By Sinead Carew

Chip makers had already given disappointing fourth-quarter targets before Nokia Oyj , Samsung Electronics Co <005930.KS> and other phone makers showed a 10 percent fall in industry phone sales last quarter, the first drop since 2001.

Strategy Analytics analyst Neil Mawston expects a 13 percent drop in phone sales in the current quarter, which would be the biggest ever decline. The most pessimistic of his industry sources fear a 20 percent fall, he said.

All this is bad news for wireless chip makers, which usually find it tough to boost sales with price cuts.

"I don't think we're going to see a lot of good news because the first half is seasonally week," said Stifel Nicolaus analyst Cody Acree. "We're in the midst of an inventory correction and economic malaise."

Several analysts were unusually hesitant to give estimates for the depth and duration of the demand slump, all citing "very little order visibility."

Acree said wireless executives are thinking: "If I stick my neck out and raise a high bar, it's going to be irresponsible." As a result, he sees the earliest talk about growth resuming to come in the middle of the second quarter. Meanwhile, the first quarter will probably be worse than consensus, Acree said.

For example, TI, which slashed its fourth-quarter earnings outlook by about half, is expected to only meet the low end of its already weak revenue forecast, with the average analyst view at $2.37 billion, according to Reuters Estimates.

Analysts say they hope Qualcomm can meet its quarterly target and keep its 2009 targets, after one of the most aggressive outlook cuts in the its history.

Yet average analyst estimates are still at the low end of full-year revenue forecast the company gave on November 7, according to Reuters Estimates.

INVENTORY/COST CUTS

Since investors expect little clarity on future demand, they will be looking more closely than ever for an update on the status of product inventory cuts from chip makers and their distribution customers.

"Once you burn through inventory you can see what the real demand is," said American Technology Research analyst Doug Freedman, who is hoping inventory gives some sense of the rate that demand is slowing. He did not give a specific estimate.

Investors will also be keeping a close eye on whether chip makers are cutting costs to bring their businesses in step with demand, after a spate of layoffs from companies ranging from Microsoft Corp , which rarely cuts jobs, to Motorola Inc , which recently deepened earlier cuts.

Qualcomm and TI have shied away from major layoffs so far. Instead, Qualcomm has cut less crucial projects such as developing a high-speed wireless technology that had garnered little interest from phone carriers.

TI has chosen temporary factory shutdowns and a business refocus, including efforts to sell its merchant business for off-the-shelf chips. Analysts say the companies may have room for deeper cost cuts if the economy worsens.

Broadcom, which makes chips for gadgets such as television set-top boxes as well as cell phones, is also seeing slackening demand hurt its revenue and profit. But it has said it sees the weak environment as a chance to seek bargain acquisitions.

Stifel's Acree said Broadcom could be a suitor for the chip business TI is selling as "they've been focused heavily on the merchant business" and need to advance further in baseband chips, the main processor in cell phones.

"I think it's really a matter of negotiation," he said.

While Broadcom will be hit by weak demand for computers as well as cell phones, Acree sees its diverse customer base helping it to recover more easily than others in the end.

Meanwhile, analysts are waiting to see if it meets its fourth-quarter profit and revenue targets. Average analyst estimates put revenue slightly below the midpoint of its target of $1.05 billion to $1.1 billion.

(Reporting by Sinead Carew; editing by Richard Chang)