Infineon Swings to a Loss

The company's second quarter looks even worse.
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Updated from 12:40 p.m. EST

German chipmaker

Infineon Technologies

(IFX)

swung to a loss in its fiscal first quarter, and it expects the red ink to keep flowing in its current quarter.

The company reported a first-quarter loss of 183 million euros ($225 million) on Tuesday, as declining memory chip prices ate into the bottom line. The first-quarter loss, compared with a 142 million euro profit in the year-ago period, was expected after the

company's preannouncement on Friday. Sales in the quarter were 1.67 billion euros, down 8% from a year earlier.

The chipmaker blamed the loss on weak results in its memory products segment, which it

recently announced it intends to divest itself of. According to Infineon, DDR2 memory chips experienced a significant decrease in average selling prices during the quarter. The company deliberately limited shipments of DDR2 products in reaction to the "considerable price decline and weak demand."

Overall, Infineon's logic segments achieved positive earnings before taxes and interest payments, or EBIT, during the first quarter, thanks to increasing revenue in the company's automotive and industrial businesses. Infineon intends to focus on automotive, industrial and communications chips after it divests itself of the memory group, which accounts for roughly 40% of overall revenue, this July.

"We are on track with our restructuring measures," said President and CEO Wolfgang Ziebart in a statement accompanying the financial results. "In our segment Communication, and in our security and chipcard business, we were able to reduce the EBIT loss in the first quarter, leading to a combined positive EBIT of the logic segments."

The company said Tuesday that it expects overall semiconductor revenue to remain stable in its current fiscal second quarter of 2006, with production of memory chips increasing 20% due to additional manufacturing capacity. Still, EBIT loss is expected to widen sequentially, Infineon said.

Shares of Infineon were recently up 20 cents, or 2.1%, to $9.68.