The semiconductor industry is in sorry shape. That's what analysts are saying this morning after some new data from the

Semiconductor Industry Association

that shows chip sales are falling.

Sales were down 6% in the Americas from the third quarter to the fourth quarter, and have dropped 3% worldwide. Normally, sales increase 5% quarter-over-quarter. They still show positive year-over-year growth, just at a much slower rate than during the summer.

Credit Suisse First Boston

said inventory levels have worsened in recent months (that is, stockpiles have grown at a time when demand is shrinking) and could likely take until the end of the second quarter to burn off.

Lehman Brothers

, in a comment, wrote that "semiconductor revenue growth will decline into negative comparisons by mid-2001."

How does the latest industry data compare? CSFB says these quarter-over-quarter sales are the poorest results seen since 1997 and 1986. Plus, "normal first quarter seasonal weakness is being aggravated by economic slowdowns in demand; visibility is as impaired as we've seen it since the Eighties."

CSFB wrote that stock valuations of chip companies are too high -- and another wave of downward revisions could occur in the next two months.

Chip sales have been sagging along with weaker consumer and corporate demand for new computers and equipment that use semiconductors to power them. When demand slows, companies find themselves with excess capacity, forcing them to cut back production in order to eliminate their existing inventories. The ripple effect is partially responsible for the current slowing throughout the economy. Companies like computer maker

Gateway

(GTW)

and chip giant

Intel

(INTC) - Get Report

, for example, have seen their sales slow and their stocks drop.

The industry association, in its release, forecasts 22% year-over-year growth, although it admits that inventory accumulation makes the forecast unlikely to be reached.