When semiconductor companies put away their wallets, chip-equipment makers pay the price.

On Thursday,

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

trimmed $100 million from its spending plans for 2001, citing the lingering slowdown in the semiconductor sector. AMD's cut came just hours after



slashed its already sharply reduced 2001 semiconductor capital spending budget to $750 million from $900 million.

Those cuts are just the latest bad news to strike the chip-equipment sector, which is populated by the likes of

Applied Materials

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(KLAC) - Get KLA Corporation (KLAC) Report

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. Earnings estimates have plunged as customers -- the companies that make semiconductors for PCs, cell phones and other electronic gear -- postponed plant expansions and upgrades.

But chip-equipment shares have rallied -- the three mentioned are up between 24% and 55% this year -- as investors continue to bet that semiconductor sales are ready to rebound. Now, the question is whether these stocks can hold their gains as customers reduce the capital spending flow that is the chip-equipment makers' lifeblood.

"Everyone is trying to look out to the next upturn," explains Lehman Brothers chip-equipment analyst Edward White. "Now, if we get out toward the end of the year and we don't see more signs of it, the stocks may come down."

On Friday, Applied Materials was up 39 cents at $46.82, Novellus was down 45 cents at $50.76 and KLA-Tencor was up 28 cents at $51.98.

A few companies, including memory maker

Micron Technology

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, are already on record saying that 2002 capital expenditure will fall further. Speculation is growing that


(INTC) - Get Intel Corporation (INTC) Report

, typically the industry's big spender, will spend less in 2002 than in 2001. Intel Chief Executive Craig Barrett said about a month ago the company will evaluate 2002 plans based on market conditions.

Based on data gathered by Merrill Lynch prior to the AMD and Motorola cuts, global semiconductor capital outlays are currently due to fall 21% in 2001, to $40.6 billion from the $51.3 billion booked in 2000 -- the industry's largest one-year decline on record. About 5 percentage points of that decline are due to cutbacks made in the second quarter, and Merrill says more cuts are on the way. About another 5 to 10 percentage points of revenue cuts are already priced into these stocks, Merrill says.

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Lehman Brothers' White agrees. His survey showed that budgeted orders are off 26% so far this year. He expects mild reductions ahead to bring the 2001 total to a 30% drop from a year ago.

Of course, Applied Materials, Novellus and KLA-Tencor will have their own opportunities to comment on spending when they release results this month and next.

But the question is how much faith semi companies will put in a late-year recovery tied only to seasonal PC demand. How much can these companies afford to spend when the third quarter is shaping up to be

worse than the second?

As White says, a lot depends on what happens later this year.