Good day, ladies and gentlemen, and welcome to the Cognex Corporation first quarter 2008 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions on how to participate will be given at that time. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Mr. Richard Morin. Sir, you may begin.

Thank you and good evening, everyone. Earlier tonight we issued a press release announcing Cognex's earnings for the first quarter of 2008. For those of you who have not yet seen this report, a copy is available on our website at www.cognex.com. The press release contains detailed information about our financial results and because of that we are not going to repeat most of that material. During tonight's call, we intend to discuss our financial results as reported under GAAP. However, it is possible that we may use a non-GAAP financial measure if we believe that it is useful to investors or if we believe it will help investors better understand our results or business trends. For your reference, you can see the company's income statement as reported under GAAP in exhibit 1 of the earnings press release, and a reconciliation of certain items in the income statement from GAAP to non-GAAP in Exhibit 2. I would like to emphasize that any forward-looking statements we made in the press release or any that we may make during this call are based upon information that we believe to be true as of today. Things often change and actual results may differ materially from those projected or anticipated. You should refer to the company's SEC filings including our most recent Form 10-K for a detailed list of these risk factors. Now I'll turn the call over to Bob Shillman.

Thanks, Dick. Good evening, everyone. Well, I believe it's a lump evening here in Natick except to Cognex. We're here to share the [bright]. As you can see from the press release, we just reported revenue of $60.5 million and earnings of $0.20 a share for the quarter. As expected these results are down from the prior quarter but they represent a substantial increase over the first quarter of 2007. First quarter revenue increased by 19% year-on-year and we essentially doubled the EPS reported for Q1 '05 versus Q1 of '07. These increases are recurring despite our SEMI business, which is still in an industry downturn. Revenues in Semiconductor and Electronics Capital Equipment Market, which we call SEMI was $13 million in the first quarter, but it was down 12% from Q1 of '07 and flat on a sequential basis. Demand in SEMI continues to be soft in Q1 and the timing of the pick up remains uncertain, which is typical for this market. Next in the Surface Inspection market, which is a second of the three primary markets that we serve, revenue was $6 million in the quarter. As we've said in the past the Surface Inspection is a very lumpy business and that was particularly apparent in, one, by swing in revenue, revenue for Q1 increased 8% year-on-year but decreased nearly 50% on the fourth quarter of 2007, which is a record high level. But that's revenue and there are also some complications between bookings of revenue and frankly this is a bookings business. And I want to tell you the bookings in Q1 were substantially above our plan. And business in general in Surface Inspection is quite good particularly in the metal industry, where we are wining new business at mills in China and elsewhere in Asia.…

(Operator Instructions). Our first question comes from Antonio Antezano from Bear Stearns.

Good evening.

Hi,

Hi, Antonio.

Given the significant growth in the IT business, I was wondering if you could provide more color on the growth rate for the IT business by geography.

Well, geography, I don't know. Yeah, Bob give him, probably if we have it.

We have it.

We have everything except placement.

But we need the rank.

But we need the rank. Okay. By geography, let's see. Did I miss it? Yeah. We'll get back to you. Do you have another question by the time we'll get that?

Well, yes. Regarding the Surface Inspection business...

Yeah.

It has been very lumpy, but I was looking [at in you 10-Q at ] the profitability also has been very volatile. I think you posted [is more loss] this quarter. I was wondering a couple of quarters ago, you mentioned that there was some initiative to increase profitability for that business, I was wondering, if there had been any changes or any initiatives recently to do that.

Well, I am going to answer overall, and then Dick can jump in with specifics. The reason that you see loss is because the revenue recognition method is frankly quite absurd that we are forced to follow. So we may have a quarter where we have $8 million of revenue, where we didn't even ship anything. Because we have the deferral revenue recognition and the rules are -- just don't make sense, but we've to follow them. And the reason you're seeing that there is loss in this quarter is that the revenue according to the rule was $5 million to $6million.

