This is the Axcelis fourth quarter of 2007 earnings release conference call. As a reminder, today's call is being recorded. Later, we will conduct a question and answer session and instructions will follow at that time. I would now like to turn the call over to your host, Mr. Steve Bassett. Please go ahead, sir.

Good afternoon. This is Steve Basset, Executive Vice President and Chief Financial Officer for Axcelis Technologies. Welcome to our conference call to discuss our results for the fourth quarter of 2007. If you have not received a copy of our press release issued earlier this afternoon, it is available on our website. With me today are Mary Puma, Chairman and Chief Executive Officer and Matthew Flynn, our Executive Vice President of Customer Operations. After the prepared remarks, there will be time for questions. Playback service will be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC’s Safe Harbor Provision. These forward-looking statements are based on management's current expectations and are subject to risks inherent in our business. These risks are described in detail in our Form 10-K Annual Report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. We reported a net loss for the fourth quarter of $10.6 million or $0.10 per share on revenues of $89.6 million. Approximately $2.5 million of the loss was attributable to restructuring charges relating to a reduction in force action we took during the quarter. Operating results were impacted negatively by the slow down in the market and by changes in product mix, which drove gross margins to lower than expected levels at 35.4%. Aftermarket business, which includes sales, spare parts, product upgrades and service labor, remained strong, generating revenues of approximately $42 million. Our aftermarket business continues to generate margins that are accretive to the business as a whole. New system orders were $44 million, up from…

Thank you, Steve. I'd like to take a few minutes to share my views on current market conditions and provide an update on our progress. Market conditions in the fourth quarter remain challenging and visibility is poor. Like many participants in the semiconductor industry, we do not see any changes in these conditions and we expect continued weakness into 2008. The memory segment, which has recently outperformed, is seeing noted weakness and projects are experiencing longer delays than anticipated as capital spending continues to be pushed out. These are industry-wide and global issues that we will have to work through. In the fourth quarter, Axcelis, as expected, was adversely impacted by this ongoing weakness. Customer buying remained soft, putting our base business under continued pressure and, unfortunately, capital spending uncertainty, particularly in the memory market, has negatively affected the timing of the roll-out of the Optima HD, as our initial penetrations were in this segment. The news is not all bad, however. We continue to have significant confidence in the potential of the Optima HD to successfully compete in the single-wafer high-dose implant market. This optimism is based on the performance feedback that we are receiving from customers. On our last earnings call we cited positive production data from customers for the Optima HD. We now have five straight months of very solid evidence that the Optima HD has achieved consistently higher productivity in head-to-head competition. Let me emphasize that I am not citing results from a single tool. These results were achieved in production at a customer fab across a fleet of Axcelis Optima HDs. What do these results mean for Axcelis? As many of you know, we were late to market with our single-wafer, 300 millimeter high-dose tool. As a result, the Axcelis team has been focused on…

Thank you. Ladies and gentlemen, the question and answer session will be conducted electronically. {Operator Instructions) First we'll go to Satya Kumar at Credit Suisse.

Yeah, hi. Thanks for taking my question. Mary, a question on the Optima HD. You talked about a weaker memory CapEx environment which I thoroughly agree with but at least some of your marquee HD customers are actually not really [inaudible 4:20] CapEx and we hear are one of the stronger spenders even in this kind of environment, what is the dynamic [inaudible 4:26] no major repeat orders for the HP despite being qualified into production at these large memory customers and what will cause that to turn around?

Well, Satya, I guess I'm a little bit confused by the fact that you believe that our largest customers have not been impacted by the downturn. There are definitely some major projects that have been impacted by the downturn and in the fourth quarter the delays in memory projects have pushed anticipated orders even further into 2008 than we originally anticipated. So in our mind, the slow down of the memory segment really has had a negative impact on capacity buys for the Optima HD. We don't anticipate this as lost business it's just simply that some of the orders and shipments that we had expected have been delayed and pushed into 2008.

Okay. Okay. If I look at your Optima HDs, how much did you recognize as revenues in Q4? How much do you plan to recognize in Q1? And are you also recognizing bookings for previously shipped HDs as you recognize the revenues?

