Good afternoon and welcome to the Nanometrics fourth quarter and fiscal year 2009 financial results conference call. Before we get started, I’d like to call your attention to the following Safe Harbor statement. This conference call contains forward looking statements, including but not limited to, statements regarding Nanometrics’ expected results for its most recent completed fiscal year quarter and year, which remains subject to adjustments and connection with the preparation of Nanometrics financial statement in periodic report on Form 10-K for the year ended January 2, 2010, the continued adoption and competitiveness of its products, the expansion of the company’s serve markets and future revenue growth, profitability and cash flow. Although Nanometrics believe that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to variety of risk, including slower than anticipated market adoption, a concentration in current levels of industry spending, and the addition of risk factors and cautionary statements set forth in the company’s Form 10-Q for the quarter ended September 26, 2009 as well as other reports filed with the SEC from time to time. Nanometrics disclaims any obligation to update information containing forward-looking statements. Leading the call today will be Dr. Tim Stultz, President and CEO of Nanometrics. A Q&A Session will be held at the end of the call. Until that time all participants will be in listen-only mode. I would now like to turn the call over to Dr. Stultz. Please proceed.

Thank you and good afternoon everyone. Welcome to our fourth quarter 2009 results conference call. With me today is Jim Moniz, our Chief Financial Officer, who will be reviewing our financial results following my prepared remarks. In my remarks today, I will discuss the financial and business highlights for the quarter. Our view of the current and near term industry environment, and give some perspective on our business outlook for 2010. We are pleased to report that in the fourth quarter of 2009, we achieved our third straight quarter of revenue growth. Highlights include product revenues, which grew 23% quarter-on-quarter and 56% year-on-year, with product gross margin hitting a four year high of 53%. We did a see sequential drop in revenues from our high margin upgrades as expected and guided to last quarter. However, our core service margins increased for the eighth quarter in a row coming in above 35%. Revenues overall were $26.3 million, up 2% on a quarter, and up 29% on the year. During the quarter, we generated $6.5 million in positive cash flow, of which $3.5 million was used to pay down our line of credit in full. We also completed a secondary equity offering, which added more than $23 million to our balance sheet, and help bring our yearend cash position to $43.5 million, a level sufficient to support our business growth and strategic initiative. Before turning to the business environment and outlook, I would like to make a couple of additional comments about this most recent quarter. As you are likely aware, our practice over the last three years has been to share our target business model, discuss our progress towards achieving it and to discuss how the current business planning affects it. Our practice has been not to provide specific revenue guidance…

Thank you, Tim, and good afternoon everyone. Nanometrics press release containing fourth quarter and full year fiscal 2009 results was sent out by Business Wire today, February 18 around 1 p.m. Pacific Time. The press release may also be found on our website at nanometrics.com. Also on our website are reconciliations to non-GAAP figures referred to in our prepared remarks, such as non-GAAP operating income. Fourth quarter revenues of $26.3 million were up 2% from the previous quarter and were up 29% from the fourth quarter of fiscal year 2008. Product revenues of $20 million increased 23% quarter-on-quarter and 56% year-on-year. Service revenues, which includes both upgrades and core service revenue were $6.3 million down from $9.5 million in Q3 and $7.6 million in the fourth quarter of fiscal year 2008 as a result of lower upgrade revenue. Revenue by geographic region is based upon ship to or first in use destination and during the quarter the breakdown was Korea at 46%, US at 29% and rest of world at 25%. Revenue by product type was standalone and integrated metrology at 64%, service and upgrades at 24% and materials characterization at 12%. Gross margin in the fourth quarter was 50.7% compared to the 54% in the previous quarter and 42.1% in the fourth quarter of fiscal year 2008. Product gross margin improved over Q3 by 450 basis points to a four-year high of 53.3% as a result of higher sales volume, increased factory utilization and our improved manufacturing cost structure. As we mentioned last quarter, we expected Q4 upgrade revenues to decline sequentially from the record high level theme in Q3, resulting in lower service gross margin. Overall, service gross margin did come in lower and was 42.3% in Q4 compared to 62.9% in Q3. Notably, however, our core service…

(Operator instructions) And your first question comes from the line of Gary Hsueh from Oppenheimer. Please proceed. Wenge Yang – Oppenheimer: This is Wenge for Gary. Couple of questions. First one, you mentioned in your press release that you expect to see significant revenue growth in Q1, could you elaborate a little bit more on what's driving upside and in what scale we’d have to see to the revenue to grow?

