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Toshiba faces nuclear power goodwill cost meltdown

Multi-billion dollar cost could lead to sale or part-sale of flash business

By Chris Mellor, 3 Jan 2017

Toshiba is facing such horrific cost-overruns with its US nuclear power plant projects it may have to sell assets, such as its flash memory business, to cover them.

Its US subsidiary, Westinghouse Electric, is building four AP1000 power-generating reactors in the United States and costs are getting out of hand, with multi-year construction delays and billions of dollars involved. As part of its attempt to deal with this, Westinghouse Electric agreed to buy CB&I Stone & Webster, a nuclear construction and services business, and the transaction closed in December 2015 with a goodwill component having an estimated cost of $87m.

However the estimated cost is now several billion dollars, an astronomical difference. The problem is, according to a Toshiba statement (pdf), the AP1000 contracts.

Westinghouse has found that the cost to complete the US projects will far surpass the original estimates, mainly due to increases in key project parameters, resulting in [a] far lower asset value than originally determined, leading to a possible recognition of goodwill far exceeding the original December 2015 estimate of US$87 million.

Financial analysts suggest Toshiba, which is recovering from a costly accounting scandal, may have to sell assets to pay for this staggering goodwill cost. Its hard disk drive business could be a candidate for a sale, although competition concerns could prevent either Seagate or Western Digital, the obvious potential acquirers, from buying it.

Stifel MD Aaron Rakers, and others, have suggested Toshiba could sell all or part of its stake in its NAND flash business, where it has a partnership with Western Digital. WD has first refusal on any such sale and so could face a call for more flash investment. ®

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