Western V. Toshiba: Investment Spat Raises Some Concerns, Say Wells, RBC

Shares of disk drive and NAND flash chip maker Western Digital () are up 15 cents at $84.52 as proceeds through another round of dueling press releases with its joint-venture partner, Toshiba (), with whom Western is in dispute over NAND joint venture.

First came the legal stuff, yesterday, and today came a manufacturing war of words that may be more significant.

Toshiba is in the process of trying to sell its NAND flash facilities; Western has opposed the move and the two have proceeded through a number of legal moves. They are headed to an arbitration panel in the weeks to come.

Western yesterday obtained a legal victory when a California appeals court said Toshiba must grant Western’s employees access to information about Toshiba’s operations, by Reuters’s Makiko Yamazaki.

The court dissolved what had been a stay requested by Toshiba on a temporary restraining order requested by Western, after Toshiba blocked Western employees from gaining access to databases in Japan in June.

In a statement, Toshiba said it “has resumed allowing Western […] to access information existing prior to June 28, 2017 on certain Toshiba databases and networks.” It added, “This decision does not dismiss Toshiba’s underlying appeal, but covers the resumption of Western Digital access to certain information while that appeal is being decided.”

Western saying that it is “pleased with this important outcome, which both validates our legal position and will support the continued success of the JVs.”

Some took this latest legal development as a good sign. For example, Stifel Nicolaus’s Aaron Rakers, who has a Buy rating on Western stock, writes “this brings Western and Toshiba another step closer to negotiating a resolution to their dispute.”

However, the legal news quickly yielded to a new front in the battle today, with posturing around the actual NAND production.

Toshiba this morning saying that after failing to reach an agreement with Western’s SanDisk unit, it will “invest unilaterally” in the making of equipment for its “Fab 6” facility for NAND.

Western , saying discussions “are ongoing” about WeMstern contributing to an investment in Fab 6, and that it has “priority to participate in joint investments in Fab 6 equipment” under the terms of the joint venture.”

This quibbling over investment is raising some small concerns on the Street.

RBC Capital’s Amit Daryanani, who has an Outperform rating on Western stock, writes today that “if Toshiba ends up unilaterally ramping Fab 6 it will pose a risk to WDC.”

“Our understanding,” he continues, “is WDC is continuing to have negotiations and discussions with Toshiba regarding Fab 6 equipment and it intends and expects to participate in the funding of Fab 6.”

Despite the risk, Daryanani overall is sticking with his view that Western will prevail in the broader dispute over the joint venture.

Bears are more cautious. Wells Fargo’s Maynard Um, who has a Market Perform rating on Western stock, writes that Western is telling Toshiba “not so fast” on the investments. And this “latest disagreement seems to further highlight the strained relationship between the two parties,” he observes, “which we see as a challenge not only from the JV perspective but also from WDC’s positioning to emerge as the preferred bidder.”

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