SANTA CLARA, Calif. -- More belt tightening and cost savings from production learning curves in 300-mm fab gear should keep Applied Materials Inc. profitable in the current fiscal quarter without the need for layoffs, said company officials during a conference call with analysts after posting results on Tuesday.

Rumors and reports of layoffs at Applied Materials have been circulating in Silicon Valley during recent weeks, but it appears that a round of job cutbacks may not be needed if the semiconductor equipment markets have reached the bottom of the current downturn, said top managers in the conference call. Applied Materials on Tuesday said its sales sequentially declined 30% to $1.33 billion in its fiscal third quarter, ended July 29, but the equipment giant managed to post a net income of $28.5 million (see Aug. 14 story).

Based on information from chip makers and the marketplace, Applied believes the sequential decline in new tool orders is at last ending, and it now expects to see "some modest improvement in early fiscal 2002 which begins in November," said Joseph R. Bronson, executive vice president and chief financial officer of the company.

Applied is forecasting a sequentially flat quarter this period with revenues and new orders coming in at about the same level as the just-ended period. The company logged $1.21 billion in orders during the last fiscal quarter, which was 11% lower than the prior three-month period.

"Most customers have ceased ordering for production capacity as they begin purchasing equipment to implement advanced technology solutions for 0.13-micron and below with copper processing," said the CFO. Applied Materials has revised its outlook with a "significant shift from capacity to technology purchases in 300-mm and copper" equipment, Bronson said. Overall, Applied expects semiconductor capital spending to drop 27% to $42 billion worldwide this year from spending levels in 2000, he added.

But Bronson and chief executive officer James C. Morgan said the business appears to be stabilizing and they hinted that some concerns about delays in 300-mm tool orders could be easing. Last month, Applied Materials caused a stir in financial market when executives suggested that the current downturn could be entering into to a second phase that potentially threatened 300-mm fabs (see July 16 story).

But in the conference call on Tuesday, Applied executives said 300-mm equipment orders are essentially holding steady with a few push-outs and only one cancellation of a $50 million order that's likely to be rebooked in the fourth quarter.

Morgan said Applied believes the upturn in business will be driven by 300-mm production fabs, and many leading IC manufacturers are attempting to hedge their bets by keeping pilot line projects on schedule while holding off capacity orders. With market information readily available worldwide, Morgan said he expects to see a rush for equipment deliveries once chip makers believe the upturn has begun.

But in the meantime, "technology buys" aimed at R&D and pilot line production of next-generation copper processes and 300-mm diameter wafers will drive sales, Morgan said. And there's a huge pent-up need for those new system. "Less than 5% of the equipment that has been shipped by tool suppliers to date is targeted at 0.15-micron and below. That says it the next-generation tool set has barely started," said CEO Morgan, who is also chairman of Applied Materials.

Reflecting the huge shift to next-generation tools, about 75% of Applied's $1.21 billion in orders during the last fiscal quarter were for systems capable of handling 0.15-micron and below processes. That compares to just 36% of the tool orders in the prior quarter, Bronson said.

To be ready for the eventual recovery, Applied Materials is trying to hold on to its resources. It ended the fiscal third quarter on July 29 with about 19,000 employees worldwide compared to 20,000 in the prior three-month period. Applied continues to amass cash. It ended the last fiscal quarter with $4.7 billion in cash equivalents and short-term investments, according to Bronson. That's an increase of $141 million.

The world's largest supplier of semiconductor equipment is also investing $2.1 billion in new products, R&D, and manufacturing systems. More than 25 products are "in the R&D pipeline right now with additional project underway," Bronson told analysts in Tuesday's call.

"We have cut costs very, very hard in this company during the past nine months," said CFO Bronson, who added that Wall Street analysts have not entirely understood the challenges in doing that while attempting to maintain a broad line of tools and advanced technologies.

"We have a significant amount of 300-mm systems in the field. We went through some interesting learning curves for the factory automation and the factory interfaces," he said. "We had to do a lot of that work in the field, unfortunately... We are beyond that now.

"The future is focused on getting some of these expenses behind us with respect to 300-mm learning, and then the cost cuts that have been made will look more robust going forward," he said. "But we still have a little bit of time left to go. The pressure will continue on cutting what we can, wherever we can," Bronson told analysts.

He said Applied will remain profitable in the current quarter as it tries to reduce the breakeven point and push down the 300-mm learning curve. "The more you can do that the faster you can get your breakeven point reduced," said the chief financial officer.