Toshiba may give up HD DVD war

Investors cheered an impending end to a format war for next-generation DVDs on Monday, pushing up shares of both Toshiba, on the verge of abandoning its HD DVD discs, and Sony, the leader of the rival Blu-ray camp.

Toshiba shares jumped 5.1 per cent as analysts praised its decision to cut its losses, while Sony, whose technology is set to become the industry standard for the next generation of high-definition home movie DVDs, rose 2.7 per cent.

"It doesn't make sense for Toshiba to continue putting effort into this," said Koichi Ogawa, a chief portfolio manager at Daiwa SB Investments. "It needs to cut its losses and focus its resources on promising businesses."

A source at Toshiba told Reuters on Saturday that the electronics conglomerate was planning to give up on the HD DVD format after losing the support of key retailers and several movie studios including Warner Bros.

Toshiba, which led a consortium promoting HD DVD, would suffer losses of hundreds of millions of pounds to scrap production of its equipment and other steps to withdraw from the business, Japanese public broadcaster NHK reported.

But analysts gave high marks to Toshiba's seemingly quick decision to pull the plug on HD DVD because of the heavy costs involved in promoting the format.

Nikko Citigroup raised its rating on Toshiba to "buy/high risk" from "hold/high risk". JP Morgan maintained its "overweight" rating while predicting the elimination of sales promotion costs would add $280m (£140m) to Toshiba's operating profit in the next business year from April.

"Since the business has no growth potential without video software, we think the company will probably withdraw completely rather than just partially," JP Morgan analysts Yoshiharu Izumi and Masashi Hayami wrote in a note to clients.

While keen on a new format DVD that can hold more content and produce higher-quality pictures, movie studios and retailers want a single format that would avoid the cost of producing and stocking two different types of DVD.

Shoppers, faced with two formats and movies that might only play on one or the other, have tended to buy neither at a time when the entertainment industry was hoping the new generation discs would revive the $24bn home DVD sector.