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EARNINGS

Infineon posts €3-billion loss

The German semi-conductor group Infineon on Tuesday issued a gloomy report for itself and its loss-making memory-chip unit Qimonda, as it posted an annual loss of €3 billion ($3.8 billion).

The company now expects sales to decrease by at least 15 percent during its 2008-2009 fiscal year that began in October and sees a “negative result” for the aggregate of its five divisions, the company said in a statement.

It added that “there can be no assurance that Infineon’s plan to further reduce its interest in Qimonda will be successful” nor that Qimonda will be able to generate “adequate cash or result in desired operational efficiencies and cash savings.”

Shares in Infineon plunged by 23.36 percent to €1.27 in early trading on the Frankfurt stock exchange, while the DAX index was down by 2.07 percent overall. The fourth quarter figures are “disastrous,” Dow Jones Newswires quoted a trader as saying.

Infineon said that sales had gained just two percent to €1.153 billion in the last three months of its fiscal year, and that core earnings had fallen into a loss of €220 million from a €71 million profit in the previous quarter.

Infineon’s share price has lost nearly 80 percent of its value in the last year. The group had hoped to divest Qimonda, in which it owns a stake of 77.5 percent, by February. In its last fiscal year, Infineon made a net loss of €3.1 billion, almost 10 times more than a year earlier and almost entirely the result of Qimonda.

Qimonda is searching desperately for an investor and has also asked for public aid. Infineon has also dropped the idea of spinning off Qimonda by offering it to shareholders in the form of a dividend in kind, it said on Wednesday. The German group said it would try to extend its cost-savings programme that is designed to save €200 million per year and has already resulted in the loss of 3,000 jobs.

“The company has identified very substantial additional savings,” the statement said, though it would also likely mean a decrease in sales from the level expected up until now. For 2009, “visibility is very limited. Infineon believes that a significant decline in global semiconductor revenues from 2008 levels cannot be ruled out.”

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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