Jan. 29 (Bloomberg) -- Toshiba Corp., Japan’s largest chipmaker, forecast a record annual loss as the deepening global recession worsens the glut in the industry and drives down prices of semiconductors that store data in consumer electronics.

The net loss will probably reach 280 billion yen ($3.1 billion) in the year to March 31, compared with profit of 127.4 billion yen a year earlier, the Tokyo-based company said today. Toshiba in September forecast it would generate profit of 70 billion yen.

The projections highlight the extent of the slump in demand worldwide that drove larger chipmaker Samsung Electronics Co. to report its first quarterly loss and forced Intel Corp. to say its 87-quarter streak of profitability may end. Toshiba is cutting jobs, output and postponing construction of factories to weather the glut after chip prices tumbled 62 percent last year.

“Recovery in chip-market demand is not likely until at least October, which means our semiconductor business will probably turn profitable in the second half of the next fiscal year,” Toshiba President Atsutoshi Nishida said at a news briefing in Tokyo today.

The full-year loss at the chip division will probably be 290 billion yen, compared with a profit of 89 billion yen a year earlier, Toshiba said. The company also reversed its outlook for digital products, including televisions, personal computers and mobile phones, to a deficit of 20 billion yen from 70 billion yen profit.

Operating Loss

The overall operating loss, or sales minus the cost of goods sold and administrative expenses, will reach 280 billion yen this fiscal year, compared with 238.1 billion yen profit in the previous 12-month period and income of 150 billion yen forecast in September, Toshiba said. Sales will probably slump 13 percent to 6.7 trillion yen, short of the previous goal of 7.7 trillion yen.

The company’s net loss outlook is worse than the 71 billion yen deficit estimated by Merrill Lynch & Co., the securities firm acquired by Bank of America Corp. The operating loss will probably reach 48 billion yen on 7.1 trillion yen in sales, Simon Woo at Merrill Lynch wrote in a report dated Jan. 15.

Moody’s Investors Service today lowered Toshiba’s long-term debt rating to Baa1, its third-lowest investment grade, citing the earnings outlook. The agency said in a statement it’s considering a further cut to Toshiba’s rating.

Delaying New Plants

Toshiba said it’s delaying construction of a chip plant in Yokkaichi, central Japan, originally scheduled to begin in spring this year, until 2010 and is indefinitely postponing building another factory in northern Japan. It will also cut 4,500 temporary jobs by March 31, mostly in its chip and liquid- crystal-display businesses, while adding 500 workers to the full- time payroll.

The company last month said it will cut production of NAND flash memory by 30 percent from January, citing slowing demand.

Toshiba, which jointly owns two factories in Yokkaichi with SanDisk Corp., the world’s largest maker of memory cards, said separately it will buy 20 percent of production capacity at the venture for about 80 billion yen, scaling back from 30 percent announced in October. The companies will split the remaining 70 percent of the output.

SanDisk, in a separate release today, said the value of the sale is about $890 million, one-third of which will be cash. The rest will reduce SanDisk’s equipment-lease obligations.

Chip Spending Cut

Capital spending on the chip business will be reduced by 60 percent next fiscal year to less than 100 billion yen from a projected 230 billion yen in the 12 months ending March 31. Investment in research and development will be trimmed 20 percent.

Prices of the benchmark NAND flash memory chip fell 62 percent last year, according to Taipei-based DRAMexchange Technology Inc., operator of Asia’s biggest spot market for chips. UBS AG and Daiwa Institute of Research Ltd. last month predicted the glut will persist through 2009.

Sales of NAND, used to store data in digital cameras, mobile phones and portable music players such as Apple Inc.’s iPod, will decline 4 percent to $13.9 billion in 2009, according to the Dec. 2 report by UBS.

Research firm Gartner Inc. projects global chip sales will tumble 16 percent this year and UBS forecasts a 19 percent drop.

Toshiba’s outlook for lower earnings mirrors that of NEC Electronics Corp., which today increased its annual loss forecast eight-fold to 65 billion yen. Japan’s third-biggest chipmaker, based in Kawasaki, near Tokyo, is cutting 1,200 temporary workers and closing factories to weather the slump.

For the third quarter, Toshiba posted a net loss of 121.1 billion yen, compared with net income of 80.5 billion a year earlier. The operating loss was 158.8 billion yen after profit of 42.1 billion yen a year earlier. Revenue dropped 21 percent to 1.49 trillion yen.

The shares rose 4.9 percent to close at 385 yen on the Tokyo Stock Exchange, before the company’s announcement, as the Nikkei 225 Stock Average climbed 1.8 percent. The stock lost 56 percent last year.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net

Last Updated: January 29, 2009 10:31 EST