Toshiba, desperate for cash after scandal, will sell chip business | Hacker News Reader

Toshiba, desperate for cash after scandal, will sell chip business

nytimes.com

52 pointsanigbrowl33 comments

> Toshiba is expected to detail the extent of its write-downs next month. Analysts have suggested they could amount to $4 billion to $7 billion, enough to put Toshiba’s future at risk. Banks have indicated they will keep lending money so the company can pay its bills, but without that lifeline, Toshiba, a 140-year-old business, could collapse.

Startups collapse all the time. That makes sense, they've often been operating for just a few months or years. Some are dependent on regular cash infusions from investors, hoping to grow large quickly, while bootstrapped businesses turn every meager dollar of revenue back into growing the business, hoping to beat the odds and develop into a stable business. Both models are much like a person on the edge of poverty, living paycheck to paycheck just trying to keep up with rent and bills, perhaps taking out credit cards to make something work, dreaming of a very far-off future where they're living in a house they own outright on a large retirement fund.

But why is it that a company like Toshiba, in operation for more than a century, is dependent on the goodwill of banks to remain solvent?

Are you asking why a massive accounting fraud scandal stings so bad? Or why they resorted to accounting fraud in the first place?

No. Well, sort of - they suggest that the magnitude of the 'sting' will be $4 to $7 billion, which is obviously not a good thing. But this doesn't seem like that amount should sting all that bad to a company with the size and history of Toshiba. I mean, they had $50 billion in revenue last year! Are they really skating on such thin margins that they can't write off $5 billion without risking insolvency?

To put it in human terms, if a judge gave a $10,000 fine to a college student or a high school student, it would be totally reasonable for them to be unable to pay. But if they gave the same $10,000 fine to an older adult, for whom that might be a still painful 10% of their annual income, you wouldn't expect the adult to need to declare bankruptcy. An adult who's been making $100k for 20 years or more who's responsible with their finances is likely to have $10k available in savings, should have at least double that much in an emergency fund, and will probably have many times more in home equity, investments, and a retirement fund. Sure, companies involved in accounting fraud probably aren't being terribly responsible with their finances, but the fact that they've existed for a century must mean they're not being stupid, right?

I'm trying to get a start at understanding business finances, and (unfortunately) approaching it from a personal finance standpoint. It seems a lot of corporate 'wisdom' suggests the equivalent of paycheck-to-paycheck, and even trying to reach one step further towards payday loans with tricks like paying your suppliers on Net 30 terms that only start after your customer pays your invoice.

Companies are not individuals. It doesn't help shareholders for the company to keep a large cash pile - investors would much rather take the money and reinvest it elsewhere. Massively profitable companies like Apple (and MSFT in its early days) could get away with this because their ROE numbers are already higher vastly higher than the rest of the market. But for most industries optimizing ROE is important.

Its not really as risky as it sounds. A company can simply dilute itself and create new shares out of thin air and sell them to raise cash should their small buffer prove inadequate. A human can't do that.

For whatever reason Toshiba considers it preferable to sell assets rather than create new shares. Likely because the scandal has depressed the stock price.

That's a deep hole that involves management conflict of interest, tax incentives, and even governments monetary policy.

It's unhealthy, but nearly all big companies are leveraged and can fail in a spectacular ways.

> why is it that a company like Toshiba, in operation for more than a century, is dependent on the goodwill of banks to remain solvent?

This is historically very common in Japan, where they are known as Zombie companies. [1] It's been suggested that this is due to a fierce cultural taboo against failure. So, for example, corporate bankruptcy rates in Japan are extraordinary low - not because Japanese companies are so much better, but because Japanese banks keep poorly performing corporations alive using debt. The bad debts then lead to the phenomenon of Zombie banks [2] that are kept alive by the government. The Japanese government also directly bails out technology companies through the Innovation Network Corporation of Japan (INCJ) [3], which bailed out Sharp last January with a $1.7 billion loan.

This "Zombie" behaviour is thought to be partly responsible for the decades of Japanese economic under-performance known as the "Lost Decades" [5]. It is also feared that "Zombies" are becoming widespread in China. It might also be showing up European and even US economies due to bail-outs actions taken by those governments after the financial crisis. It seems to me that Trump's brand of economic policy might also create these types of Zombie problems.

[1] https://en.wikipedia.org/wiki/Zombie_company#History

[2] https://en.wikipedia.org/wiki/Zombie_bank

[3] https://en.wikipedia.org/wiki/INCJ

[4] http://www.reuters.com/article/sharp-restructuring-incj-idUS...

[5] https://en.wikipedia.org/wiki/Lost_Decade_(Japan)

> It seems to me that Trump's brand of economic policy might also create these types of Zombie problems.

How so?

Subsidizing unprofitable segments of the US economy through government grants and programs to keep jobs alive?

It's sort of a big part of the platform he ran on.

When did he promise government grants?

