Europe's biggest chipmakers had record earnings in 2000, driven by mobile-phone and computer sales. This year, those same products are dragging them down.
Last week Royal Philips Electronics NV, the No. 3, said it may have its first annual loss since 1996 and STMicroelectronics NV, the largest, cut its forecast. Infineon Technologies AG, the No. 2, already said last month sales may fall this quarter.
It won't get better soon, analysts said. Slowing economic growth has spread to Europe from the US, prompting consumers to delay purchases of new cell phones and computers. Chipmakers' main customers such as Nokia Oyj meanwhile scaled back orders.
European semiconductor makers "are just starting to feel the slowdown," said Valerie Cazaban, who helps manage 180 million euros (US$156 million), including ST shares, at Paris-based brokerage Stratege Finance. "We're entering turbulent times."
ST on Thursday predicted second-quarter sales of between US$1.55 billion and US$1.6 billion, down from an earlier estimate of between US$1.65 billion and US$1.8 billion. That compares with US$1.88 billion in the year-earlier period. Philips said it sees no sign of a recovery in the chip market and predicted a 20 percent decline in global semiconductor sales this year.
Infineon, Europe's second-biggest maker and a unit of Siemens AG, said last month it doesn't exclude a sales drop because of falling memory-chip prices and weak mobile-phone. And Ulrich Schumacher told Frankfurter Allgemeine Zeitung last month that the chipmaker may lose money in the quarter through June.
"The outlook is very dim for semiconductor makers," said Renaud Pecher, who manages at Fortis Investment Management in Paris.
Infineon's woes also have an impact on parent Siemens, even as the Munich-based company gradually reduces its stake in the unit. In fiscal 2001, which ends in September, Siemens will probably still consolidate Infineon, Chief Executive Heinrich von Pierer said in a newspaper interview.
Market researcher Gartner Inc said worldwide mobile-phone sales in 2000 grew 46 percent to about 413 million units. Nokia, the largest cell-phone maker and one of ST's biggest customers, last week cut its profit forecast for this quarter and predicted "very modest" growth in global sales this year.
In Asia, chipmakers have also been hurting. United Microelectronics Corp (
US semiconductor makers are now faring better than their European and Asian counterparts. Texas Instruments Inc, the largest maker of chips for cell phones, two days ago reiterated its second-quarter earnings forecast. Intel Corp, the biggest computer chipmaker, surprised investors last week by saying second-quarter sales would be in line with estimates.
"In the US, the picture is clearing up somewhat," said Cazaban. European chipmakers "are not giving any indication about future performance, and that's very worrying."
Global chip sales will fall this year, after rising 33 percent last year, Gartner said in May. It sees a 17 percent drop in sales to US$188 billion, down from last year's US$226 billion.
"In the PC market the worst is probably over, and in the mobile phone market, the worst isn't too far from being over," said Pecher. "But no one knows when the rebound is going to take place -- in three, six or nine months. No one can say."
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