March 19 (Bloomberg) -- Toshiba Corp., Japan's largest chipmaker, cut its full-year profit forecast by 31 percent because of falling prices for flash memory and costs to withdraw from the HD DVD business.

Net income will probably decline 9 percent to 125 billion yen ($1.3 billion) in the 12 months ending March 31, the company said in a statement today. Tokyo-based Toshiba in October forecast net income would rise 31 percent to 180 billion yen.

The company said it will book a 45 billion yen charge to write down the value of its HD DVD assets, forcing Toshiba to face its first annual profit drop in six years. Toshiba also forecast prices of flash memory chips, its biggest source of income, will fall faster than it expected amid a glut.

``The revision is in line with our expectations,'' said Koichi Hariya, a Tokyo-based analyst at Mizuho Securities Co. ``The extent of flash price drops next fiscal year is key.''

Toshiba, which also cut forecasts for revenue and operating profit, or sales minus the cost of goods sold and administrative expenses, climbed 3.3 percent to close at 690 yen on the Tokyo Stock Exchange before the announcement. The stock has lost 18 percent this year, compared with a 20 percent drop by the benchmark Nikkei 225 Stock Average.

The company on Feb. 19 announced its withdrawal from the high-definition DVD market a month after Warner Bros. Entertainment said it would end its support for HD DVD. Toshiba's surrender to Sony Corp.'s Blu-ray technology ended the home entertainment industry's biggest format war since the VHS video format beat Betamax in the 1980s.

Losses Double

The operating loss at the HD DVD division will almost double to 65 billion yen this fiscal year, compared with the 50 billion yen deficit forecast earlier, Toshiba said. Sales at the business will probably climb 86 percent to 26 billion yen, missing the previous goal of 65 billion yen.

Toshiba also cut its operating profit projection for its semiconductor business by 43 percent to 85 billion yen, citing greater-than-expected price declines. The division posted operating income of 128.3 billion yen last fiscal year.

Flash-memory price declines will probably reach 50 percent this fiscal year, exceeding Toshiba's 40 percent projection in October outlook, and continue at about that rate, Corporate Executive Vice President Fumio Muraoka said at a press briefing in Tokyo.

Prices of the benchmark Nand flash memory chip, used to store songs and video in cameras and mobile phones, have declined 22 percent this year after falling a record 48 percent in the fourth quarter of 2007, 2007, according to Taipei-based DRAMexchange Technology Inc., operator of Asia's biggest spot market for chips.

Toshiba said in a separate statement it will pay a dividend of 6 yen a share for the six months ending March 31, unchanged from the payout in the first half.

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

Last Updated: March 19, 2008 04:55 EDT