Sandisk and Toshiba restructure joint venture

The restructured agreement will provide cash to Sandisk while reducing the company's capital spending

Sandisk on Thursday armed itself with financial flexibility, announcing a deal to restructure its chip-manufacturing joint venture with Toshiba.

Toshiba will inject cash into Sandisk and take on certain equipment-lease obligations owned by the joint venture as part of the restructured deal. The total value of the deal is about ¥80 billion ($895 million as of Thursday). Toshiba will provide one-third of that amount into Sandisk, with the rest of the total coming from restructuring of Sandisk's equipment-lease obligations.

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The agreement reduces Sandisk's capital spending and strengthens the company's financial position, Sandisk CEO Eli Harari said in a statement.

This is the second time the Sandisk-Toshiba joint venture has been restructured. In October, Toshiba partially bought out Sandisk's stake in two flash-memory-production joint ventures in Japan.

Sandisk wants to shore up its balance sheet, and the deal adds cash to the company's coffers while reducing cash outflow, said Gregory Wong, president of Forward Insights, a market researcher. The deal also secures Toshiba's partnership with Sandisk, which is one of the world's largest USB and flash-drive suppliers.

It further ensures that Sandisk remains a big consumer of Toshiba's massive fab capacities, Wong said. The more semiconductors are shipped out of Toshiba's fabs, the more it could reduce the manufacturing cost per wafer while adding economies of scale, he said.

The agreement may also give Toshiba better access to Sandisk's intellectual property and could deter Samsung from making advances to acquire Sandisk, Wong said. Samsung attempted to acquire Sandisk last year.

Reduced demand for a wide range of products that use semiconductors is taking a toll on the semiconductor industry, which recorded an estimated revenue decline of $12 billion for 2008 compared to 2007, Gartner has said. The deal comes the same day Toshiba recorded a net loss of ¥121 billion on 21 percent lower sales of ¥1.5 trillion, its first quarterly loss in seven years.

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