THE DAY AHEAD: Is there upside left in Applied Materials?

Following Applied Materials' (Nasdaq: AMAT) torrid run in recent weeks, investors will be scratching their collective heads wondering if there's any upside left. Aside from likely profit taking, the outlook is promising.

Chip equipment maker Applied Materials, which is among the top tech bellwethers, definitely has upside left.

First the bad news. Applied Materials shares could be weak for a few days despite stellar fourth quarter earnings, strong sales of $1.57 billion and a nice order backlog. Part of the dip will be profit taking. Investors may also be disappointed because Applied Materials didn't issue a stock split.

Applied Materials: More upside to come?

According to analysts, any weakness will be a buying opportunity. Analysts have been bumping up Applied target prices and earnings estimates for weeks.

Applied Materials' run has been nothing short of spectacular. A year ago you could have bought Applied shares for 36. On Nov. 1, you could have bought Applied Materials for 87 3/4. In mid-August shares were in the mid-60s.

So upside to the current 110 level is no small feat.

But there are a lot of reasons to be bullish.

Applied Materials is one of tech's giants, but it doesn't get the credit heaped on Microsoft Corp. (Nasdaq: MSFT), Dell Computer (Nasdaq: DELL), Cisco Systems (Nasdaq: CSCO) and Intel (Nasdaq: INTC).

Don't let the number of headlines fool you though. Applied Materials makes all the equipment that semiconductor manufacturers use to make chips. Telecommunications chips, PC chips and every chip except for the potato variety use Applied's manufacturing equipment.

As the chip sector breaks out of one of its worst slumps, Applied Materials could benefit the most.

A recent forecast by the Semiconductor Industry Association predicted worldwide chip sales will jump 21 percent to $174 billion in 2000, with continued growth of 20 percent the following year to $209 billion and topping $234 billion in 2002, with a gain of 12 percent.

And Applied Materials' outlook is just as bullish.

Applied Materials chief James C. Morgan said chipmakers' capital spending outlook improved with economic conditions in Asia, better pricing for memory chips and tightening supply of key semiconductor products.

"We believe that traditional sources of demand, such as personal computers, together with the emergence of major new industry drivers, such as telecommunications, Internet applications and consumer sectors, will continue to generate demand for semiconductors," said Morgan, in a statement. "These factors are expected to fuel overall market growth in 2000.".

Morgan said the second half of 1999 was just the beginning of a capacity expansion for chipmakers, which are converting to smaller manufacturing equipment and new technologies. Applied used the last semiconductor slump to gain market share and get ahead of the technology curve.

The caveat with Applied Materials is that it lives in a feast or famine business. It's safe to say it's time for the feast.

New H-P vs. old H-P

Hewlett-Packard (NYSE: HWP) has a new CEO, new vision and even a new logo. Shame it can't get rid of that old revenue growth.

New CEO Carly Fiorina made a nice debut on H-P's fourth quarter earnings conference call last night and indicated that the company wouldn't have any excuses in future quarters. Fiorina intends to keep Wall Street happy.

But Wall Street won't be happy overnight. H-P topped reduced expectations and revenue growth was 10 percent -- good for H-P, but hardly impressive.

"The business performance issues are not new, but what is new is the amount of attention they are getting from management," said Fiorina. She's projecting revenue growth of 12 percent to 15 percent for fiscal 2000.

Her first quarter guidance, however, remained cautious. Fiorina told analysts to be conservative with first quarter estimates and anticipate momentum growing in the second, third and fourth quarters.

"We need to set goals high and stretch to meet them," she said, while promising to be open with Wall Street.