Toshiba slashes profits forecast after losing DVD format battle

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The Independent Online

Toshiba has slashed its profit forecasts by 31 per cent after warning that the cost of losing the battle with Sony for next-generation DVD technology would run into billions of yen.

The Japanese giant's revised figures for the year to the end of March are for net profits of 125bn yen (£633m), compared with the 180bn yen predicted last October. Sales forecasts have also been revised down by half, from 130bn yen to 65bn yen.

Last month, Toshiba capitulated in its five-year race with Sony's Blu-Ray format, and its HD DVD format is set to join the hardware graveyard with the likes of Betamax videotapes and Apple's Newton handheld computer. Operating losses at the HD DVD division are now expected to hit 65bn yen, compared with the earlier estimate of 50bn yen.

"Income before taxes and minority interest and net income are expected to decrease from the previous forecast, primarily on costs incurred in the discontinuation of the HD DVD business," a statement from Toshiba said.

Just as with Betamax in the late 1970s, it was Hollywood that made the final call because the success of a new format rests wholly on the content that will be available on it. So whenWarner Brothers became the last major studio to formallyendorse Blu-Ray in January, it was only a matter of time forHD DVD.

Analysts attribute Sony's success in part to leverage within the movie industry through Sony Pictures. But Blu-Ray also benefited from Sony's courting of computer manufacturers such as HP and Dell. It is now in talks with Microsoft about getting the technology incorporated into the Xbox 360 games console as well as its own PlayStation 3.

Toshiba's losses will be largely from research investment and loss of sales. But it will also have inventory writedowns, according to Paul O'Donovan, a principal analyst at Gartner. "In January the company dropped the price of its players, and it was pretty clear at the time that it was trying to get rid of its stock," he said.

HD DVD is Toshiba's second failed technology punt in the last 12 months. Last May, its Surface-conduction Electron-emitter Display (SED) technology, once billed as the next big thing for flat-panel high-resolution screens, was withdrawn.

"The problem is that these technologies are reliant on other factors such as bringing it out at the right time and the right price. SED just couldn't be made cheaper than rival LCD displays," Mr O'Donovan said.