Toshiba Corp., Japan's largest chip maker, said it will speed up reorganization of its semiconductor business amid a harsh business environment.

"The chip industry, including our operations, (is) in a dire situation," Masashi Muromachi, head of Toshiba's chip business, said at the Semicon Japan 2008 conference in Makuhari, Chiba Prefecture. The Tokyo-based company plans a "drastic" reorganization of test and assembly operations at its system LSI business.

Toshiba forecasts its lowest annual profit in four years as the global recession cools demand for its chips. A glut of the devices, responsible for about a 70 percent price slump this year, will continue through 2009, UBS AG said in a report Tuesday.

"Chip market conditions should begin to turn around in the second half of 2009," Muromachi said. "We need to reconsider our policy of reliance on in-house" testing and assembly, he said.

The company plans to convert its 5-inch and 6-inch production lines to more advanced 8-inch ones. Existing 8-inch lines will be turned into 12-inch ones, Muromachi said, without providing a time frame for the reorganization measures.

In September, Toshiba forecast its chip business will report a ¥65 billion, or $696 million, loss this year, after an ¥89 billion profit in the previous 12-month period, as sales decline 8 percent to ¥1.28 trillion.

Toshiba's LSI business combines several functions on chips that are used in electronics, including Sony Corp.'s PlayStation 3 and flat-panel TVs.

Carbon-capture plant

Toshiba Corp. said it will build the nation's first carbon-capture plant as it seeks to diversify into the clean-energy technology business.

Toshiba will spend ¥1 billion to ¥1.5 billion on the pilot plant at its coal-fired power station in Omuta, Fukuoka Prefecture, spokeswoman Kaori Hiraki said.

Work on the plant is to start early next year with operation slated to begin by August.