NEW YORK (CNN/Money) - Applied Materials, the No. 1 manufacturer of equipment and tools used by semiconductor companies, reported a return to profitability and a sharp increase in sales for its fiscal first quarter, further proof that a recovery for the chip equipment sector is well underway.

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The Santa Clara, Calif.-based firm reported net income of $82 million, or 5 cents a share, compared to a loss of $66 million, or 4 cents a share a year ago. Excluding one-time charges, AMAT posted earnings of $200 million, or 12 cents a share, 4 cents ahead of Wall Street's consensus estimate of 8 cents a share. The company reported break-even results a year ago, excluding charges.

AMAT's sales grew 48 percent to $1.56 billion. Analysts were expecting sales of $1.32 billion.

More importantly for Wall Street, the company reported that new orders for the quarter came in at $1.68 billion, a 32 percent increase from the fiscal fourth quarter. AMAT had said in November that it was expecting sequential new order growth to be about 20 percent. New orders are a crucial gauge of demand and sales growth for the coming quarters.

"We are pleased with our revenue and order growth trends," said AMAT CEO Mike Splinter, in a written statement. "Semiconductor unit demand remained robust throughout the quarter, driven by higher consumer electronics and business IT spending."

Shares of AMAT (AMAT: Research, Estimates) gained 37 cents, or 1.7 percent to $22.31 in regular trading on the Nasdaq Wednesday. The stock surged more than 70 percent last year in anticipation of strong growth in 2004, but shares have pulled back by about 12 percent since the company reported fiscal fourth quarter results in November.

But AMAT rose nearly 5 percent in after-hours trading Wednesday, according to Island ECN, an indication that Wall Street was pleased with the strong results. Several other tech companies have reported solid calendar fourth quarter results so far this year but have been punished because of high expectations.

Patrick Ho, an analyst with Moors & Cabot, said that some investors had been worried about how sustainable the recovery in the chip equipment sector would be. AMAT's report should allay these fears, he said.

Some of the concerns were sparked by the fact that Intel, the world's largest manufacturer of semiconductors, said when it reported its fourth quarter results last month that it expected $3.6 billion to $4 billion in capital expenditures this year, compared to $3.7 billion in 2003. So at best, capital expenditures would be only 8 percent higher than in 2003.

But Suresh Balaraman, an analyst with ThinkEquity Partners, said that Intel is an anomaly in the semiconductor industry. Most chip firms have not made the necessary upgrades to make their fabricating plants, or fabs, more efficient.

Texas Instruments, for example, said it expects capital expenditures of about $1.1 billion in 2004, up 37 percent from $800 million in capital expenditures during 2003.

And Ho said Samsung, the Korean chip giant, may in fact spend more than Intel this year. He's estimating $3.9 billion in capital expenditures from Samsung. The world's two leading chip manufacturing foundries, Taiwan Semiconductor and United Microelectronics, have also said they plan on spending significantly more on equipment this year.

In fact, Asia was a big source of strength for AMAT in the quarter. The company said that 71 percent of new orders came from Southeast Asia, China, Japan, Taiwan and Korea.

During a conference call with analysts, AMAT CFO Joseph Bronson said that the outlook for the company was promising thanks to what appears to be a sustainable pickup in consumer and corporate spending on new electronics products. That has helped to lift demand for chips, and in turn, chip equipment.

As such, Bronson said the company expects new orders in its fiscal second quarter to be 30 percent higher than the first quarter. That implies a target of $2.18 billion in new orders. ThinkEquity's Balaraman and Vijay Rakesh, an analyst with Berean Capital, were both expecting new orders of about $2 billion for the quarter.

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Bronson also said that sales should increase by about 20 percent, which comes out to about $1.87 billion. Analysts had been expecting sales of $1.5 billion. Earnings per share should be in a range of 17 cents to 19 cents a share, well ahead of the consensus estimate of 11 cents per share.

With this in mind, Rakesh said investors should take advantage of the fact that AMAT's stock has taken a dip in recent months. "This is just the beginning of an up cycle," Rakesh said. "The pullback is a good opportunity to get in to the stock."

Other chip equipment stocks benefited from AMAT's good news as well. KLA-Tencor (KLAC: Research, Estimates), Novellus Systems (NVLS: Research, Estimates), Lam Research (LRCX: Research, Estimates) and Varian Semiconductor Equipment Associates (VSEA: Research, Estimates) were all up at least 1.5 percent in after-hours trading.

Moors & Cabot's Ho owns shares of AMAT but his firm has no investment banking ties to the company. Other analysts quoted in this story do not own shares of the companies mentioned nor do their firms have an investment banking relationship with those companies.