Welcome to Advanced Energy's first quarter Earnings Call. With us today are Dr. Hans Betz, President and CEO; Mr. Larry Firestone, Executive Vice President and CFO; and Ms. Annie Leschin, Investor Relations. (Operator Instructions) Thank you. I would like to turn today's call over to Ms. Annie Leschin. You may begin.

Thank you, operator, and good afternoon, everyone. Thank you for joining us this afternoon for our first quarter 2009 earnings conference call. By now, you should have received a copy of the press release that we issued approximately an hour ago. If you would like a copy, please visit our website at www.advanced-energy.com or contact us at 970-407-4670. I'd like to remind everyone that except for historical and financial information contained herein, the matters discussed in this conference call contain certain forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the term believes, expects, objectives, estimates, anticipates, intends, targets or the like should be viewed as forward-looking and uncertain. Such risks and uncertainties include, but are not limited to, the volatility and cyclicality of the industries we serve, the timing of orders received from our customers, our ability to benefit from the continued cost improvement initiatives currently underway, and unanticipated changes in our estimates, reserves or allowances. These and other risks are described in Form 10-K and 10-Q and other reports filed with the SEC. In addition, we assume no obligation to update the information that we provide you during this conference call, including the second quarter guidance provided during this conference call and in our press release dated today. Guidance will not be updated after today's call until our next scheduled quarterly financial release. I'd now like to turn the call over to Hans Betz.

Good afternoon everyone and thank you for joining us. After a difficult end of 2008, the first quarter of 2009 fell further. Despite the strides we made towards achieving a more diversified revenue stream, able to weather single industry events or downturns, the extensive nature of the credit crisis and resulting economic conditions have affected all of our markets simultaneously. This leads to further declines in weakened semiconductor market, a pause in solar equipment purchases as financing dried up and the industry awaits news of a stimulus package and the halt to flat panel capital expansion as consumer spending remains weak. In these markets, the impact was significant and the decline precipitous. Advanced Energy responded to the challenge and demonstrated its ability to consistently execute and maintain its market position even at these levels. We achieved our guidance for the first quarter with sales of $32.6 million and loss per share of $0.39 before the write-off of goodwill of $1.9 on a GAAP basis. We ended the quarter with a strong balance sheet with a cash position of $173 million, including our auction rate securities. Semiconductors continue to be the hardest hit market. Demand fell to record lows during the quarter, reflected by order declines over the prior quarter of more than 50% from our major customers. Throughout the first quarter, OEMs worked through and scrapped the inventory at levels not seen before and implemented prolonged and more frequent shutdown of the manufacturing facilities in order to manage costs in this period of historically lower sales. Major OEMs are reconfiguring their progress and finished goods inventory to conserve cash by utilizing the inventory or ordering part the systems very selectively one at a time. This change in purchasing behavior has created abnormal demand based primarily on a minimum amount of…

Thank you, Hans, and good afternoon, everyone. I will review the results for the first quarter of 2009 and discuss our guidance. As anticipated, the global credit crisis deepened during the quarter, impacting all of our markets. This took first quarter revenue to $32.6 million, in line with our guidance, but down 63.3% from the $88.9 million in the same period last year and down 51.7% from the $67.5 million in the prior quarter. Sales to the semiconductor capital equipment market represented 29.4% of total sales in the first quarter. At $9.6 million, sales declined 57.5% from last quarter's $22.5 million. Sales to the non-semiconductor markets were also pressured this quarter. Though they remained at similar percentage of total sales at 47%, non-semi sales declined 53% to $15.3 million from $32.6 million in the previous quarter, with the largest decline coming from solar. Sales to the solar market were $6.2 million or 19% of total sales, well below last quarter's strong performance of $16 million or 23.6% of total sales, due largely to difficulties surrounding project financing. As the first wave of investment for Gen-8 and 8.5 panels included the current capital constraints are delaying the next wave of expansion. Sales for the plat panel display market fell to $3.4 million or 10.5% of total sales in the quarter versus $6.5 million or 9.6% in the fourth quarter. Architectural glass sales represented 5% of total sales or $1.6 million versus 3.5% or $2.4 million in the fourth quarter. Glass sales this quarter were driven largely by a shipment to a glass coating customer in China, and this equipment will be used to sell coated substrates to the solar market. Sales to the varied industries that comprise our industrial coating and emerging markets were approximately $1.5 million or 4.5% of total…

Your first question comes from the line of Jim Covello with Goldman Sachs. Go ahead, sir.

