Toshiba's computer chip unit hit

Toshiba is fighting a battle with Sony over DVD formats

Tough conditions in the computer chip market have severely dented profits at Japanese electronics giant Toshiba.

Operating profits slumped 25% to 42.1bn yen ($395m, £198m) in the three months to the end of December.

Toshiba is being hit by a collapse in prices for flash memory chips, which are used in mobile phones and cameras.

The company says the situation is worse than it initially forecast and expects the price of those chips to fall by 50% over the current financial year.

Property sale

Toshiba is also fighting an expensive battle with Sony to supply the next generation of DVD players.

It slashed the price of its HD DVD players by up to 50% to win market share away from Sony's Blu-ray format.

However, there were strong sales at other Toshiba units, including computers, industrial systems and nuclear power.

The firm was also boosted by the sale of the Ginza Toshiba building in central Tokyo, which raised 161bn yen ($1.4bn, £704m).

Economy slowing

On Monday, rival electronics group NEC reported losses of 5.2bn yen ($48.7m, £24.5m).

Like Toshiba, NEC's computer chip business dragged down the overall performance.

Japanese companies are also facing the prospect of a slowing economy.

A report on the jobless market suggested that Japanese employers are reluctant to hire.

It showed the number of applicants increasing faster than the number of available jobs in December.

But the jobless rate fell slightly to 3.8%.

On Tuesday, the Bank of Japan Governor, Toshihiko Fukui, said the economy was facing problems in the short term, but would probably hold up in the longer run.