The maker of notebook PCs and semiconductor chips also attributed the poor result to rises in corporate tax and the weaker-than-expected performance of some affiliates.

The group pre-tax loss shrank to 17.60 billion yen in the half-year period from 43.81 billion yen a year earlier, however, while sales fell to 2,61 trillion yen from 2.64 trillion yen, Toshiba said.

The company said it was now forecasting a net profit of 25 billion yen on a consolidated basis in the year to March 2004, down from 35 billion yen projected previously, but up from a net profit of 18.5 billion yen recorded a year earlier.

Toshiba left unchanged its recurring profit forecast of 90 billion yen for the full year and revenue projection of 5.65 trillion yen.

"Economic conditions in the second half of fiscal 2003 are expected to continue an upward trend as domestic corporate capital expenditure firms up and the US economy shows steady recovery," Toshiba said in a statement.

But the company said it anticipated "uncertainty in the overall business environment" because of global deflation -- whereby prices continue to fall from year-earlier levels, squeezing corporate profit margins and prompting layoffs in many economies.

In the six months to September, Toshiba's sales in digital products decreased from the a year earlier while those in electronics devices increased, it said.

"Sales of personal computers declined from the same period a year ago, largely as a result of severe price erosion, and despite increased unit sales both in Japan and overseas," the company said.

An increased revenue from electronics devices came largely from the semiconductor business on the strength of continued healthy demand from flash memory and growing demand for multi-chip package memories for cellular phones, it added.

"Our semiconductor product division is expected to maintain a solid performance going forward and our LCD (liquid crystal display) business is likely to see further improvement as well," Sadazumi Ryu, corporate senior vice president at Toshiba, told a news briefing.

"But the solid performance of these divisions will not be able to compensate fully for the deterioration of the digital product division."

SPACE.WIRE