In the three months to March 31 Infineon recorded net income of E23m ($20.7m), down from E146m on the same quarter in 2000, and from E280m in the first quarter of 2001.
Its shares rose almost 5 per cent to E46.09 in early Frankfurt trade, however, as the results beat the expectations of many analysts, with some even predicting a loss.
"The results should be neutral overall for the market, as there is some positive and some negative news," said Karsten Iltgen, semiconductor analyst with West LB Panmure.
"Some of the figures are in line or above forecasts, but when one looks at it again, the margins in the DRAM and especially the wireless area are worse than expected," said Mr Iltgen.
The company increased sales 8 per cent year-on-year to E1.65bn, down marginally on first-quarter sales of E1.66bn. However, it also reported a sharp fall in its gross margin from 40 per cent in the first quarter to 28 per cent this time.
The company said its DRAM (dynamic access random memory) business had been hit by the slowdown in the semiconductor sector and its wireless business had seen a 23 per cent fall in quarter-on-quarter sales but that strength in other areas had partly compensated for this.
"Infineon maintained strong margins in its non-DRAM businesses - wireline communications, security and chip card ICs and automotive and industrial - despite a difficult market environment, due to continued demand in these segments," said Ulrich Schumacher, chief executive.
Infineon, which has already lowered its growth expectations for 2001, said that although the semiconductor industry remained volatile it was still positive about non-DRAM businesses. But the company warned it "cannot exclude a weaker performance of its wireless communications" unit in the current quarter.
The company was more upbeat about the DRAM business, however, and restated its assumption about a "positive DRAM market development in the second half of the calendar year".