He made some promises to workers in unprofitable industries, like reducing regulation on coal, but I can't think of or find any promises of new grants or subsidies.

And he's eliminating some huge government grant/subsidy programs, like the ACA.

Carrier is a fine example of promised government grants for not moving jobs. The grants were just in the form of tax breaks [0] (spending the tax revenue before it ever gets to congress).

[0]: https://fivethirtyeight.com/features/why-trumps-carrier-deal...

According to your source, the tax breaks were offered by Indiana, not by Trump.

There are few things as dangerous as taking over a US company with some liabilities as quite a few other companies can attest to (e.g. Deutsche Bank).

The strategic question Toshiba faces is not just holding on to the chip business but also ensuring that it can compete. The semiconductor business is getting more and more capital intensive. It also seems to require more and more vertical integration causing Intel etc. to but tool suppliers who are not able to maintain the required investments.

Why sell the profitable chips business and keep the ailing and scandal ridden nuclear business?

"ailing and scandal ridden" doesn't sound like something they could sell very well, why would anyone buy it (for a high enough price)?

Couldn't they spin off Westinghouse into its own company and let it fail on its own instead of bringing down Toshiba?

Creditors are smart enough to forward the bills to the parent company.

Context: https://www.ft.com/content/7cfd3c68-d23a-11e6-b06b-680c49b4b...

A Paywall with no possibility to bypass doesn't offer any context.

FWIW I was able to read that article. I'm an FT "subscriber" but I don't pay anything. I simply registered for the site.

When I registered years ago the deal was something like 5 free articles a month. I don't know if FT still has a promo like that or if they changed their terms.

Maybe all that's still required is to register? If so, I recommend you do it. The FT is a great publication.

Also, Matt Drudge occasionally links to them. He bypasses the paywall by using a search via Google UK. So that trick could also work?

Yes I know it's a PITA, but writers and editors do need to eat and to pay their rent.

If you have the title of the article in your parent, perhaps we can do the same here.

Edit: Or, I can :P

https://www.google.com/#q=Toshiba+rattled+by+report+of+fresh...

Oddly, I never signed for it and was able to read it before I posted, otherwise I wouldn't...

It sucks that only major company to make a play for nuclear clean energy is now paying for it through the nose and possibly with its very existence.

Nuclear energy needs a "reboot" if it is going to be accepted and widely adopted. A company that has been caught lying about its finances and has an environmental record that is ...challenging[1], probably isn't going to have the necessary level of trust and goodwill to lead such an effort. Let them die.

1. https://en.wikipedia.org/wiki/Westinghouse_Electric_Company#...

Eventually everyone will learn, that nuclear power can't pay for itself.

I don't understand your comment. They invested in it. Heavily.

Not all investments pay off. If nuclear reactors were a great deal, they wouldn't have to be heavily subsidized by taxes every single time they're installed. As subsidies have declined, this business has disappeared.

This is a largely a historic and legislation problem. Nothing about nuclear technology itself makes it impossible as a business.

I suspect this is political problem because there are powerful oil interests. I also think people are so afraid of radiation that they demand countless inspections, fees and other costly regulation.

If every energy field got this level of scrutiny then coal mines would be safe, coal plants wouldn't emit more radiation than nuke plants and carbon sequestration would be a thing or we would be using nuclear. The costs would be double or triple what they are now though.

In a rational world. But we don't live in such a world. After the Cold War, its ties with bombs and nuclear proliferation, Chernobyl, Fukushima,Chelyabinsk-65 incident in the late 50s, dirty bombs scare after 9/11 people are suspicious of nuclear. They would prefer something more dangerous but predictable like coal instead.

Nuclear power didn't even pay for itself back in the 1950s when e.g. the Paducah gaseous diffusion plant with its horrendous safety and environmental record was in its heyday. Valves and pipes constantly ruptured, workers were routinely exposed to precipitating clouds of uranium hexaflouride (the burns are worse than the radiation), and most workers were never issued radiation badges. Somehow the safety manuals from the Manhattan Project a decade before were misplaced on the way to Paducah? Maybe the nuclear physicists in Alamogordo were just better-informed than hillbillies in western Kentucky?

Incidentally the Paducah plant's mammoth power requirements were supplied by TVA coal.

Paducah and other sites like it eventually prompted Congress to pass the Energy Employees Occupational Illness Compensation Program Act. Externalities!

> Other potential buyers include Western Digital [...] Tokyo Electron [...] Foxconn

Please keep this in Japan, please. Foxconn and WD already has too much power.

Yes. Anybody in the US with enough money to buy this?

Micron?

Yes Honestly the WD is now super big the SanDisk is bought off and this Foxxconn is growing at an exponential rate, Sharp lost and Sony ripped off it's Vaio and huge looses in the Mobile industry.

If Japan looses this big company they will be struggling soon. Hope Canon invests and saves this collapse of a century old conglomerate.

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