Philips said it expects to reach break-even or record a small loss before special charges for the full year, with earnings bottoming out in the third quarter.
Despite second-quarter earnings roughly in line with analysts' expectations, the consumer electronics giant's shares dropped by 5.8 per cent to euro 27.50 today.
Philips also issued a cautious outlook for the industry as a whole.
"We remain very cautious about the economic development for the rest of the year, as visibility remains low. For semiconductors our current expectation is that the industry will not see a recovery before 2002. Capital expenditures have been cut back to euro 2.1 billion," Philips said in a statement.
Philips reported a second-quarter net loss of euro 770 million, compared to a profit of euro 3.6 billion in the same quarter last year.
Excluding special charges and one-off gains, the second-quarter figure came in at a loss of euro 348 million.
Analysts had expected a net loss before exceptionals of between euro 285 million and euro 500 million, with an average loss of 358 million euros forecast.
Philips had already said it would report a "significant" loss in the second quarter, due to sluggish sales in its semiconductor, consumer electronics and components sectors.