The decision by the electronics maker ends its battle with a consortium led by Sony over who should set the standard for the next generation of discs, a fight that confused shoppers and stalled a move to the new technology in the $24 billion home DVD market.
The Blu-ray win means consumers no longer have to choose between rival incompatible formats and run the risk of being stuck with a 21st century equivalent of Betamax--Sony's videotape technology that lost out to VHS in the 1980s.
Toshiba, which had hoped HD DVD would drive growth in its consumer electronics business, said it would aim to end its HD DVD business by the end of next month.
"This was a very difficult decision to make...but when we thought about the trouble we would cause to consumers and our partners, we decided it was not right for us to keep going with such a small presence," Toshiba Chief Executive Atsutoshi Nishida told a news conference.
The company said it would continue to service existing HD DVD products, and added it expected bigger profits over the next year as it will cut spending earmarked to promote HD DVD.
The tide turned against HD DVD after the defection to Blu-ray by Time Warner's Warner Bros studio last month.
While Toshiba has lost the chance to be the leader in the next generation of movie discs, investors welcomed its decision to cut its losses on HD DVD early and invest in more promising businesses.
Toshiba's shares leaped nearly 6 percent on Monday, although they pulled back 0.6 percent on Tuesday compared with a 0.9 percent rise in the benchmark Nikkei average.
Toshiba twinned the HD DVD exit with an announcement that it andwould spend about 1.7 trillion yen ($15.7 billion) on two new flash memory plants in a bid to catch up with industry leader Samsung Electronics in the fast-growing market.
Investors are now waiting to see if and how Toshiba will get access to Blu-ray technology for its home electronics business.
"It's going to have to buy the technology from elsewhere or pay Sony or Matsushita for the licenses," said Tetsuro Miyachi, senior portfolio manager at Franklin Templeton Investments Japan. "But the company saw that this is still better than just continuing on with losses of tens of billions of yen each year."
CEO Nishida said Toshiba has "absolutely no plans" to make or sell Blu-ray players.
Toshiba has HD DVD agreements with studios including NBC Universal's Universal Pictures, Viacom's Paramount Pictures, and DreamWorks Animation, which will now likely have to switch to Blu-ray.
Existing Blu-ray supporters included News Corp.'s 20th Century Fox, Walt Disney and Lions Gate Entertainment. Sony's PlayStation 3 game console also plays Blu-ray films.
Toshiba, which began sales of HD DVD players in March 2006, has sold 1 million players and recorders, including sales of drives for another supporter, Microsoft, for its Xbox 360 game console.
If Toshiba can clear hurdles to design software for Blu-ray, it could use a joint venture with Samsung on optical discs to make Blu-ray players, analysts said.
Toshiba could also procure Blu-ray products from Sony or Matsushita Electric Industrial and sell them under its own brand, they said.