UPDATE 3-Applied Materials sees end to downturn, shares up

(Adds CEO interview comments)

By Sinead Carew

NEW YORK, May 13 (Reuters) - Applied Materials Inc (AMAT.O: Quote, Profile, Research) said on Tuesday the semiconductor equipment industry was nearing the end of its downturn, but industry capital spending this year would fall more than it previously expected.

The microchip equipment maker, which reported a drop in quarterly earnings, forecast a chip equipment spending decline of 25 percent to 35 percent for the calendar year compared with its previous expectation of a 5 percent to 15 percent drop.

"We think there will be an improvement in the next quarter and the first fiscal quarter," Chief Executive Mike Splinter told analysts on a conference call. "We would expect revenues and orders to be coming up in Q4."

The company's shares fell more than 1 percent after-hours when it reported a drop in its second-quarter profit, but were then 2.2 percent higher at $20.29 after it issued its outlook. It had closed at $19.86 in the regular Nasdaq trading session.

Needham & Co analyst Edwin Mok said he was disappointed with the outlook, but investors appeared to be focused on the promise of a turnaround.

"Its guidance is worse than expected. I think they're losing market share," said Mok, but he added: "Maybe people are more forward looking. At least they've put the trough in perspective."

Applied Materials forecast a 50 percent reduction in DRAM chip spending in 2008 and also cited a pullback among its flash memory chip maker customers that was worse than expected.