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Toshiba Memory President Yasuo Naruke, right, shakes hands Friday with Yuji Sugimoto, head of Bain Capital in Japan. Bain leads the consortium set to buy Toshiba Memory.

Toshiba holds out olive branch to Western Digital for chip investment

Memory unit plots some $3bn in annual spending to make up ground lost to Samsung

TOKYO -- Toshiba's flash memory arm plans to pour more than 300 billion yen ($2.68 billion) a year into capital investment to ramp up production amid a shortage -- an effort for which it hopes to enlist partner Western Digital's help, despite a legal row.

Toshiba Memory President Yasuo Naruke discussed the manufacturer's investment plans Friday at a news conference in Yokkaichi, Mie Prefecture, the site of the parent's flagship chip fabrication facilities. Naruke, also an executive officer at Toshiba itself, is the first top official at the Japanese conglomerate to hold a news conference since the Sept. 28 announcement of a deal to sell the memory unit to a Japanese-American-South Korean consortium.

Investment for the current fiscal year ending March 31 is expected to total 380 billion yen. Naruke said the chipmaker envisions keeping up a 300 billion yen-plus pace from next fiscal year on, after the planned sale.

Toshiba Memory is currently working on a new facility at Yokkaichi, dubbed Fab 6, that will specialize in production of 3-D flash memory, in which memory cells are stacked on top of each other to boost capacity. The company plans to have these chips, which are becoming predominant in smartphones and data centers, make up 90% of Yokkaichi's output next fiscal year.

Land is being prepared near Fab 6 for a seventh fabrication facility under consideration. Naruke said the company is looking at a long time horizon for the potential Fab 7, indicating that the plan is to continue expanding at Yokkaichi after building another production center in Kitakami, Iwate Prefecture, as announced in September.

A fraught relationship

But an ongoing legal dispute with Western Digital, which invests in the Yokkaichi facilities with Toshiba Memory through joint ventures, could throw a wrench in the works. The American hard-drive manufacturer has taken Toshiba to arbitration in an effort to block the sale of Toshiba Memory, arguing that transferring the memory operations without its consent would violate joint-venture agreements.

Toshiba decided in August to make an initial investment in Fab 6 on its own, without Western Digital's participation. But investment is growing more expensive in the industry as chipmaking technology advances, and it would be difficult for Toshiba Memory to keep shouldering such a heavy burden on its own, even though Naruke asserted that it "would not be impossible."

Western Digital has filed an arbitration request over this move as well, asserting that Toshiba has no right to invest unilaterally in Fab 6.

Naruke called for dialogue between the estranged partners. "If we can invest together [with Western Digital], we can take advantage of economies of scale," he said. "There are many problems, including the legal dispute, but we want to work on mending fences quickly."

The Toshiba Memory chief also said talks are underway with Western Digital about having it participate in the second round of investment in Fab 6.

Continued cooperation

Asked about possible capital investment by SK Hynix, which is providing funding for the Toshiba Memory acquisition, Naruke said current agreements would not let the South Korean chipmaker work with Toshiba Memory and Western Digital on the same production line.

The Toshiba Memory president made clear that the chipmaker will continue designing and developing next-generation memory alongside Western Digital unit SanDisk, its official joint venture partner. Any cooperation with SK Hynix on other development projects would be separate from the SanDisk partnership, he said.

As for the arbitration on which the fate of the Toshiba Memory sale hinges, Naruke warned that if the dispute prevents joint investment in Fab 6, Western Digital will lose access to the cutting-edge memory to be made at the plant, weakening its position in the market.

"I think we can reach a compromise somewhere," he said.

Falling behind

The monthslong negotiations on the Toshiba Memory sale and the row with Western Digital have allowed rival Samsung Electronics to pull further ahead. IHS Markit data puts the South Korean company's share of the global NAND flash memory market at 38.3% to Toshiba's 16.1%, a gap that has widened over the last two years.

The divergence owes partly to a different type of memory -- DRAM. Toshiba unloaded its commodity DRAM operations in 2001 to focus on flash memory. Samsung, by contrast, now controls more than 40% of the market. The fatter profit margin on DRAM has fueled annual investment amounting to more than triple Toshiba Memory's planned outlay.

This is why Naruke repeatedly stressed the importance of the partnership between Toshiba Memory and Western Digital. "Two would undeniably be better than one to compete with Samsung," he said.


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