"Everyone in the market suffered reduced shipments -- some suffered more than others," Jon Peddie Research said in a statement, attributing the sharp slowdown to a drop in consumer spending.

Overall, graphics chip shipments during the fourth quarter fell 28 percent, to 72.4 million units, compared to shipments of 100.5 million units during the same period last year, the firm said. Of the big three graphics vendors -- Intel, Nvidia and Advanced Micro Devices -- Nvidia saw the biggest drop in shipments, falling by 34.3 percent, it said.

AMD's shipments slipped by 23.8 percent while Intel, which produces integrated graphics chipsets instead of the high-end parts produced by Nvidia and AMD, saw its shipments fall 20.9 percent.

While the short-term outlook remains grim, Jon Peddie Research said there is a light at the end of the tunnel.

"We're forecasting a strong Q3 and Q4 for 2009 and bracing for what will probably be the worst Q1 and Q2 decline we've seen since the Internet bubble pop of 2000," it said.