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Tech investors will be listening closely to suss out signs of the hoped-for bottom when

Applied Materials

(AMAT) - Get Applied Materials, Inc. Report

reports financialresults Wednesday. The company, which sells equipmentused in semiconductor manufacturing, is a keysign of health in the chip industry -- which to investors may resemble a nasty, lingering cold.

A few analysts have begun to cautiously suggest thatAMAT's orders will stabilize soon, bottoming outsometime around the January quarter. But most alsoexpect the company to guide for a steep sequentialdrop in orders for the period alreadyunder way.

In the meantime, AMAT's order book is likely tocome in on the thin side for the just-ended Octoberquarter. Although management guided for a 5% to 15%decline in orders during the quarter, Banc of America's Mark FitzGerald thinks new orders in the fourth quarter dropped off as much as25%, in the range of $1.33 billion.

Other analysts say a sequential order decline of 15% to 20% for the quarter is more likely. But clearly, the Street anticipatesthat bookings tumbled below guidance. And looking out tothe January quarter, orders are expected to shrinkstill further, with analysts projecting declinesranging from flat to down 30% sequentially.

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AMAT's own actions reflect relative gloom on thenear-term demand outlook: It plans to shut downoperations for three weeks in the quarter, overThanksgiving and Christmas, and recently announced plans to lay off11% of its staff, or 1,750 employees. On thecall, it's likely to give more details on a largefirst-quarter charge that it will take to coverrestructuring costs.

As for the just-ended fourth quarter, analysts saythey expect AMAT to meet consensus estimates for aprofit of 8 cents and revenue of $1.4 billion. Thatwould represent a one-penny sequential gain in profitand 14% growth in sales.

But in light of the weak-guidance expectations, most remain leery of AMAT shares, which have popped up over 46% from their Oct. 10 low of $10.35 to Tuesday's close of $15.07.

"We believe that the last six weeks' rally isunwarranted and recommend that investors look foranother buying opportunity, as we expect to see theshares sell off on potentially weaker guidance andreductions in 2003 estimates," writes Fahnestock'sGerald Fleming.

He has a 12- to 18-month price target of $14 for the stock, implying slight downside from current levels. His firm has no banking relations with AMAT.

At U.S. Bancorp Piper Jaffray, analyst GregoryKonezny likewise says he's holding off on an aggressivestance on the shares, even though he thinks orders areapproaching a bottom. First, he wants to see signsthat end demand is on the upswing; those signshaven't materialized yet, he says. "There have been too manyhead fakes regarding a recovery in the recent past, andgeneral economic conditions are too weak to justifyspeculating that semi-equipment orders will recoversignificantly anytime soon," he says in a note.

Konezny, no bear, says he expects a "modest"recovery to get under way sometime in the first half of2003, as the fortunes of chipmakers improve. But fornow the outlook for chip production is muted, given thatfourth-quarter wafer starts are expected to be flat inwhat is traditionally a strong quarter boosted byholiday sales. The first quarter of next year isn't ontrack to look any better, because it typically sees aseasonal drop in production.

But some believe the uninspiring short-termoutlook is already priced into AMAT shares, with thelatest financial results not likely to make manywaves. "Unless it's an Armageddon outlook, the stockshould shrug off the results," says Investec's TimothySummers in a note. He predicts the stock will staystuck in a tight trading range if guidance falls closeto his expectations, which assumes orders could see asequential drop of over 25%. His firm has no banking relationship with Applied.