Infineon, Germany's largest chip maker, has beaten the doomsters by reporting a much smaller loss than expected.

The semiconductor giant lost 31 million euros ($33m; �20.5m) in the three months to December, much less than the previous year's 564m euros loss.

The improvement was attributed to higher chip prices.

And the firm's key memory chip sector - which accounts for about a third of group sales - returned to profitability.

Limited optimism

But Infineon aid that it still expected tough times in the year ahead.

"Although we see the first signs of a positive market trend, it is too early to speak of a sustained overall market improvement," said chief executive Ulrich Schumacher.

Mr Schumacher said he expected stable demand in most segments but a difficult market environment in the first half of 2003.

Other chipmakers, such as Intel and AMD, have also cautioned that it is too soon to think that the chip sector's worst slump is over.

Analysts had been forecasting that Infineon would rack up losses of 69 million euros during the fourth quarter of the year.