* CEO says smaller customers adding 28 nm capacity
* Current quarter rev seen flat to down 10 pct sequentially
* Stock steady after hours
SAN FRANCISCO, May 17 (Reuters) - Top chip-gear maker Applied Materials Inc's CEO said contract manufacturers are rushing to add leading-edge capacity after underestimating demand for semiconductors for smartphones.
Driven by the need for more chips for mobile devices, spending by leading foundry TSMC and smaller rivals on chip gear has recovered from a slump last year as they use new technology to keep up with Intel Corp.
Major TSMC-customer Qualcomm Inc, which supplies chips for Apple's iPhones, in April warned it could not get enough 28 nanometer chips and said it would look for other contract manufacturers to meet demand.
Applied Materials estimated tablet sales would grow 60 percent this year to more than 100 million units, and that smartphone sales would top 660 million units.
"Demand on 28-nanometers is very high and there's still constrained supply," Applied Materials CEO Mike Splinter told analysts on a conference call.
"We think 28-nanometer's going to be strong through the year. It's going to be strong into 2013. Assuming that our customers can find a place to put equipment, they will continue to add equipment as quickly as they can," Splinter said.
With top foundry TSMC placing the bulk of its placing the bulk of its orders early in the year and now ramping production, Applied Materials said equipment spending was peaking. It said that spending by foundries in the second half of 2012 would be distributed more among smaller customers - like GlobalFoundries and UMC.
"That growth trend is decelerating. It's not like we're rolling over, but at the same things are not continuing to grow," said Needham analyst Edwin Mok.
Nvidia Corp says it has also lost business selling advanced graphics chips for PCs due to 28 nm production constraints at TSMC.
Twenty-eight nanometer chips have transistor features measuring 28 nanometers, or billionths of a meter, and are contract manufacturers' newest technology.
To meet demand, TSMC in April raised its 2012 capital expenditures estimate to between $8 billion and $8.5 billion, compared to $6 billion at the start of the year.
Top chipmaker Intel has boosted capital spending this year to a record $12.5 billion and last week said it would spend a similar amount next year as it ramps up production lines using its newest technology.
But with investment in equipment to make DRAM chips used in PCs still weak, Splinter said worldwide wafer fabrication equipment spending this year would be between $32 billion and $35 billion, or flat to down 10 percent from last year.
Last month, KLA-Tencor said major upgrades by foundries, which rapidly switch production between chips for different customers, mean strong sales of its test equipment.
SOLAR NOT SHINING
Strength in chip gear spending has help offset weakness in Applied Materials' solar cell and display manufacturing businesses, which have been damaged by oversupply and weak pricing. Subsidy cuts in Europe have triggered a global glut of solar panels and driven down prices sharply.
Looking to cut costs and tap into the growing appetite for clean energy in Asia, Applied Materials said earlier this month it would move its solar equipment plant to China from Europe.
The company's stock has fallen 16 percent since the end of March when it forecast fiscal 2012 results below expectations. It now trades at the equivalent of 11 times expected earnings.
Applied Materials said revenue in the second quarter ending in April was $2.54 billion, down from $2.86 billion in the year-ago period.
It said it expects current-quarter net sales to be flat to down 10 percent sequentially. The midpoint of that range is equivalent to $2.413 billion.
Analysts had expected revenue of $2.399 billion for the quarter ending in April and $2.443 billion for the quarter ending in July, according to Thomson Reuters I/B/E/S.
Net earnings fell to $289 million, or 22 cents a share, from $489 million, or 37 cents a share, in the year-ago period.
Non-GAAP earnings per share for the quarter were 27 cents, better than the 24 cents expected by analysts.
Applied Materials shares were flat in extended trading after closing down 1.69 percent at $10.48 on Nasdaq.