Toshiba to Buy 30 Percent Stake in SanDisk

 |  About: Western Digital Corporation (WDC)
by: Ron Haruni

On Monday, SanDisk (SNDK), the world’s top supplier of flash data storage card products said that it has entered into a non-binding memorandum of understanding with Toshiba Corp. to sell approx. 30% of the current NAND fab capacity of the parties’ joint ventures to Toshiba.

The companies, which jointly own two factories producing NAND flash memory on 300-millimeter [mm] wafers at Toshiba’s Yokkaichi Operations in Japan, based on the agreement will divide the remaining 70% of the output.

Through this transaction, SanDisk expects to receive cash and significantly reduce its capital spending. Equipment lease obligations will also be reduced by approx. $1 billion. This will further strengthen SanDisk’s balance sheet while reducing the company's NAND flash memory production commitments.

As part of the deal, Japan’s Toshiba plans to expand its NAND flash production and increase its overall allocation of capacity in the two fabs. By acquiring part of the existing production equipment in use, Toshiba will be able to quickly expand its manufacturing capabilities at a lower cost and with a shorter ramp-up time than by procuring new equipment.

The move is designed to enhance the production flexibility of NAND flash memory in line with the rapidly changing marketplace and to optimize each company’s business strategies.

Dr. Eli Harari, SanDisk's chairman and chief executive officer, said:

We appreciate Toshiba’s strong support for SanDisk through this agreement. This is expected to strengthen our financial position and increase our business flexibility while maintaining the economies of scale of Fabs 3 and 4.

The chip industry is currently at a consolidating stage after the slowing economic growth hurt demand, creating supply to exceed demand. In the process many companies were forced to reset their strategies, their technical directions and even business models, some have even gone as far as considering survival strategies. Toshiba however, believes that the NAND flash memory market will continue to grow in the medium to long term with average annual bit growth rate of more than 200%. The company says its theory is supported by such established applications as cellular phones and digital camcorders, and by emerging applications such as solid state drives [SSDs] for notebook computers and servers. Furthermore, with now sole ownership of some 30% of the total capacity of the two fabs — Toshiba will become even more flexible in making decisions on production volumes in line with changes in market demand, thus avoiding a glut of supply.

The agreement comes a month after SanDisk, rejected (at least for now) a $5.85 billion bid from South Korea’s top electronics company - Samsung, the leader in the $15 billion market for flash memory. Toshiba is second.

Samsung currently pays SanDisk significant intellectual property royalties, estimated to range between $350 million to $500 million per year.

Disclosure: None