A Spade

Toshiba Defeats Western Digital (Wink)

The California chip buyer locks in supply without any financial headaches.
Kiyoshi Ota/Bloomberg
TOSHIBA CORP
+9.00
As of 9:23 PM EDT
300.00 JPY
WESTERN DIGITAL CORP
-2.56
At Closing, April 23th
87.00 USD

Let's just call this settlement between Toshiba Memory Corp. and Western Digital Corp. exactly what it is: a victory for WDC.

Yeah, sure, Toshiba Corp. gets to end a drawn-out legal battle that threatened the sale of its memory chip business. But the sale wasn't under threat. Not really.

Bain Capital and its consortium partners went ahead with the purchase even under the shadow of that lawsuit, and WDC's claims were probably pretty flimsy anyway.

But Western Digital. Well, it got exactly what it wanted: guaranteed access to Toshiba's future factories and chip supply. Better yet, the California company doesn't actually have to pony up billions to buy Toshiba Memory, nor is it saddled with the burden of keeping TMC profitable during an inevitable downturn in the industry. (We know winter is coming. We just don't know when.)

Had it owned TMC -- both the old and the new factories -- Western Digital would have had to wear the losses from any cyclical downturn in chip prices. By not owning TMC, Western Digital, as a major chip buyer, can benefit from those lower prices without fully taking on the opposite side of the trade.

Major Money

Toshiba outspends Western Digital three to one

Source: Bloomberg

Note: Toshiba financial year ends in March, WD's ends at end of June. Toshiba data includes non-chip businesses.

A gain of 1.3 percent in Toshiba Corp.'s stock in early Tokyo trading Wednesday amounts to a polite golf clap from investors. The shares are now around 10 percent off their 2017 high, struck in October. WDC climbed more than 3 percent in after-hours U.S. trading.

Muted Applause

Toshiba investors aren't exactly elated over the Western Digital settlement

Source: Bloomberg

Intraday times are displayed in ET.

I guess you couldn't call this a complete defeat for Toshiba Memory: The unit gets to share half the costs of its new factory, called Fab 6. The American company said early Wednesday that it will initially commit about $950 million, most of it next year, and some of its prepayment will be credited toward future chip wafer purchases.

But this also means that Toshiba Memory is saddled with Western Digital as a partner for many years to come. Remember, this is the company that sued to force a marriage. So in announcing earlier this year that it would go it alone on new factory expansion, TMC looked to be free at last.

There are two sayings that could describe this deal.

  • All's well that ends well.
  • Keep your friends close, and your enemies closer.

Take your pick.

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

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