What's going on?

After 8 months of negotiations, Toshiba appears ready to sell its memory chip unit to a group of companies led by well-known private equity firm Bain Capital. Apple has also backed the group by agreeing to lend $7 billion to help make the deal happen!

What does this mean?

Toshiba is a massive Japanese conglomerate with divisions ranging from computer chips to nuclear power to medical equipment. Last Christmas, concerns emerged that Toshiba was on the hook for billions of dollars in costs as a result of its recent purchase of a US nuclear business. This created a black hole in Toshiba�s finances.


Toshiba has essentially been forced to give up its �crown jewels� by selling its valuable memory chip business. Toshiba chips are used in iPhones and other devices to store things like photos and videos. The sliver of good news for Toshiba is that it will own a small part of the new company that will buy its chip business.

Why should I care?

For the market: Western Digital was the big loser on Wednesday.

Western Digital, a US-based chipmaker, was also bidding for the business � and its stock dropped 5% when the agreement with the Bain-led group was announced. But there�s a wrinkle: Western Digital argues it should have a veto over Toshiba�s decision because it has some joint ventures with Toshiba�s chip business. The unique dispute is heading for the courts, and could yet scupper the Bain-led deal.


The bigger picture: Control of chip-making is hugely important for the manufacturers of smartphones and similar devices.

One of the main reasons that Apple has agreed to lend $7 billion to help make this deal happen is that it wants a degree of control over one of its key chip suppliers. At the same time, Apple is fighting an expensive legal battle over intellectual property rights with Qualcomm, another key supplier, and Apple said in April that it will ditch the UK�s Imagination Technologies� chips and develop them in-house instead. In short, the battle for control over key components in these devices is heating up.