Toshiba Q4 down on HD-DVDs and chips; outlook muted (Reuters)

TOKYO (Reuters) - Japanese electronics maker Toshiba Corp posted a 95 percent drop in quarterly profit on tumbling chip prices and an exit from next-generation DVDs, and its outlook was half that of market expectations.

The worlds No. 2 NAND flash memory maker is counting on its PCs and home appliances for annual net profit growth of 2 percent this year while it and its rivals wait for chip price falls to ease and cost cuts to come through.

Earlier on Friday, Samsung Electronics Co, the worlds top memory chip maker, roused markets with a 37 percent rise in quarterly profit as brisk sales of its flat screens and mobile phones outweighed its sluggish chip business.

And No. 2 memory chip maker Hynix Semiconductor Inc posted a net loss of 675 billion won (677.7 million), almost 50 percent bigger than consensus.

Chip makers worldwide hope that weaker makers will cut spending and back-to-school demand would resolve oversupply, but executives say a meaningful recovery could take time.

Toshiba, which also makes nuclear reactors and refrigerators, said it expects a net profit of 130 billion yen this year, half the mean market expectation of 264 billion yen by 17 analysts polled by Reuters.

The outlook compares with a 7.3 percent profit decline to 127.4 billion yen in the year ended March.

Earnings in its chip business this year would stay flat, Toshiba said, even while price falls in NAND -- used in digital music players, digital cameras and mobile phones -- slow to an annual 40 percent to 50 percent this business year, from a fall of a little over 50 percent in the year ended March.

"Growth will be slow in our usual earnings drivers. What will count next year is cost cuts in our home electronics business and our exit from HD DVDs," Corporate Executive Vice President Fumio Muraoka told reporters.

Toshibas semiconductor business would earn a profit of 90 billion yen this year, from 89 billion yen last year, he said, as NAND sales growth is muted by price falls and declines in its system chip sales.

The conglomerate posted a net profit of 1.25 billion yen in January-March, against a 26.17 billion yen profit a year ago, as earnings on its semiconductor unit fell 82 percent.

Despite strong laptop sales, Toshibas earnings were further depleted by a 108.5 billion yen loss in its next-generation DVD business, after its HD DVD format lost out to Sony Corps Blu-ray technology. It was also hurt by slow sales of its panels for use in mobile phones.

The average forecast from 14 analysts was for a loss of 770 million yen, derived from subtracting Toshibas nine-month results from their annual forecasts.

Toshiba, which bought U.S. nuclear power firm Westinghouse in 2006, is hoping nuclear power plant construction in the United States will fuel long-term growth, given the rising cost of ramping up chip capacity to keep ahead of price falls.

Toshibas capital expenditures would rise 6 percent to 656 billion yen this year, it said. Of that amount, 367 billion yen would be used on semiconductors.

SECTOR-WIDE PAIN

Chip makers say the sector-wide slump has already hit bottom, but that bottom could last a while, analysts say.

Japans Elpida Memory Inc, the worlds No. 3 maker of DRAM computer memory chips, fell to a 29.2 billion yen quarterly loss in line with analyst estimates, down from a 8.5 billion yen profit the year before.

Hit by chip prices below manufacturing costs, Elpida and other computer chip makers are trying to match tempered expectations for Microsoft Corps Windows Vista demand.

Elpida, the worlds No. 3 maker of DRAM computer chips, said it expects shipments to grow by 70 percent in terms of memory capacity in the year to next March, down from 102 percent growth in the previous year.

It would also cut capital spending by 60 percent to 100 billion yen, it said.

That is a concern for suppliers of tools used to make microchips, including top chip tester maker Advantest Corp. Orders for Advantest testers in January-March totaled 35.8 billion yen, half what it was a year ago. It tumbled to a quarterly loss of 3.4 billion yen from a profit of 7.77 billion yen the previous year.

Following a string of downward revisions, Advantest this year said it would not give guidance for the year ahead, as chip makers repeatedly postpone or change investment plans.

Shares in Toshiba closed down 2 percent ahead of the announcement, while Elpida fell 3.2 percent and Advantest rose 2.4 percent. The benchmark Nikkei average rose 2.4 percent.

(Writing by Louise Heavens; Editing by Louise Ireland/Lincoln Feast)