Chip stocks fell down another rung Monday, as a slew of Wall Street reports warned of worsening business conditions.

With one week to go until semiconductor firms begin reporting third-quarter financial results, and the financial crisis showing no signs of abating in the wake of the $700 billion U.S. rescue package, analysts said that expectations for chip companies are too high.

In a note to investors Monday, Citigroup chip analysts Craig Ellis cited "snowballing signs of softness" and wrote that chip orders are "freezing up."

"We remain extremely concerned with the global growth picture and its impact on chip demand through calendar year 2009," Ellis wrote.

Ellis said he expects chip company's fourth-quarter forecasts to modestly miss analyst expectations. But he said he was now troubled by the duration of revenue weakness and profit margin "de-leveraging" beyond the first quarter of 2009.

Ellis downgraded Fairchild Semiconductor ( FCS) and RF Micro Devices ( RFMD) to Sell ratings, and lowered Intersil ( ISIL) from a Buy rating to a Hold.

Shares of Fairchild, RFMD and Intersil were down 6%, 8.9% and 5.4% respectively in midday trading Monday.

The Philadelphia Stock Exchange Semiconductor Sector Index , an index of 18 large semiconductor stocks, was off 5.7% Monday, vs. a 6.7% decline in the Nasdaq.

JP Morgan analyst Chris Danely said that the PC market -- which accounts for about 40% of the world's total chip sales -- is finally feeling the effects of the global economic slowdown.

"Our checks across the PC food chain indicate that demand is finally deteriorating due to the global economic slowdown," Danely wrote in a note to investors Monday, citing weakness among in the Taiwanese notebook and PC motherboard sector.

Danely, who has a neutral rating on Intel ( INTC), cut his 2009 estimates for Intel's revenue and EPS to $42.3 billion and $1.30, from his previous estimates of $43.2 billion and $1.40.

JP Morgan makes a market in Intel shares and has provided Intel with non-investment banking services in the past 12 months.

And in yet another somber assessment of the chip industry Monday, Friedman Billings Ramsey analyst Craig Berger said that while fourth-quarter earnings estimates for chip firms have been cut by many analysts in recent weeks, expectations for 2009 have not been reduced enough.

Berger cut his own fourth-quarter and 2009 financial estimates for Linear Technology ( LLTC), Silicon Labs ( SLAB) and Advanced Micro Devices ( AMD)to "align our forecasts with the reality of weakening global demand."

He said that Wall Street's 2009 earnings estimates are higher than his own for 11 of the 14 chip firms he covers, with some, such AMD and National Semiconductor ( NSM) exceeding his estimates by 10 cents and 9 cents respectively.

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