Investors will be scanning for any hopeful bits of information on the second half when lead chip-equipment vendor Applied Materials ( AMAT) delivers its earnings report after the market close Tuesday. But it's not clear the company can oblige, with many analysts seeing ho-hum demand.

"We were inclined to scale back our position a little bit out of concern that there's not much likelihood of a big upside in terms of the current report and outlook for the next quarter," says John Leo, manager of the ( NTCHX) Northern Technology fund, which has recently trimmed its AMAT holdings. "The group has had a pretty nice run here of late."

Year to date, Applied has gained 21%, based on Monday's close of $15.72.

The price gains in Applied and other chip-related plays have given rise to some nail-biting. Though analysts kicked off the year with predictions of a broad second-half pickup in the tech business, that forecast is looking shakier, given persistent weakness in the economy. For the second quarter, Wall Street expects Applied's sales to slide 4% from year-ago levels, with earnings also down a penny.

Revenues should total $1.1 billion, with pro forma earnings of 2 cents, according to consensus forecasts from Thomson First Call.

As it stands, analysts have bet that AMAT can compensate for a weak first half of its fiscal year 2003 with robust sales growth in the remaining July and October quarters. Wall Street expects sales in the final two quarters to grow 15% from the first two quarters.

But with sales momentum at AMAT still looking weak -- barring any unexpected upside in management's forecasts -- the situation evokes unsettling comparisons with the spring of '02.

Back then, Wall Street was forced to backpedal from cheery predictions of a broad second-half pickup. Leading tech stocks like AMAT responded with steep price dives. The stock lost more than half its value in 2002, between its April peak of $27.76 and its October low point of $10.35.

"It does seem to be a replay in some respects," acknowledges Leo.

Yet others say there's an argument to be made that AMAT isn't a bad value, even after the current run-up, because it's still trading far below last year's peak levels. "The logic out there is, their fundamentals are very similar to this time last year, but their valuations are 30% to 40% lower, if not more," says one buy-side analyst.

Much will depend on what clues AMAT drops -- if any -- about the timeline for a recovery. "If Monday you're looking for a recovery, then AMAT is cheap. If Wednesday we're back in doom and gloom, it's a sell," says the analyst.

For the July quarter, the consensus analyst estimate assumes AMAT can lift sales nearly 6%, though there are more pessimistic outliers.

The relatively bearish Mark FitzGerald of Banc of America, for example, looks for AMAT to give flat guidance on sales and bookings in the period. He believed the semiconductor-equipment business isn't likely to accelerate until 2004.

Bottom line, the debate over the timing of a recovery is key to justifying AMAT's stock price. "At no time in the semi-equipment industry has it been down three years in a row," notes the buy-side analyst. Yet that will come to pass if '03 proves a dud, after two successive years of sales decreases in 2001 and 2002. "The cycles are usually two years down, then two or three up. The question is, is there really an uptick or are investors just buying into a dream?"

In that vein, it's not reassuring that AMAT pushed through another round of big layoffs only two months ago, letting go 15% of its payroll, or 2,000 workers -- hardly a sign it expects any pickup soon.

AMAT investors also will be looking for clues about the management style of new CEO Michael Splinter, who unexpectedly took over at the end of April.

"In recent quarterly calls, operating management has presented a generally realistic business overview only to be followed by chairman Jim Morgan's Pollyannaish statements about AMAT's prospects," notes Fahnestock analyst Gerald Fleming in a research note. "While we believe that investors generally applaud the recent appointment of ex- Intel ( INTC) executive Michael Splinter as president and CEO, the question remains as to whether Morgan is really ready to turn over AMAT's reins to a successor."

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