BBC Wednesday, 20 June, 2001, 13:27 GMT 14:27 UK

Warnings send techs lower

Tech shares are taking another battering, sparked by fresh alarms over semiconductor chip demand.

In afternoon trading in Europe all the major indexes were down, with the big name technology firms leading them lower.

In London the fallers included Autonomy, down more than 10%, Misys, down 7% and Marconi, 7% lower.

No-one was immune, with the mobile phone giant Vodafone's shares falling to 157.75p - which would be their lowest closing level since October 1998.

British Telecom fell 16.5p to 419p, which would see its shares ending at their lowest level for more than three years.

London's Techmark 100 index of leading tech firms was also close to the lowest point in its history, down more than 3% at 1,775 by 1421 (1321 GMT).

Infineon, Germany's biggest chip manufacturer, warned on Wednesday of a heavy third-quarter loss, saying that the market outlook was worse than it had earlier predicted. Its shares fell 15%.

Adding to the gloom was a report from IC Insights, an American chip consultancy, which predicted that this year could see the largest ever contraction in the semiconductor market.

The announcements were only the latest in a string of pessimistic forecasts and profit warnings from semiconductor firms, which are being buffeted particularly by slumping demand for mobile phone handsets.

The losses have all-but wiped out modest gains that high-tech shares have enjoyed since a surprisingly bullish outlook from US software maker Oracle on Monday.

US high-tech shares were more resilient, as industry leaders Intel and Dell attempted to put a positive spin on the prolonged tech slump.

Losses ahead

Infineon has predicted a 30% drop in revenues, and a 600m euro (£428m; $512m) loss for the third quarter, ending on 30 June.

"We don't think that the next quarter will generate profits and this would lead to a full-year loss as well," said Infineon CEO Ulrich Schumacher.

Losses from Infineon had been expected, especially after a profit warning last week from STMicroelectronics.

But most estimates of the firm's third-quarter losses were in the 30m-100m euro range.

Infineon's shares fell by 13%, and are now trading at record lows of about 30 euros.

On Wednesday, Germany's blue-chip Dax index fell by just more than 1%, and the FTSE 100 fell to a ten-week low of 5,627.6.

Everybody hurts

Gloom on future chip sales, at least in the short term, is an industry-wide phenomenon.

The global semiconductor market could contract this year by 21%, its greatest ever annual fall, according to a report issued on Tuesday by IC Insights.

The prediction is significantly more pessimistic than the 14% decline forecast previously by the Semiconductor Industry Association.

The reason, said IC Insights, was the combination of overcapacity among manufacturers, a weakening global economy, and unexpected declines in key consuming industries such as mobile phones and personal computers.

"From 1995 through 2001, the semiconductor industry will have spent about $250bn in capital expenditures to receive only about $50bn in additional semiconductor sales during this same period," the report said.

On the bright side

IC Insights is, however, predicting a bounce-back next year, possibly by as much as 16%.

Prospects of an improvement in the medium term provoked some modest optimism from a few large tech firms, especially in the US.

In an interview with the BBC, Craig Barrett, president and CEO of Intel, the world's biggest chip manufacturer, said his firm was not unduly worried about the current slump.

Increasing demand in Europe and some emerging markets could help compensate for the slowing US economy, he said.

"Prospects are very good, almost regardless of what happens in the US."

Intel's share price has halved this year, and the company has announced that 5,000 of its 90,000 jobs will be cut by the end of the year.

"We're operating on a much lower level than a year ago," said Mr Barrett.

Dell smells a chance

Others scent an opportunity.

Speaking after meetings with Finnish mobile phone company Nokia, Michael Dell, CEO of personal computer maker Dell, said the slump offered his firm the chance to boost its market share.

Mr Dell told a Finnish newspaper that he would like to boost Dell's share of the PC market from the current 13% to 40%.

"We are now more competitive than ever," he said.

-- Anonymous, June 20, 2001