Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Nothing makes a tech company quake in its boots so much as the sight of Apple Inc. marching into its territory.

It's a big deal for Western Digital Corp. not only to have Apple throw its hat in the ring of the Toshiba Corp. chip fight, but to have that name brandished like a weapon.

Foxconn Technology Group, long a contender for the Japanese company's semiconductor unit, is showing Western Digital the kind of firepower it's up against. It's the M&A equivalent of open carry.

Foxconn's bid would have the iPhone assembler take 25 percent of the unit, while Apple would get 20 percent, Foxconn spokesman Louis Woo told Bloomberg News on Thursday. Significantly, SoftBank Group Corp. and Toshiba itself would have 10 percent each. The bid is likely in the area of 2.1 trillion yen ($19.4 billion), slightly ahead of rival offers, though Woo wouldn't confirm any numbers.

The A-Team
Foxconn's consortium bidding for the Toshiba chip unit includes some big names in technology
Source: Bloomberg

In going public with its consortium details, Foxconn is screaming to be heard in a bidding process that seemed to be ignoring the company. Woo himself is one of Chairman Terry Gou's right-hand men and accompanied the Taiwanese billionaire on trips to the U.S. this year to meet with President Donald Trump.

Foxconn rarely talks about its clients or partners, so it's no small matter that Woo went on record not only to name Apple but to provide the exact level of Cupertino's interest. That's a detail of which Western Digital CEO Steve Milligan should be aware.

Woo was pretty clear what a Foxconn-Apple bid means for Toshiba:

It’s a guarantee there will be more customers lining up to buy their products when they increase their capacity or have better products.

Milligan will now be conscious of the challenge. Between them, Foxconn and Apple are the richest and most powerful technology hardware buyers in the world, spending a total of more than $250 billion last year on a cost-of-goods-sold basis. Western Digital is just one Toshiba customer.

Moreover, Foxconn doesn't purchase hard disk drives only on its own account; it makes buying decisions for a client list that includes HP Inc., Dell Inc. and Sony Corp. All the lawyers in the world can't match that kind of procurement strength when Western Digital tries to ply its wares in the global technology market.

Spending Power
Between them, Apple and Foxconn (Hon Hai) spent more than $250 billion last year
Source: Bloomberg
Note: Data are for cost of goods sold, which is not limited to expenditure on hardware components. Dell isn't on the list because it's a private company, but is likely to be similar to HP.

On the flip side, Foxconn must be mindful that combining Western Digital and Toshiba would create a company with around one-third of the world's NAND flash supply. Western Digital has used the prospect of drawn-out litigation to push Toshiba into a marriage it isn't otherwise keen on. Expect Gou's consortium to wield the term "antitrust investigation" any time Toshiba mentions expedient and Western Digital in the same sentence.

With two gun-toting suitors to choose between, Toshiba's dilemma is acute. To win, Foxconn will need to handle Western Digital, or at least help Toshiba's board dispatch the U.S. company. While Foxconn has shown it has a big stick, Gou may also offer Milligan some carrots.

Although Western Digital is bidding for Toshiba's flash unit, its interest is really in the disk-drive business. If Foxconn can find a way to offer access to Toshiba's technology, intellectual property and chip supply without its rival bidder needing to spend huge chunks of cash buying an entire semiconductor company, Milligan might be placated.

Now that Foxconn has shown its caliber, Western Digital will be hoping the gun stays holstered.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net