Jan. 30 (Bloomberg) -- Toshiba Corp., Japan’s largest chipmaker, fell the most in at least 34 years in Tokyo trading after the company forecast a record annual loss as the recession drives down prices and its debt rating was cut.

Toshiba tumbled 17 percent to close at 318 yen on the Tokyo Stock Exchange, the biggest decline since at least September 1974, according to data compiled by Bloomberg. The Nikkei 225 Stock Average slid 3.1 percent.

The net loss will probably reach 280 billion yen ($3.1 billion) in the 12 months ending March 31, compared with profit of 127.4 billion yen a year earlier, the Tokyo-based company said yesterday after the market closed. Toshiba in September forecast it would generate net income of 70 billion yen this fiscal year.

Goldman Sachs Group Inc. cut the chipmaker’s rating today to “sell” from “neutral” because of the lower earnings outlook and the possibility Toshiba will have to seek equity financing.

Standard & Poor’s today lowered Toshiba’s long-term debt rating, citing performance at the company’s semiconductor business and “the sharp deterioration in Toshiba’s capital structure.” The rating was cut to BBB, the second lowest investment grade, from BBB+.

Toshiba is delaying construction of new factories, laying off temporary workers, scaling down output and slashing research spending in the chip business to weather the slump in demand that led prices of the devices 62 percent lower last year. The measures will save Toshiba 300 billion yen in costs next fiscal year, the company said yesterday.

No Easy Task

“Achieving the restructuring goals will not be an easy task,” Yukihiko Shimada, an analyst at Mitsubishi UFJ Securities Co., wrote in a report today. He rates the company “underperform.”

Toshiba yesterday said it’s delaying construction of a chip plant in Yokkaichi, central Japan, to 2010 from spring this year 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.

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, Toshiba said. Investment in research and development will be trimmed 20 percent.

The full-year loss at the chip division will probably be 290 billion yen, compared with 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.

“The company did not convince us that it can defend the top line, notably in the digital products,” Damian Thong, a Tokyo- based analyst at Macquarie Group Ltd., wrote in a report yesterday. “This is an important issue given recessionary headwinds blowing through product areas that are key for Toshiba, like notebook PCs.”

Thong maintained his “underperform” rating on the company.

NEC Electronics Corp. gained 4 percent to 630 yen after the Nikkei newspaper reported Toshiba and NEC Corp. have been in talks to integrate semiconductor operations, without citing a source.

Tokyo-based NEC Electronics yesterday increased its annual loss forecast eightfold to 65 billion yen.

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

Last Updated: January 30, 2009 03:49 EST