Japan-based Toshiba Memory Corp (TMC), now the world's No. 2 supplier of NAND flash memory chips with nearly 20% market share, is striving at full throttles to rival top supplier Samsung Electronics by advancing its IPO listing to the second half of 2019 from 2021 and enhancing cooperation with No. 3 player Western Digital (WD) to enforce capacity expansions. But the company is facing a tough year in 2019 amid sharp NAND price falls.

TMC, the most profitable unit at financially-troubled Toshiba Group, started volume production of 64-layer 3D NAND flash chips in 2017 and raked in revenues of over JPY1.2 trillion (US$11.04 billion) and profits of JPY479.1 billion that year. But the company was fully sold in June 2018 for JPY2 trillion to an international consortium led by US-based Bain Capital and including government-backed Development Bank of Japan and Innovation Network, four US firms Apple, Dell, Segate and Kingston, as well as South Korea's SK Hynix.

Stay rooted in Japan

Later on, Toshiba Group used part of the JPY 2 trillion in TMC sell-off proceeds to repurchase 40.2% of TMC shares. This, coupled with a 9.9% stake acquired by Japan's optical instruments maker Hoya, has added up to a majority 50.1% in TMC shares held by Japan investors, allowing the inventor of the world's first NAND flash chip to stay rooted in Japan.

Many manufacturers in advanced economies have globalized their operations by shifting production lines or even R&D units to overseas footholds offering lower operating costs. But this is not the case with TMC. With NAND flash invented in Japan, TMC hopes to keep its R&D and manufacturing operations in the country, company president Yasuo Naruke has said, adding that relatively high production automation has sharply lowered labor cost, making production relocation unnecessary.

TMC originally planned an IPO launch three years after ownership transfer, but has decided to advance its share listing to 2019 to raise huge capital funds sooner to support heavy R&D and equipment expenses.

Toshiba Group and SanDisk, a US-based NAND flash maker, had set up a joint-venture production plant in Yokkaichi City before the latter was acquired by WD in 2016. This acquisition deal has made TMC and WD partners in frontend process and R&D but competitors in backend process and sales.

Extending cooperation with WD

In the process of the TMC deal, WD filed an international arbitration against Toshiba to defend its preemptive right for purchasing TMC shares and expressed concerns about possible technology leakage to South Korea rival SK Hynix among the then prospective buying consortium. But WD failed to strike a deal due to lower price offering. In December 2017, WD and TMC reached a settlement on the issue and extended their cooperation period to 2017-2029 from 2021, so as to jointly fight their largest competitor Samsung Electronics as their combined market shares are still lower than Samsung's nearly 40%.

NAND flash prices have trended downward since the second half of 2018, and the price falls are seen to carry into mid-2019 at least. As reported by Japan's Nikkei Shimbun, the average price for iconic TLC (triple-level cell) NAND flash with a memory capacity of 128Gbit had declined by 40% between early 2018 and November.

To counter, TMC and WD announced in late October 2018 downward adjustments to the production capacity at their joint-venture plant in Yokkaichi, with NAND flash shipments from the plant to be slashed by 10-15% from the original goal for 2019.

Building new plant

Speaking at Semicon Japan 2018 held December 12-14, TMC president Yasuo Naruke attributed the current NAND flash oversupply to an overestimation about demand from datacenters. But Naruke also pointed out that demand for NAND flash chips will show an annual growth of over 40% after mid-2019, driven by robust big data, IoT and 5G applications, necessitating the construction of a new joint-venture plant in Kitakami City.

The new plant, under construction since July 2018, is scheduled to kick off volume production of 3D NAND flash chips in 2020, with its first production line expected to become operational in 2019 to meet demand recovery in the second half of the year.

The sell-off turmoil resulted in TMC lagging behind Samsung in R&D and volume production of 96-layer NAND flash chips, with the company having to focus on of 64-layer chips before kicking off mass productoion of 96-layer ones at its Yokkaichi plant in September 2018.

But TMC adopts the QLC (quad-level cell) technology to boost storage capacity to 4bit from 3bit per cell, and will start in mid-2019 the production of QLC 3DNAND flash chips for datacenter applications.

By: DocMemory
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