Shares slid in early trading in Germany after it warned it did not foresee a "major improvement in demand".

Infineon reported a net loss of 114m euros (£78m; $148m) in the three months ending 31 March, compared with a profit of 142m euros a year earlier.

Sales fell in the fiscal second quarter, sliding 12% to 1.61bn euros.

"As there are no near-term catalysts for growth in demand, especially in the memory and mobile phone businesses, in the third quarter we will continue to focus on cost-cutting measures," chief executive Wolfgang Ziebart said.

Profitability in sight?

Shares in Infineon fell 3.1% to 6.90 euros in Frankfurt following the earnings announcement.

Infineon, whose clients include German industrial group and phone maker Siemens, said that prices have fallen across its range of memory chips.

It added that an expected dip in demand during the last three months of 2004 had been more pronounced than usual.

Losses were also accentuated by a 74m euro charge relating to the cost of restructuring its communications division.

Executives said they could not predict when the business would become profitable.

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Industry-wide

Infineon is not the only company in the sector experiencing problems.

On Tuesday, Taiwan Semiconductor Manufacturing, one of the world's biggest makers of memory chips for computers, reported an 11% drop in quarterly profits.

Concerns about the pace of an economic recovery has led to weaker demand for goods such as mobile phones and computers.

Analysts said that even taking into account the problems facing the industry, Infineon's performance was poor.

"The outlook for Infineon is actually quite weak," Uche Orji, an analyst at JP Morgan, said.

"Compared to their peer group in communications -- companies like Texas Instruments, who are guiding to single-digit growth in the current quarter -- they're losing market share."

"It's worse than we expected."