Toshiba Corp. (OTC: TOSBF) will take a beating after admitting defeat in the recent next-generation DVD wars and pulling out of HD DVD. Japan's largest chipmaker, as a result, sliced its full-year profit forecast by a staggering 31% this week to account for the HD DVD defeat as well as falling flash memory costs. It has its hands in both pots and both are going to kill a good chunk of profits this year.In addition to writing down its HD DVD assets, the market for flash memory has already become brutal this year for Toshiba as well as for the competition like Samsung Electronics and Intel Corp. (NASDAQ: INTC). It's facing its first annual profit drop in over six years based on these two factors, as the company expects its flash memory prices to decline by 50% in its current fiscal year alone. Combine that will the wind-down of HD DVD (yes, there is still hardware inventory in stores), and Toshiba's in for a ride this year.
Let this be a lesson to the Japanese electronics giant: don't participate in risky format wars and minimize your exposure to a volatile market like flash memory (well, if you can). The ridiculous Blu-ray vs. HD DVD wars that existed for years finally came to an end this year, but now one of the parties will lose its shirt -- Toshiba. Sure, licensing revenue would have been great -- just ask Sony Corp. (NYSE: SNE) about this -- but you have to have a compelling reason to win. Toshiba apparently did not.
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