Updated from May 13

Shares of Applied Materials ( AMAT) sagged Wednesday after the leading chip-equipment vendor admitted Tuesday that sales aren't likely to grow in the current quarter. While the company's business isn't likely to get much worse, there aren't yet signs of sustainable growth that could buoy the stock.

Meanwhile, Applied Materials' restructuring efforts are taking a toll on profits: In its just-completed fiscal second quarter, the company swung to a loss after shelling out $152 million to cover the costs of severance and building closures, among other things.

The stock was down 68 cents, or 4.7%, to $14.88 in recent trading.

At Fahnestock & Co., analyst Gerald Fleming said the growing uncertainty about the timing of a rebound could knock shares down to around $10 in the coming months. Besides the weak guidance, reported bookings fell 5% and were 15% below guidance, he noted.

He has a sell rating on the stock; his firm has no banking relations with the company.

Likewise, Needham analyst Cristina Osmena worries Applied Materials is likely to "suffer from a weak up cycle." "The tone of the call was less optimistic than expected and management commented that 'upstream demand from semiconductors is insufficient at the current time to justify significant increases in capacity investments,'" wrote Osmena in a research note.

Osmena, who has a hold on the shares, says investors should think about taking profits based on Tuesday's close of $15.56. Needham hasn't done banking for the company.

"The second half is becoming less compelling," concludes analyst Steve Pelayo of Morgan Stanley. While Applied Materials management forecast a flat market in its core wafer fab equipment business, the weak first half means it would need a hockey-stick-shaped recovery in the second half to meet that target. In fact, the company would need to post 20%-plus revenue growth in both its October and January quarters, Pelayo says.

"I don't see anything that allows that steep of a ramp," he says, though he believes sales will pick up somewhat in the second half. Morgan Stanley has no banking relationship with Applied.

Net sales for the chip-equipment vendor totaled $1.1 billion, down 4% from a year ago and in line with expectations.

The company posted a $62 million loss, compared to a $52 million profit for the same period a year ago.

That amounted to a net loss of 4 cents a share, compared to last year's 3-cent profit. The loss reflects a charge of $151.7 million to cover restructuring costs announced in March, including layoffs, the closure of buildings and new product development programs.

Without the charges, Applied would have cleared a profit of $44.8 million, or 3 cents a share, a penny above Wall Street's pro forma estimate, according to Thomson First Call.

On the conference call, CFO Joseph Bronson said management had seen "anemic rates of growth and little discernible changes in the level of IT spending." The semi industry is "plodding along," likely to see "modest sales growth in '03 over a weak '02, implying a slight bounce off the bottom," he predicted.

"The short term will continue to reflect trends with little growth. In the intermediate term, the latter part of '03 and beginning of '04 should show some signs of strengthening," said Bronson. But until then, he said, "We expect order activity to stay volatile and generally weak."

He said spending on wafer fab equipment will be flat in 2003.

Applied expects third-quarter orders to stay flat with the prior quarter, with revenue "at or slightly below" April-quarter levels. That's below Wall Street expectations for sales to grow sequentially by nearly 6%.

"The numbers weren't that great. They cut their capex outlook to flat from earlier predictions of low-level growth," points out Mark FitzGerald, an analyst at Banc of America. "They're basically trying to signal they're less optimistic for the year than before. My view is, we're just bouncing along and going to lurch from quarter to quarter." He thinks October could see decent bookings at the company, but says the bigger picture is characterized by "a lack of end-market drivers and slow growth."

"Applied is at the bottom of the food chain," adds FitzGerald -- suggesting that until semiconductor end markets pick up, the company won't see any sustainable pickup in business. Banc of America hasn't done banking for the company.

Earnings per share should total about 3 cents to 4 cents as cost savings are realized, within the range of analysts' projections for 4 cents per share of profit. The third quarter will also see charges of $50 million to $100 million resulting from the company's ongoing restructuring plan.