The worldwide IC sector is now expected to decrease to $266.6 billion for 2008, down 2 percent from $272.0 billion in 2007. iSuppli's previous forecast in September called for 3.5 percent growth.

This will represent the first year of decline for the IC industry since the post ''dot-com'' bust year of 2001, when revenue fall by 28.7 percent.

A number of semiconductor suppliers are reducing their fourth-quarter outlooks. As a result, there is a ''strong possibility'' that the fourth-quarter decline and the overall 2008 results could fall even further than iSuppli now forecasts.

''The first evidence that the semiconductor industry was entering a recession arrived in the third quarter, before the financial crisis began sweeping the world in October,'' said Dale Ford, an analyst with iSuppli, in a statement.

''In discussions with semiconductor suppliers, equipment OEMs and contract manufacturers, a story of fear and great uncertainty has emerged,'' Ford said. ''As dramatic declines in consumer and industrial confidence began developing in late summer, order cancellations began to grow and in many cases, slowing orders degenerated into a complete stop in orders as players across the supply chain moved to extremely cautious positions in the face of increasingly negative economic news.''

This in turn is taking its toll on the industry. ''iSuppli previously had predicted that the third quarter would generate 7.9 percent growth in semiconductor revenue compared to the second quarter,'' he said. ''However, actual growth in the third quarter came in at a very anemic 2.5 percent quarter-to-quarter rise. Year-over-year revenue in the third quarter was down by 2.9 percent.''

There are other bad signs. ''Memory suppliers are suffering the most severe declines,'' he said. ''iSuppli expects the negative momentum to continue into the fourth quarter with the overall market expected to decline by 8.8 percent compared to the third quarter of 2007, or a 10.9 percent reduction compared to the fourth quarter of 2007.''