Updated from 5:11 p.m. EDT

The chip industry showed more signs of ill health Wednesday when

Silicon Laboratories

(SLAB) - Get Report

said inventory problems and weak demand in the cell phone market were crimping its sales.

The Austin, Texas chipmaker warned investors after the bell that sales in the current quarter would be below its initial expectations.

Instead of the $122 million to $127 million in sales that Silicon Labs initially expected in the third quarter, the company said revenue is now expected to range between $113 million and $116 million.

The company also revised its EPS guidance, pegging EPS between 5 cents and 8 cents, or 22 cents to 25 cents excluding stock option expenses and an acquisition-related write-off.

Analysts polled by Thomson Financial were looking for EPS of 35 cents before items on sales of $125.4 million.

Following the announcement, shares of Silicon Labs fell $2.04, or 6.4%, to $30.10.

The bad news from Silicon Labs follows a bleak outlook served up by

National Semiconductor

(NSM)

earlier this month. Blaming slowing wireless handset demand among other things, National Semi said

sales in the current quarter will be down between 2% and 5% sequentially. Analysts had expected sales to increase 3% sequentially during the time of year when customers typically increase chip purchases in preparation for the holiday season.

Silicon Labs cited inventory adjustments in China for some of the weaker-than-expected demand for its Aero transceiver chips used in cell phone handsets. The company also said demand shifts among mobile handset companies meant that contract manufacturers purchased fewer chips than expected.

Silicon Labs also said its mixed signal business will be down slightly sequentially due to weaker-than-expected demand for analog modems.