Toshiba Corp. finally took a major step toward true revitalization as a planned sale of its semiconductor memory subsidiary Toshiba Memory Corp. will be finally completed.
With a huge profit from the sale, Toshiba plans to accelerate investments in its key businesses, such as infrastructure, in the near future and turn to an aggressive strategy.
Investment for growth
According to informed sources, Chinese antimonopoly authorities did not set any conditions for the sale contract signed between Toshiba and a Japan-U.S.-South Korean consortium led by U.S.-based Bain Capital Private Equity.
Toshiba expects gains of 970 billion yen from the sale of Toshiba Memory. As a result, its consolidated net income is expected to amount to 1.07 trillion yen for the year ending March 2019.
Toshiba's consolidated net income for the year ending March 2018 exceeded 800 billion yen, and the company has pulled itself out of financial difficulties. However, the growth is not attributed to good performance of its core businesses, but is largely due to special factors. How will Toshiba use the funds gained from the sale of Toshiba Memory to achieve growth in the future? Toshiba plans to include the issue in a new management plan to be released within this year.
Toshiba Memory has been Toshiba's cash-cow subsidiary, accounting for nearly 90 percent of Toshiba's operating profit, or earnings from its core businesses. From here on, Toshiba's main businesses will be (1) infrastructure systems, (2) energy, (3) artificial intelligence and other information and communication technologies, and (4) semiconductor products other than memory.
However, these four businesses lack earning power at present. Toshiba's energy business including power generation posted operating deficits in Toshiba's consolidated financial statements for the year ending March 2018, while its infrastructure business including water processing systems recorded declining operating profits for the same year. A U.S. rating company expressed a pessimistic view for Toshiba, saying that the company's competitiveness and profitability for each business are considerably inferior compared to other major companies.
In the future, Toshiba plans to raise the level of profitability by focusing on next-generation services such as maintenance and inspection using internet of things (IoT) technology that connects a variety of machines and devices to the internet.
A sense of crisis
Toshiba and the three-country consortium concluded the contract on the sale of Toshiba Memory in September last year. As a prerequisite for the sale, Toshiba needed to obtain approvals from antimonopoly authorities in eight countries or regions including Japan, the United States and Europe. So far, it had cleared screening in seven of those places, except for China.
While Toshiba had aimed to complete the sale by the end of March this year, it could not do so because it failed to obtain approval from Chinese authorities. After March, Chinese authorities had no contact with Toshiba, and cancellation of the sale contract began becoming a real possibility.
There was another plan to raise funds by listing Toshiba Memory on the stock market in the future if it failed to obtain approval from China. Since Toshiba had already emerged from its financial difficulties, a senior Toshiba official said, "We don't need to sell the subsidiary."
Even so, the sale of Toshiba Memory continued to be the main scenario. While Toshiba Memory had brought current high revenues to the company, it is impossible to maintain competitiveness without continuing huge investments in the field of semiconductor memory due to the high pace of technological innovation.
Continuing to take the risk could be a heavy burden for Toshiba, which has just achieved revitalization. In order to prepare funds to achieve future growth, the sale of Toshiba Memory is indispensable for Toshiba.
"The Toshiba brand will regain its luster," Toshiba Chairman and Chief Executive Officer Nobuaki Kurumatani said at a press conference on Tuesday.
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