The makings of chip equipment company earnings are looking sparser as the quarter's end draws near.

Monday night,

KLA-Tencor

(KLAC) - Get Report

added its name to the growing list of chip equipment manufacturers expecting revenue to be lower than they hoped in the March quarter because of order cancellations and delays from the semiconductor producers that are its customers.

This is, of course, no surprise to anyone who's followed the technology sector or the economy. In fact, some might argue that it was the acceleration and broadening of the technology sector's softening to other economic areas that fed into the

Federal Reserve's

decision Tuesday to trim interest rates half a percentage point. Most of the chipmakers have been making it clear for months that declining revenue will keep them from spending as much on capital equipment this year as they did in 2000. That means chip equipment makers will earn less and that the upcoming earnings period will be filled with more dim news.

All this would strike most people as good reasons to sell chip-related stocks. But investors still are hoping to catch a turnaround in the chip sector, so they're holding onto their shares. Once those stocks start to swing the other way, they can rise very sharply, and investors apparently don't want to miss that ride up. Tuesday most stocks in the chip equipment sector were holding steady after the KLA-Tencor warning until a smaller-than-hoped-for rate cut pushed the stocks and the broader market down.

KLA-Tencor ended down $3.38, or 8%, at $38.38.

Novellus

(NVLS)

was down $3.88, or 9%, at $40.25, while

Applied Materials

(AMAT) - Get Report

was off $3.69, or 8%, at $42.94.

Lam Research

(LRCS)

gave up a mere 44 cents, or 2%, to close at $23.81.

KLA said it expects revenue to be 8% to 10% less than the $570 million to $580 million the company initially expected. It had $573 million during the previous quarter. Analysts now expect earnings of 51 cents a share in the third fiscal quarter, down from 57 cents a share in the second quarter ended Dec. 31, according to

First Call/Thomson Financial

.

The chip sector has been hit hard by the current economic slowdown that has affected everything from personal computers to cell phones. The slowdown has meant lower revenue not only for large makers of microprocessors like

Intel

(INTC) - Get Report

, but also for communication chip makers such as

Broadcom

and cell phone related players like

Texas Instruments

(TXN) - Get Report

. With the slowdown touching so many sectors, broad-based cuts in capital equipment spending became unavoidable.

While Intel is holding steady to its plan to spend $7.5 billion on new capital equipment this year, largely for conversions to new more efficient technologies, most other chipmakers are scaling back. The list includes everyone from the TI to large Asian chip manufacturers, called foundries, like

Taiwan Semiconductor Manufacturing

(TSM) - Get Report

, which makes chips for so-called fabless chip companies like Broadcom. Taiwan Semiconductor, for instance, recently cut its capital spending plans to $2.2 billion from $2.7 billion.

Prudential Securities

analyst Shekhar Pramanick wrote in a note Tuesday that he expects capital spending to decline as much as 25% to 30% in 2001 from 2000. And he wrote that overall business fundamentals could deteriorate through the third quarter.

Pramanick, echoing comments from several other investment banks that weighed in by cutting earnings estimates, noted that KLA has limited visibility. "Historically, KLA has had about six months of visibility, whereas the company currently has less than three months of visibility in our opinion," he wrote. (Prudential hasn't done underwriting for KLA-Tencor.)

If the term

poor visibility sounds familiar, it could be because semiconductor outfits made it an issue last fall, as inventory problems and economic uncertainty made it much tougher for them to make projections.

Now with no great earnings growth expected from chip equipment makers, investors can only hope for a little more visibility this quarter.