If you're in a deep recession by then, you can forget it,'' he said. The slump in European chip stocks followed more gloomy news from the U.S. overnight as Intel and National Semiconductor Corp joined virtually all of their U.S. peers in warning they would be hit by a severe and rapid slowdown in the chip industry and weakening U.S. economic growth. Intel gave its third consecutive sales warning, saying first quarter sales would fall as much as 25 percent from the previous quarter while gross profit margins would narrow to 51 percent from a previous forecast of 58 percent. Diversified chip maker National Semiconductor posted lower third quarter earnings and said fourth quarter earnings would fall well short of forecasts. Although European chip makers like STM, Infineon and Philips have been relatively upbeat in their forecasts for the whole of 2001, some analysts now believe they may be over optimistic.
Business is really bad at the moment.
In memory chips as well as in communication products and other areas,'' said Eric de Graaf, semiconductor analyst at ING Barings. European manufacturers such as STM, which focus on chips for communications equipment and auto electronics, have been protected from the impact of a dramatic slowdown in personal computer sales but increasingly analysts see the slowdown seeping through into these areas. According to estimates from Credit Suisse First Boston, price to book ratios across the sector are still averaging 5.5 against 3.5 in the last major trough in summer 1998. In January, Infineon, which still generates the largest share of its revenues from sales of DRAM memory chips used in PCs but which has been switching focus to faster growing areas, said it expected demand for DRAM chips to remain weak in the first quarter but to stabilise in the second half of the year.