Morningstar | Increasing Restructuring Costs Do not Change our Long-Term View; Toshiba's Shares Fairly Valued
Toshiba’s bloated product portfolio, diminishing competitiveness in core operations, and poor corporate governance have left the company in a deteriorating financial position. We acknowledge the company's efforts--following the 2015 accounting scandal--to improve corporate governance, implement drastic restructuring of unprofitable businesses, and focus on growth areas, such as NAND flash memory and the nuclear power businesses. Moreover, we expect that the healthy supply/demand balance of NAND flash memory will continue, and this may support Toshiba’s profitability, enabling the firm to recover quickly. We believe the company is heading in the right direction both internally and externally, although we nevertheless think Toshiba is walking on a tightrope, given its weak balance sheet.Even though unit shipment of digital appliances is slowing, we believe that demand for NAND flash memory will continue to increase in the long run, as we expect the introduction of new telecom standards, such as LTE, LTE-advanced, and eventually 5G, will boost the growth of digital data. Meanwhile, diffusion of 3D NAND technology will accelerate, reducing the cost per gigabyte, leading to further demand in smartphones and in replacing existing HDD storage. Therefore, we think Toshiba must invest efficiently to catch up on 3D NAND production, in which the firm is currently a few quarters behind its peers, under its current financial restrictions.Toshiba is engaged in the manufacture and sale of electronics and energy products. Along with its affiliates, Co. operates in six business segments: energy systems & solutions, infrastructure systems & solutions, retail & printing solutions, storage & electronic devices solutions, industrial ICT solutions, and others. Co. provides thermal power generation systems, nuclear power generation systems, water supply and sewerage systems, instrumentation and control systems, environmental systems, automatic railroad station equipment, transportation equipment, POS systems, small-signal devices, information technology ("IT") solution services, personal computers, tablets, televisions, and others.
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