Toshiba Warning Bodes Ill for Electronics Sales

(MoneyWatch)  Consumer demand for gadgets may be cooling off a lot faster than expected. That seems to be the case with NAND flash-memory chips, which have been used to power popular devices such as MP3 players and portable memory cards.

The latest evidence comes from Toshiba, the Japanese tech giant that is the second largest producer of flash memory chips, behind Samsung. Toshiba warned that its profit will be weak this year - declining for the first time in six years - in part because of a sudden lapse in demand for the chips.

Of course, much of Toshiba's problems stem from losing the standards battle in high-definition video to Sony's Blu-Ray format. Toshiba said its HD DVD business would show a $666 million operating lost and cost another $460 million to shutter the division.

But Toshiba also had bad news in its semiconductor business, where revenue will come in at 1.39 billion yen, instead of the 1.44 billion it forecast last October. The company noted in a statement, "The Semiconductor business has seen a significant decrease in operating income due to larger than anticipated declines in sales prices of NAND flash memories."

The announcement echoes a similar one from Intel this month, which cited NAND price declines as a weak spot. Intel had only 3 percent of the flash-memory market last year, while Toshiba had 27 percent.

Last month, research firm iSuppli revised down its forecast for global NAND flash revenue to growth in the single digits from growth of 27 percent. At the time, analyst Nam Hyung Kim said,

"Unless the economy recovers vigorously later this year, last year's DRAM market disaster could be repeated in NAND this year... NAND suppliers are likely to go into the red in the first quarter, and are not likely to recover in the second."