Toshiba drops 99 percent on weak chips

TOKYO (Reuters) - Japan's Toshiba (6502.T) posted a 99 percent plunge in quarterly operating profit on Wednesday, dragged down by weakness in its mainstay chip operations, but stuck to its recently revised outlook above expectations.

Weak demand for chips also acted as a drag on Fujitsu, (6702.T) as well as weakness in its PC sales and hard drives, cancelling out cost cuts in its servers and IT services, and it slashed its annual outlook to below the market consensus.

Both firms are fighting a chronic slump in the chip sector that caused quarterly profit to fall at top memory chip maker Samsung Electronics, (005930.KS) while Hynix Semiconductor (000660.KS) reported a loss. The entire chip sector faces further cost cuts and consolidation to survive, analysts say.

Toshiba, the world's No.2 maker of NAND flash memory, said it has yet to make a decision about possible cuts to its plan to spend 367 billion yen (2.3 billion pounds) on new lines and equipment for its chip business.

Toshiba is still banking on breaking even on its chip business in the October-March second half, based on its assumption that NAND price falls will slow to a 10 percent fall in October-December, and another 5 percent fall in January-March. Prices fell 45 percent in the six months to September 30, it said.

"We are braced against a negative spiral" as the financial crisis affects demand in the real economy, Toshiba Corporate Executive Vice President Fumio Muraoka told reporters at a news conference. "We want to watch the holiday season sales before making any changes to our capital spending plans or to our outlook."

A slowdown in the global economy is muting demand for NAND flash memory chips, used in music players such as Apple's iPod and digital cameras, and Toshiba is widely expected to slow aggressive plans to ramp up capacity and catch up with Samsung.

Cash has suddenly become all-important and rating downgrades raise concerns about higher financing costs for itself and its partners.

Last week, Toshiba announced that it would buy $1 billion (624 million pounds) worth of equipment from troubled joint venture partner SanDisk, (SNDK.O) shoring up the California-based flash storage card maker.