March 18, 2017 6:15 am JST

Toshiba's trials entangle Tokyo, Washington

With technology and jobs at stake, ailing group not just the private sector's problem anymore

Japanese Economy, Trade and Industry Minister Hiroshige Seko, third from right, met Thursday with U.S. Commerce Secretary Wilbur Ross, left. © Kyodo

TOKYO -- Fixing Toshiba has become a problem for both the Japanese and American governments, with intervention under consideration to protect valuable nuclear and chip technology as well as jobs.

The two sides began feeling out the issue Thursday as Japan's Hiroshige Seko, minister of economy, trade and industry, met with Commerce Secretary Wilbur Ross and Energy Secretary Rick Perry. The Washington contingent reportedly started off by stating that Toshiba unit Westinghouse Electric is building nuclear reactors in the U.S. -- a point that needed no confirmation -- and went on to say that Toshiba's financial stability is vital to America.

The meeting continued by further confirming the facts at hand. At the American side's request, Seko explained that losses stemming from nuclear operations are forcing Toshiba to spin off its memory chip business. He also noted that the Japanese government places importance on chip technology.

Given that the talks were meant to serve as preliminary groundwork for a bilateral economic dialogue set to begin next month, that Toshiba was even brought up is significant. The two governments seem to be softening on their previous stance that the company's restructuring is a private-sector matter.

The money-hemorrhaging nuclear business is a factor. The U.S. has guaranteed $8.3 billion in debt for one of the Westinghouse projects that precipitated Toshiba's losses, and Washington hopes to avoid default. With Westinghouse still lacking a clear path to rehabilitation, the Chapter 11 bankruptcy protection filing that Toshiba is considering for the American unit may not be the best solution. Thursday's talks began the process of working toward a compromise that will continue in future meetings.

Minimizing its out-of-pocket costs is not Washington's only objective. Companies in China and elsewhere have expressed interest in buying into Westinghouse, eyeing its AP1000 reactor design. Some in the U.S. government fear that an unsupervised sale could undermine America's national security strategy by allowing advanced technology related to plutonium -- a material for nuclear weapons -- to leak to other countries. Washington also cannot ignore possible job losses for the 7,000-plus people working on nuclear plant construction in the U.S.

The planned sale of Toshiba's memory chip business is another concern for the two governments. The company is the world's second-largest flash memory maker, behind Samsung Electronics. It is a pioneer in 3-D flash memory, which is expected to see growing demand for use in smartphones and data centers. Core chip technology is crucial for the military as well.

Letting such technologies fall into foreign hands is an unwelcome prospect for either Japan or the U.S. from a business or security perspective. For this reason, Japan is considering a state-backed purchase of a stake in the spun-off memory unit.

During Sharp's restructuring, the public-private Innovation Network Corp. of Japan, which is overseen by the industry ministry, at one point stepped forward as a potential sponsor. The debate over whether Sharp's appliance and liquid crystal display businesses required a taxpayer-funded bailout was rehashed to the very end, when Hon Hai Precision Industry took over the company.

Tokyo is more strongly inclined to protect Toshiba. Options include financial support through the Development Bank of Japan.

The industrial conglomerate plans to shift focus to such infrastructure as air conditioning, with Westinghouse and the memory business coming off its consolidated financial statements. If Tokyo is to have a hand in their management, the extent of its involvement has yet to be determined.

(Nikkei)

Toshiba Corp.

Japan

Market(Ticker): TKS(6502)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 8,314.80M
Shares: 4,237.60M
Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 291,385.85M
Shares: 161.19M

Sharp Corp.

Japan

Market(Ticker): TKS(6753)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 19,627.08M
Shares: 4,994.52M
Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 52,386.84M
Shares: 17,328.73M

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