Toshiba boosts SanDisk as Samsung circles

TOKYO (Reuters) - Japan's Toshiba Corp 6502.T is buying $1 billion worth of equipment from joint venture partner SanDisk Corp SNDK.O, shoring up the California-based company as it faces a takeover bid from South Korean rival Samsung.

SanDisk shares have halved in value this year in the face of a worldwide glut in chips, and some analysts said the deal with Toshiba could reverse some of the losses, helping it fend off Samsung Electronics Co Ltd 005930.KS, the world's No. 1 memory chip maker.

SanDisk, the biggest U.S. maker of flash memory cards, holds key patents in such memory, but a rating downgrade by Standard & Poor’s in July is raising financing costs, and the sliding market is expected to cause it to announce a sharp drop in quarterly earnings on Monday.

Toshiba, the world’s No. 2 NAND maker, was likely to take on about $550 million of SanDisk’s $1 billion lease obligation and pay roughly $400 million to $500 million in cash, one financial source said.

NAND flash memory are used in cell phones, digital cameras and MP3 players.

“From SanDisk’s point of view, this is a new cash inflow to keep it going. It could extend Samsung’s battle for SanDisk for some time,” said Park Hyun, an analyst at Prudential Securities.

SanDisk has twice rejected an offer of $26 per share from Samsung, well above its current share price of $15.51.

Toshiba plans to buy about 30 percent of the equipment at a Japanese joint venture with SanDisk that makes NAND flash memory.


While U.S. analysts were generally positive about the Toshiba news, it failed to overshadow SanDisk’s near term issues. SanDisk shares fell 8 percent ahead of the company’s quarterly earnings report later on Monday.

“We believe the weakening global consumer and oversupply of NAND to result in greater than expected inventory write downs, lower product gross margin and muted revenue growth negatively impacting earnings through first-half 2009, said Caris & Co analyst Betsy Van Hees in a client note.

“We continue to recommend investors stay on the sidelines as we believe the stock is trading on its fundamentals rather than on speculation that the company will be acquired at a premium price to its current value,” she added.

Toshiba’s move gives it 65 percent of the production capacity at the existing lines at the two firms’ joint factories, with SanDisk holding 35 percent.

SanDisk would retain the option to buy some of the chips made by the equipment it sells to Toshiba, and said it planned to continue investing its half share in future.

Toshiba is also suffering amid the worldwide crash in memory prices. It is expected to post a quarterly operating loss of 30 billion yen, its first operating loss for the April-September period in five years.

Toshiba, which plans to build two new plants in 2010, said it was still calculating if the move would affect its capital spending plans.

“The use of leasing agreements means that the burden on Toshiba’s finances won’t be too big or too sudden,” JP Morgan analyst Yoshiharu Izumi said. “This is an inexpensive way to gain control of equipment. The bigger issue is how long it’s going to take for the NAND market to recover.”

Samsung declined to comment on the impact the deal would have on its takeover bid for SanDisk.

Additional reporting by Rhee So-eui, Noriyuki Hirata, Kiyoshi Takenaka, Kentaro Hamada, Taiga Uranaka and Franklin Paul in New York; Editing by Paul Bolding and Derek Caney