Toshiba is considering spinning off or selling its memory business unit to address its accounting scandal, failed Westinghouse acquisition, and declining stock price. Selling a minority stake in memory is preferred initially to cover current financial issues. The recommendation is to sell the entire memory business and unrelated subsidiaries to focus on energy and infrastructure, increase relatedness, and stabilize finances. Potential suitors valued the memory business at $20.5 billion, with SK Hynix the most suitable due to synergies and competitive position versus Samsung.

1. Natasha Cannon, Amtej Dhillon
Marina Iatomase, Ben Nematzadeh,
Brian Ricks & Casey Schmitt

2. Critical Issues
● Accounting Scandal
○ Over 7 years: overstated earnings by $1.9B
● Purchase of Westinghouse Electric Co.
○ 2005 Purchase Price: $5.3 Billion
○ 2016 Write-down: $6.3 Billion
● Stock price down > 50%
● Negative Shareholder Equity
○ $5.3 Billion of Net Debt
○ Covenants violated

3. Strategic Move

4. Strategic Move
● Toshiba Considers Spinning Off Memory
Business
● Also Exploring Selling a Stake
○ Minority stake preferred
○ Cover current financial hole
● Measures Already Undertaken
○ Selling off stakes in subsidiaries
○ Corporate restructuring

5. What is Memory?
Volatile Memory: Erases when device powers off
DRAM
Non-volatile Memory: saves when device powers
off...think storage
Hard Disk Drives (HDD)
Spinning disk utilized (slow, cheap)
Solid State Drives (SSD)
NAND “Flash” technology utilized (fast, expensive)
Toshiba’s Memory segment consists of:
HDD & SSD and other NAND components

6. External Analysis

7. Six Forces Analysis: Summary

8. Competitors - NAND Flash Total Market
SSDs within NAND market:
● $7.7B Market
● 20% CAGR (through 2019)

9. Competitors - Solid State Drives

10. Competitors - Hard Disk Drives

11. Competitors - Primary

12. V-C Position Relative to Competitors

13. V-C Position relative to Key
Competitors

14. VRIO / Resources / Capabilities
Toshiba has Temporary Competitive Advantages:
In-house controller technology
Vertical SSD integration strategy
64-layer 3D NAND → First to market
Full storage manufacturing diversification outside NAND
Toshiba & Competitors at Parity:
Recognized SSD brand
NAND Fab ownership
Samsung has Temporary Competitive Advantage over Toshiba
3D NAND → First to market with scale

15. Internal Analysis

16. Toshiba - Corporate Strategy
Overarching Strategy
Pre-Crisis Strategy:
Laser focus on returning to profitability
• Restructuring & Reduction of liabilities
Mission Statement: Commitment to people,
commitment to the future.
Protect the environment
Serve needs of all people sustainably
Organization
Rumelt’s Classification
Current: Unrelated Businesses
Conglomerate
Autonomous & Siloed business units

17. Business Units
Energy Systems & Solutions
● Large-Scale Power-Generation
Systems
○ Nuclear and Thermal Power
● Renewable Energy
○ Hydro / Geothermal Power
○ Photovoltaic Technology
● Energy Transmission, Distribution,
Storage
○ Battery Based Energy Storage Systems
○ Smart Meter Systems
○ Hydrogen-based Autonomous Energy
○ Energy Transmission and Distribution.
Infrastructure Systems & Solutions
● Public Infrastructure Systems
○ Water Treatment
○ Security and Automation
○ Broadcasting Systems
○ Air Traffic Control Systems
● Building and Facility
○ Lighting
○ Air Conditioning
○ Elevator Solutions
● Industrial Systems
○ Railway Systems
○ General industrial systems
○ Rechargeable batteries

