Updated from 4:59 p.m. EST

Lam Research ( LRCX) more than doubled its bottom line, as the company benefited from strong demand for its chip-making equipment and related services.

But the company's stock plunged more than 7% in extended trading Wednesday after management pared back its shipment estimates for the current quarter and served up a cautious guidance for 2007.

"We believe customers intend to moderate their growth rate and spending for capacity additions in 2007," said CEO Steve Newberry in a post-earnings conference call. The cautious tone played into fears on the Street that the chip-equipment industry is headed for a slowdown as chipmakers rein in their spending on capital equipment.

On Tuesday, Deutsche Bank downgraded its rating on Lam from buy to hold, arguing that the company was not immune to the cyclical downturn facing the industry.

Newberry said he expects industrywide capital spending on wafer fabrication equipment to be up 5% in 2007, while spending on the company's core business of etching tools, which imprint semiconductors on silicon wafers, will be flat.

Under this scenario, Newberry said he believed that Lam's "potential performance" could see revenue increase between 10% and 15% in 2007 thanks to market share gains and new product introductions.

The company's guidance for the current quarter was decidedly less optimistic than a few months prior. While Lam had previously expected shipments to rise sequentially 5% to 10% in the current quarter, the company now said it expected shipments to decrease 5% to 7%.

Revenue in the current quarter will range between $635 million and $650 million, with EPS between $1.03 and $1.07.

Analyst polled by Thomson Financial were looking for EPS of $1.12 on sales of $633.5 million.

Shares of Lam fell 7.5%, or $4.06, to $50.07 in extended trading.

The gloomy outlook obscured a strong quarter, in which Lam outpaced Wall Street expectations for the second quarter in a row.

Lam said sales in the three months ended Dec. 24, 2006 were $633.4 million, up sharply from the $358.2 million in the year-ago period. Lam earned $167.3 million in net income, or $1.15 cents a share, compared with the $77.7 million net income, or 55 cents EPS, that Lam earned at this time last year.

Analysts polled by Thomson Financial were expecting $620.8 million in sales with $1.11 in EPS.

"We saw significant market share gains in our etch markets and strong growth in our spares and services business," said CEO Steve Newberry in a statement.

The company said about three quarters of its total sales were to makers of memory chips such as DRAM and NAND flash.

New orders in backlog for the quarter were up 7% sequentially to $779 million, with the majority coming from customers in the Asia-Pacific, Japan and Korean markets.

"When you start to see the rate of capacity additions moderate, and clearly we're beginning to see that, you definitely have a tendency for customers to start to slow down the speed at which they take deliveries," said Newberry.

Shares of Lam closed the regular session up 88 cents.

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