Well, what's driving the – first of all, hi, Wenge, good to talk to you. Thank you. What's driving it is the continued capital spending that I think most of the companies in our sector are experiencing, certainly on quarter-on-quarter. A lot of the technologies, some of it shifting to the capacity and we’re seeing a shift, we’ve seen a lot of memory and DRAM spending early on. I think you’re starting to see some flash spending as well as some of the logic spending taking place. And we have very solid position in the memory area and the logic area in particular, and we’re going to benefit from that increased spending. So that’s what driving it. I won't give you a quantification of the number but I – the point I do want to make is that the revenues that we pushed out Q4 have occurred, have already taken place in the current quarter, and will contribute nicely to the performance in Q1. Wenge Yang – Oppenheimer: So if you take out that $3 million deferred revenue, do you see revenue growth based on Q4 levels?

Yes, absolutely. Wenge Yang – Oppenheimer: Okay.

Yeah, absolutely. Wenge Yang – Oppenheimer: Regarding your upgrade business, obviously Q4 upgrade revenues came down quite a bit, so that’s indicating a kind of an end of the upgrade cycle or you see upgrade revenue to pick-up again in 2010?

Yeah, so it's a good question. Our upgrade revenues have certainly proven to be quite lumpy on a quarterly basis. We initiated the program of upgrades and our strategy to sell into our install based and take advantage of the relations we have with customers about two years ago, and if we look at the revenue contribution from upgrades more on a blended average rather than on a quarterly average, it went between 6% to 8% of total revenues, we saw that in 2008, we saw that in 2009 and we expect that to continue in 2010. Wenge Yang – Oppenheimer: Okay, so we expect upgrades to be lumpy but still significant in 2010 revenue growth, right?

Yes, yes, I think it will be, you don’t have about the same percentage contribution in 2010 that it has in the last two years. I would like it not to be lumpy but it just happens to be that way. The origin of that is that when we sell a revenue – I mean an upgrade package, this might help you understand little bit, but when we sell a revenue an upgrade package to a customer, we go to a place where they have an installed base of multiple tool and so when we get our revenues, I mean our upgrade order it applies to anywhere from 4 to 10 tools at one time, and so it tends to make – instead of having a smoothing effect it has got a lumping effect in terms of the – on a quarterly basis. But Q3 we had a very high record level, Q4 dropped down quite a bit and I think we are going to see kind of a hopefully returning to more normalized levels quarter-on-quarter going into 2010. Wenge Yang – Oppenheimer: Okay. Last question is more regarding your customer base, could you give us the top ten customers for Q4 and...

What I can give – what we do report on is our 10% customers and that was Samsung and Intel. Wenge Yang – Oppenheimer: Samsung and Intel. So it remains similar to Q3, and recently there were several announcement of new fab in the NAND space basically in Japan and Singapore, could you comment on your exposure to this new fab opportunity?

We think it’s a great opportunity. I have pretty high level of confidence in our products and our people, and I think that we are going to have a favorable participation on those builds. Wenge Yang – Oppenheimer: Okay. Thanks.

Your next question comes from the line of Weston Twigg from Pacific Crest. Please proceed. Weston Twigg – Pacific Crest: Hi. I just have a couple of questions here. One, I am kind of curious how many equipment selection you are currently participating in or in other words tell me what’s the opportunity to win new business this year, if you can quantify that in some way?

Hi West, it’s good to hear from you. Let me address it slightly differently. There is a limited number of customers out there as you are very well aware of, there are some equipment selections going on in a customer sides, but probably the more relevant response to your question – and a more accurate response to your question is that we are participating in evaluations for expanded applications within some of the same customers as well. So, it’s customer side plus application with other customers. Weston Twigg – Pacific Crest: Okay. Can you give us an idea of the numbers so – just trying to get a feel maybe if new applications and new customers, just maybe even the number of potential wins that you could be competing for this year?

