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Last updated: April 27, 2005 5:48 pm

STMicro outlook adds to sector gloom

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STMicroelectronics, Europe's second-largest chipmaker, added to the gloom in the semiconductor industry as it warned of rising “price pressure” and predicted difficult market conditions in the second quarter.

The Franco-Italian group slumped to a surprise loss in the first quarter and warned its revenues could drop below analyst expectations in the next three months.

Carlo Bozotti, who took over last month as chief executive of STMicro, said he was “not pleased” with the slide into the red and promised greater efforts on “streamlining our cost structure and strengthening our product portfolio”.

STMicro's results, published after the US market close on Tuesday, added to the negative news reported from larger European rival Infineon. The German group also reported a quarterly loss and said it saw “no major improvement” in the near future.

The weak figures from Europe's two biggest chipmakers underscored a divergence in the chip sector. US groups Intel and Texas Instruments reported strong results last week, while Advanced Micro Devices was hit by weakness at its flash memory arm.

STMicro and Infineon both complained of strong pricing pressure in the memory chip market.

STMicro said there were “signs of improvement in certain segments of the marketplace”, including the distribution market and a pick-up in wireless markets. “However, we still see strong price pressure in several markets, notably memory.”

The company promised fresh cost-cutting measures, including the consolidation of “certain general and administrative functions”, and the closure of several non-manufacturing sites. It also said research resources would be reallocated to “higher priority categories”. About 1,000 engineers, or 10 per cent of its workforce, would be moved from non-core programmes.

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