Toshiba has once more demonstrated that Conglomerates with semiconductor divisions behave very differently from pure-play semiconductor companies. Business issues elsewhere in the corporation are forcing Toshiba to sell the only part of their business that makes money. Although the bait was for 20% of the division, everybody knows that Toshiba will have to sell it all. The value of the standalone semiconductor unit is less than the value of the division combined with a business in another company.
The hierarchy of memory
Toshiba is a big player in non-volatile Flash memory. Although not sufficiently fast to replace the DRAM that processors need close by, Flash is a lot faster than hard disks and placed between the two. A lot of flash memory between DRAM and Hard Disk Drives (HDD) in the memory hierarchy, drives the total performance of the memory system closer to DRAM and the price per bit closer to HDD memory. Market leader Intel has made no secret of their big bet in Flash Memory. They know processors, and fast memory is in love and wants to be close.
Intel investing in Flash means they do not consider it a commodity and believe they will have commercial advantages by being able to sell both the processor and the flash at the same time. In short, memory is worth more in a CPU company than it is stand-alone.
The suitors and their reasons
SK Hynix, Micron – Both playing in the Flash market Hynix and Micron is interested in Toshiba for “scale of economies” reasons. An acquisition would make them stronger in the flash market and would allow them to command larger R&D budgets and CAPEX expenditure. Memory fabs and technology is expensive. Intel’s big bet on memory is founded on the argument that memory is worth more when sold together with processors. If this is right, Toshiba will be worth less in Micron and Hynix than it will be in some of the other constellations. What something is worth and what somebody wants to pay for it is two different things, and Toshiba could end up here.
Westen Digital – Being a key player in Hard Disk Drives, Western Digital is well positioned at the low end of the memory hierarchy and want more. They have already demonstrated their appetite for flash by acquiring SanDisk recently.
Foxconn, Softbank – Both companies are significant stakeholders in Apple. Foxconn handles most of Apple’s manufacturing, and Softbank owns ARM – the processor IP of Apple’s CPU’s. They are interested in Toshiba as Apple are one of the largest consumers of Flash for all their products. This Apple Mafia has announced a joint venture investment company this week, undoubtedly to bid for Toshiba and command even more of Apple’s need. It would be a miracle if Apple were not part of these conversations.
Bain Capital – As an investment company, Bain has already made some investments in cloud-based companies, cloud computing and SAS companies. For them, it is a datacenter play in line with their existing technology investments.
SilverLake – Investigating SilverLake’s investments reveals a couple of interesting positions. Broadcom, also a player in the processor and datacenter space and Alibaba – the Amazon of China. (Also Softbank has a stake in Alibaba). Alibaba wants to be the future trade platform for companies selling to consumers and know this will rely heavily on cloud computing. Currently, only 8% of Alibaba’s revenue is associated with the cloud.
Tsinghua Unigroup – The preferred semiconductor investment vehicle of the Chinese authorities are undoubtedly interested in Toshiba, but is not likely to receive approval from the Japanese authorities.
Any of these suitors are possible winners of the bid for Toshiba, but we believe the Apple Mafia is likely to be able to unlock most value from the deal.
Full article in the Korean Herald here
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