It was $6million dollars, and always to respect $6 million is not quite at their breakeven level to be able to support the level of operating expenses they have with the engineering development and sales and marketing. If you go back to Q4 where they have approximately $12million in revenues, you'll see that the operating income turned out to be well in an excess of 20% for that particular quarter. So while we have to defer the revenue and we also defer the COGS that related to that revenue, the operating expenses, they hit the P&L in that particular quarter. So what you really need to do is to have a revenue level there at least to get you to the breakeven point, which is probably somewhere around then $6.5 million level…

On average.

…on average.

And we certainly do that. We exceed that. So because of revenue recognition, if we had opted at one point for a mess up for what's it called, partial completion…

Percentage of completion.

Percentage of completion, you wouldn't see that kind of revenue. I can tell you, we received more cash existing this quarter than we show as revenue, all right? So it's the strangest thing. The customer can pay us and accept the product, and we can't recognize the revenue till something else happens. It's just drives you crazy. So, it's a bookings business. If you look at the bookings, ultimately that does turn into revenue, and not ultimately in three months or six months. And, so the management here doesn't pay attention frankly to the quarterly P&L for SISD

Okay. And I was wondering, can you comment on the ramp-up of the new products that you released early this month? Maybe, you can just provide color on the new DataMan or the new Micro planning?

Yes. Thank you very much. We just shipped. I think, today was a first day of shipping the new DataMan product. So, I can tell you that the growth is phenomenal because the base is zero, and missing growth from zero to some number. I think we shipped a 100 of them. Micro, yeah, from what I hear from the sales force -- I don't have the numbers in front me, is exceptionally well received by the sales force. And we're just very bullish. Okay, I can get back to you Antonio on

What I just handed you is booking for the new product. You (inaudible) bookings in total for the new product improved through the date

Okay. Well, if you look at -- I am not going to split them up, but I will tell you which product I am talking about. I am talking about the new Checker. It is called Checker 232 and the new DataMan, the new Micro, and also Vision View. I am going to lump those together because they are competitors on the phone. In all of Q1 we shipped $1.5 million, in all of Q1. We already booked in the first month of Q2 that same amount.

Okay.

All right. So one last $1 million in all of Q1, and we've already booked this much. We've already booked that same amount year-to-date in just one month -- quarter-to-date, one month.

Antonio, if you can help me -- the other question you had was relative to…

The growth for ID by geography.

Okay. What I am going to do is give it you for DataMan, which is strictly ID because there is some industrial ID on the In-Sight product that gets classified as when we don't know the exact application gets into In-Sight, and we don't know how much of it is ID. But what we specifically know relative to DataMan, you are looking at the first quarter of '08 versus the fourth quarter, or versus the first quarter of '07.

Year-over-year. Yes, versus first question?

Okay. Year-over-year in the U.S., the increase for DataMan was 78%.

Okay.

For Europe, it was 190%.

All right.

Japan, 7%, and for Asia, it was over 1000%, and that's only because we've very, very, low base, okay.

All right. Okay. Thank you.

Next?

Our next question comes from Chuck Murphy. Chuck Murphy - Sidoti & Company: Good afternoon, guys.

Hi, Chuck.

Hi, Chuck. Chuck Murphy - Sidoti & Company: Just a quick question for you here. I know Bob, you talked about the ID growth and large part being related to 2D. Is that 2D market is kind of that specifically direct part marketing, or is there something else involved there?

No. It's not. We started in direct part marking or reading of direct part marks, which is a most difficult, and that's where our technically real help paces all the competition. But as we went into plants and got the orders for this, the customers then asked us, many of them, they said, well, you know, we'd like to use your product three feet down the line here reading labels, and we don't want to lift up another one. Now, do you have a product that you can sell us? We said, well, buy more of these. They said, well, they are too expensive. So we came out with two more DataMan products with varying capability, decreasing capability, and decreasing price. And they don't need that capability, so they're not getting cheated. They are reading labels. And we are selling a lot we are -- yes we expect to sell lot of them and it looks very good. Chuck Murphy - Sidoti & Company: Okay.

