TOKYO, Jan 29 -- Japanese electronics group Toshiba Corp. posted a worse-than-expected 25 percent drop in quarterly operating profit after tumbling flash memory chip prices ate into margins.

Toshiba, the No.2 NAND flash memory chip maker after Samsung Electronics Co Ltd, now faces steeper-than-expected price falls even as it plans further capital spending.

"Samsung is shifting its focus on flash, and Toshiba is the one feeling the pinch," said Tomomi Yamashita, a senior fund manager at Shinkin Asset Management Co. Ltd.

Toshiba now expects average NAND flash chip prices to fall 50 percent this year. It previously expected a 40 percent decline.

The difference "is hurting", Executive Vice President Fumio Muraoka said at a news conference.

Toshiba, whose products range from washing machines to nuclear power plants, is also fighting losses in its HD DVD recorder business, he said.

Toshiba has slashed prices on its recorders further after Time Warner Inc's Warner Bros studio announcement earlier this month that it would release high-definition DVDs only in rival Sony Corp's Blu-ray format.

But Toshiba kept its outlook for a 290 billion yen ($2.72 billion) operating profit for the year to March, slightly lower than a consensus estimate of 292 billion yen by 13 analysts polled by Reuters Estimates.

"Microchips and our digital media operations are suffering, but other businesses such as PCs, elevators, power systems and medical systems will make up for the shortfall," Muraoka said.

The company, which has been trimming its operations to focus on its core semiconductor and nuclear power businesses, said operating profit for October-December was 42.1 billion yen against 55.9 billion yen a year earlier. The average forecast of five analysts was for an operating profit of 52.2 billion yen.

NAND flash memory chips, used for data storage in portable devices such as Apple Inc's iPod digital media players, accounted for roughly half Toshiba's profit last year.

Toshiba's results came as domestic peer NEC Corp posted a bigger-than-expected 54 percent fall in quarterly operating profit, as Japan's wireless carriers delayed spending on base stations and handset sales remained sluggish.

NEC kept its outlook for operating profit in the full year to March 31 at 130 billion yen, slightly below a market consensus of 131.6 billion yen by 15 analysts.

PRICE FALLS

Chip price falls also hurt fellow Japanese memory maker Elpida Memory Inc, which tumbled to an operating loss of 8.94 billion yen in October-December from a 27.3 billion yen profit the previous year.

Elpida, which does not give a full-year earnings forecast, is banking on demand for specialty dynamic random-access memory chips and a ramp-up at a Taiwan joint venture with Powerchip Semiconductor to contribute to earnings next year.

Advantest Corp, the world's largest supplier of microchip testers to chip makers, posted a 36 percent decline in 9-month operating profit to 25.6 billion yen as orders slowed for testing equipment.

Advantest, which competes with Teradyne Inc, halved its annual outlook last week, saying chip makers are fighting shrinking margins by cutting spending on testers, typically used at the end of the chip production process.

Prior to the results, Toshiba shares ended Tuesday up 2.4 percent, against a 3.0 percent rise in the benchmark Nikkei average (Additional reporting by Yoko Kubota, Editing by Michael Watson)