UPDATE 1-Japan's TDK annual profit up 2 pct, outlook grim

(Adds TDK earnings results, background, share price)

TOKYO, April 28 (Reuters) - Japanese electronic components maker TDK Corp (6762.T) posted on Monday a better-than-expected 1.9 percent rise in annual net profit on solid sales of electronic parts to build flat TVs, laptops and hard disk drives (HDDs), but it said it expected a 9 percent profit fall this year.

TDK, which has been cutting its prices at the request of client HDD makers, said it expects a net profit to fall to 65 billion yen in the current business year, on possible price falls in key earnings drivers, a stronger yen and a slowdown after the Beijing Olympics.

The outlook compares with a net profit of 71.46 billion yen in the year ended March and beats a consensus estimate of 61.8 billion yen by 17 analysts polled by Reuters Estimates.

TDK eyes solid demand for hard drive heads used in laptops this year.

But the supplier to Toshiba Corp (6502.T), Fujitsu Ltd (6702.T) and Hitachi Ltd (6501.T) said it was also bracing itself for a 15 percent price fall in magnetic heads, used to read and write data on hard drives, in the year to March 2009, compared with a little over 10 percent fall in the year just ended.

It also expects a 10 percent annual fall in the price of its capacitors, which are tiny components used to store and control the flow of electricity inside almost all electronics, warning of a potential supply glut ahead.

"I think it's best that we work from the assumption that things will get tough," TDK President Takehiro Kamigawa told reporters at a news conference. When asked if he was worried about demand for flat TVs after the Olympics, he said, "Yes."

In the year ended March, TDK's net profit beat a market consensus of 68.44 billion yen by 17 analysts.

Sales inched up an annual 0.5 percent to 866.29 billion yen as sales of its components outweighed weak sales of its recording media. It expects sales would fall by 3 percent in the current year.

TDK is fighting for business as the global hard disk drive industry shifts toward vertical integration, with major players making hard drive heads in-house.

Industry leader Seagate Technology's STX.N bought Maxtor in 2006, spurring No. 2 Western Digital Corp. (WDC.N) to agree to buy Komag, a maker of hard disks used in hard drives, last year.

Shares of TDK closed down 0.9 percent to 6,850 yen prior to the announcement, compared with a 0.2 percent rise in the benchmark Nikkei average .N225.

(Reporting by Mayumi Negishi)