When the customers have said, yes, we're buying those -- a major automobile manufacture at least one plant. Chuck Murphy - Sidoti & Company: Okay

…just sensitizing on this one. Chuck Murphy - Sidoti & Company: What is the price on the DataMan product versus your competitor?

I am going to… Chuck Murphy - Sidoti & Company: Ballpark

…say about a $1,000.

But I don't know what to expect.

….literally the high-end sales are $2,000 to $3,000 and I believe it's less than $1000. Chuck Murphy - Sidoti & Company: Okay. All right. That's all I had. Thanks.

You are welcome.

Our next question comes from Jim Ricchiuti.

Hi. Good afternoon.

Hi Jim.

You gave a number, I think for the North American Factory Automation business being up, can you just repeat that. I wasn't sure if I got that. Did you say up 7%?

Okay. You're fading a little bit, but I got the question, and I know where it is. Okay, Factory Automation, okay, 7% year-on-year.

Okay. And Bob, I was just wondering if you could talk a little bit about the strength you're seeing, and maybe some other vertical markets. Just given the concern some people have about the economic slowdown, it seems like you're bucking the trends. But I was just wondering, where are you seeing it in the Factory Automation area?

I can tell you that, although there is doom and gloom, or that it appears that there is doom and gloom in United States, that is not the case in other economies. So, we are doing well in all areas. There is nothing in particular that…

Even in the U.S, we are…

Yes. Rolling (Multiple Speaker)

And Q1 was ahead of Q4. So, we are seeing good business opportunities here in the United States.

Now, maybe we're seeing a lot of growth because last year went so poor for us because we had screwed up our sales and distribution system. Not the people, of course, it's just the way we manage them.

But even there Q1 was ahead of Q4, and by Q4 we had those issues resolved. I think we are seeing pick up in Auto and Food and Beverage or whatever. Those industries were not -- now maybe, if the gloom and doom wasn't the [paired], maybe would be doing even better. But we're seeing good business opportunities here in United States at this moment in time.

Okay. And in the SISD business, you had a good bookings quarter. How should we think of that shipment just in terms of modeling as you're going to pick up the shipment levels pick up in Q2, or is it further back in Q3, Q4?

Now, we do expect that there'll be a significant increase in [?]. I am going to call it reported revenues not fairly shipments. Okay.

Yeah

Because of the revenue recognition rules or whatever, but we do expect that the reported revenues in Q2 will be significantly ahead of what we reported in Q1.

Okay. And just given what you're seeing out there in the market, any plans to expand the sales force in any particular either verticals or geographies, you talked about certainly expanding in China? I don't know if you're…

Yeah

…do that?

Jim, I thought I mentioned this in the last call, but maybe not. I believe we're opening an office in Hungary and Romania, and Yugoslavia, I think.

Yes. And Vietnam.

So, well, you know, I've told Eric [?] blank check to go higher. Because things are great out there, we have the money, and we can now invest in the expansion of the sales force. The particular verticals that looked good to us are our food and beverages, and pharmaceuticals look very good to us right now.

Okay.

In automotive outside of the U.S.

Great. And Bob, is there activity on the acquisition front, or do you just see a lot of activity within the business, and that's more on the back burner?

I'd have to say that we are looking at some companies but they are -- there is nothing on the front burner right now.

Okay.

Right. We're focusing on the business, and that doesn't mean we couldn't do acquisition. It's just we haven't. We have one full time guy - Yuri Kugan - based in Germany, looking at acquisition for us. And he is setting the ground running, and there are some things in the ID space that we're looking for, and the pharmaceutical space that we're looking at, but nothing is even on the middle burner yet, it's all on the back burner.

Okay. Thanks very much.

You're welcome.

Our next question comes from Richard Eastman.

