UPDATE 2-LeapFrog CEO steps down; co hires industry veteran

* CEO Chiasson to become chairman

* Co names John Barbour new CEO

* Shares fall 1 pct (Rewrites lede; adds background on former CEO, share movement, analyst comment in paragraph 4)

Feb 28 (Reuters) - LeapFrog Enterprises Inc's Chief Executive William Chiasson will step down a year after assuming the role and become its chairman, and the educational toy maker hired industry veteran John Barbour for the top job.

Under Chiasson, the company reported its first annual profit in five years, but it failed to please investors after demand for its toys ebbed late in the holiday season despite its Leapster Explorer being among the top toy picks for U.S. holiday shoppers.

The slowdown in demand led to higher inventory levels at LeapFrog, prompting it to forecast a weak 2011.

"The disappointment in the fourth quarter might have prompted the company to take a look to see if they can bring in a new CEO," said Wedbush Securities analyst Edward Woo, who termed the company's move surprising.

The company was not immediately available for comment.

Barbour, who has held senior positions with Hasbro Inc and served as president at Toys "R" Us U.S., will take over as CEO on March 7, the company said.

The company's current Chairman Jeffrey Katz resigned effective March 2 to focus on his role as CEO of NexTag Inc, a comparison shopping website, according to a Feb. 17 regulatory filing.

Shares of the company were down 1 percent at $4.44 in late morning trade on Friday on the New York Stock Exchange. They have lost 19 percent of their value since the beginning of the year until Friday's close. (Reporting by Abhishek Takle in Bangalore; Editing by Gopakumar Warrier)