Updated from 9:03 a.m. ET.

Analysts darkened their outlook for

Applied Materials

(AMAT) - Get Report

Wednesday morning, after the Santa Clara, Calif., chipmaker offered a

bleak near-term forecast.

But investors rallied on the upside, sending shares climbing $1.88, or 4.6%, to $43.13 on the

Nasdaq

Wednesday morning.

Merrill Lynch

analyst Brett Hodess cut his second-quarter earnings-per-share estimate to 36 cents from 51 cents and his 2001 estimate to $1.60 from $2.00. He had some harsh words about the company, too. "AMAT's industry view is the weakest we have seen," he said, adding that he believes demand "is weak in all regions" with "U.S. and Asian foundry and Korea particularly weak."

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Lehman Brothers

analyst Edward White cut his full-year 2001 earnings-per-share estimate to $1.90 from $2.50, citing the company's weaker-than-expected outlook for the first half of the year. White, who also cut his price target to $65 from $90, said he expects "a rebound" for the company in the second half of 2001.

Analyst Shekhar Pramanick of

Prudential Securities

cut his second-quarter earnings-per-share estimate to 36 cents from 52 cents a share, as well as his 2001 earnings estimate to $1.57 a share from $1.93. He also shaved his full-year 2001 revenue estimate by $1 billion to $8.1 billion.

"While we believe there could be another round of negative adjustments, the rate of estimated decline could be small," Pramanick said in his report. The analyst kept his $50 price target.

Goldman Sachs

analyst Gunnar Miller likewise lowered his 2001 earnings estimate to $1.56 per share from $1.70, and his 2002 estimate to $1.93 per share from $2.25. Applied Material shares are on Goldman's U.S. Recommended for Purchase list.

In an

upgrade on five chip equipment makers this morning,

J.P. Morgan

raised its investment rating on Applied Materials to long-term buy from market performer.