Hi. Can I just return for one second to the U.S. business? I think the numbers kind of suggest the U.S. is off a bit year-over-year, and with Factory Automation plus 7 is then obviously SISD was down the U.S. -- that you don't do much SEMI OE right?

No, that was done by the way.

Yeah. SEMI was…

And it's very small in the U.S.

Small, there. So the SISD business must have been down in the U.S. I take it in the quarter year-over-year.

It was down compared to both Q4 and Q1, yeah.

That would be the difference, okay. And then, can I ask if the Factory Automation business in the U.S. How did the sales look [distribution relative to dragged]? Are the distributors in softer shape because of maybe some of the end-market exposure in the Auto and--?

Actually, let's see, during the first quarter from the booking percentage over through distribution, they hit their highest point of bookings ever since we've had the distribution network.

The percentage was the highest, or the dollars were?

The dollar was the highest, and the percentage is relatively is the same as that has been last quarter or whatever. In the first quarter of '07, their percentage was somewhat higher because our direct sales force here in the US wasn't doing as well, but the distribution network had in total bookings the highest dollar level in Q1 of '08.

Okay.

Well, it looks like Eric Ceyrolle, who has taken over about a year ago, has done a tremendous job in shaping up about our direct sales organization and the management of the distributors to make sure they are happy and motivated out there.

Okay. And then, can I ask a similar question? In Europe now, the gains you shown, I don't know if you are in a position, but can you give us a currency number for the quarter -- total?

No. But I will tell you this, because I know what you're looking for. The growth would have been instead of 50% in Europe it would have been -- without the FX, it would have been 40%. So we expected that question.

That's growth year-on-year and MVST revenues. One of the problem is that we have the reported revenue SISD compared to shipments, so whatever are the FX rates of the different time, it's nearly impossible to be able to track the impact on revenue.

Okay. But you're suggesting, perhaps in Europe, there was about 10 points of currency growth.

That was on year-on-year in Factory Automation, yeah.

Okay. And in Europe, are we seeing the same pull through on the product ID or by verticals, or is there anything of consequence there that you can delineate in terms of growth rates in verticals in Europe?

We have a growth -- it's down that way?

No. The only thing I can tell you is that European Auto industry has been very strong the last couple of quarters.

He is asking about IDs specifically.

ID, I am sorry.

Is that correct?

Well, I was actually trying to get to the verticals, but I didn't know what was easier for you on product time, and I am just trying to get some sense of what [] if the growth is skewed either by product or by vertical, or just trying to get a sense of that.

No. I can tell you that all product lines are growing.

Yeah.

Everyone of the product lines, except SEMI? Is that correct? SEMI

Yeah. SEMI is…

Yeah

Okay.

And then just every product line.

And then, lastly, the options expense number does that. I know, some were forfeited here, and that number was about $1.1 million. Does that show back up to $2 million or $3 million quarterly run rate? Did you issue more during the quarter that would take that up? Or does that stay at this run rate now for the balance--?

No. It won't stay at this run rate because what we had in Q1 is we had because of the way that you have to true up your forfeitures on the anniversary dates of the best in grants. We had a significant credit in Q1 because last year we had the departure of Jim Hoffmaster, the COO, and we also had a couple of other Vice Presidents leave on the sale side. And so, we had a significantly greater catch up, if you will, on the forfeitures in Q1. But we do expect that Q2 will go up to somewhere around $2.4 million to $2.5 million level, not up to the $3 million.

Okay. And then, just stated that rate for the balance of the year quarterly?

Yeah, pretty much. It will be right around there. It will be impacted to a certain degree if we have any new hires or whatever that comes through. But it should be pretty close to that same level because we do our most significant option grants in the first quarter when we do the annual grants for our employees.

Okay. And then, just lastly, maybe bigger picture question from the export standpoint, pure exports out of the U.S. to either Europe or Asia, has that business changed much? Or again, is your growth coming out of Ireland right, is that?

