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The economy is in the dumps, electronic companies are suffering and consumers are holding back on buying gadgets, but that’s not stopping thousands from making the annual pilgrimage to Las Vegas for the International Consumer Electronics Show.

The yearly trade show, which kicks off later Wednesday with a keynote from Microsoft (MSFT) Chief Executive Steve Ballmer and draws 130,000-plus people to Sin City, is the industry's chance to trot out what it thinks will be the next must-have gadgets. This year, the show comes amid some dire economic news and increasing evidence that consumer electronic companies are not immune to broader market conditions, which is expected to put a damper on the expo.

“The industry is challenged to say the least,” said Roger Kay, founder of market research company Endpoint Technologies Associates. “It will be smaller than last year. But there will be lots of cool products.” 

Kay expects attendance to be down by a double-digit percentage and noted that hotel rooms, typically hard to come by this close to the show, still are available.

 Earlier Wednesday Intel (INTC), a big supplier of chips for PC companies, warned that fourth-quarter revenue would be down 23%. Meanwhile Logitech, the Switzerland maker of computer peripherals including mice, keyboard and Webcams issued a profit warning and said its cutting 500 jobs or roughly 5% of its 9,000-strong work force. Logitech joins a growing list of technology companies to issue warnings including Motorola (MOT), Sony (SNE) and Philips Electronics. Piling on the heap, research firm Forrester Research said this week that more than 60% of a survey respondents said they would cut back on buying consumer electronic gadgets.

Nevertheless, companies will do their best to create some buzz. And a it hasn’t stopped the Consumer Electronics Association from forecasting global spending on gadgets to be $724 billion in 2009, up 4.3%. Sure, it’s not as high as the 13.7% sales growth reached in 2008, but it is decent given the current state of the economy.

Rumors are already swirling that Sony could come out with a personal computer that fits in a jacket pocket, while netbooks and smartphones are expected to be all the rage.  “You’ll see a lot of very clever smartphones trying to out do the iPhone (AAPL),” said Richard Doherty, research director at Envisoneering Group.  Palm (PALM), the inventor of the personal digital assistant, is expected to unveil its Nova operating system, marking the first major update to its software for smartphones in a few years.

 Major themes this year will be products that conserve energy and making all of the consumer gadgets easier to use. “Things will work better. DVD players will automatically turn the TV on,” said Doherty.

 A big component of CES has always been showcasing flat-panel TVs that get larger and thinner.  Visitors won’t be disappointed this year. Analysts expect a lot of flat panels as well as a focus on Blu-Ray DVD players since Blu-Ray won the format wars. TV makers, looking for the next killer app, are also expected to start showing how 3D can work in the home and TVs that come with Internet connections to download movies and other data.

GPS devices that you can carry around and portable digital projectors that fit on your cellphone will also be on display.

While there is talk that some of the big technology heavy hitters like Cisco Systems (CSCO) are trading showroom floor space for private meetings in hotel rooms, that doesn’t mean the companies won’t have a big presence at CES. 

 On Wednesday Cisco announced it is releasing consumer products that lets you send audio to any room in the house, a media hub for all digital media, and a software platform that lets media and entertainment companies create and manage online communities around their content. Cisco CEO John Chambers is giving a keynote at CES.

One glaring void at this year’s CES will be the absence of Microsoft’s Bill Gates. For years Gates kicked off the show with a keynote speech, but last year marked his curtain call. Gates is known to draw huge crowds each year, but show organizers are confident Ballmer will do just fine.

“No one drew crowds like Bill Gates drew crowds,” said Karen Chupka, senior vice president events and conferences at the Consumer Electronics Association. But she added, “We expect Steve Ballmer to draw a strong crowd.”