Is Toshiba mulling asset sales? HDD, TV businesses in the frame

Seagate boss, analyst question the strength of Tosh's disk drive


Comment Toshiba is in trouble and could be about to exit the PC and disk drive businesses. The company is still suffering badly from a massive accounting scam, which overstated profits for seven years, and it has just reported a lousy quarter with losses of $91m.

Masashi Muromachi became Toshiba’s new president (chief executive) in July, after former boss Hisao Tanaka had to resign when the accounting scandal was discovered in April. There was also a boardroom re-organisation.

As part of a re-examination of its assets [paywall], Toshiba has decreased the valuation of its entire semiconductor division, its consumer electronics operations for TVs and PCs, and a south Texas nuclear project.

It announced a net loss of $318m for its fiscal 2015 year, which ended on 31 March. Its first full-year 2016 quarter showed a net loss of $91m, reflecting lower TV and PC sales.

Reuters reported Muromachi saying that Toshiba will restructure weak operations, and it's expected that Toshiba will exit the TV and PC businesses.

Dell CEO Michael Dell has said most struggling PC suppliers will exit the business by 2020-2022, because profits can only come from efficiencies of scale in the commodity PC business.

HP, Dell and Lenovo supply more than half of the PCs sold worldwide, and Dell expects the trio to own 80 per cent of sales in 5-7 years. Samsung and Sony have already quit PCs and Acer is facing hard times.

3D technology hasn’t boosted flat-panel TV sales and both Sony and Panasonic have reported losses in their TV businesses over the past few years. Samsung and LG have about 40 per cent of the TV business between them, with Sony having seven per cent, and Panasonic four per cent. In January, Toshiba stopped making TVs in the US and was said to be looking to exit other regions as well.

At a Seagate analysts’ day earlier this month, its chairman and CEO Steve Luczo questioned Toshiba’s commitment to the hard disk drive business. Stifel MD Aaron Rakers noted that Luczo raised doubts about “Toshiba’s long-term positioning in the HDD market".

Seagate – which bought Samsung’s HDD operations – and Western Digital, which owns the WD and HGST businesses, account for the 85 per cent of disk drive manufacture and supply, with WD making more drives than Seagate.

Manufacturing scale is needed to make profits from disks and the market is consolidating towards large-capacity 3.5-inch drives, as notebook and PC owners switch to SSDs. A reduction to just two suppliers, though, might well raise concerns with regulators.

Muromachi has to cut Toshiba back to a sustainable and profitable core, felling the dead wood. HDD manufacture is capital-intensive and he may decide that disk drive fab capital would be better employed elsewhere.

We think it highly likely Toshiba will leave the PC business, quite likely it will say sayonara to TVs, with a middling-to-low likelihood of it bidding farewell to disks. ®


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