March 9, 2017 1:55 am JST
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Foxconn approached SK Hynix for joint Toshiba bid, sources say

Tycoon Terry Gou acts on warm personal ties with SK Group Chairman Chey Tae-won

DEBBY WU and CHENG TING-FANG, Nikkei staff writers

SK Group Chairman Chey Tae-won, left, visited Foxconn’s Terry Gou in Taipei in September 2015. (Photo by Debby Wu)

TAIPEI/SEOUL -- Key iPhone assembler Hon Hai Precision Industry, known as Foxconn Technology Group, has approached South Korea's second largest memory chip maker SK Hynix to explore the possibility of collaborating on a bid for the memory business of Japan's ailing conglomerate Toshiba, two sources told Nikkei Asian Review.

SK Hynix declined to comment on Wednesday. "We cannot comment on the deal beyond our public disclosure," spokesperson Son Kyung-bae said. Foxconn declined to comment.

But an executive from SK Group, which controls SK Hynix, hinted that Foxconn did approach the Icheon-based company. "It has not been decided whether we are going to jointly bid with Hon Hai," said the executive who declined to be named.

Foxconn's attempt marks Chairman Terry Gou's determination to win Toshiba's profitable memory business for an extra source of income and opportunities to deepen business ties with Apple. Foxconn's largest customer is Apple, which contributes more than 50% to the assembler's total revenue.

Toshiba is known for its advanced NAND flash memory technology, used to produce storage devices for a wide range of electronic gadgets, and it is the main memory supplier for iPhones. It is now trying to sell up to 100% of its memory business, which could bring in a profit of more than a trillion yen ($8.7 billion), to compensate for huge losses at its nuclear unit.

The $34 billion global NAND flash memory market is dominated by Samsung, Toshiba, Western Digital, Micron, Hynix and Intel. Toshiba's move will almost certainly change the landscape of the memory sector. For Foxconn, the largest assembler of iPhones, having this key component under control could be quite meaningful.

Gou told reporters in Guangzhou last week that he would bid for Toshiba's memory business and that he would invite the Japanese company to set up operations in China. But some industry sources said that Foxconn could be feeling some financial constraints after it acquired a 66% stake in Japanese conglomerate Sharp for 388.8 billion yen.

Some see Foxconn's approach of SK Hynix as a reflection of the close personal ties between Gou and SK Group Chairman Chey Tae-won. In September 2015, Chey visited Gou at Foxconn's headquarters in the industrial district of Tucheng in suburban Taipei to discuss business opportunities in China and India.

Foxconn also has a minority stake in SK C&C, an SK Group subsidiary focusing on internet services. Further, a Foxconn subsidiary and SK C&C have formed a joint venture providing logistics services in China.

TSMC joining the fray?

Industry sources in Taiwan suggest that Taiwan Semiconductor Manufacturing Co., the world's largest contract chip maker and sole core processor supplier for Apple's current iPhones, could also make an offer for Toshiba's memory business.

"TSMC definitely would be interested in the bid as it's rare to come across a profitable business with good operations for sale," said a person familiar with TSMC. "While acquisitions are not in TSMC's DNA, it is a different era now and they will assess the potential investment carefully."

The person added that both Foxconn and TSMC do not have to worry about anti-trust issues.

Another industry source said it would be beneficial for TSMC to own its own memory technology. "Logic chips (including core and graphic processors) and memory chips will work in a more integrated manner in the future, so it will be in TSMC's interest to build up capacities in both," the source said.

He suggested Samsung Electronics, whose memory business is turning out a bigger profit than its core processor unit, is also thinking along the same lines.

TSMC indicated its interest when founding Chairman Morris Chang said on March 2 that "his company is watching the Toshiba deal closely," although he did not comment on whether the Taiwanese chipmaker indeed will be making an offer.

One industry source said Foxconn's Gou had recently approached Chang for advice on Toshiba, though it is unclear whether the two companies could join hands in the bid.

Toshiba is taking non-binding proposals from interested bidders through March 29. The company will hold an extraordinary shareholders' meeting on March 30 to officially spin off its semiconductor business effective April 1.

The Japanese conglomerate aims to line up a buyer by June and close the transaction by the end of March 2018. Toshiba initially planned to sell less than 20% of the chip unit, but has since decided to sell a majority stake in the hopes of securing a bigger profit.

Besides SK Hynix and Foxconn, U.S. memory chip maker Micron and storage solutions provider Western Digital are also expected to make offers. Several private equity funds have also shown interest.

Nikkei staff writers Kenichi Yamada and Kim Jaewon in Seoul and Kensaku Ihara in Taipei contributed to this report.

Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 64,131.9M
Shares: 17,328.7M
Asia300

SK hynix, Inc.

South Korea

Market(Ticker): KRX(000660)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 41,550.8M
Shares: 728.00M
Asia300

Taiwan Semiconductor Manufacturing Co., Ltd.

Taiwan

Market(Ticker): TAI(2330)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 185,107M
Shares: 25,930.4M
Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 304,277M
Shares: 149.31M

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