Infineon Technologies AG, the chip-making unit of Siemens AG, told analysts price pressure is increasing further and customers' inventories are rising, undermining its margins.
Infineon is under pressure to cut prices, while some of its factories in Germany and France are operating at 70 percent of capacity or less, said analysts who attended the London meeting.
One Singapore plant is operating at 30 percent, they said.
"They basically downgraded our expectations for three divisions," said Laura Baker, an analyst at UBS Warburg who rates the stock a "hold."
CEO Ulrich Schumacher has been counting on revenue from networking, automotive and security chips to buoy earnings, while he waits for memory prices to recover and phones sales remain in the doldrums.
Schumacher told analysts today that customers are demanding price reductions of about 5 percent on the so-called wireline networking chips and of 15 to 20 percent on security products, called smartcards, analysts said.
Infineon's net income fell 84 percent in the second quarter.
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