TOKYO: Japan's Toshiba Corp, the standout performer among the country's battered chipmakers, plans to cut production of flash memory chips by 30 per cent after being caught by oversupply and tumbling prices.  

Toshiba's NAND flash memory has been a rare bright spot among Japan's fading chip industry, which has struggled to upgrade old plants and make the big investments needed to compete with aggressive overseas rivals.

Japan's last remaining player in the dynamic random memory (DRAM) market, Elpida Memory Inc, filed for bankruptcy in February, while Renesas Electronics Corp  is scrambling to avoid the same fate by cutting its workforce and closing half of its domestic plants.

Toshiba, the world's No 2 maker of NAND flash memory chips after Samsung Electronics, said on Tuesday it will slash production at its Yokkaichi plant in western Japan due an oversupply of chips for USB drives and memory cards.

“I'm a little surprised that they're cutting that much. Everyone knows that demand has not been as strong as expected,” said David Motozo Rubenstein, senior technology analyst at Religare Global Asset Management in Tokyo.

“Apple's their biggest customer, with the new iPhone likely to come out later this year you would think they would build a little inventory for that,” he added.

Analysts estimate that more than half of Toshiba's NAND chip output ends up in Apple's blockbuster iPhones.

Memory cards

Global demand for memory cards is another matter, analysts say, as Toshiba and chipmakers like Samsung, SanDisk  and Micron Technology Inc have been caught up in a supply glut that drove prices to new lows after they ramped up NAND production capacity in a buoyant market for smartphones and tablets.

“Toshiba's memory card production accounts for a large portion of its overall memory chip production ... Market-wise, memory cards are suffering the most right now and the market is at rock bottom,” said Akira Minamikawa, vice president and principle analyst at market research firm IHS iSuppli in Japan.

Shares in Toshiba fell 3.3 per cent to 267 yen in Tokyo's morning trading session, compared with a 0.4 per cent decline on the benchmark Nikkei.

Toshiba said it expected market conditions to improve in the current July-September quarter, and said it had no plan to revise its earnings outlook for the year to March. But analysts were sceptical that demand for memory cards would improve drastically in the second half.

“Whether they continue to cut production by 30 per cent is not clear. They might reduce the level of production cuts, but we could see lowered production levels throughout this year,” said IHS iSuppli's Minamikawa.

NAND prices have fallen as much as 60 per cent in the last year, according to chip industry tracker DRAMeXchange. Analysts estimate a 35-40 per cent drop in NAND prices this year alone.

Toshiba last cut NAND production for six months in the first half of 2009, also by 30 per cent.

The company, which manufactures everything from light bulbs to nuclear reactors, is slated to report its April-June quarter results on July 31. It has forecast an operating profit of 300 billion yen for this financial year.