Updated from 9:38 a.m. EDT

Shares of Lam Research ( LRCX) moved up Thursday, as bulls seized on the big upside surprise and sturdy guidance reported after the close Wednesday. The firms' fiscal fourth-quarter report was evidence, some argued, that there's still room for the industry to grow, contradicting speculation that the semiconductor capital equipment industry is fast approaching (or already beyond) the much-ballyhooed peak of the cycle.

Lam shares were recently up $2.95, or 14.9%, to $22.75.

ThinkEquity Partners' Suresh Balaraman raised his rating on the stock to buy Thursday morning. "Confounding skeptics that equipment suppliers cannot grow from cycle to cycle, Lam should achieve its highest EPS ever of over 60 cents in fiscal first quarter -- vs. 48 cents in the peak of last cycle," he wrote in a morning note. Balaraman hiked his calendar-year 2005 EPS estimate to $2.77 from $2.07.

More broadly, Balaraman predicted that with gradual equipment order rates of 5% to 10% a quarter throughout the industry, the semi equipment buying cycle can extend into 2006 or 2007. ThinkEquity hasn't done any investment banking for Lam.

At Susquehanna, analyst Kevin Vassily also raised his calendar-year 2004 EPS estimates for Lam to $1.69 from $1.21 and his 2005 estimates to $1.63 from $1.28.

Results were "well above expectations, as accelerated equipment shipments led to better-than-expected operating leverage and a pleasant earnings surprise. Guidance is also very strong, leading to a sharp increase in our estimates," he wrote.

On Wednesday, Lam forecast sales of $400 million to $415 million, with EPS between 55 cents and 60 cents, compared wiht the First Call estimates for $338 million and 34 cents.

The company's strong fiscal fourth-quarter report suggests that it is still in a period of above-average growth, he wrote.

"Some analysts and investors, although a diminishing group, believe that calendar year 2005 will offer a continuation of strong GDP, semiconductor, and, subsequently, semiconductor equipment growth, leading to a reacceleration of demand for the company's systems in late calendar year 2004 and another year of above-average growth," Vassily wrote, summing up the bull case. " Should that happen, we believe Lam Research would be very well positioned."

But Vassily broke ranks with the bulls, saying he thinks Lam's order guidance "suggests a moderation of growth, and we continue to believe we will see peak order levels for front-end equipment in either this quarter or the next." (He's keeping a neutral rating on Lam. Susquehanna doesn't offer investment banking services.)

Delivering the Goods

Lam Research delivered revenue upside on sharply higher profit. The Fremont, Calif.-based company also confirmed rumors by saying it will exit the chemical mechanical planarization business.

For the quarter ending in June, Lam delivered revenue of $329.6 million, above the consensus estimate for $300.5 million. That compares with year-ago sales of $186.1 million.

Net income jumped to $52.7 million, or 38 cents a share, up from $3.7 million or 3 cents a share for the year-ago period.

Wall Street analysts were looking for 26 cents in earnings.

New orders increased 17% on a sequential basis to $408 million.

In a statement, Chief Executive Officer James Bagley said the results "clearly indicate that our business model delivers the performance that we predicted, and this model will maximize our profit and cash generation over the course of an entire cycle. The growth in revenue and bookings substantiates the market position gains that we have described throughout the downturn."

Separately, Lam announced it would exit the CMP business. CMP products selectively remove portions of films from a wafer to create semiconductors.

Bagley said Lam will continue to support its installed base but won't actively market new CMP systems.

"We intend to concentrate resources on market opportunities where we believe there is greater potential for market penetration and profitability and are redeploying our CMP resources to these opportunities as well as etch projects," Bagley said in a statement. "Our progress in etch over the last several years has been outstanding, and we look forward to building on that momentum."

In a note released shortly before the announcement, Lehman Brothers analyst Ted Berg referred to speculation that Lam would announce its exit from CMP, saying he'd view it as a smart strategic move.

The business contributes less than 5% of revenue and has been a drag on profits, Berg said. Lam "has achieved minimal traction since it entered this business in the latter 90s," he wrote. He said he hadn't yet adjusted EPS estimates to account for the change, since any R&D allocated to CMP might be shunted to future etch tool projects.

Added Berg, "While we are not speculating on M&A activity, this event could reduce barriers for a potential acquisition by another company." He has an overweight rating on the stock. Lehman hasn't done investment banking for Lam.