Let’s get the bad news out of the way first, and it starts with the semiconductor sector.

Last month I wrote how the market for consumer electronics was one of the first to go as consumers buckled down as the recession hit home. That has set the semiconductor market in a downward spiral and now the evidence is cropping up that the headache won’t be going away anytime soon.

First, a host of analysts have come out in the past month with downward projections for the entire semiconductor industry. Tristan Gerra, the chip analyst at Robert W. Baird is particularly bearish, downgrading chip market bellwethers like Texas Instruments and Analog Devices. Altogether, Gerra sees the chip sector losing 40% of its value – no, that’s not a misprint, in the fourth quarter of 2008 and the first quarter of 2009. As for investing in chip stocks in what would appear to be a market bottom, Gerra advises waiting until the second half of the year, when institutional investors factor in all the bad news and peg semiconductor stocks accordingly.

Needham Associates tech analyst N. Quinn Bolden is equally bleak, estimating that the semiconductor sector will fall of by 16% in 2009, as the economy slides deeper into recession. He is a bit bullish on 2010, where Bolden sees 10% growth. Again, like Gerra, Bolden doesn’t see any great buying opportunities in the semiconductor market until late 2009. The third quarter should be the ideal time for tech investors to get back into chip stocks. Until then, keep your powder dry.

KPMG is also out with a survey of semiconductor executives who are turning “increasingly bleak” about the chip industry in 2009. KPMG, which conducts a monthly study on the chip sector with the Semiconductor Industry Association, says that 52% of those surveyed in November expect revenue to decline, including 39 percent who see a decline of greater than six percent. That’s a complete turnaround from October’s survey, when 60 percent of execs projected revenues to increase.

"Semiconductor execs are grappling with profitability outlooks while dealing with the dynamics of a depressed economy, pricing pressures, diminished consumer spending, and workforce issues" says Gary Matuszak, leader of KPMG's global Information, Communications, and Entertainment (ICE) practice. "Executives are clearly telling us that the negative industry trends we began to see in September are expected to deteriorate further, and these companies will need to become more efficient in managing costs - especially with tight credit markets."

An even newer report from SIA, separate from the KPGM survey, reports that global semiconductor sales fell 9.8%, in November, 2008 to $20.8 billion from November 2007, when revenue hit $23.1 billion. Sales were 7.2% lower than the $22.4 billion in October.

"The worldwide economic crisis is having an impact on demand for semiconductors, but to a lesser degree than some other major industry sectors," SIA president George Scalise said in a statement.

What to take from all of this news? Chip stocks will recover sooner than the bottom lines and balance sheets of chip companies. But don't expect any upward movement in stocks until Q3 of 2009, and any big profits from chip companies until 2010.