Hi. This is Kate Kotlarsky for Jim Covello. I had a couple of questions. One is you talked about the semiconductor market potentially being sort of the last to recover, as you look at all of your businesses. At the same time, we are already seeing a little bit of an improvement off of the bottom, granted off of the low base, but there is some improvement. And you alluded to some of your customers, talking about improvement in shipments, et cetera. So I was just wondering whether your comment was more about kind of a significant improvement in business related to capacity buys or whether that was also related to some of the technology related buying we are already seeing from your customers?

I think in reality, it's both. What we see at this point in time is some kind of silver lining, but it's hard for us to derive from these kind of stabilizing effects. We have higher service revenue. We see some (QAM) prices stabilizing. We see a higher fab utility. All those indications are positive, but they are not strong enough in order to derive something very strong as a rebound from that. We are just cautiously optimistic. But I think as long as no new fabs are really being announced than except the Intel fab and AMD fab, we haven't heard anything around that too. As long as this is not happening, we don't think there is a very fast recovery.

And if we just think about your guidance for Q1, if you think about the various market segments, how should we think about what's doing relatively better or worse as you see it in Q2?

In Q2, we see definitely a much better solar business, in particular coming out of Europe and China. And I think we still are very, very cautious as far as the semiconductor market is concerned. Again, we haven't seen any strong recovery in our orders from this market, even though Lam and Novellus indicated shipments up in Q2 in a pretty substantial manner, 35% and 28%. But because it didn't trickle down to us yet, I think we think it's more burning through the inventory, which may be a good sign, but it's not necessarily something which gives a strong indication that everything is rebounding on the semi side.

Okay. That makes a lot of sense. Maybe just one final question for me. You mentioned earlier in the call about taking a look at maybe reevaluating some of your businesses. I don't know if I was reading too much into it. But I was just wondering if you could talk kind of big picture, do you think about your various business segments, what you consider to be sort of the really core must-have areas and what might be some less core areas of the business?

I think maybe it was not really understood, because we do fine-tuning our strategy in those business areas. We are not considering anything in order to be not our core or less our core business. And the reason is pretty simple. Because if you look at, for example, the optical storage business which is kind of dragging and nobody knows exactly whether Blu-ray is really taking off, but even if that is not the case, I think we have a platform which is being applied for the optical storage. But it's not a specific optical storage platform. It's a platform which is being used in other areas as well. So, even though if the market is not holding up as we expect, there is no kind of divestiture or something like that.

Okay. That's very helpful. Thank you very much.

Sure.

Your next question comes from Brett Hodess from Banc of America/Merrill Lynch. Go ahead.

Hi, guys. This is Krish Sankar for Brett Hodess. I had a couple questions too. One is, in terms of $16 million breakeven exiting the year, can you tell me how much of that includes the temporary cost deduction measures, like the shutdown and other things that you have done or is it all purely on a permanent basis?

It does include the temporary shut down measures or the temporary cost reduction measures including shutdowns and pay reductions. However on the other hand, we have as we mentioned, additional cost reductions that we have in the works that will replace those on a going forward basis.

Got it, so you can just presume it's going to be 60 million. Okay and then are there any one time restructuring charges for 2Q '09 I remember in the last press release you had like about 800,000.

One-time restructuring?

What are the non-operating charges for 2Q?

2Q non-operating charges restructuring was about 3.4 million and the --

For the 2Q, for the guidance?

I am sorry for 2Q, that was Q1. Restructuring charges will be about $1 million.

Okay, alright. And in terms of the solar market you guys said on the inverter side you are focusing more on the commercial and utilities market, is there any way you can spice it up. I know last time you mentioned roughly your opportunity is about $0.30 to $0.40 a watt. Is there any other market size you have available for that market?

I think we have been concentrating on the utility side of the market, which goes up from 250 KW up to I don't know maybe a megawatt or even 1.5 megawatt. The actual size of the market is hard to determine at this point in time, because it's being hold back a bit because of the financial situation. I think those are projects, which are pretty expensive. So what we see is everybody is kind of sitting on the sideline and waiting until the stimulus package is kicking in. Our judgment is that we see some kind of real strong uptick in the second half of this year, just because of the fact that the administrative elements which are getting from the federal through the state and the state itself is disseminating the money. It just takes time. But what is the accessible market in terms of hard numbers. I think it's hard to define at this point in time.

And Hans, you mentioned that you still don't have much visibility into your semi OEM customers. You still think that they are drawing down from the inventory? Do you have any idea as to like how much longer they have to go or do you think they are like right around the cusp of giving you guys some really solid shipment?

