By Sachi Izumi

Toshiba, the world's No. 2 maker of NAND flash memory, and industry leader Samsung Electronics <005930.KS> are struggling in a near two-year sector downturn, caused by chronic oversupply and weak demand for digital cameras and other electronic gadgets.

Semiconductor makers have slashed output to revive prices, but anemic consumer demand in a deep economic slump has capped price gains, forcing some firms to seek support from governments.

Toshiba said it would slash fixed costs by $3.33 billion, and plans to focus more on its nuclear power business, while NEC Electronics said it would cut costs by $890 million over 2 years, eliminating 1,200 contract jobs.

NEC Electronics, a subsidiary of electronics maker NEC Corp <6701.T>, is also grappling with shrinking sales of automobiles, liquid crystal display TVs, mobile phones and other products that use its chips.

Both NEC and Toshiba have rejigged their operations in the past few years and further restructuring could limit growth, analysts said.

"Restructuring alone won't help companies in today's economic condition," said Masaru Hamasaki, senior strategist at Toyota Asset Management. "If companies cut jobs or shrink capital spending based on their current earnings level, they risk narrowing their business capacity."

The economic recession has also pushed Toshiba's digital products and home appliances divisions into the red, leaving its business that includes nuclear reactors as the only profitable segment among its main operations.

Toshiba reported an October-December operating loss of 158.8 billion yen ($1.8 billion) against a profit of 42.1 billion yen a year ago. It posted a net loss of 121.1 billion yen on sales of 1.49 trillion yen.

The company warned of an operating loss of 280 billion yen in the year to March, versus its previous forecast for a 150 billion yen profit. It would be its biggest loss ever and its first operating loss in seven years.

For a graphic on Toshiba's results, click on:

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DIRE CHIP SECTOR

The global flash memory market, used mainly for digital cameras and music players, shrank by a third in the last quarter from a year ago, according to research firm iSuppli.

NEC Electronics, which makes chips for Nintendo Co's <7974.OS> Wii game console and for Toyota Motor Corp's <7203.T> Lexus luxury car, posted an October-December operating loss of 16.2 billion yen. It warned of an operating loss of 55 billion yen in the year to March, against its previous projection of a 1 billion yen profit.

Other technology firms have also buckled under the weight of diving prices and as consumers rein in spending.

Samsung Electronics Co <005930.KS> logged its first ever quarterly loss this month, thanks largely to big losses from its chip unit.

The situation for dynamic random access memory (DRAM) chips, mainly used in PCs, has been even worse.

Last week, Germany chipmaker Qimonda, which controls about 10 percent of the global DRAM market, became the first major chipmaker to file for insolvency.

Talks to consolidate Taiwan' sector are heating up. Japan's Elpida Memory <6665.T> is discussing a possible merger with Powerchip <5346.TWO>, ProMOS Technologies <5387.TWO> and Rexchip.

Toshiba, which like its rivals is cutting output, said it would buy part of U.S. partner SanDisk Corp's chip facilities. It may also shut some chip assembly plants in Japan and delay the construction of two new domestic factories by more than a year, executives have said.

Ahead of the results, Toshiba's shares closed up 3.5 percent and NEC Electronics edged up 0.3 percent in a broader market <.N225> up 1.8 percent.

($1=90.08 Yen)

(Additional reporting by Aiko Hayashi, Mayumi Negishi; Editing by Anshuman Daga)