18. Business Units (continued)
Storage & Electronic Devices
● NAND memory
○ BiCS Flash
○ 3D NAND technology
● Solid State Drive (SSDs)
○ End products featuring NAND
● Hard Disk and Hybrid Drives (HDDs)
○ Traditional Spinning Disks
○ Serves data center and server needs
Industrial ICT Solutions Company
● Information and Communications
Technology Consulting
○ IoT technology development
● Cloud Computing
○ Edge Computing:
■ “Brings data processing closer to
the device instead of in the cloud”
■ Improve speed & processing
capacity
● Media Intelligence
○ Speech, Image, and Written Character
Recognition Technology

19. Business Units: Revenue
Contributions
Source: https://www.toshiba.co.jp/about/ir/en/finance/er/er2016/q2/ter2016q2e.pdf
* Retail and Printing Solutions is run by Toshiba TEC, a separate company of which Toshiba owns 50.02%
● Energy Systems & Solutions 29%
● Infrastructure Systems & Solutions
22%
● Storage & Electronic Devices Solutions 31%
● Industrial ICT Solutions 4%
● Retail and Printing Solutions* 10%
Storage & Electronic Devices = 10% net profit, majority

20. Strategy Pre Move
● Focus Existing BU profitability
○ Common Purpose, Mission, etc.
● Corporate Restructure
○ Consolidate Subsidiary Companies
○ Sell off Smaller Subsidiaries
● Become Future Focused
Strategy Post
Move● Avoid Bankruptcy
○ Stabilize Financials, Stay Afloat
● Corporate Restructure
○ Sell off Segments & Subsidiary Holdings
● Maintain Position in Strongest
Remaining Markets
Takeaway: Tread Water!!
Not effective strategy

21. Possible Approaches
● Toshiba’s Approach
○ Sell a minority stake in Memory Business
● Alternative Approach
○ Sell an alternative business unit
■ Ex: Energy
● Not feasible
● Strategic Approach
○ Sell Entire Memory Business and all subsidiaries
unrelated to conglomerate's related-linked businesses
■ Keep Energy & Infrastructure

22. Recommendation

23. Our Recommendation: Internal
BenefitsSell All of Memory Business, Unrelated Subsidiaries (ICT)
● Strategy and Positioning Benefits
○ Focus Differentiation across business units
○ Decrease scope of customers
● Increase in Relatedness: Energy and Infrastructure
○ Together Make 77% of company revenue after move
○ Rumelt’s Classification
■ Change to Related-Linked from Unrelated
○ Common project scope, customer base
■ Similar production and service practices
■ Benefit from unrealized Synergies

24. Our Recommendation: External
ReasoningSell All of Memory Business, Unrelated Subsidiaries
● Isn’t the Market Growing?
● Commoditization Trend
■ Means of Competition in V-C is ↓C
○ High RnD & Capital Requirements to stay competitive
■ Not available to Toshiba
○ High: Buyer Power, Threat of Substitutes, Threat of Rivalry
● Why Sell?
○ Cash needed immediately:
■ Influx of cash at projected value to stabilize conglomerate
■ Allow for long-term planning and strategic approach
○ High Barriers to Entry: Purchase attractive to a would-be entrant
○ Sell at elevated value
■ Industry profit margins on the decline (last 5 years)

25. Potential Suitors
● Apple: Toshiba’s largest customer in its memory division
● FoxConn: Large scale technology manufacturer; Modular synergies
● TSMC: Use Toshiba to enter 3D NAND Flash Market
● Western Digital/SanDisk: Toshiba would boost SSD market share
● Seagate: Reciprocal synergies ⇒ better memory tech
● SK Hynix: Reciprocal synergies ⇒ build superior products
● Tsinghua U: Chinese government, desire to grow semiconductor tech

26. Potential Suitors (continued)

27. Our Recommendation: Suitors (continued)

28. Valuation

29. Our Recommendation: Valuation:
$20.5B

30. Who Should Purchase?
● SK Hynix
○ Competitive position relative to Samsung
○ Strong reciprocal synergies
○ Low antitrust risk
● Apple (close 2nd)
○ Extremely positive cash position
○ Likeliness to close w/o interjection from Japanese
government
○ Vertical Integration, guaranteed supply

31. Q&A