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TOKYO – Toshiba Memory Holdings is facing a first public offering that will free Toshiba's leading chip maker from Japan.
The company announced on Thursday that it would change its name to become Kioxia on Oct. 1, with the goal of further moving away from the conglomerate.
However, the global demand for chips used in data center servers and the closure of one of its Japanese factories threaten to delay the IPO.
Toshiba Memory is the world's second largest manufacturer of NAND memory chips, behind the South Korean group Samsung Electronics. The group's sales reached 1.26 trillion yen ($ 11.7 billion) during the 2018 fiscal year closed in March.
When the unit of memory separated from the group in June 2018, she announced her intention to become public within three years. The IPO is scheduled for fiscal 2019, but the company's chips have become less competitive than those of its rivals, a sign of brewing problems.
Stacy Smith, the company's new executive chairman, will try to improve the chip maker's outlook in the face of weak global demand and a new management crisis.
Last October, the company recruited Intel's former Chief Financial Officer, Stacy Smith, as executive chairman to strengthen overseas marketing activities. But the chip maker's prospects have become clouded amid slow investments in data centers on the part of large information technology companies.
According to Synergy Research Group, total spend on datacenters in the top 20 IT companies – including Apple, Google, and IBM – fell in the first three months of 2019 compared to the previous year. The current low demand could defeat the planned IPO. However, Smith remains confident. "I still predict that in the next five years we will see a lot of data centers grow," he told Nikkei on Thursday.
Toshiba Memory also suffered a shutdown at its flagship Yokkaichi plant due to a power outage on June 15. Noting that the plant is back online, Mr. Smith said: "We are starting a process of reorganizing the work process inside the plant," indicating that it will take some time before the factory becomes fully operational.
In addition, the costs badociated with restarting the facility may weigh on profits, possibly reduce market valuation and create more problems for the IPO.
Thanks to robust global demand, Toshiba Memory has earned operating profit of 450 billion yen in fiscal 2017, but has recorded a loss of 28.4 billion yen operating for the first quarter of 2019.
The company held stocks for three months just before the suspension of the Yokkaichi plant, badysts said.
The suspension and new restrictions imposed by Japan on semi-conductor materials exports to South Korea are driving up prices for memory. This will increase the profits of Toshiba Memory, but it is unlikely that this amount will offset the decline in demand.
Smith declined to give details on the date of the initial public offering, stating, "We plan to go ahead when it should be done."
Toshiba Memory is also facing a management crisis. CEO Yasuo Naruke, who led Toshiba's chips business since his position as vice president, was on sick leave. Although the company plans to return in September, Smith and Executive Vice President Nobuo Hayasaka will be responsible.
In June, the company raised 1,300 billion yen in financing, including an additional credit line of 100 billion yen, the Development Bank of Japan and three Japanese megabanks. The funds were used to buy back shares of Apple and other investor companies to improve the company's financial profile prior to its IPO, which can be tarnished if the shares are owned by clients.
There are risks, however: although it improves the chances of success of the IPO, creditors are now exercising greater influence over management.
The problems at the top have already hurt the company. He used to argue over management with Western Digital, his partner in the Yokkaichi factory.
By giving up Toshiba's name, the new company has expressed its desire to make a fresh start.
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