* Toshiba to mass produce 28-nm system chips in 2010/11
* To skip 32-nanometre system chip production
* Shares down 2.9 pct ahead of announcement
TOKYO, June 18 (Reuters) - Toshiba Corp, Japan's largest chip maker, said it plans to mass produce 28-nanometre system chips in the next business year as it fights to stay relevant in an area dominated by the likes of Intel Corp and Texas Instruments Inc.
Toshiba, the world's second-largest maker of NAND flash memory chips after Samsung Electronics, is hurrying to restructure its system chip business, which has been smarting from shrinking demand, high costs and falling prices.
Toshiba and NEC Electronics also said on Thursday that they would extend their development agreement with an IBM-led group of firms to develop 28-nanometre chips together.
Toshiba had previously said it planned to start mass-producing 32-nanometre chips next year, but it now plans to skip 32-nanometre production altogether at its system chip plants in southern Japan.
Systems chips control multiple functions in electronics or cars and look like a maze of circuits on a single sliver of silicon. Producers have been racing to shrink their chips, packing more power into each unit.
Prior to the announcement, shares of Toshiba were down 2.9 percent, in line with a 2.7 percent fall in Tokyo's electrical machinery index. (Reporting by Mayumi Negishi; Editing by Joseph Radford)