Infineon warns chip downturn will push it into the red in Q3

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The Independent Online

Infineon technologies, Europe's second-largest microchip maker, yesterday warned that the sharp downturn in the semiconductor market would send it into the red in the third quarter.

The company, based in Munich, Germany, has seen sales slump 30 per cent in the three months to June and expects an operating loss of up to 600m euros (£366m).

Prices have fallen and many customers are reducing stockpiles, Infineon said, as the market has weakened in the last two months.

"The expected loss of 600m euros is surprisingly high because estimates had ranged between a loss of 30m euros and 100m euros," said Friedrich Diel, a fund manager at Frankfurt Trust.

Analysts predict that the global semiconductor market could shrink by up to 20 per cent in 2001. Ulrich Schumacher, the chief executive of Infineon, said he expects the company will outperform the market as a whole.

The warning for the third quarter followed a second quarter when Infineon said earnings slumped 84 per cent to 23m euros. Infineon has been hurt by the turmoil affecting the mobile phone industry, which led the world's leading manufacturer, Nokia, to issue a profits warning last week.

Order delays and cancellations from mobile phone manufacturers, Infineon's major customers, have hurt trading, and the company does not see any clear signs of a recovery in mobile phone demand.

Weak demand in the PC market has also driven the price of Infineon's DRAM memory chip down 30 per cent since the end of March.

The company said it planned to cut capital spending in 2002 by more than 1bn euros. It has already reduced spending in the current year from 2.8bn euros to 2.3bn euros. It has also frozen the hiring of new employees and will not replace those who leave the company.

Shares in Infineon fell about 15 per cent in early trade on the German stock market, as the company warned that it could also record a loss in the final quarter and the year as a whole. The German electronics giant Siemens, which owns most of Infineon's shares, was also hit, with its shares dropping about 5 per cent.

The European group STMicroelectronics and Royal Philips Electronics, of the Netherlands, are among other European chipmakers to warn of a fall in profits caused by global economic slowing.

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