European chip-makers STMicroelectronics and Infineon have been trying to slim down by offloading unprofitable operations, but less-than-stellar results Wednesday failed to convince investors of a rosy future ahead.

Franco-Italian firm STMicroelectronics  reported a 92.8% collapse in profits for the fourth quarter of 2007, down to $20 million, from $276 million a year earlier. Had it not been for a $55 million income tax benefit, the manufacturer would have reported a net loss.

Shares in STMicroelectronics closed down 15 euro cents (22 cents), or 1.9%, to 7.97 euros ($11.61), in Paris. The stock has tumbled 42.1% since the end of July, as macroeconomic turbulence and an inventory glut put pressure onto the chip-making sector.

STMicro has been attempting to cope with over-supply and strong competition by cutting costs and restructuring its business. It announced plans to close three plants last year, which could affect 4,000 employees, and is hoping to merge its unprofitable flash-memory business with Intel's  this year--if the turbulent credit markets will allow it.  Flash memories retain their data even when power is shut off, making them useful for digital cameras and the like.

These changes saddled STMicro with a $30 million restructuring charge and a $249 million flash-memory-related impairment charge for the fourth quarter. But even these measures did not reassure analysts about the company's future prospects.

"Although the shares are more attractive, we do believe that the stock faces structural challenges," said Didier Scemama, analyst with ABN Amro. He said that the company's exposure to the flagging dollar, its thin product portfolio and its lack of intellectual property strength contributed to a weaker outlook for 2008.

German chip maker Infineon  dived 37 euro cents (54 cents), or 5.7%, to 6.14 euros ($8.94), in Frankfurt. Its separately-listed memory chip business Qimonda  reported a net quarterly loss of 598 million euros ($870.5 million), on Tuesday, even worse than the corresponding loss one year ago of 265 million euros ($385.7 million).

Qimonda tumbled 14.0%, or 77 cents, to $4.73, during afternoon trading in New York.

Qimonda chief executive Kin Wah Loh blamed a 40% drop in prices for dynamic random-access memory chips during the December quarter, which dashed attempts to reduce operating expenses and improve productivity. DRAM chips form the basic building-block of memories for computers and related devices, and prices have been falling due to over supply. Though there was a late pick-up in demand last year, it was evidently not enough to help Qimonda.

Like STMicro, Infineon is hoping to reduce its stake in its flash memory business, with the aim of cutting its Qimonda stake to 50% from 77.5% by 2009. But with a turnaround in fortunes looking unlikely in the short-term, investors may not have the appetite for more Qimonda shares.

By: DocMemory
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