Why Is Toshiba’s NAND Business Rumor Important for Micron Investors?

NAND—A hot market

The NAND market is currently favorable and is likely to remain like this for the rest of 2017 as memory makers transition to 3D technology. This transition has removed a huge portion of NAND output from the market at a time when the demand is increasing.

According to Nomura’s estimates, global NAND sales could increase 51.2% YoY (year-over-year) to $51 billion in 2017, contributing significantly to the overall memory sales that could reach a record $116 billion in 2017. At a time when the NAND market is hot, rumors are floating that Japanese (EWJ) company Toshiba is planning to sell a 20% stake in its NAND memory business.

Why Is Toshiba’s NAND Business Rumor Important for Micron Investors?

Rumor has it—Toshiba’s memory business up for sale

A Reuters report, citing unnamed sources familiar with the matter, stated that Toshiba (TOSBF) is looking to sell a 19.9% stake in its memory business for ~$1.7 billion in order to offset the losses from the multi-billion dollar write-down on its US Nuclear division. The company has to arrive at a deal by the end of March 2017 and close it by the end of June 2017.

Some sources claim that Toshiba has received a bid as high as $3.6 billion and as low as $1.7 billion for its 19.9% stake in its Flash Memory business. Some other sources claim that the urgency of the situation has forced Toshiba’s president, Satoshi Tsunakawa, to give away a 100% stake in its Memory business in order to raise $13 billion.

In the fiscal year ended March 2016, Toshiba’s NAND business generated revenues of $7.4 billion and operating profits of $960 million. Market conditions have improved since then, with NAND prices up ~25% since April 2016.

Potential bidders

Sources claim that potential bidders for Toshiba’s Memory business include memory makers SK Hynix, Western Digital (WDC), and Micron Technology (MU); financial companies Bain Capital, Silver Lake Partners, and KKR; and customers such as Apple (AAPL) and its partners Foxconn and TSMC (TSM).

There is a possibility that China’s Tsinghua Unigroup may also bid for Toshiba’s Memory business, as the former is building a $30 billion memory chip facility but lacks intellectual property. It tried to acquire Micron and a stake in Western Digital, but the deal could not pass through regulatory scrutiny.

Which bidders would Toshiba prefer? 

Given the urgency of the situation, Toshiba would prefer financial buyers as they can easily secure regulatory approvals, according to sources familiar with the matter. A deal with a memory maker could face anti-trust scrutiny, which could slow the acquisition. If a foreign buyer acquires Toshiba’s Memory business, it would have to keep production and employment in Japan.

Next, we’ll see how a possible acquisition could benefit Micron.