This is pretty tough. Because as long as the consumer confidence is pretty low, as long as people are not really buying these electronic gadgets, it's hard to see something which could be the stimulus in order to generate new fabs. Of course some of those new fabs will be built in the course of mid '09 and beginning '010, because of the technology nodes which are asking for new fabs. But the big business in my view is still if there's capacity buyers not only technology buyers. And it is hard for me to give you some kind of credible outlook when that may happen.

Okay. And then the last question in terms of flat panel you said the recovery you think is going to more a 2010 story. Do you think is it because in 2010 you think the Gen-10 or 10.5 CapEx will start coming into line?

I think there are a couple of things there too. Because on one side I think the inventory on the flat panel side is burning through. On the other side it goes back to the same point which I mentioned for the semi side. As long as people are not buying flat panel TVs or monitors, there is no need for building new fabs. And if you recall, one of the new Gen-10 flat panels sales is around $3 billion, and people are very reluctant to put that much of money into new fabs if there are no signs for a solid recovery on the consumer spending side.

Got it. Thank you very much.

Your next question comes from (inaudible) from Barclays. Go ahead.

Thanks for taking my question. Larry, in terms of the gross margin that you saw this quarter, I think you had guided to 17. It was around 20. Can you talk about what drove the uptick there?

Inventory absorption gave us a positive hit to the gross margin. It increased the gross margin. That was about $1.3 million.

And then the breakeven level that you guided of $60 million. What gross margin is that?

Let me have a quick second. Let me look. It will be in the mid-20s kind of range. I am sorry in the mid to higher 20s kind of range.

And then on the display side, you talked about the drop-off driven by the fact that panel makers have invested partially at the end of 2008 and they are basically holding up. I guess how does that fit with the comments that you have recently heard from LPO and AUL about really pulling in and ramping up their GEN-8 facilities through the end of the year? Does that suggest that everything they needed in terms of your parts they already received or that you are just taking a cautious approach to it?

Yes, we saw some of the activity coming out of that activity that you are referencing. We've seen some order activity related to that, and that will really be dropping in the Q2-Q3 timeframe.

So, you would expect, I guess, a couple of quarters of an uptick from these levels?

It's not a surge of orders. It will probably be more steady business for us as we go forward. It's nice new business, but it's not a surge of increase in new fab capacity like a cycle.

Thank you.

(Operator Instructions) Your next question comes from Tim Summers from Wunderlich Securities. Go ahead.

Thanks for taking my question. Hans, in your prepared remarks, you had mentioned that you expected some markets to improve in the back half of this year. Can you identify those markets and how much improvement you expect?

So, the first thing is what we see already is some improvements on the solar side right now in the thin-film side. And as I mentioned in my script, I think we expect a much stronger inverter business in the second half, partly driven by the fact that the stimulus package may kick in, which not only the inverter market by the way will boost up, but the filter market as well. And the other point is the service business, which we have as a separate business, which we see not only an uptick, but significant improvement. And this is probably going through the rest of the year, because the indication is that they have been turning through the inventory. The capitalization went up. So they have to order spare parts, and they have to look for repair. These are the two major markets which I see in the second half may improve. Again, coming back to my statement earlier, it may that semiconductors are going to improve too, but the visibility there is much, much worse.

Okay. And, Hans, just on the solar business, do you have 10% customers in that market?

10% of total revenues?

Of total solar revenue?

No, but we have some in the order of 5% to 8%. I think one is

Probably in that range.

But not 10%.

As you look at the customers that you sell to, give us a ball park what percent are to -- manufacturers themselves like AMAT versus the actual panel manufacturers themselves?

Most of our business is being done through the OEMs. As you know, there are two typical different OEMs, one are the turnkey suppliers like AMAT and Oerlikon and the others are the numerous in meantime numerous OEMs which just provide portion of equipment, either the deposition or maybe the measuring equipment or the laser cutter or whatever that is. So we see in particular in China, on a daily base popping up new small players and fortunately by the way, we are strong in China because we have the biggest facility there and therefore, we are kind of entrenched in this regional market and we are benefiting from that.

Okay, great. Thank you.

Okay. Thank you very much. And I would like to turn the call back over to Mr. Larry Firestone at this time.

Okay. Thank you, Operator. Just as a reminder, we will be at the JPMorgan Technology Media and Telecom Conference on May 18th in Boston. And without any further questions, we'd like to thank everyone for joining the call and we'll see you at all of our future events. Thank you.

This concludes today's presentation, you may now disconnect.