Toshiba Corporation recently announced it would shut down its large-scale integration (LSI) system segment as a cost-cutting measure. The company will spend ¥11.8 billion ($111.7 million) to relocate or provide early retirement benefits for 770 affected employees.
The conglomerate anticipates eliminating its LSI chip segment will produce a savings of ¥15 billion ($142 million) by next year.
Why Toshiba is Exiting the LSI Business
Toshiba is closing its LSI business—which developed products like image recognition sensors—because it has been a consistent drain on its finances.
The company listed the business, which falls under its Electronic Devices & Storage Solutions division, as a multiyear money loser on its latest annual report. In fiscal 2019, the failing unit cost the firm ¥5.375 billion ($50.9 million). This year, the segment improved its performance, but still cost the corporation ¥3.838 billion ($35.2 million).
A combination of weak sales and high development costs ultimately made operating the segment non-viable.
In a statement, Toshiba pledged to provide ongoing support for its existing LSI customers, which include Toyota. The company will continue making the power management chips the subdivision previously designed and produced.
The electronics maker will not be updating its guidance because it factored the segment’s shut down costs into its current forecast.
U.S.-China Trade War Fallout
Toshiba intends to make its business more robust after exiting the LSI industry. In particular, the company said it wants to pursue markets that are not easily disrupted by factors like the U.S.-China trade war.
While the firm is based in Tokyo, Japan, it maintains production capacity globally, including in China and America. Consequently, the company’s efforts to sell its LSI products suffered due to market instability created by the two superpowers.
Kioxia Holdings Corp., previously Toshiba’s memory chip subsidiary, postponed its initial public offering partially because of the international commerce conflict. In addition, several large Japanese semiconductor companies have recently had to make major adjustments to their businesses for the same reason.
That said, Toshiba, Kioxia, and its contemporaries have been proactive about responding to headwinds generated by the Sino-American trade war. As a result, the region’s electronic component vendors should be able to resume growing their businesses next year.