Fri, Jun 30, 2017 - Page 8 News List

The Liberty Times Editorial: Firms must consider Chinese links

A few months ago, Japanese industrial giant Toshiba Corp, having experienced serious internal governance failings, decided to sell its valuable semiconductor division — Toshiba Memory Corp — to restructure its finances.

The prospective deal has attracted several consortiums, which have been locked in fierce competition.

When all the bids were in, Toshiba resolved to prioritize negotiating a contract with a so-called “US-Japanese-South Korean consortium.”

Toshiba’s decision was influenced by the intervention of the Japanese government, which wants to safeguard domestic employment and ensure that key technologies remain in Japan.

For Taiwan, the world’s second-biggest producer of semiconductors, this case is an excellent point of reference.

The US-Japanese-South Korean consortium was formed under the influence of the Japanese Ministry of Economy, Trade and Industry. Its principle members are Innovation Network Corp of Japan, which is a joint venture of the Japanese government and a number of corporations, along with Development Bank of Japan, US private equity firm Bain Capital and South Korean memorychip maker SK Hynix.

SK Hynix is offering a loan to help finance the bid, which would give it no actual controlling rights, avoiding monopolization concerns.

Nonetheless, its bid has caused worry in Japan about potential technology outflow, because of SK Hyunix’s record of stealing Toshiba’s patented technology.

Toshiba’s US business partner Western Digital Corp (WDC) is also worried that when private equity funds pull out after making a profit, they will sell their shares to competitor SK Hynix.

WDC has called for international arbitration and is demanding that Toshiba stop selling business interests in which the partners have joint investments.

These companies have fared better than Hon Hai Precision Industry Co, also known as Foxconn Technology Group, whose bid fell at the last hurdle.

During the bidding process, the Japanese government repeatedly let it slip, intentionally or otherwise, that it was concerned about Hon Hai’s relations with the Chinese government, given that most of its factories are in China, and is worried that Toshiba’s semiconductor technologies, which could have military applications, are at risk of falling into China’s hands.

Hon Hai bid separately at first, but then changed tack by inviting partners, including Apple Inc and Inc, to form a “Taiwanese-US-Japanese consortium.”

This consortium bid ¥3 trillion (US$27 billion) — much more than the offer made by the US-Japanese-South Korean one.

Hon Hai swore that there was no Chinese capital involved and promised to make long-term commitments to Japan, even hinting that it would sue the Japanese government over its interference.

This did nothing to dispel concern about the “China factor.”

That Japan would rather accept SK Hynix while rejecting Hon Hai reveals a thing or two about its industrial strategy priorities.

Hon Hai chairman Terry Gou (郭台銘) thinks his company is still in the game and is determined to get around the obstacles.

Nonetheless, his setback will remind many people of the enthusiasm Taiwan showed not long ago for joining the “China team.”

It was widely reported that Taiwanese integrated circuit design businesses, headed by MediaTek Inc, were under pressure to choose between the “China team” and the “foreign team.”

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