TOKYO (Reuters) - Japanese camera and precision equipment maker Nikon Corp forecast its first annual operating loss in 11 years as chipmakers slash spending, although the loss was smaller than market expectations.

The global economic downturn has hurt final demand for semiconductors, used in products ranging from PCs to cellphones, forcing Nikon to rely on camera sales and cost cuts to help contain losses.

Nikon, the world's No.2 maker of chip steppers behind Netherlands-based ASML , said it would fall to an operating loss of 12 billion yen (S$178.8 million) for the year to March.

That was less than an average prediction of a 17 billion yen loss from 17 analysts surveyed by Thomson Reuters and follows an operating loss for the latest quarter, which was also smaller than expected.

Seeking to return to an operating profit by the next financial year, Nikon aims to cut fixed costs and expand camera
sales in emerging economies and to women.

But its stepper business, projected to incur a 33 billion yen loss this year, may be slower to recover. Steppers are
multi-million dollar machines used to scan circuitry onto silicon wafers to make chips.

"We expect demand for machines that shrink chips to kick in towards the end of this financial year and to pick up momentum next year," Chief Financial Officer Ichiro Terato told reporters.

The company expects to ship only 40 new steppers, down from 61 a year earlier and 146 a year before that.
On a net basis, Nikon has forecast an annual loss of 17 billion yen, compared to a profit of 28.1 billion yen for the year just ended.

In cameras too, the company is facing a tough market that has been hit by double-digit price falls in recent months.

It has taken on arch-rival Canon Inc head on by launching a new entry-level digital single lens reflex camera this month and it expects shipments of both digital SLR cameras and digital compact cameras this financial year to be flat.

For the latest quarter, Nikon fell to an operating loss of 6.7 billion yen, better than an average market estimate for a
loss of 12.6 billion yen. It posted a profit of 31.7 billion yen in the same quarter a year earlier.

Ahead of the announcement, shares of Nikon closed up 2.9 percent at 1,480 yen, while Canon fell 1.8 percent.