Investors Cheer as Toshiba Nears HD DVD Surrender

Shares of Toshiba jumped 5 percent on Monday as analysts applauded the company's expected move to abandon its HD DVD format, leaving Blu-ray technology backed by Sony to become the standard for the next-generation DVD.

Toshiba flat-panel televisions.
Jae C. Hong
Toshiba flat-panel televisions.

Shares of Sony rose 2.5 percent, while Matsushita Electric Industrial, a key Blu-ray supporter, fell 1.3 percent.

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 Brothers.

Toshiba, which led a consortium promoting HD DVD, would suffer losses of hundreds of millions of dollars to scrap production of its equipment and other steps to withdraw from the business after losing out to the Blu-ray camp headed by Sony, 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 30 billion yen ($280 million) 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.

Pressure For Winner

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 $24 billion home DVD sector.

An end to the war means consumers can now be sure they won't be stuck with a 21st century equivalent of Betamax -- Sony's videotape technology that lost out to VHS in the 1980s.

The defection of Time Warner's Warner Brothers to Blu-ray from HD DVD in January was a heavy blow to Toshiba's plans.

It took Hollywood's biggest film library into the Sony consortium's camp and meant 70 percent of Hollywood movies would be in the Blu-ray format.

When the world's largest retailer, Wal-Mart Stores , said on Friday it would quit stocking HD DVD movies in its 4,000 U.S. stores, pundits predicted the end was near.

The decision matched earlier ones by consumer electronics chain Best Buy and online video rental company Netflix .

Wal-Mart's own movie and gaming blogger put the future of HD DVD in stark terms.

"If you bought the HD player like me, I'd retire it to the bedroom, kid's playroom, or give it to your parents to play their John Wayne standard def movies, and make space for a BD (Blu-ray disc) player for your awesome Hi Def experience," Wal-Mart blogger Susan Chronister wrote in a posting.