"Tech" isn't really a category unto itself. So when we talk about the possibility of a tech downturn, it's important to be specific. Makers of gadgets, PCs, servers, and networking equipment may get hit hardest.

That's my read of a new report from researcher iSuppli, which says that semiconductor revenue will decline 2% to $266.6 billion during 2008 -- the first such decline in seven years, during the last recession.

Hard about for hardware
The numbers are troubling. More troubling is how quickly iSuppli reversed itself. As of September, the researcher forecast 3.5% year-over-year growth. But then Intel (NASDAQ:INTC) cut its outlook and NVIDIA (NASDAQ:NVDA) foreshadowed price cuts.

Hardware is just metal and plastic without chips. If fewer semiconductors are being made and sold, then it's a good bet that we'll see reduced supply of ... gadgets, PCs, servers, and networking equipment. Lower supply usually means lower demand.

Certainly that's what Cisco (NASDAQ:CSCO) is expecting. Dell (NASDAQ:DELL) reports earnings later today but analysts aren't optimistic, nor are most Fools. Once again, blame slackening demand.

"As dramatic declines in consumer and industrial confidence began developing in late summer, order cancellations began to grow and in many cases, slowing orders degenerated into a complete stop in orders as players across the supply chain moved to extremely cautious positions in the face of increasingly negative economic news," said iSuppli's Dale Ford in a statement.

What to do now
Value investors will be tempted to go shopping at these prices. Intel trades for 10 times earnings. Advanced Micro Devices (NYSE:AMD) trades as if each dollar of revenue is worth just $0.20. My tongue wags just writing that.

But be warned, Fool. This recession could last years. If it does, no chip stock would be spared. Intel, with its cash-rich balance sheet, would fare better than most. And a fully funded 4.30% dividend yield would make waiting for the rebound worthwhile.

Tech isn't dead, but the hardware business is pale and breathing shallow. Invest accordingly.

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NVIDIA is a Stock Advisor selection. Dell and Intel are Rule Breakers recommendations. Try either of these market-beating services free for 30 days. There's no obligation to subscribe. The Motley Fool owns shares and covered calls in Intel.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. The Motley Fool's disclosure policy is tech-tastic.