This is Steve. We have not recognized any Optima HD revenue to date. We do estimate that we'll recognize $12 million in the first quarter of 2008.

And that's where there've been bookings as well, right?

Actually, the tools that we will recognize as revenue in 2008, most of those have been booked. We have a number of evaluation tools that as the evaluation periods end, throughout the next year, then they will show up in bookings and revenues at that time.

So how many is there in the installed base right now that you will recognize for 2008 and also how many do you have in your inventory that you can sell in 2008?

I think the installed base today is twelve and we probably have, in inventory built right now, I think six.

Okay, I'll re-queue. Thanks a lot.

Thank you. Next we'll go to Jim Covello with Goldman Sachs. Jim Covello - Goldman Sachs & Company: Thanks so much for taking the question. Just a couple quick ones. First, relative to the business model, you know, is the industry conditions making you think any more about streamlining the product portfolio in terms of the non-implant stuff?

No, I think we're pleased with the actions that we took in the third quarter of last year with [Kering] and RTP. We're very confident about our dry strip business. In fact, despite the fact that we didn't comment on it in our call, we have been demoing our next generation dry strip tool, the Integra, and we've been really getting very positive feedback from our customers. So, you know, we're very excited about the opportunities that the dry strip segment offers us. Jim Covello - Goldman Sachs & Company: Okay, and then my follow-up would just be do the industry conditions and then, actually, a ramp up of the new tool, what do they make you think about industry consolidation? Do you think it makes it a little more likely, you know, from the standpoint of the difficulty of the industry plus the fact that the tool is starting to pick up a little bit of traction?

Jim, I'm not sure what you're asking me? Are you asking me, again, the question that you asked last quarter? Jim Covello - Goldman Sachs & Company: Pretty much.

Okay, well, I guess I'll give you the same answer then, that I gave you last quarter. At this point in time, you know, we believe that our current valuation does not reflect the true value of this business and we believe that shareholder value will be maximized by executing against our current business plan. And again, I think you'll start to see some significant pick up in the Optima HD throughout 2008 and, hopefully, that will give you confidence that you don't need to ask that question later on in the year. Jim Covello - Goldman Sachs & Company: Thanks, Mary.

Okay.

Thank you. Next we'll move to Timothy Arcuri with Citi.

Hi. I'm just, Steve, I'm just trying to true up some numbers here. So last quarter I had down that as of the end of September there were eleven Optimas shipped and there were thirteen that were ordered and three of the shipments were Imaxes. Can you give us an update on those numbers?

We shipped one more tool during the quarter. We have a couple of other orders that haven't shipped.

Okay. Okay, then, with respect to the backlog in response to a previous question you were saying that $12 million of the revenue in Q1 will come from HD and I think you had said, previously, that you had, like, five of those that you had already put in backlog as of the end of September. So did you put, since there was only, it sounds like, maybe, one more order this quarter, so is it fair to say that there's, kind of, six in backlog right now?

No. None of the tools are actually sitting in what we report as backlog. We have five tools that we've shipped against purchase orders which have been booked and shipped so that there're not in the backlog. Those we'll prefer to revenue shortly. Then we have another seven tools that are in the field that have shipped against evaluation contracts. The cost for those tools is actually still sitting in the inventory that we report on our balance sheet. Those evaluation contracts, and at various intervals throughout 2008, and at the time the evaluation contracts end, we will be issued a PO which will be included in our bookings and we will bill it and we will recognize the revenue at that time.

Okay, so just so I'm clear on that, so out of the $12 million that's going to revenue in Q1 that's, basically, the five tools that had already been placed into orders, not backlog, but orders, previously?

Yes.

Okay. And then, I guess, last thing. So is the pick up in HD, you know, revenue, as I look at the incremental number of systems that are being booked or that, you know, that were shipped there was only one more shipped this quarter, I guess. Are you still as optimistic, given the kind of real-time incoming order rate for the HD? Are you still as optimistic as you were, you know, with respect to the, you know, hockey stick that you'll see in new product revenue in '08? Because it seems like, you know, you, kind of, had this initial slug of business and now that's, kind of, flowing to the P&L but it's not clear what's going to actually follow that? Thanks.

