Toshiba has finally unveiled its restructuring plan to divest itself into three independent companies. However, its semiconductor business is still in the mix instead of being a separate operation with a laser focus to compete in the hyper-competitive silicon world.
The company, which reached the semiconductor glory during the 1980s as a memory market leader, still lacks a radical and timely plan after this overhaul that culminated from the pressure of activist shareholders after years of scandals. For instance, industry watchers expected that Toshiba would cut it clean this time around, especially when it comes to the semiconductor business.
For some strange reason, it hasn’t happened. The conglomerate’s non-memory semiconductor assets are bundled along with storage products in the new devices company. Device Co will handle Toshiba’s storage solutions like high-capacity hard disk drives (HDDs) for data centers as well as optical and power semiconductor businesses.
It means that the new publicly-traded company won’t be purely a semiconductor outfit. Instead, it will offer HDDs, semiconductor manufacturing equipment, and power and optical ICs. That’s quite a diverse mix.
Figure 1 Toshiba boasts a significant portfolio of analog and power chips for automotive designs. Source: Toshiba
The other publicly-traded spin-off—focusing on energy and infrastructure systems—will provide power generation, transmission and distribution, renewable energy, and energy management for public infrastructure, railways and industry, and building energy-saving applications. It will also manage technologies for next-generation markets like artificial intelligence (AI) and quantum computing.
That leaves us with the original Toshiba company, the third entity after the split, which will own the 40.6% stake in the flash-memory chip business in the form of Kioxia as well as Toshiba Tec, the company’s office and retail machinery manufacturing business. Eventually, Toshiba plans to convert Kioxia shares into cash and return the net proceeds to shareholders without impacting the spin-off prospects.
The restructuring plan to split Toshiba into three independent companies, which took almost five months of deliberations, immediately triggers two concerns. First, the plan to complete the reorganization by the second half of 2023 rings alarm bells. According to Atul Goyal of investment bank Jefferies, a timeline of three-to-six months makes more sense.
Second, the semiconductor side of this restructuring effort lacks laser clear focus essential to compete in this highly-competitive and fast-changing industry. The common perception was that Toshiba would spin off its semiconductor operations, as done by many conglomerates and vertically-integrated giants in the past.
Here, at this crossroads, the creation of the flash memory unit Kioxia posed a real dilemma. How to merge analog and optical semiconductor offerings with flash memories? Especially, when Toshiba aims to sell the Kioxia shares to pay shareholders. Nevertheless, this mix and match of corporate entities doesn’t seem to be good news for the semiconductor operations of Toshiba. Particularly, the super-competitive world of flash memory chips is likely to create problems for Toshiba’s reorganization plans.
Figure 2 There are questions all over about the future of Kioxia in the post-restructure world. Source: Kioxia
While this overhaul may make sense to Toshiba’s senior management given the prevailing circumstances, the plan regarding its semiconductor assets seems to be a disappointment. Toshiba sold the majority of its flash memory business to a group led by U.S. investor Bain Capital in 2018 to avoid bankruptcy. Now, the rest of the company’s memory business in the form of Kioxia faces an uncertain future.
As for the remaining semiconductor assets—power and optical chips—they may be up for grabs in the future as well. Once an icon of corporate Japan, Toshiba seems unable to get its semiconductor act together in the end game.