Sales of the tools that build, package and test chips are now expected to decline 11.6 percent in 2005 to $33.2 billion, a milder decline than the 15.3 percent previously forecast, the report quoted Gartner saying in a quarterly update. Equipment spending is now forecast to decline by 6.5 percent in 2006 compared with 2005, before recovering in 2007 and 2008, the report said.

"Rather than having the sharp annual contractions of the past, this cycle will be milder," the report quoted Klaus Rinnen, Gartner semiconductor manufacturing analyst, as saying.