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Toshiba puts prized chips unit up for sale to salvage

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After a chaotic day of earnings, it's become clearer Toshiba Corp may soon end up a shadow of its former self.

[TOKYO] After a chaotic day of earnings, it's become clearer Toshiba Corp may soon end up a shadow of its former self.

Buried in company presentation materials Tuesday was a note that the Tokyo-based conglomerate is considering selling a majority stake in its memory chip business, a reversal of a previous plan to limit the sale to 20 per cent. Then President Satoshi Tsunakawa took that a step further, saying a sale of the entire unit is now possible.

NAND flash memory, used in smartphones and solid state disk drives, is one of Toshiba's few bright spots. Bloomberg Intelligence estimates that the entire division could be worth as much as US$14 billion, which would more than cover the US$6.3 billion writedown in the struggling nuclear unit. That would leave Toshiba with few growth prospects, relying on public infrastructure projects, elevators and a struggling consumer electronics business. In response, investors sent the stock down to 10-month lows; one analyst even suspended his rating.

"We're getting to the stage of asset-stripping," said Amir Anvarzadeh, head of Japanese equity sales at BGC Partners Inc in Singapore. "They're selling the majority of the chips business which is the only business they can sell right now."

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Among potential acquirers for the chip unit, South Korea's SK Hynix Inc, which is seeking to expand its share of the global mobile and smart devices market, already offered to buy a stake in the memory division. Chinese chipmakers are also among the other potential buyers.

Toshiba also said it may pull out of nuclear plant construction and only provide equipment and engineering, which would make it extremely difficult to sell nuclear projects to customers. All options are on the table for the nuclear business, including a possible sale of Westinghouse Electric Co, its US nuclear unit, Mr Tsunakawa said.

All told, Toshiba is now forecasting a provisional 500 billion yen (S$6.25 billion) loss for the nine months through Dec 31. As a result, shareholder equity will drop to negative 150 billion yen for the current year ending in March, the company said. All of this is making it difficult to assess Toshiba's future earnings potential, according to Masaya Yamasaki, an analyst at Nomura Securities Co, who suspended his rating on the company. Almost three-quarters of the 15 analysts tracking Toshiba have a sell or hold rating on the stock, although many of them have been adjusting their targets since Tuesday.

"Based on our policy of not forecasting corporate actions, we have no choice but to anticipate the company will continue to have negative net worth," Mr Yamasaki wrote in a note.

Toshiba shares fell as much as 13 per cent in Tokyo, to levels not seen since April. Toshiba is down more than 25 per cent this year after it discloses the new accounting challenges in late December.

For now, Toshiba seems to have the support of its main lenders, Sumitomo Mitsui Banking Corp, Mizuho Financial Group Inc and Sumitomo Mitsui Trust Bank Ltd, who met with the company's managers and expressed their support, according Kyodo News. A chip sale may face resistance from the government. Chief Cabinet Secretary Yoshihide Suga said that flash memory chips are an "extremely important" technology for Japan's growth strategy.

"The questions surrounding Toshiba are so numerous, where do you even begin," said Masahiko Ishino, an analyst at Tokai Tokyo Securities. "Investors want to know what will happen to nuclear and chip businesses, whether elevator operations and some of Toshiba's listed subsidiaries will be sold off."

That's a humiliating turn of events for one of Japan's oldest businesses, which made the country's first light bulb and grew into a behemoth that made everything from washing machines and medical equipment to computers and nuclear power plants.

Toshiba now has until March 14 to report its results for the latest quarter, which ended Dec 31. For the full fiscal year ending March 31, Toshiba forecast a net loss of 390 billion yen, reversing its November outlook for a 145 billion yen profit. That compares with a projected loss of 262.7 billion yen, the average of analysts' projections compiled by Bloomberg.

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