Chip designer ARM Holdings sharply lowered forecasts and warned it did not expect any significant upturn in business until next year.

The former FTSE 100 company said the worst downturn in the semiconductor sector had caught up with the business after 18 consecutive quarters of meeting market expectations.

ARM, which licenses products used in items including printers, mobile phones and digital cameras, has experienced business partners increasingly delaying investment.

Shares, which had been trading at almost 400p earlier this year, slumped 60 per cent to 49p following the update.

ARM, which employs 800 people, said it would stage a recruitment freeze to contain costs but had no plans for job cuts.

It would also accelerate moves to introduce new products in an effort to offset the revenues decline.

The company had appeared resilient to the slowdown and reported a 25 per cent leap in half-year revenues as recently as July.

But it said conditions had deteriorated in the third quarter and the weakening US dollar would also impact on results.

Revenues for the three months to September 30 were now expected to be £33 million compared with previous market forecasts of £44.7 million.

Quarterly pre-tax profits were also likely to be about £8 million instead of the £16.3 million expected earlier and the £12.9 million recorded last year.

The company explain-ed the difficult market conditions meant timing for completing licensing deals was unpredictable.

Chief executive Warren East said the downturn meant results for the fourth quarter were likely to be little changed on the third quarter.