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UPDATE 2-Toshiba says to end cellphone output in Japan

* To outsource some production to cut $47 mln in fixed costs

* To keep making smartphones in China on its own

* Shares end down 1.9 pct vs Nikkei’s 0.6 pct rise

TOKYO, May 20 (Reuters) - Japanese electronics group Toshiba Corp 6502.T said on Wednesday it would end production of mobile phones in Japan in October and outsource some output to overseas manufacturers to cut costs as demand slumps.

Cellphone sales in Japan tumbled about 30 percent last financial year as a new business model came into effect that led to handset price hikes, prompting consumers to hold onto their phones longer, while the economic downturn also weakened demand.

Toshiba’s mobile phone unit sales halved last financial year, causing it to log its first annual operating loss on these operations in five years.

The company, Japan’s No. 6 cellphone maker with a 7 percent market share, said it would continue to make smartphones in China on its own as it shifts focus to the growing segment of phones with computer capabilities.

The planned outsourcing would help it cut 4.5 billion yen ($47 million) in annual fixed costs, a Toshiba spokesman said.

Toshiba has forecast it will return to an operating profit this financial year as it pushes ahead with a $3 billion cost-cutting plan. It logged massive losses last year after sharp price falls and sluggish demand battered its main chip business.

Toshiba shares closed down 1.9 percent at 355 yen, against a 0.6 percent rise in the benchmark Nikkei average .N225. (Reporting by Mayumi Negishi and Sachi Izumi; Editing by Chris Gallagher)

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