Shares of Western Digital, the California-based data storage company, were up 0.7 pct at $71.51 on Tuesday.
Toshiba will sell a roughly 20 percent interest in the unit for about 200 billion yen-300 billion yen ($1.77 billion-$2.66 billion) while retaining a majority stake, the newspaper reported.
Besides Western Digital, U.S. investment funds are also showing interest in Toshiba's semiconductor business, the Nikkei reported, sources familiar with the matter.
Toshiba and Western Digital did not immediately respond to requests for comment.
The new chip business company will be created as early as the first half of this year, the Japanese daily reported.
Toshiba and Western Digital jointly operate a flash memory plant in the city of Yokkaichi in Mie prefecture.
The Tokyo-based conglomerate, which is still recovering from a $1.3 billion accounting scandal in 2015, has net sales of 1.58 trillion yen from its semiconductor business for the fiscal year ending March 31, 2016.
In December a source in the semiconductor industry told Reuters that Toshiba could revive plans to list a slice of the memory chip business, which though highly profitable burns through cash for reinvestment.