Worldwide semiconductor revenue is going to drop by at least 2% next year, and could fall even further if manufacturers don't put the brakes on capital spending, market researcher IDC warned on Thursday.

The slowdown is an abrupt change from this year's robust growth; in the same report, IDC analyst Mario Morales estimated that growth in 2004 will be about 26%.

"The semiconductor market has entered a correction phase triggered by production plans that outstripped demand," Morales said.

As is often the case, the industry is suffering from cyclical overproduction, but there has also been a notable drop-off in demand for some silicon-rich consumer electronics products.

Case in point: DVD recorders. Early in the year, manufacturers expected to sell 12 million to 15 million units; now it looks like sales will range from 8 million to 9 million, Morales said. To be sure, that shows good growth over 2003, but not enough to use up the capacity readied in anticipation of much higher demand. Demand for other snazzy electronic products, including digital cameras and high-definition TVs, is also below expectations, he added.

Morales said capital spending and wafer starts are already beginning to slow, a development that means the industry will suffer some short-term pain but will likely avoid the worst-case scenario of an 11% drop in revenue next year.

Capital spending will probably drop by 18% or 20%, which means that semiconductor equipment makers such as

Applied Materials

(AMAT) - Get Report

,

KLA-Tencor

(KLAC) - Get Report

and

Novellus Systems

(NVLS)

will face their own slowdown.