Advanced chip fab drives Toshiba Memory's $18bn price tag

Crown jewel's value underpinned by accumulated expertise, experience

TOKYO -- Toshiba Memory's 2 trillion yen ($18.3 billion) valuation for a planned sale stems largely from the perceived competitive advantage offered by the Toshiba spinoff's flagship chipmaking complex in Japan.
The four buildings arrayed on a small hill in the Mie Prefecture city of Yokkaichi are abuzz with activity. The proliferation of smartphones and data centers has fueled brisk demand for flash memory, and a senior Toshiba official said chips are being sold as fast as they are made. Production yields for cutting-edge 3-D flash memory, in which memory cells are stacked atop each other to increase capacity, are improving in line with expectations.
For Toshiba Memory bidders, the Yokkaichi complex's long history represents a rare and valuable asset. Toshiba and SanDisk have held chip manufacturing equipment there since signing a joint venture contract in 1999, even after SanDisk's acquisition by U.S. company Western Digital last year.
The joint venture agreements divvy up chip shipments between the two sides based on interest in the ventures, with chip design and production technology development handled by teams of engineers from both companies. The actual manufacturing work has been done by Toshiba for the past 15 years, with SanDisk, and now Western Digital, paying a fee.
The two sides jointly operate facilities for "upstream" processes, or printing circuits on wafers. Yet despite this partnership, they compete in the marketplace. The relationship offers a rare example of rival companies sharing a manufacturing base.
Capital spending by the partners at Yokkaichi has surpassed 3.5 trillion yen. The concentration of so much capacity in one place allows for more efficient procurement of materials and production equipment and helps cultivate a high degree of technical expertise. This formula for success, honed through years of practice, is not typically something money can buy -- hence the 2 trillion yen price tag the Japanese conglomerate seeks for Toshiba Memory.
Yet Samsung Electronics has more money to invest, given its wide array of profit sources including dynamic random-access memory, or DRAM, and organic light-emitting diode panels. Though the Toshiba-Western Digital alliance has the South Korean company beat on output capacity in wafer terms, Samsung holds the edge in productivity thanks to top-of-the-line equipment, and it ranks No. 1 in chip shipments. The use of a single production hub also leaves Toshiba and Western Digital more exposed to the risk of damage from a natural disaster.
The partners have been feuding over the planned sale of Toshiba Memory. Western Digital has sought arbitration to block the move -- a request it has not withdrawn despite recent progress toward a rapprochement -- while Toshiba insists the sale does not violate any contracts. Some engineers grumble that the squabbling only helps Samsung.

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