UPDATE 1-Apple enters NAND supply deal with Toshiba

* Apple says made $500 mln prepayment to Toshiba in July

* Apple COO says NAND market beginning to stabilise

* Says DRAM, large-size LCD markets constrained

* Toshiba mum on impact on profits

TOKYO, July 22 (Reuters) - Apple Inc (AAPL.O) has entered into a long-term supply agreement with Toshiba Corp (6502.T) for NAND-type flash chips in a sign that the chip market could be on the road to recovery.

Apple made a $500 million prepayment to the loss-making Japanese chipmaker at the beginning of July, a transcript of Apple's conference call with analysts on its consensus-beating results on Tuesday showed.

Apple's profit margin and sales of its iPhones and Macs in the April-June quarter beat analysts' expectations [ID:nLM82627], and the firm is looking to lock in component supplies and prices.

"The market for DRAM and the market for large-size LCDs has shifted to a constrained environment, and the pricing has moved accordingly," Apple COO Tim Cook told analysts.

"The NAND market has now begun to stabilise and we expect it to move towards a supply/demand balance."

In January, Apple entered into a five-year agreement with South Korea's LG Display (034220.KS) for LCD panels in a deal that included an upfront payment by Apple of $500 million.

The deal with Toshiba is a boon for the world's No.2 maker of NAND as it grapples with mounting losses and cutthroat price competition against bigger rival Samsung Electronics Co Ltd (005930.KS) of South Korea.

Weak demand and relentless chip price falls have torn into Toshiba's capital, forcing it to raise $5 billion earlier this year.

The industrial electronics group declined to comment on the time span of its agreement with Apple and whether or not the deal would boost its earnings.

The $500 million pre-payment is equivalent to about a quarter of a year's worth of Apple's allowance for NAND -- used in iPhones and iPods -- sources said.

Falls in the prices of components, such as hard drives and optical drives have also slowed, Cook said.

Shares of Toshiba rose 5 percent, closing at 378 yen, outperforming a 0.3 percent rise in Tokyo's electrical machinery subindex .IELEC.T. (Reporting by Mayumi Negishi; Editing by Joseph Radford)