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Western Digital files for arbitration in Toshiba dispute

Mon 15 May 2017

Toshiba WD

Western Digital has filed a request for arbitration with the International Chamber of Commerce, stating that Toshiba violated the companies’ joint venture contracts by spinning off the flash memory business into a separate unit for sale.

Last week, Western Digital CEO Steve Milligan met with Toshiba President Satoshi Tsunakawa to discuss the Japanese company’s effort to spin off its memory chip unit. Western Digital has a stake in the Toshiba memory business, as long-term partners in a joint venture to produce flash-memory chips. This meeting was apparently unsuccessful, as Western Digital has announced that it is seeking remedy through arbitration through the International Court of Arbitration, governed by the International Chamber of Commerce.

In January 2017, Toshiba announced that it would spin off its memory chip unit and put it up for sale, in part to help the company recover from huge losses suffered last year by Toshiba’s U.S. subsidiary, Westinghouse. The memory chip unit has been valued by Toshiba at approximately $18 billion USD.

After Toshiba’s board approved the action, the memory chip business was successfully spun off to a subsidiary, known as Toshiba Memory, in anticipation of the sale of the unit. Western Digital stated that this move violates the anti-transfer provisions in the contracts governing the joint venture agreements between the two companies.

Western Digital believes that according to the agreement, Toshiba was required to get consent from SanDisk prior to transferring joint venture interests to Toshiba Memory. The company submitted a letter to this effect to Toshiba, who responded denying the validity of this claim. Toshiba went on to threaten to deny Western Digital employees access to a joint manufacturing facility if the company did not stop interfering in the sale.

According to Bloomberg, Toshiba is making plans to make good on those threats. In light of Western Digital’s decision to seek arbitration to resolve the dispute, Toshiba is moving forward to block Western Digital employees from accessing the jointly-run flash memory manufacturing facility in Yokkaido.

Should arbitration be required, it could take up to two years to resolve the complaint. This is bad news for Toshiba, as analysts have said that the sale of the memory chip business is necessary for the company’s survival.

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