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Pulse: Applied Materials' Earnings Take Chipmakers on Joy Ride

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For the third straight day, investors showed optimism about semiconductor stocks. Shares of chip equipment manufacturers rose in advance of industry leader

Applied Materials'

(AMAT) - Get Applied Materials, Inc. Report

earnings report, which beat expectations.

The

Philadelphia Stock Exchange Semiconductor Index

closed up 4.8%. The good cheer is a sign that investors believe any slowdown that is starting in the sector will be more moderate than has been feared. Chip equipment manufacturers often are viewed as a bellwether for the industry because their orders are the first to feel a chill if sales cool off. Other chipmakers rose on good earnings reports and recommendations.

Applied Materials was trading up 0.5% before its report.

KLA-Tencor

(KLAC) - Get KLA Corporation Report

and

Lam Research

(LRCX) - Get Lam Research Corporation Report

also were higher.

Manufacturers are changing chips, moving toward semiconductors of different thicknesses (meaning those that use smaller lines or copper wire). Manufacturers need different machines to make these chips. So the extra orders resulting from this transition in the industry may help cushion equipment makers from a slowdown in the production of conventional chips.

Equipment makers may also have planned production well. "I think there are signs that people doing the buildout are being more intelligent than in the past. It was true with DRAM makers, so that sort of helps smooth things out," said Terry Daniels, analyst with

TheStreet Recommends

Edward Jones

. His firm has no underwriting relationship with the companies mentioned.

Also helping: a larger spread of end markets that reduces industry reliance on PC sales, Daniels said. Why? There are more end markets now for chips because they are used not just in PCs, but also in other products such as wireless and other handheld devices.

Analog Devices

(ADI) - Get Analog Devices, Inc. Report

, for example, yesterday said it had strong demand for its chips. It was lately trading up $9.25, or 16.7%, to $64.25 after it reported yesterday after the close that it had better-than-expected results and was raising its profit expectations. Competitor

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

was trading higher.

National Semiconductor

(NSM)

closed up $2.13 or 10% to $23.37 after

Morgan Stanley Dean Witter

analyst

Mark Edelstone

wrote that National Semi's Internet appliance partnerships have potential.

Edelstone also wrote that broadband chipmaker

Broadcom

undefined

"is poised for a breakout year in 2001." Broadcom closed up $10.81, or 6.8% to $169.68.

3:26 p.m.: Chip Equipment Makers Doing All Right

For the third straight day, investors showed optimism about semiconductor stocks. Shares of chip equipment manufacturers were rising in advance of industry leader

Applied Materials'

(AMAT) - Get Applied Materials, Inc. Report

earnings report, which will be released after the market closes today.

The

Philadelphia Stock Exchange Semiconductor Index

was up 4.8%. The good cheer is a sign that investors think any slowdown that is starting in the sector will be more moderate than has been feared. Chip equipment manufacturers are often viewed as a bellwether for the industry because their orders are the first to feel a chill if sales slow down.

Applied Materials was trading up 0.5% before its report

KLA Tencor

(KLAC) - Get KLA Corporation Report

and

Lam Research

(LRCX) - Get Lam Research Corporation Report

were also higher.

Manufacturers are changing chips, moving toward semiconductors of different thickness (meaning those that use smaller lines or copper wire). Manufacturers need different machines to make these chips. So the extra orders result from this transition in the industry may help cushion equipment makers from a slowdown in the production of conventional chips.

Equipment makers may also have planned production well. "I think there are signs that people doing the build out are being more intelligent than in the past. It was true with DRAM makers, so that sort of helps smooth things out," said Terry Daniels, analyst with

Edward Jones

. His firm has no underwriting relationship with the companies mentioned.

Also helping: a larger spread of end markets that reduces industry reliance on PC sales, Daniels said. Why? There are more end markets now for chips since they are used not just in PCs, but also in other products such as wireless and other handheld devices.

Analog Devices

(ADI) - Get Analog Devices, Inc. Report

, for example, yesterday said it had strong demand for its chips. It was lately trading up $9.25, or 16.7%, to $64.25 after it reported yesterday after the close that it had better than expected results and was raising its profit expectations. Competitor

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

and

National Semiconductor

(NSM)

were also trading higher.