Supply Chain Matters provides some follow-up news to our earlier posting regarding the world’s largest global contract manufacturing services provider Foxconn (Hon Hai Precision Industry Co.) and its recent revenue decline.

Citing informed sources, The Wall Street Journal reported this afternoon (Paid subscription required) that Foxconn has offered upwards of $27 billion to acquire Toshiba Corp.’s computer chip business, in yet another bold move to acquire a Japanese high-tech company.

The Toshiba business unit produces flash-memory chips, including NAND flash memory, utilized in smartphones and computer servers. The business is considered strategic to Japan’s high-tech industry. Of-late, Toshiba has been battered by significant cost overruns from another operating division, its nuclear reactor construction business. Westinghouse Electric Co., which is majority owned by Toshiba, filed for U.S. bankruptcy last month and Toshiba expects to book considerable financial losses, which has prompted the proposed sale of its computer chip business. Thus, Toshiba’s prime motivation is reportedly to garner a lucrative price for its chip business.

Like its successful effort to acquire Sharp Corp., Foxconn has reportedly placed a very attracted offer on the table, well beyond what other entities are currently offering.

The WSJ reports that the government of Prime Minister Shinzo Abe is in a tough spot since government officials are hoping to see a Japanese company or a Japanese-U.S. joint venture company assume ownership of the computer chip business. A government official is indicated to the WSJ that Japan would be opposed to any mainland Chinese bidder due to fears that the technology would be leveraged for competitive advantage along with the threat of spyware being placed on the chips themselves. Thus, the process may take on political and national security dimensions, before any final deal is done.

The WSJ cautions that the process has not reached any final stage and bids can change as contenders acquire added knowledge of Toshiba’s chip business.

Both Foxconn or Toshiba declined WSJ’s request for comment.

While the computer chip business can greatly add to Foxconn’s strategic intent to further diversify into the high-tech component product value-chain, this is a business highly dependent on continuous and expensive research and development. The sum of $27 billion is quite hefty burden, especially for a contract manufacturing services provider that has operated in very thin margins. The WSJ opines that these factors may favor bidders already part of the chip manufacturing business.

Needless to state, this process bears watching for high-tech and consumer electronics supply chain and procurement teams. Similar to what occurred with Sharp, it could drag on for months, something that is likely not within Toshiba’s timetable for making a deal.

Bob Ferrari

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