Toshiba sees $1 bil HD DVD loss

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TOKYO -- Japanese electronics maker Toshiba Corp. cut its annual profit forecasts 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 vp Fumio Muraoka warned.

"The weak dollar is extremely hurtful for our NAND business," 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 Warner Bros studio to the competing Blu-ray camp, ending a format battle with a group led by Sony Corp. 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 iPod.

Toshiba, which trails South Korea's Samsung Electronics in NAND, now expects its semiconductor operations to post an 85 billion yen operating profit, down from a previous forecast for a 150 billion yen profit.

Toshiba expects NAND prices to fall about 35% in January-March from the previous quarter, and 40% to 50% in the year from April 1.

Toshiba now expects a pretax profit of 250 billion yen ($2.51 billion) for the year ending March 31, down from a previous outlook of 350 billion yen, missing a consensus of 315.5 billion yen in a poll of 15 analysts by Reuters Estimates.

But investors said the revisions, which would mean a 19% fall in pretax profit compared to the year ended March 2006, would not hurt share prices, which have already factored in HD DVD pull-out costs. "The market has known that NAND price falls are weighing on its semiconductor business, and costs for existing HD DVD have also been reported," said Mizuho Asset Management fund manager Yoshihisa Okamoto. "I don't see heavy selling of Toshiba shares based on today's announcement."
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