Well, we haven't given any forecast about what we expect to happen in 2008 other than we expect to get orders and ship more Optima HDs than we have in the past. So, Tim, just because of the fact that the market has slowed down, I mean, obviously, it's very disappointing because it's hindered our progress at some level because, as I mentioned before, the customers that are really what we would call our existing customer-base aren't buying right now. It doesn't mean that we aren't as optimistic about the future of the tool. In fact, we're more optimistic about the future of the tool given the fact that we've gotten some very solid performance data and performance feedback from both customers who are using the tool and customers who have come to demo the tool. So, you know, again, we're very positive about the future outlook for the Optima HD.

Okay. Thanks.

Thank you. Next we'll go to Peter Kim at Deutsche Bank.

Hi. Thanks for taking my question. I was wondering if you guys wouldn't mind segmenting out what percentage of your systems orders was the Optima?

The Optima in Q4, I don't believe that we recorded any bookings. We had one Optima tool that shipped in the fourth quarter but I think that that was recorded as a booking in Q3.

If you take a step back and do you have an assessment for what your market share in high current was in 2007 and would you project it going in 2008?

No, we don't have any actual numbers at this point but we don't anticipate seeing any measurable difference in our implant market share in 2007.

So you think you held your market share in 2007 and you don't have an outlook for 2008?

Well, I told you I don't really know what the numbers are in 2007 but I don't expect any significant increase or deterioration. For 2008 we do believe that we should see an increase in market share and as I said during the call, you know, we recognize minimal 300 millimeter high current revenues over the past several years and in the first quarter of this year we'll recognize more 300 millimeter high current revenue than we have over the last three years. So it's fair to assume that this should result in increased high current market share in 2008. But, you know, I can't give you specific numbers on a 2007-2008 comparison.

Okay. Moving on, can I ask about your ongoing arbitration with SEN. Have you guys settled this issue and have you sold any single wafer high current tools in Japan?

There have been no changes in the status of the arbitration over the last quarter and just to refresh everybody's memories the arbitration is over resolving the royalty due on SENs high current single wafer implant tool, the SHX. As we said, for several quarters we expect the result to be that SEN will take out a license of Axcelis' technology so that SEN can manufacture and sell the SHX at a royalty rate similar to SEN’s other products. In terms of have we sold any tools in Japan, some Japanese customers have expressed their interest in the Optima HD Imax and the Optima XE which are tools that are not currently licensed to SEN. So, until these products are licensed to SEN, Axcelis is engaging directly with Japanese customers on those products and as we make progress against our sales activities in Japan we will report that to you.

And, if I may, lastly, have you recognized any royalty payments from SEN for any single wafer high current tools that SEN has sold and is there some kind of a side pot of those funds that you would recognize at one time if you were settle the arbitration with SEN?

We have not recognized any of the royalties on the single wafer high current tools. If the arbitration is settled in our favor then we would recognize the revenue at that time after we negotiated the royalty rate.

Great. Thank you so much.

And I should add that we do fully expect that the arbitration will be settled in our favor.

Well, how long do you think this arbitration is going to go on for?

Well, if you take a look, which we've done, obviously, and benchmarked against other arbitrations that have been held in Japan it's, typically, a multi-year process so we expect, perhaps, into 2009 at the earliest, before we get a decision.

Okay. Thank you.

{Operator Instructions) Next we'll go to Weston Twigg at Pacific Crest.

Hi there. I just have a few questions here. One, just looking at the gross margin, the systems gross margin, it looks like it was actually negative last quarter. Can you explain why?

The systems gross margin was down, was actually up slightly from the previous quarter, I think.

I mean, just showing, based on the press release, it looks like it was a negative number here.

A negative number?

Yeah. [Inaudible].

[Inaudible] consisted of gross margin, we don't provide specific margin information on systems and our aftermarket business but our total margins were 35.4% and they were up slightly over the previous quarter.

Okay. And then, just wondering if you have any idea when you might recognize revenue on your first Optima XE and, maybe, your first Imax tool?

The Imax should be in 2008 and we expect that the Optima XE would be 2008 as well.

Perfect. Okay. Thanks.

And that does conclude today's conference. Thank you for participating and have a nice day.

Okay. Thank you very much for joining us.