Toshiba Corp <6502.T>, Japan's biggest chipmaker, expects its chip operations to turn profitable in July-September on cost cuts, but warned of a possible year-end dip.

Chipmakers have reined in output of NAND chips, used in cellphones, digital music players and memory cards, slowing a relentless slide in prices.

However, supply is rising with Toshiba, the world's No. 2 maker of NAND flash memory chips, boosting NAND output after previously cutting production. Rival Samsung Electronics <005930.KS>, the world's biggest memory chip maker, also expects NAND shipments to rise.

Toshiba stuck to its forecast for a return to a 100 billion yen ($1.1 billion) operating profit for the year to next March, after reporting a smaller-than-expected quarterly operating loss on Wednesday on strengthening in chip prices.

The forecast far exceeds the 29.7 billion yen average profit forecast of 18 analysts polled by Reuters.

Toshiba's annual target is still ambitious, but it is more attainable now, said Shigeo Sugawara, senior investment manager at Sompo Japan Asset Management. Both Samsung and Toshiba will boost output, but I think they will be able to compete like adults (and not flood the market).

Toshiba is speeding up investments in new technologies to keep up with Samsung, whose chip operations returned to a profit on a nascent chip recovery.

Having shouldered three straight quarters of losses, Toshiba, the owner of U.S. nuclear power firm Westinghouse has raised $5 billion to shore up its finances.

Contract price falls in NAND have slowed as chipmakers rein in output, but thinktank inSpectrum notes growing output and competitive pricing is starting to again push down prices.

UNCLEAR OUTLOOK

Toshiba's mainstay chip operations will likely turn profitable in July-September, Fumio Muraoka, Toshiba's corporate executive vice president, told a news conference.

But the outlook from October and beyond is still unclear. A second and even third dip are still possible, he said.

Toshiba said its operating loss rose to 37.6 billion yen in April-June from 22.9 billion yen a year ago. The loss was narrower than the 52.6 billion yen consensus loss forecast by 3 analysts.

It posted a net loss of 57.8 billion yen, against an 11.6 billion yen loss a year earlier on a 17 percent fall in sales.

Ahead of the results, Toshiba shares rose 0.5 percent versus a 1.3 percent gain in Tokyo's electrical machinery subindex <.IELEC.T>.

Its shares rose 38 percent in April-June, boosted its recent fund raising, outpacing a 25 percent rise in the subindex.

(Reporting by Mayumi Negishi; Editing by Anshuman Daga)

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