The introduction of major cost-cutting plans at two of the State's flagship technology firms is proof the US slowdown has begun to bite in Europe.

It also suggests some hi-tech firms may struggle to achieve profitability before they run out of cash. This has forced management to slash costs and re-evaluate business models.

Horizon Technologies, which sells most of its information technology services into the UK and Irish markets, had weathered the Nasdaq slump pretty well until now. But that all changed yesterday when the firm admitted its margins were being eroded and there had been a deterioration in the general business climate.

This "coded profit warning" caused Horizon's share price to halve with the stock closing at €2.00 in London, down from €4.05 on the day's trade.

The trading statement highlighted a marked fall-off in business sentiment over the past two months. And with the downturn in the US more than six months old, a European slowdown may just have started.

"Some people thought the downturn wouldn't happen here but it has now spread to Europe," says Mr Barry Dixon, technology analyst with Davy's Stockbrokers. "Further job cuts are possible if the market continues to slow."

Companies such as Internet security firm Baltimore Technologies have become a victim of this slowdown as its customers delay or cancel contracts.

Baltimore, which recently issued two profit warnings, posted revenues for the first quarter of £23.7 million yesterday, well below the figure for the previous quarter.

This is a major disappointment for a firm which just a few months ago was heralded as a market leader and earned a place in the exclusive FTSE 100 club when its share price reached more than £15 sterling.

And despite yesterday's cost-cutting plans some analysts remain cautious.

"I am not very encouraged in terms of visibility of revenues or of cost cutting," says Mr John Coolican, analyst with Merrion stockbrokers. "The market was looking for a greater level of detail."

And while it is unlikely any Irish technology companies would be allowed to fail completely, some may be acquired, according to Mr Coolican.

"Horizon is looking a much more attractive target for some US players which are taking an interest in the European market."

Some technology firms are weathering the storm better than others, according to Mr Paul Phelan, technology analyst with Davys. "A lot of Irish companies are in pretty good shape despite today's announcements," he says. "Firms such as Parthus have been insulated to a certain extent from the downturn."

Parthus has lost more than a quarter of its value since achieving an all-time high of more than £4 on the London Stock exchange in September 2000. But this is significantly better than either Baltimore or secure payments firm Trintech whose shares have sunk in value by more than 10 in the past few months.

Parthus, which designs chips for the semi-conductor industry, has not suffered the same level of cancellations as other firms because of its licensing business model, says Mr Phelan.

Despite the slowdown, semiconductor firms have continued to invest for the future which can drive efficiency, he says. But with European spending on technology slowing there could be tough times ahead for our indigenous hi-tech firms.