal, then WD is at a severe disadvantage to negotiate with whoever the new owners are. Toshiba must be hard up for money, because selling stuff while it's still in partnership is scummy business.
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45 months ago
Still amazes me, like Samsung, the scope of some companies. Being able to buy a tv from the same company that powers it with their nuclear reactor is over the top.
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45 months ago

Don't worry. Both Chinese government and Japanese government will not agree with the deal between Foxconn and Toshiba that easily. Plus Chinese government WILL steal Toshiba IP eventually using their advanced infamous hack army.

And the party that sold the manufacturing core of America to the Chinese (and many others) will keep lying about 'Bringing Jobs Back To America(tm)', even if they are just lawyer, and janitorial jobs.
Score: 1 Votes (Like | Disagree)
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45 months ago
But how much of WD stuff isn't made in China?

If Toshiba wants to keep the IP out of China, they should steer clear of Western Digital AND Apple, with the later's ties to Foxconn...

But good luck for Toshiba keeping anything out of China. They probably already know everything they need to know to swamp Toshiba, and make all this squabbling more pointless than it seems now...:rolleyes:
Score: 1 Votes (Like | Disagree)
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45 months ago

Still amazes me, like Samsung, the scope of some companies. Being able to buy a tv from the same company that powers it with their nuclear reactor is over the top.

Seems there are a lot of Japanese companies that do it too. Mitsubishi, Hitachi, and Sony sell the most surprising things. It's pretty cool, and I'm just guessing they do it because their brand is valuable. I saw a Hitachi bulldozer and was confused for a second because I've got Hitachi HDDs in my Mac.
Score: 1 Votes (Like | Disagree)
Avatar
45 months ago

But how much of WD stuff isn't made in China?

If Toshiba wants to keep the IP out of China, they should steer clear of Western Digital AND Apple, with the later's ties to Foxconn...

But good luck for Toshiba keeping anything out of China. They probably already know everything they need to know to swamp Toshiba, and make all this squabbling more pointless than it seems now...:rolleyes:

Don't worry. Both Chinese government and Japanese government will not agree with the deal between Foxconn and Toshiba that easily. Plus Chinese government WILL steal Toshiba IP eventually using their advanced infamous hack army.
Score: 1 Votes (Like | Disagree)

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