Updated from 9:50 a.m. EST

Shares of Applied Materials ( AMAT) fell Thursday after the company forecast a painful 35% decline in first-quarter orders. However, analysts were split on whether the shares were getting cheap enough to buy.

The stock was recently faring better and was down 36 cents, or 2.1%, to $16.98, after earlier approaching its 52-week low of $15.34. First Albany lowered the stock to neutral from buy, while Needham and J.P. Morgan opined that the worst of the company's news is probably out.

At First Albany, Auguste Richard said he thinks the shares "will trade sideways until bookings momentum returns."

He added that the quality of fourth-quarter earnings was weak. Applied had guided EPS to 24 cents to 26 cents, but after stripping out a lower-than-expected tax rate, earnings would have been 23 cents -- a penny below the company's guidance. His firm hasn't done banking for Applied.

In the opposite camp, Needham's Robert Maire wrote, "While the knee-jerk reaction is likely to be very negative, we would not be surprised to see some upgrades from other analysts calling for an early bottom. This is true in that the stocks tend to bottom a quarter or two before reality bottoms in this group." Recently, he pointed out, fellow equipment maker Teradyne ( TER) reported a similarly disastrous outlook but saw its stock price gain on the news.

To be sure, Applied's order guidance for a slide of 35% was a "shock" to investors who had expected a decline on the order of 15% to 20%. But if orders bottom out as predicted, implying a quarterly bookings level of $1.7 billion, the situation would still be much better than the previous cycle in which Applied's orders bottomed out at $1 billion and the company saw a loss, he said.

"The most downside we can see is likely to be a retreat away from the gains seen in the recent days, if there is any retreat at all," concluded Maire, who maintained his buy rating on the stock. His firm hasn't done recent banking for Applied.

"We would buy AMAT into any weakness, as we are certainly now much closer to the bottom," he wrote. "This call may have served to get all the bad news out of the way, much of which has already been priced into the stock."

Late Wednesday the Santa Clara, Calif.-based chip-equipment maker, the world's largest, posted sharply higher net income in its fiscal fourth quarter but said it had recently seen demand decelerate.

For the just-ended fiscal fourth quarter, Applied delivered net income of $455 million, or 27 cents a share, up from year-ago levels of $15.4 million or 1 cent.

Revenue totaled $2.20 billion, up 80% from last year's levels and down 1% from the preceding quarter.

Analysts were looking for 26 cents a share in earnings on $2.28 billion in revenue.

New orders in the fourth quarter increased 7% to $2.62 billion.

However, Applied's guidance fell far short of expectations.

In a postclose conference call, Chief Financial Officer Nancy Handel explained, "In the near term, we're entering a period of lower capital investment as our customers focus on reducing chip inventories."

Handel said orders should tumble 35% in the first quarter of fiscal year 2005 from fourth quarter levels. Revenue should fall 20% to 23%, to a range of $1.76 billion to $1.7 billion, with earnings of 15 cents to 16 cents.

The guidance is dramatically below the consensus estimate for $2.16 billion with EPS of 23 cents.

Asked why Applied's outlook is so much worse than analysts had expected, CEO Mike Splinter said the company's fourth quarter came in slightly better than executives had anticipated, making the drop-off appear more dramatic. Also, the demand picture has worsened within just the past month or so. "If we were making this projection thirty days ago, it would have been quite different," said Splinter.

Most of the slowdown in demand has occurred in relatively older 200-millimeter equipment rather than in the more advanced 300-millimeter gear, he added. In the fourth quarter, 84% of Applied's orders were for leading-edge 300-millimeter products.

In other news, Applied repurchased 31 million shares of common stock in the quarter at an average price of $16.13 each, for a total purchase price of $500 million.