This year, ST shares have declined 20 percent, Philips dropped 28 percent and Infineon has fallen 7 percent. The Standard & Poor's Semiconductors Electronics index has fallen 14 percent.
The slowdown in Europe -- which started in September -- came as a surprise to many. In April, ST CEO Pasquale Pistorio predicted sales this quarter would be lower than last year, describing the slowdown as the "deepest and most abrupt" he'd witnessed in his 37 years in the industry.
That situation stands in sharp contrast with a year ago, when both Philips and ST reported a doubling in second-quarter profits as sales to makers of phones and digital cameras surged.
Both struggled to keep up with demand after a three-year slump in sales that ended in the late 1990s. Philips spent US$2 billion last year on equipment and plants to boost capacity, triple its 1999 investment.
This year, it expects to spend less than half that.
Geneva-based ST last month lowered its plans for capital spending for the second time this year and closed a plant in Canada. ST will spend US$1.5 billion on equipment this year, down from US$3.3 billion last year.
While cutting expenditures may help counter the drop in demand, other factors are also at play.
"As we go into 2002, it will all depend on how the economy ticks up," said Andrew Norwood, a semiconductor analyst at Dataquest.
"That's not in the power of semiconductor makers to influence. All they can do is sit back and wait."
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