Toshiba Memory Targets Acquisitions Enroute to an IPO in 3 Years

(Bloomberg) -- Toshiba Corp.’s former memory chip business, acquired this month by a group led by Bain Capital, intends to pursue acquisitions as it prepares for an initial public offering in three years.

Toshiba Memory Corp. intends to rely on its own cash flow to sustain capital spending at a pace of hundreds of billions of yen a year, Yuji Sugimoto, head of Bain Capital in Japan, told reporters in Tokyo on Monday.

The Japanese electronics maker just completed the sale of its most profitable business for 2 trillion yen ($18 billion) to repair a balance sheet hammered by a bankruptcy of a nuclear energy subsidiary. That division’s now controlled by a Bain-led consortium that includes SK Hynix Inc., Apple Inc., Hoya Corp. and Seagate Technology Plc, though Toshiba is retaining 40 percent of the unit.

“Given our experience in raising money, we can potentially do deals that are very large,” Sugimoto said, declining to give details. “Fast decision-making will be key for Toshiba Memory surviving global competition.”

Bain, including Sugimoto, will control three out of five of the new entity’s board seats. Yasuo Naruke, the former Toshiba chip-division chief who now leads the company, and Hoya President Hiroshi Suzuki hold the remaining two.

In the semiconductor business, long-term price declines are a given and capital investments need to be timed to bring capacity online just as demand grows. Toshiba has accelerated spending on chips in the past three years, pumping in a total of about 1.1 trillion yen. The unit generated 776 billion yen of profit over the same period. Naruke said research staff will increase by 500 people in the next two years, but declined to give specific earnings and spending targets.

Toshiba has been increasing investments in its new Fab 6 chip facility in Yokkaichi in western Japan, and also announced plans to build a new plant in Iwate prefecture that will begin mass production in 2020. The Japanese company has said it will continue an existing joint-venture agreement with manufacturing partner Western Digital Corp., which till now has split with Toshiba most of the spending on chip equipment in Yokkaichi.

Toshiba in 1989 invented the NAND flash now used to store data in everything from smartphones to data centers, but over the years was outspent by the likes of Samsung Electronics Co. The industry is now shifting to so-called 3-D NAND, which Toshiba believes gives it an edge against the South Korean giant. Samsung controlled 37 percent of the flash market in the first quarter, followed by Toshiba with about 19 percent, according to researcher TrendForce Corp.

The technology — which stacks silicon layers on top of each other — promises denser and cheaper chips but also comes with manufacturing challenges. Toshiba plans to increase the proportion of NAND that uses a 64-layer structure to 80 percent of output this year, from about 60 percent at the end of 2017, Naruke said. Fab 6 will begin production of the chips this summer and will later shift to 96-layer semiconductors, he said.

“Memory business has all kinds of twists and turns, but with technology at our core we can keep up the fight,” Naruke told the briefing. “What’s different now is that we can make decisions faster and have Bain’s support for investments.”

To contact the reporters on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net;Yuki Furukawa in Tokyo at yfurukawa13@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Reed Stevenson

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