Softening consumer and business demand has hit the worldwide semiconductor industry, which recorded an estimated revenue decline of US$12 billion for 2008 compared to last year, according to Gartner.

Semiconductor companies are feeling the effects of constrained budgets and a slowdown in demand for products like cars, consumer electronics and PCs, which has resulted in lower revenue, said Andrew Norwood, research vice president at Gartner. The semiconductor industry makes components for sectors ranging from the technology industry to the medical industry.

The automotive industry meltdown has hit the semiconductor industry particularly hard Norwood said. There is also less inclination for consumers to spend money on in-car navigation and entertainment systems, for which semiconductor companies make components.

PC makers are also slowing down component orders and are instead trying to clear out existing inventory, Norwood said. The inventory purge by PC makers and other companies is leaving semiconductor factories underutilised, which creates a cost burden that semiconductor companies have to bear.

Total estimated revenue for the semiconductor industry in 2008 is $261.9(£160) billion, a 4.4 percent decline from 2007, according to Gartner. Revenue for semiconductor companies will continue to decline through next year due to the economic slowdown. Only a wider economic recovery will put the industry back on its feet, as semiconductor companies are connected to numerous industries, Norwood said.

Until then semiconductor manufacturers have to preserve cash in order to survive. It could also be a good time for companies in a better position to acquire the weaker companies, which could contract the industry, Norwood said.

Many of the top semiconductor manufacturers saw revenue either decline or record flat growth this year, according to Gartner. Except for Intel, which saw flat revenue growth, Samsung, Toshiba, Texas Instruments and STMicroelectronics all saw year-over-year revenue drops in 2008.