Taiwan Semiconductor Manufacturing (TSMC) forecast a big drop in revenue for the fourth quarter and said it will spend less on new plants and equipment next year as a global economic downturn hits its business.

The world's largest contract chip maker said its revenue in the last three months of the year will fall to between NT$69 billion (US$2.08 billion) to NT$71 billion, about 25 percent lower than the company's third quarter revenue, which hit NT$92.98 billion. TSMC's net profit in the third quarter was NT$30.57 billion.

TSMC plans to cut capital spending by around 20 percent in 2009, down from around US$1.8 billion in 2008.

The dire forecast going forward is "due to the rapidly deteriorating business environment," said TSMC CEO Rick Tsai, at an investors' conference in Taipei on Thursday.

But he pointed out that the current economic difficulties are very different than the downturn of 2001. That year, global chip industry revenue dropped around 33 percent compared to 2000 as the dotcom bubble burst and demand for computers and other gadgets dried up.

This time will be more of a global business recession, said Tsai, not just a technology sector downturn. TSMC predicts global chip industry revenue in 2009 will drop by a high single-digit percent at most.

The company is considered a technology bellwether due to the variety of chips it manufactures for customers, which go into gadgets ranging from mobile phones and computers to game machines and DVD players.

Since chips are the building blocks of all IT and communications gadgets, the company gains a unique view of the overall health of the sector from its business.

All technology product categories will be hit by the downturn in the fourth quarter, said Tsai, but computer-related products will see the worst declines, followed by communications gear and then consumer electronics, which will see the least impact from the downturn.

The IDG News Service is a Network World affiliate.