The Strategist

Toshiba fears for its future

04/11/2017 - 15:35

Japanese concern Toshiba announced a projected loss of 1.01 trillion yen ($ 9.2 billion) following the results of the financial year ending March 31, and expressed concern about the company's future. According to the company’s financial statements published after delays in the statistics’ publication, the company's net loss in April-December amounted to 532.5 billion yen ($ 4.8 billion).

Seika via flickr
Seika via flickr
Toshiba has published unaudited financial statements. For the first 9 months of the fiscal year that started for the company in April 2016, the Japanese conglomerate reported a net loss of 532.5 billion yen ($ 4.8 billion), resulting from a write-off of 716.6 billion yen in the nuclear reactor production and maintenance division.

Last month, Toshiba's board of directors approved a decision to file bankruptcy petition to Westinghouse in accordance with Chapter 11 of the US Bankruptcy Code, which allows reorganization and protection from creditors. As a result, Westinghouse was removed from Toshiba’s balance.

Most likely, reports on the nuclear business’s financial performance will further be revised. The company's forecast for the annual loss is 1.01 trillion yen ($ 9.2 billion). Losses are linked to guarantees for loans and other liabilities related to projects of Westinghouse in the United States.

"A number of events and circumstances may raise questions about continuation of the company's activities", the statement said. It is noted that the company's auditor, PricewaterhouseCoopers, refused to approve the reports. 

Against the backdrop of Westinghouse's growing losses, the company has put semiconductor business on sale, and plans to conclude a deal by June 2017. Toshiba expects to sell part of its memory chip business, earning at least $ 9 billion, which will help offset losses occurred thanks to Westinghouse Electric.

The semiconductor business of Toshiba is the second largest. Analytical agency IHS says that in the II quarter of 2016, Toshiba was controlling 20.4% of the world NAND flash memory market in terms of revenue, second only to Samsung Electronics (34.9% share). 

Taiwanese Hon Hai (also known as Foxconn), South Korean SK Hynix and Singapore Broadcom are now bidding for the chip business. Foxconn Technology Group intends to compete seriously for the right to purchase Toshiba's business. "We cannot afford to miss this opportunity," said Foxconn’s founder and chairman of the board Terry Gou. According to Bloomberg, Foxconn expressed willingness to pay up to 3 trillion yen (almost $ 27 billion). This is at times more than Toshiba planned to gain from its business.

However, the Japanese government may prohibit sale of Toshiba's business to the Taiwanese vendor for reasons of national security. The greatest chances for victory belong to American vendors, whom the Japanese authorities consider the most suitable candidates. The government of Japan has never concealed the fact that it would prefer to see someone from their country as the business’s new owner. The Chief Cabinet Secretary of Japan Yoshihide Suga stated that the semiconductor technologies of Toshiba are of strategic importance for the country.

If Foxconn's plans to absorb the Toshiba division succeed, the company will combine display and semiconductor technologies, assembly and delivery of components for its products. Toshiba is inclined to conclude deals with financial companies, since in this case it will be easier to get regulatory approvals.

Investors believe that sale of the unit will provide Toshiba with the necessary support, and the main concerns are related to possible delisting of Toshiba’s shares from the Tokyo Stock Exchange. The probability of this is small, since the stock exchange’s management is likely to try to keep the company of such size on its site. Yet, if this happens, the consequences can be the most negative.