Toshiba memory business has survived. A group of South Korean and U.S. investors, led by Bain Capital, has taken over the memory business of Toshiba, an iconic Japanese semiconductor company. Toshiba had needed cash after disastrous strategic moves in its nuclear power business in U.S. As Toshiba gets cash to sort out its future, many industry players are cheering as another power concentration is averted.
Toshiba said it had signed a deal to sell 60 percent of the microchip unit, Toshiba Memory Corporation, to a group of international investors that includes Bain Capital and Apple. The deal, which followed months of tumultuous negotiations, will net Toshiba about $14 billion.
Toshiba has staked its future on the sale, with the proceeds earmarked to help repair the financial damage from a disastrous foray into nuclear power in the United States. The episode threatened to bankrupt the company, one of Japan’s biggest and proudest.
Saving a Toshiba business arm is not the reason why the world is cheering. The main reason is that the investors have saved a supplier of advanced processed sands (yes, memory chips) used in mobile devices like smartphones and tablets. This deal will remind Samsung that besides its #1 position in the global memory supply chain, there is still #2. Samsung is memory chip global leader, well ahead of Toshiba. Had Toshiba failed, it would be the only remaining major player. The implication is huge: Samsung could easily jack up prices of memory chips, and there is nothing anyone can do except to file unfair competition complaints. Certainly, keeping Toshiba running is a better alternative.
With this deal, at nearly $18 billion, the #2 could be strengthened to offer a minor choice in the industry. The deal is yet to pass regulatory and legal hurdles. But observers do not expect any major challenge that may prevent the deal from being closed.
Apple is part of this deal. It knows that with Samsung in control of the memory business, it will remain a choice between the devil and the deep blue sea. How can you be funding your arch-rival? It does not make sense. But that is where Apple is today: its main competitor is also its most important supplier. So, as Apple devises strategies to crush Samsung, Samsung waits for the phone call to supply the components to help Apple execute the strategies!
Apple knows that it cannot do much to dent Samsung’s vision because while Apple needs mobile devices like iPhone and iPad to make money, Samsung does not. Samsung returned with history-making profit numbers despite recalling millions of its products few months before. If Apple finds itself in such a condition, it may be imperiled for years.
Between Samsung and Apple, Samsung is a better company with solid moat, over accumulated capabilities no competitor can acquire within a decade. It takes years to master the art of semiconductor business. About four companies on earth have the top-grade technical quality to execute it at scale: Intel, TSMC, Samsung, and others (Global Foundry, and Chartered)
So for Apple, it knows that without Toshiba, Samsung will grow even stronger and it will not have any alternative for memory chips used in iPhone and iPad. Samsung has benefited significantly from its semiconductor business. It remains the most profitable part of its business.
So, with this deal, Apple cheers. And many in the tech world cheer. Because having one company to supply memory chips will mean that prices of mobile devices will go up. There is nothing better than an alternative when it comes to the moments to negotiate prices. That is how markets should work.---
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