Chip-equipment maker

Novellus

(NVLS)

on Thursday stuck by its forecast for second-quarter revenue and earnings, but said that order cancellations and delays have continued, calling into question a recovery in the third quarter.

CEO Richard Hill said that Novellus found out just yesterday about the delay of a 300-millimeter semiconductor-production unit. The semiconductor industry's move to 300-millimeter wafers from 200 millimeters is one of the factors that has been expected to drive growth in the chip-equipment sector. And Novellus had been weighed on by $15 million in cancellations this quarter. Add to that light consumer demand in the U.S., a weaker Europe and chip foundries with capacity utilizations of below 50% and that doesn't bode well for 2001.

"Our competition has forecast an upturn in the third quarter. We don't see it at this time but we certainly do hope that they are correct," Novellus' Hill said during a mid-quarter update.

Hope is really all Hill has when it comes to business improving during the second half. "I'd love to expect no more cancellations, but I've been in this business too long," he said during the conference call.

While some analysts had expected Novellus to warn that it would fall short of guidance for the quarter, Hill stuck by the company's numbers first released during the first-quarter earnings report in April. Novellus guided analysts to expect earnings per share for the quarter ended June of 40 cents, on revenue of $379 million. Analysts expect earnings of 39 cents a share on revenues of $357 million, according to

Thomson Financial/First Call

.

Novellus has gotten caught up in the deteriorating semiconductor market. As demand for personal computers and telecommunications equipment has declined over the past nine months, so, too, has the need for semiconductors. Chipmakers in turn have spent less on equipment, which has hurt the chip-equipment makers. In fact, the book-to-bill ratio for the chip-equipment industry in April

hit its lowest level since the index came into existence in 1991. Novellus shares have been trending lower since May 21, the day before that report came out.

That's why at least one analyst,

UBS Warburg's

Byron Walker, expected the company to come up with a warning during its mid-quarter update. (UBS Warburg hasn't done underwriting for Novellus.)

TheStreet.com

recently looked at the

possibilities of warnings in the chip sector.