On Tuesday, Toshiba Memory Holdings announced that it will acquire Lite-On Technology’s solid-state drive (SSD) business for $165 million. Once complete, the all-cash deal will give Toshiba Memory control of the other component maker’s inventory, personnel, intellectual property, and client-supplier agreements. The two companies expect to complete the transaction by April 2020 barring regulatory issues.
Why is Toshiba Buying Lite-On?
Last June, Japanese conglomerate Toshiba sold its memory chipset business to a consortium led by Bain Capital for $18 billion. Per the terms of the deal, Toshiba retained a 40.2 percent ownership stake in the newly spun-off company. Though the multinational corporation’s memory segment was its most profitable division, Toshiba sold it to offset the $6.5 billion failure of its nuclear business.
Under the management of the consortium, Toshiba Memory will rebrand as Kioxia in October. As part of its relaunch, the new company intends to diversify its holdings and expand into new markets. In a press release, acting CEO Nobuo Hayasaka said that the Lite-On purchase will help the firm achieve that goal.
“This is an exciting acquisition for us, as it positions us to meet the projected growth in demand for SSDs in PCs and data centers being driven by the increased use of cloud services,” the executive notes.
Indeed, Market Watch predicts that the growth of those segments will make SSDs a $60 billion market by 2024.
Why Lite-On Sold its SSD Segment
Though not as drastic as Toshiba Memory’s rebrand, Lite-On is undergoing a corporate restructuring of its own. Last month, Diodes Incorporated acquired the component manufacturer for $428 million. Unless regulators object, the transaction will close next April. Notably, the chipmaker’s new owners have already expressed their expectations for the latest acquisition.
Diodes CEO Dr. Keh-Shew said that he wants his corporation to generate $2.5 billion in sales with gross profits of $1 billion post-merger. Moreover, the American manufacturer sees its Taiwanese subsidiary playing a significant role in its growth.
In its most recent quarterly report, Lite-On revealed that its storage business significantly underperformed year-on-year. In the period ending June 30, 2018, the segment earned the semiconductor firm $15.4 million. This year, the division only generated $11.6 million in revenue during the same frame.
So, for Lite-On, selling its SSD business to Toshiba Memory serves two purposes. One, it helps the firm shed an underperforming segment before it integrates with its new owner. Secondly, it gives the firm a helpful cash injection heading into the end of the year. With the semiconductor industry not expected to grow again until the middle of 2020, the company is wise to fatten up its profit margins.