8-KMaterial AgreementsRegulation FDExhibits & Filings

WESTERN DIGITAL CORP 8-K Report, Material Agreement (May 17, 2019)

Filed May 17, 2019For Securities:WDC

Summary

Western Digital Corporation (WDC) announced a significant definitive agreement, the K1 Facility Agreement, on May 15, 2019, with Toshiba Memory Corporation (TMC) and their joint ventures concerning the construction and operation of a new 300-millimeter wafer fabrication facility, codenamed "K1," in Kitakami, Iwate, Japan. This facility is crucial for transitioning flash-based memory wafer production to newer technology nodes. Toshiba Memory is funding the construction, while Western Digital will fund 50% of the start-up costs and the initial production line, estimated at approximately $660 million, primarily through the first half of calendar year 2020. Additionally, WDC will prepay about $360 million over three years for building depreciation. This agreement extends the joint venture's operations to the new K1 facility and restructures existing joint ventures (FPL and FAL) to focus on the Yokkaichi facility. Western Digital's investment ensures it benefits from equal wafer costs with Toshiba Memory, provided its capacity share remains above a certain threshold. The partnership also includes extended joint R&D activities and mutual indemnification for environmental liabilities related to K1. First output from K1 is anticipated in the first half of 2020, with meaningful output expected in the latter half of 2020.

Key Highlights

  • 1Western Digital and Toshiba Memory are jointly investing in a new wafer fabrication facility (K1) in Japan to produce advanced flash memory.
  • 2WDC commits to funding 50% of the start-up and initial production line costs for K1, estimated at $660 million, primarily through H1 2020.
  • 3WDC will also make prepayments of approximately $360 million over three years for K1 building depreciation, to be credited against future wafer charges.
  • 4The agreement extends the joint venture's operational scope to K1 and restructures existing joint ventures for the Yokkaichi facility.
  • 5Production output from K1 is expected to begin in H1 2020, with significant output slated for H2 2020.
  • 6The partnership aims to ensure WDC benefits from equal wafer costs with TMC as long as its capacity share meets a defined threshold.
  • 7Joint research and development activities are extended to the K1 facility.

Frequently Asked Questions

The K1 facility is a new 300-millimeter wafer fabrication plant in Japan. Its primary purpose is to transition the parties' existing flash-based memory wafer production to newer, more advanced technology nodes. Western Digital is investing to secure its access to this advanced manufacturing capacity and ensure competitive wafer costs.

Western Digital is committed to funding 50% of the start-up costs and the initial production line, totaling approximately $660 million, to be spent mainly through the first half of calendar year 2020. Additionally, WDC will prepay about $360 million over three years for building depreciation, which will be credited against future wafer charges. WDC plans to fund these commitments using cash and other financing sources.

Equipment installation for a small initial production line is scheduled to begin in June 2019. Output from this initial line is expected in the first half of calendar year 2020. Meaningful, larger-scale output from the K1 facility is not anticipated until the second half of calendar year 2020.

This agreement deepens the partnership by expanding it to the new K1 facility and restructures the existing joint ventures (FPL and FAL) to manage operations at the Yokkaichi facility. It also extends joint research and development activities to K1 and establishes mutual indemnification for potential environmental liabilities. The agreement ensures that WDC can benefit from equal wafer costs with Toshiba Memory, provided its share of K1's capacity stays above a specified threshold.