Toshiba slashes outlook on chips and HD DVD pullout

By Mayumi Negishi and Kiyoshi Takenaka

TOKYO (Reuters) - Japanese electronics maker Toshiba Corp (6502.T: Quote, Profile, Research) cut its annual profit forecasts on Wednesday, citing falling prices of NAND flash memory chips and the cost of pulling out of next-generation DVDs.

Continuing memory chip price falls and a weak dollar could further batter its mainstay semiconductor operations in the year beginning in April, a senior executive said on Wednesday.

Toshiba's bread-and-butter chip business, which earns almost half Toshiba's profit, could be hurt further next year, Corporate Executive Vice President Fumio Muraoka warned.

"The weak dollar is extremely hurtful for our NAND business," Corporate Executive Vice President Fumio Muraoka told a news conference. But he also said that overall earnings at Toshiba would not be affected by currency swings.

"The chip numbers seem a lot weaker than expected," said an investor at a foreign-based fund who asked not to be named. "Profitability is the problem, and I expect shares to respond negatively."

Exiting the HD DVD business is expected to saddle Toshiba with a 110 billion yen ($1.10 billion) pretax loss this year after unloading inventory and writing down the cost of equipment, it said.

Toshiba last month decided to pull the plug on HD DVDs after the defection in January of Time Warner Inc's (TWX.N: Quote, Profile, Research) Warner Bros studio to the competing Blu-ray camp, ending a format battle with a group led by Sony Corp (6758.T: Quote, Profile, Research) that has brought Toshiba a cumulative loss of 160 billion yen over three years.

The withdrawal came as bigger-than-expected microchip price falls weigh on the world's No.2 maker of NAND flash memory, used in digital cameras, mobile phones and portable music players including Apple Inc's (AAPL.O: Quote, Profile, Research) iPod.