For chipmakers, the last gasp of false hope isbeing extinguished. Last week some of the biggestsemiconductor names admitted revenue growth is likely to be flat for the fourth quarter, while worse-off companies said sales are likely to fall by a double-digit percentage.

Expect Wall Street to play catch-up, slashingestimates over the remainder of the earnings season, and in some cases downgrading ratings.

"I think probably this will be the last in terms of the major adjustments in earnings," saysPrudential's Hans Mosesmann. "Companies are trying to set the bar low enough so analysts get the chance to set their models right."

To put the latest guidance in context, he saysthat in a healthy year, PC-oriented chip companiesmight see fourth-quarter sales rise in the low doubledigits, while those with industrial customers wouldlikely expect revenue to rise in the 5% to 10% range.

In light of lowered expectations, he thinks theoutlook for chip growth next year needs to be reviseddownward to the high single to low double-digit range."Models until recently were still suggesting 15%, 20%growth, but that's not going to happen in anybody'swildest dreams," he says.

Persistent Pockets of Optimism

Indeed, the leading industry trade group, theSemiconductor Industry Association, hasn't yet reducedits early September prediction for growth of 20%.

Meanwhile, the new

realism issuing from techcompanies is worth noting. After all, not solong ago semiconductor outfits imagined they could seesome decent upside in the third quarter. Take

Intel

(INTC) - Get Report

, which last summerguided for revenue to grow as much as 10%. But itlater shrank its guidance, and last week said salesincreased at a mere 3%.

Chastened by the weak economy, the world's biggestsemiconductor company is now guiding for a meek fourthquarter, forecasting revenue growth of flat to up 6%.In a more typical year, the company would see growthof 10% to 15%, analysts say. The latest guidance is half to a third of what might considered normal,says analyst Dan Scovel of Needham & Co.

For that matter, Intel's guidance looks relativelystrong, given that many smaller chipmakers admit theyexpect sequential sales to dip into the red. On thedown side,

Cypress

(CY) - Get Report

expectssales to fall 5% to 10%;

Fairchild

is looking for a 4% to 6% slide;

PMC-Sierra

(PMCS)

is preparing for a10% to 15% sequential drop; and

Applied MicroCircuits

(AMCC)

is bracing for aslide of 17% to 33%.

On the (mildly) more positive side,

Xilinx

(XLNX) - Get Report

expects revenue to be flat to up 3%;

Linear

(LLTC)

expects sales to beflat to slightly up; and

Broadcom

anticipates flattish sales.

Despite mounting signs that business has beenweakening, some of those bleary outlooks caught WallStreet by surprise: Before the companies reportedearnings, analysts had been assuming Broadcom andPMC-Sierra both could pull off 8% sequential growth inthe fourth quarter. But now even Wall Street optimistsare apt to get real.

"What I'm hoping is that Wall Street will betaking a lot of numbers down so far, probably moreover the rest of the month, that this should be thelast major cut to expectations," says Scovel."Revenues are just sitting there like a bump on a log.They haven't gone anywhere in the past two quarters."

Going forward, corporate profits will hinge mostlyon whether management can keep costs in line."Revenues are sort of washed out, so now earnings willflop around based on companies restructuring andgetting their house in order," Scovel says.

"There will be lots of housecleaning out there andlayoffs, which will be good, ultimately," predictsMosesmann. "There will be a lot of capacity takenoffline over the next several quarters, which is goodbecause we haven't see that. That needs to play outbefore we can see a healthy environment insemiconductors again."

Last week,

AMD

(AMD) - Get Report

announced a few details of arestructuring plan; Cypress and

Atmel

(ATML)

are also in themidst of layoffs.

Equipment Gets Worse

Based on the first few earnings results, thefourth quarter looks just as bleak, if not worse, onthe equipment side.

Novellus

(NVLS)

expects orders to come in flat to down10% for the December quarter -- though that's betterthan Street expectations, which had modeled for a dropas steep as 20%.

Lam Research

(LRCX) - Get Report

has said orders are likely to droparound 15%.

Confirming the deterioration in equipment sales,the industry's book-to-bill ratio

fell below 1:1 for thefirst time in seven months last week. In September,only $84 worth of orders were received forevery $100 that were billed, based on a three-monthaverage.

"We expect that the total ratio will remain belowone for the next six months," predicts Banc ofAmerica's Mark FitzGerald. He expects the ratio tobottom in the 0.60 range in the beginning of next yearand then start to pick up again.