Infineon said it had made a net loss of of €404 million ($517 million) in the three months from October through December, although that was better than the €529 million loss recorded in the same period a year earlier.
It was also half the loss of the previous quarter, which had been marked by one-off items linked to Infineon's distressed memory chip unit Qimonda, which filed for insolvency in January.
Infineon sales in the first quarter of its 2008/2009 exercise fell by 28 percent from the previous quarter and by 24 percent on the year to €830 million, a trend that was set to continue, the company warned.
Analysts polled by Dow Jones Newswires had expected even worse results, pencilling in sales of €802 million and a net loss of €546 million. Infineon said that sales, which are suffering in particular from a slump in orders for automobile electronic components, would decline by 10 percent in the current quarter from the previous three-month period.
The company was also forced to take a charge of €195 million owing to problems at Qimonda, in which it holds a stake of 77.5 percent.
It warned moreover, that "there can be no assurance that such provisions and allowances recorded will be sufficient to cover all liabilities that may ultimately be incurred in relation to these matters."
The German group said it would reinforce a programme designed to cut costs, which it wants to reduce by €600 million per year, up from a previous target of €250 million.
To achieve the more ambitious goal, Infineon said it would enact partial unemployment measures in German factories and trim its executive bonus programme.