Toshiba to cut off JV partner from new line of chips

San Francisco

TOSHIBA Corp has taken another stab at its US joint venture partner, Western Digital Corp, saying that it has no rights to new chip production that's vital to the future of both companies.

The latest escalation of the fight between the two centres on a new factory called Fab 6. Toshiba said it will build the plant without any participation from its US partner, thereby cutting off Western Digital from chips made with the factory's new technology. Western Digital inherited its stake in the joint venture when it bought SanDisk Corp.

"Toshiba is dismayed by Western Digital's pattern of exaggerating SanDisk's rights under the relevant agreements," the Tokyo-based company said in a statement on Friday. "Despite claims to the contrary, Western Digital does not now possess any legal 'rights' to participate in this phase of investment, which is an important investment in the next generation of flash memory."

Western Digital soon countered with a statement of its own, saying Toshiba's position is wrong and affirming its rights.

"The terms of the agreements and our related legal rights are clear, and we remain confident that we will receive our share of any capacity from Fab 6," the San Jose, California-based company said. "We are continuing our constructive dialogue with To-shiba on this and other matters."

The two companies are locked in a legal fight over Toshiba's plan to sell its share of the joint venture to make up for multibillion-dollar losses in its nuclear power operations. Western Digital argues that it has a say in the sale, as well as right of first refusal. Further legal wrangling could delay the sale to a group of preferred bidders, putting Toshiba at risk of being delisted.

Aspects of the dispute have spilled over into court. Western Digital said a judge in San Francisco on Friday agreed to change a temporary restraining order - prohibiting Toshiba from blocking Western Digital employees access to shared databases and other joint venture facilities - into a preliminary injunction. The order also requires Toshiba to continue to supply materials and sample wafers to Western Digital in the US.

Western Digital needs to retain access to output from new Toshiba factories as improvements in manufacturing technology are one of the key determinants of success in the memory chip industry. Newer plants and equipment typically produce better semiconductors more cheaply.

Toshiba said the talks have not proved fruitful. "Toshiba provided an investment proposal to SanDisk earlier this year," it said in the statement. "Despite numerous meetings and negotiations, including at the CEO to CEO level, Toshiba's proposal was not accepted on the timetable set out in the agreements. "

Western Digital shares declined 4 per cent Friday to close at US$81.17 in New York. The stock has gained 19 per cent this year. BLOOMBERG