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Chip sales expected to drop 5.6 percent in 2009

Global semiconductor sales will fall in 2009, the first decline in eight years, as the financial crisis takes its toll on consumer spending, a chip industry trade group forecast on Wednesday, sending a key industry gauge to its lowest level in a decade.

The Philadelphia semiconductor index, which tracks chip stocks, fell 7.7 percent to close at 177.10. The index is down around 60 percent this year.

In a now familiar scene, investors concerned about falling demand moved to dump shares of a broad array of chip and chip equipment makers. Micron Technology Inc shares had tumbled 16 percent by the close, while Advanced Micro Devices Inc shares sank 15 percent and the shares of Applied Materials Inc shed 11 percent.

The Semiconductor Industry Association President George Scalise said on a conference call the industry was in an "unprecedented era" that lacked the virility of more normal times.

Falling consumer confidence has hit the industry hard, as demand for gadgets and PCs has plummeted. Scalise said restored confidence among the buying public is crucial to any recovery.

SIA expects 2009 chip sales to fall 5.6 percent to $246.7 billion, following a forecast 2.2 percent increase in 2008 to $261.2 billion.

SIA projected fourth-quarter sales would fall 5.9 percent from the previous period. Through September, when global markets began to crater and credit markets locked up, industry sales rose 4 percent from last year.

The trade group expects annual growth to resume in 2010, with chip sales rising 7.4 percent to $264.9 billion, and increasing another 7.5 percent to $284.7 billion in 2011.

The gloomy outlook for 2009 took few by surprise. Robert Baird analyst Tristan Gerra expects a revenue decline of roughly a 10 percent in 2009 for the semiconductor companies he covers.

"The consumer clearly is what's going to be impacting the decline that most for next year," Gerra said.

Scalise sees little similarity between the current downturn and 2001. In 2001, there was a huge excess in demand that fell off all of sudden, he said, while there is better balance in the market now.

The semiconductor industry has seen a slew of bad news in the past week. Bellwether chipmaker Intel Corp's (NASDAQ: INTC) revenue warning, as well as layoff announcements from Applied Materials, National Semiconductor Corp, and KLA-Tencor Corp only added to the already dismal picture for the coming year.

The SIA represents makers of silicon chips that run computers, mobile phones and other electronics devices. Its members include Intel, Texas Instruments Inc and AMD (NYSE: AMD).