It's not exactly a revelation that markets for products such as semiconductors, flat-panel displays, and the equipment to make both of them have been tough of late. End-user inventory gluts have led to brutal price competition, and many chipmakers have cut back on capital spending in a bid to save money until the next cyclical upswing begins.

When chipmakers aren't buying new gear, Applied Materials (NASDAQ:AMAT) has tough times, too. While Tuesday's fiscal first-quarter earnings report was in line with Wall Street expectations, sales and earnings both posted double-digit sequential declines. New orders were also weak, falling 36% from the fourth quarter (though this was basically in line with expectations).

Many parties have suggested that a tech turnaround should be in the offing sometime around the middle of 2005, and Applied Materials echoed that sentiment. Specifically, the company expects new orders to trough in the first half of 2005 and then rebound through the second half of the year. Of course, no one knows for certain whether that prediction will come true.

Longer term, there seems to be two basic certainties regarding the semiconductor capital equipment business. First, ever more sophisticated chip designs will require increasingly sophisticated (read "expensive") equipment to turn design into reality. That's good for Applied Materials, particularly since the company is in the top three of virtually all of its major markets and is a leading innovator (and acquirer) in the space.

Second, the semiconductor-equipment business is highly cyclical and likely will always be so. While that can be bad for the nerves of investors (particularly those who'd like to hold a stock like Applied Materials for the long haul), it doesn't really meaningfully hurt the company over the long run.

Although the move from cyclical peak to trough can cut revenues by more than half, Applied Materials is big enough and run well enough to endure the bad times. Even in fiscal year 2003, the year that seems to mark to the low point of this recent cycle, Applied Materials managed to post positive cash flow and would have squeaked out a profit if not for some charges.

While valuation always matters, it's a trickier matter with cyclical companies, especially when the direction of the cycle isn't clear yet. Nevertheless, Applied Materials is trading at a valuation that is below the prevailing levels of the past few years. Although not at an all-time low valuation relative to past cyclical lows, the company is in a far stronger position than it was in comparable down periods.

Fools looking for broad exposure to an improvement in semiconductors (and, to a lesser extent, flat panel displays) should take a look at Applied Materials. Just remember, though, that all good (and bad) things will eventually come to an end.

Fool contributor Stephen Simpson has no ownership interest in any stocks mentioned.