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Hey now Toshiba, don't dream it's over for the chip unit

(Bloomberg Gadfly) -- Something still doesn't add up at Toshiba Corp.

The Japanese conglomerate on Thursday pledged to speed up investments in its memory-chip unit as first-half financials revealed the business's profit quadrupled on strong demand. Toshiba's semiconductor unit now accounts for 88 percent of total operating profit, Pavel Alpeyev of Bloomberg News notes.

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A Toshiba Corp. logo is seen on a controller chip in an arranged photograph in Tokyo, Japan, on Thursday, Aug. 17, 2017. Under pressure from its banks, Toshiba is racing to resolve several final disagreements with Western Digital Corp. before it can complete a deal to sell its chips business to the U.S. company and other investors by the end of August, according to people familiar with the matter. Photographer: Kiyoshi Ota/Bloomberg

Toshiba second-quarter operating profit - 135.1 billion yen.

The move to spend 600 billion yen ($5.3 billion) on the chip business (50 percent more than previously planned) underscores just how much of Toshiba's value is wrapped up in an arm that's supposed to be sold to a Bain Capital LP-led consortium for $18 billion as soon as antitrust approvals are obtained. Toshiba will retain a stake in the operations.

Bain and Toshiba both say a deal is imminent. But if the chip business is really out the door, why are so many investors piling in to buy stock?

Shares in Toshiba fell Thursday amid broader market softness but are up 24 percent over the past six months. Japan's benchmark Topix Index has risen 15 percent.

While short interest as a percentage of stock outstanding has risen in recent weeks to 5.3 percent, that's nowhere near the 13 percent level reached in April 2016 and again in August of this year, when investors got whiplash from the roller coaster of deal negotiations and questions over whether Toshiba would be delisted. Toshiba has since been removed from the Tokyo exchange's watch list, a curious move for a bourse that's pledged to help improve corporate governance.

Take a look at the makeup of sellers and buyers now. The percentage of Toshiba shares held in Japan, a country where company ownership tends to be concentrated among domestic players, fell to 33 percent this month versus more than 50 percent 12 months ago, Bloomberg-compiled data show. The percentage of publicly reported holdings in the U.S., meanwhile, rose to 35 percent, from 29 percent a year earlier. Why are foreigners getting behind a company local players are backing away from?

Perhaps some fund managers believe there's a chance Toshiba can find a way to keep its chip unit, as Gadfly's Tim Culpan suggested back in August. Or that a windfall could be coming Toshiba's way in the form of tax loss carry forwards, a policy that lets companies use realized losses from, oh, a giant bankruptcy of its U.S. nuclear business, to offset tax on future gains. Toshiba has said the hole could be as big as 1.01 trillion yen.

President Satoshi Tsunakawa left the door open in October when he said that even though he believes the chip-unit sale will go through, Toshiba is considering alternative options in case it doesn't.

That coy remark, coupled with all the buzz in Toshiba's shares, suggests a story some had thought was nearing its conclusion remains alive for the telling.

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