Feb. 19 (Bloomberg) -- Toshiba Corp. abandoned its HD DVD technology, surrendering the high-definition video market to Sony Corp.'s Blu-ray in the entertainment industry's largest format war since VHS beat Betamax in the 1980s.

Toshiba, the leading promoter of HD DVD, will shut the business by the end of March, the Tokyo-based company said today. Its shares have gained 5.1 percent this week on speculation the electronics maker would scrap the unprofitable operations.

Sony's victory raised optimism it will spur sales of high- definition players by removing the uncertainty over which technology would prevail in the $22 billion market. U.S. retailers decided to stop sales of HD DVD products after Warner Bros. Entertainment, the largest DVD publisher, said last month it would side with Blu-ray.

``That's it for this battle,'' said Naoteru Teraoka, who helps oversee $21 billion at Chuo Mitsui Asset Management Co. in Tokyo. ``Consumers will no longer adopt a sit-and-wait attitude for upgrading their DVD players.''

Sony shares in Frankfurt rose 10 yen to the equivalent of 5,020 yen, from the close of 5,010 yen in Japan earlier today. Toshiba fell 11 yen to 813 yen in Germany, from the close of 824 yen on the Tokyo Stock Exchange before the announcement.

Toshiba's format is backed by 135 companies, including Microsoft Corp. and Viacom Inc.'s Paramount Pictures, according to the HD DVD Promotion Group's Web site.

Waiting for Toshiba

``We will wait until we hear from Toshiba before announcing any specific plans around the Xbox 360 HD DVD player,'' Microsoft said in a statement yesterday.

Sony's camp counts Samsung Electronics Co. and Matsushita Electric Industrial Co. among 176 members, according to the Blu- ray Disc Association's Web site.

Worldwide sales of DVD players, including high-definition machines, rose 4.9 percent to 2.4 trillion yen ($22 billion) in 2007, Daiwa Institute of Research Ltd. estimated last month. Masayo Endo, a Sony spokeswoman, said global shipments of next- generation DVD players and recorders will triple to 6 million units next fiscal year.

Toshiba, which doesn't plan to make or sell Blu-ray players, pulled out of the business because of Warner's defection, President Atsutoshi Nishida said at a briefing in Tokyo. The company is calculating the cost of ending the operations, he said. Lehman Brothers Holdings Inc. yesterday said Toshiba may book charges of as much as 51 billion yen from its exit.

Adding to Earnings

Scrapping HD DVD may add 50 billion yen to Toshiba's earnings next fiscal year, according to Nikko Citigroup Ltd. estimates.

Shares of Toshiba rose to a seven-week high yesterday on speculation it would limit losses from a prolonged battle with Sony to focus on its larger semiconductor business.

Toshiba, Japan's biggest chipmaker, said today it will spend more than 1.7 trillion yen with SanDisk Corp. to build two semiconductor factories that will make flash memory used to store data in consumer electronics.

A unified standard benefits both consumers and the industry, Sony spokesman Shigenori Yoshida said. Samsung and LG Electronics Inc., which make players that support both standards, plan to continue making the machines, they said separately today.

A Blu-ray disc player sells for at least $399.99 while an HD DVD version retails for as low as $149.99, according to the Web site of Best Buy Co., the largest U.S. consumer-electronics chain.

``Lowering prices to a level acceptable to customers is a must-do to stoke demand,'' said Akio Mizutani, a Tokyo-based researcher at Mizuho Corporate Bank Ltd. ``There is no clear winner yet in the Blu-ray camp, and real competition among members, including South Korean makers, will start now.''

Storage Data

Blu-ray discs can store 50 gigabytes of data, while HD DVDs can store up to 30 gigabytes, or six times more than conventional DVDs, according to the Web sites of the two video standards.

Wal-Mart Stores Inc., the world's largest retailer, Netflix Inc. and Best Buy said this month they will stop selling HD DVD products. Warner Bros. on Jan. 4 said it will drop HD DVD at the end of May, a decision that Macquarie Group Ltd. analyst David Gibson described at the time as ``game over'' for HD DVD.

Sony's triumph is a reversal of its defeat two decades ago, when its Betamax video tapes succumbed to Victor Co. of Japan Ltd.'s VHS-based systems.

Unified Format

Matsushita and Sony, leaders of the Blu-ray association, and the Toshiba-backed HD DVD group had been in talks to unify their formats since the beginning of 2005. Negotiations broke down by May that year, with officials from both sides saying a unified standard was unlikely.

Toshiba got a head start by selling HD DVD players from March 2006, almost three months earlier than the first Blu-ray machine.

Toshiba ``concluded that a swift decision will best help the market develop,'' Nishida said. ``While we are disappointed for the company and more importantly, for the consumer, the real mass market opportunity for high definition content remains untapped.''

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net; Hiroshi Suzuki in Tokyo at hsuzuki5@bloomberg.net.

Last Updated: February 19, 2008 11:44 EST