Philips Electronics, the Dutch technology firm, sharply cut its chip sales forecast for the third quarter yesterday, saying revenues would drop by between 13 and 15 per cent compared with the second quarter.

Just two months ago, the firm said it expected a sales decline of between zero and 5 per cent from the previous quarter at its semiconductor division, which is a key part of Europe's largest consumer electronics group.

The lower sales forecast has disappointed the chip industry, which has experienced its worst decline in history over the past two years.

"We see general softness in the entire semiconductor industry but particularly in commodity products. Customers are delaying their orders," Mr Scott McGregor, head of Philips's chip unit, told an analysts' meeting in the Netherlands.

Mr McGregor added that currency effects played an important role and that the third-quarter sequential sales decline in dollar terms would be between 4 and 6 per cent.

The company expects its semiconductor division can rebound in the final three months of the year. Philips forecasts a euro sales increase of between 7 and 12 per cent in the fourth quarter compared with the third.

"We expect this \ partly because it is seasonal and we're also gaining traction with some of our customers," Mr McGregor said.

Philips said that the lower sales forecasts forced it to reduce its cost base and adjust its break-even level.

The company will take a restructuring charge of between €200 and €225 million for its semiconductor unit in the next six months.

Capital expenditure on factories and equipment at the chip unit will be just €450 million in 2002 compared with €981 million in 2001.