Yeah. We do very little exporting because we do have the operation in Ireland that handles most of the product deliveries to Europe, Asia, and Japan.

Okay. I understand. Okay. Great. Well, thank you.

Our next question comes from Ben Alexander.

Yes. Good afternoon.

Ben?

Congratulation on a very nice quarter.

Thank you. Now, we're looking forward to better one next quarter.

It sounds good to me. I want to ask you, what is you philosophy in terms of share repurchase? It looks like you've been more aggressive?

Yeah. I was just going to say that the only people that are unhappy about the good news and the perspective good news are the people who are trying purchase stock. So, the half of my brain is saying, chief, we're going to have trouble purchasing stock. So, the philosophy is that we should be out there purchasing stock if we've no better use for the money other than acquisitions and dividends. But it all depends on the volume and the price, right? That's what it comes down to. So the general sentiment is that the [accretive one] should generally go forward and buy stock.

Okay. I just had another question on the CEO search. Is there anything that you want to share in terms of how that's coming along?

Well, there was never a CEO search. There was a search for, COO, a senior executive to help our President around the company. And I can tell you, its going, okay, that we expect to have some news in a couple of quarters. We're fine tuning that.

Thank you.

You are welcome.

[Operators Instruction] And our next question comes from Antonio Antezano

Thank you, just a quick follow up on new products. Now that you launched several new products, should we expect more in the balance of the year?

No.

And about the commercial products - a while ago you mentioned, you were also working on commercial products. I was wondering if you could share any update on that.

I can share the eulogy for the commercial products. The first commercial product that we were hoping to introduce was called Doorman, and we have since discovered that we can't do it and make money, so we stopped the development of that product, and unfortunately the [relation], and settled the relationship at that perspective of OEM.

And just final question about OEM. We were looking at the bookings data on the backend semi in North America sympathies getting more stable, and I was wondering if although you have almost one month in Q2, whether you see any recovery or early sign of recovery in that business?

Yeah. The recovery that we are seeing so far in Q2 is principally located in Japan, not in the US. In the US, most of our SEMI OEM happened to be front-end related as opposed to back end, Antonio. But we are seeing, a little bit of life, if you will, in Japan.

I can tell you that year-to-date or quarter-to-date versus prior quarter-to-date, the bookings were up 25%.

All right.

But they are still down year-on-year. Quarter date versus 2007 quarter date, then. So, there is some slight recovery.

Yeah, all of that was increased, was coming from Japan.

Yeah.

Okay. Thank you.

Our next question comes from Jim Ricchiuti Jim Ricchiuti - Needham & Company: Yeah, have you just had a follow up question with respected Checker? Do you get the sense that have turned the corner with Checker, and the product is a little bit more established, may be a little bit more mature, and you are starting to get the traction in the market you anticipated?

No, not at this moment. Sure, we have made some changes that customers suggested, and that seems even that and/or the time that we spent explaining it, have really helped. Year-to-date we are up 68% booking on Checker, and it looks like this will be $10 million year or more for Checker. So I will be vindicated. Jim Ricchiuti - Needham & Company: And, Bob, is most of this going through distribution at this point?

I don't have the answer to that. No, nobody here knows.

We can try and find out the…

No, I will give you the chart, by the way it is not with us. We have the data. Jim Ricchiuti - Needham & Company: Okay.

But I don't know, I would say, yes. That would be my guess, but it's a guess. But anyway, it looks great, I'm looking down the chart here, and every single product line is just doing great. Except, again, anything to loose. Jim Ricchiuti - Needham & Company: Okay. Well, congratulations on the quarter.

Thanks.

Our next question comes from [Stephanie Dedut]

Hello, Stephanie. Oh, that's an easy one. How about the next one?

I'm seeing no further questions on the phone.

Well, make sure, to have a short meeting and a lower conference call bill. So, again, I want to thank whoever is there, anybody there who are attending the call, and hopefully report to you even better results in Q2. See you down the road.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.