UK chip designer Arm Holdings has dealt a blow to the fragile technology market, warning of a halving in profits.

Shares in the group slumped more than 60% as it blamed worsening market conditions for the fall in earnings for the July to September period, and said the future remained "unpredictable".

"The semiconductor industry is experiencing its worst ever downturn," chief executive Warren East added.

But the company said it had no immediate plans to cut jobs and suggested its growth prospects were healthy as a number of third-party companies were still choosing Arm as a partner for new projects.

Bleak forecast

Analysts were quick to reduce their expectations for Arm, which had until now met market profit forecast for more than four years.

Investment bank Morgan Stanley said: "Given our guarded outlook for the rest of the semiconductor industry, we believe that visibility for Arm is unlikely to improve until someway through the first half of 2003."

Arm itself said it did not expect "any significant upturn in business activity before next year".

The company said it expected pre-tax profits for the three months to 30 September to come in at around �8m ($12.6m), compared with �16.2m in the previous quarter.

The group said persistent difficult market conditions made it difficult to predict the timing on current and future projects.

Cuts

Morgan Stanley cut its share price target for Arm by almost a half on the back of the disappointing update, from 210p to 110p.

But investors had already voted with their feet, with Arm shares closing down 79.5p, or 63%, at 46.75p.

Analysts said investors were currently looking very closely at company balance sheets and that Arm's warning had hit sentiment badly.

Arm's chief executive told reporters after putting out the warning that the company had "no immediate plans" to cut jobs.