Market researcher Gartner on Wednesday warned that it is seeing a general weakening in demand in the consumer electronics supply chain from equipment manufacturers to makers of microprocessors.

The unusual alert was issued based on anecdotal information Gartner has gathered, not on hard numbers. Nevertheless, the indicators were strong enough that the researcher believed a warning was necessary. "We're seeing a general weakening of market conditions in the fourth quarter, which we generally expect to be stronger," Gartner analyst Bob Johnson told InformationWeek.

With the holiday season approaching, equipment manufacturers that sell mobile PCs, digital TVs, DVD players and other electronics to stores are usually increasing supply orders. This year, however, Gartner is seeing lower-than-expected production.

"It looks like the electronics manufacturers have decided not to increase production, which they normally would do in anticipation of the holiday season," Johnson said. The reason appears to be an expectation of weaker demand in stores.

Indeed, analysts have said that people are likely to spend less this holiday season as a result of the weakening global economy that has led to job cuts. The NPD Group on Wednesday released a consumer survey showing that the percentage of people who said they would tighten the purse strings this year went up to 26% from 18% last year.

Production cuts by equipment manufacturers have sent a shock wave through the supply chain, Gartner says. Design manufacturers, which make the products that are branded by the equipment manufacturers, have also been forced to cut production, which has left semiconductor manufacturers with too much unsold inventory. "Things are going to look a little grim for the chip guys going into the end of this year and early next year," Johnson said.

The growing inventory glut in the chip market has been seen by others. Market researchers with iSuppli, for example, lowered this month their 2008 forecast for worldwide semiconductor revenues and warned that the market could get much worse if the global financial crisis worsens.

The anecdotal evidence cited by Gartner includes a consensus among design manufacturers of mini-notebook PCs that 2008 demand estimates should be lowered by 20% to 8 million units. Chipmaker Linear Technology, which has significant semiconductor distribution revenue, expects a sequential decline of up to 20% from the third quarter.

Also, major audio codec supplier Wolfson Microelectronics anticipates fourth quarter revenues to fall 24% from the third quarter, and chip foundry TSMC expects shipments to drop 24% from the third quarter and is running fabrication plants below 75% of capacity. Finally chip-packaging company ChipMOS Technologies reported a revenue decline of 33% for September.

Put it all together, and the direction of the overall market becomes extremely difficult to forecast. "Things are changing so bloody fast who knows what's going to happen," Johnson said. "The crystal ball is getting really cloudy right now."