* On track to exceed 2011/12 sales target of 800 bln yen
* Unclear if stepper business will turn profitable in 2010/11
* Shares close down 1.5 pct vs Nikkei's 1 pct fall
(Adds president comments, closing share price, background) By Kiyoshi Takenaka and Reiji Murai
TOKYO, Feb 25 Japan's Nikon Corp (7731.T) said it expects substantial profit growth at its microchip and LCD stepper operations in the year starting April 2011, though the business may not turn profitable in the 2010/11 financial year.
Steppers are multi-million dollar machines used to etch circuitry onto semiconductors and LCD panels. Stepper demand took a tumble last year as the global downturn forced chip and flat panel manufacturers to hold off fresh capital spending.
Turning around its stepper business is important for Nikon, the world's No.2 chip stepper maker behind Netherlands-based ASML (ASML.AS), as losses from the unit have been cancelling out profits earned at its digital camera operations.
"We maintain a cautious view for the next business year. It will be in the second half that sales pick up, and we'll be fighting a tough battle in the first half," Nikon President Michio Kariya told Reuters in an interview on Thursday.
"The year after next, we'll be posting large-scale growth (in stepper operations)."
The maker of COOLPIX compact digital cameras expects an operating profit of 50 billion yen ($558 million) at its camera division for the current year to March, and an operating loss of 58 billion yen at the stepper unit.
Nikon won an order for 16 LCD steppers in January from BOE Technology Group (000725.SZ), breaking into China's fast-growing LCD equipment market, but actual delivery will only start in late 2010.
There is a substantial gap between the time stepper orders are made and when the actual delivery takes place.
On the chip equipment side, the Tokyo-based company expects its latest immersion stepper, the S620, to begin making a substantial contribution to its earnings in the 2011/12 business year starting in April 2011.
Immersion machines are advanced steppers that use purified water between their lenses and silicon wafers to project finer details onto chips, helping semiconductor makers boost production efficiency.
Kariya said Nikon is on track to exceed its sales target of 800 billion yen ($8.9 billion) for the year starting April 2011 on the back of robust demand for its digital cameras and recovery in stepper sales.
Nikon said last May that it aims for an operating profit of 72 billion yen on sales of 800 billion yen in the 2011/12 financial year.
"In terms of profit, we are proceeding according to the plan, but sales are digressing upwardly," Kariya said.
"Profit is taking the brunt of a firmer yen and general price declines."
Nikon is the world's second-largest maker of digital single-lens reflex (SLR) cameras after Canon Inc (7751.T). These high-end models, which use interchangeable lenses, are the most lucrative and fastest-growing segment of the global camera market.
Makoto Kimura, the head of Nikon's camera operations, told Reuters last week that the company is likely to beat its digital camera sales forecast for the year to March on strong demand in China and other parts of Asia.
Following Kariya's comments, shares in Nikon closed down 1.5 percent at 1,968 yen, underperforming the Nikkei average .N225, which fell 1 percent.
(Editing by Joseph Radford)
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