I don’t think I am – I am not comfortable answering that in a quantified way. I would just say that there are several out there that are going on, that are of a meaningful size and opportunity for us. Weston Twigg – Pacific Crest: Okay. And then, I guess another angle, wondering what you think if you just had your existing customer base and assume you didn’t win any new business or selections, what would be a peak revenue level with your current customer line up?

I don’t know how to – it depends on what the peak spending levels look like for the CapEx. You know our peak revenue, which I’m sure you realize, was in the third quarter of 2007, and we had about $39 million. I don’t think capital spending this year is going to be nearly as high in 2010 as it was in 2007, in fact I think it's still going to be a lot less than 2008. But I think the incremental business positions in market share will allow us to challenge our previous peak level with the business in 2010. Weston Twigg – Pacific Crest: Okay. And then, just another question on the Tevet product, just wondering if you could maybe just give us a little bit of idea on the current level of traction and maybe figuring revenue from that product now what's the scale and how do you see that trending through 2010?

So the Tevet product line which we call the trajectory product line, those revenues are captured in our materials characterization, which in turn captures our high-brightness LED and solar. We don’t break it out specifically, but I will tell you that we have introduced a couple of new products based on the original technology that was acquired, now when we acquired the company Tevet, and they were giving traction with those, and we’re focused on some reasonable design wins in the high volume manufacturing environment, in particular in the solar right now. Weston Twigg – Pacific Crest:

It's being evaluated. Weston Twigg – Pacific Crest: Okay. And one more question, just on the tax rate for 2010, can you give us an idea of what we should use or think about using?

Yeah, for 2010, I think you should use a nominal tax rate, maybe 3% to 5% at most. We still got quite a due tax losses. We are looking right now doing a study to determine if there is any limitations on those losses for 2011 and beyond. But for 2010, it’s really a nominal more foreign jurisdiction tax rate; I'll use maybe 3% to 5%. Weston Twigg – Pacific Crest: Okay, very helpful. Thank you very much.

Thank you, West

Your next question comes from the line of Gus Richard from Piper Jaffray. Please proceed. Gus Richard – Piper Jaffray: Yes, thanks for taking my question. Just a little bit, you mentioned in the press release you have good traction in the overlay part of your business, and I was just wondering if there is any update, have you won some new customers on that diffraction-based overlay.

We don’t break down whether it’s a diffraction-based or image-based overlay, but we are getting new business in overlay in general, and we have had some multiple system orders in that area. The diffraction-based overlay technology is still in a kind of it’s an emerging area, and there is a lot of activities on there but it will be a while before its total volume exceeds, that will be more established image-based overlay. Gus Richard – Piper Jaffray: Okay. And then could you just talk a little bit about the Unifier product and I would expect that you guys are going to start to be able to recognize revenue from that product line this quarter, is that correct?

Yes, Gus exactly. We’ve mentioned in previous calls that there have been some shipments that follow the acquisition of the product line but due to purchase accounting regulations we couldn’t recognize the revenue. We will be recognizing Unifier revenues in Q1. Gus Richard – Piper Jaffray: Okay, and so the purchase accounting impact is now done and now that should be a normal product line for you?

Yes, certainly from revenue recognition, that’s correct. Gus Richard – Piper Jaffray: Okay. I think that’s it from me at this point, thanks.

Thanks Gus.

Your next question comes from the line of Mahesh Sanganeria from RBC Capital Markets. Please proceed. Mahesh Sanganeria – RBC Capital Markets: Yes, thank you very much. Tim, one question on the material characterization that is up pretty significantly, do you think that that is at sustainable level or do you seeing an upside to that number, how do we think about material characterization numbers going forward?

We are actually – we are very pleased that it’s growing, but we think it has got a lot more run rate left. That part of the business actually dropped off quite a bit partially because of our bare silicon wafer products that are captured in that revenue report, but also because we see some nice opportunities, increasing opportunities in high brightness LED and the solar. So I would expect that to continue to improve sequentially. Mahesh Sanganeria – RBC Capital Markets: So do you think that you can come back to 2008 kind of level in 2010 or it will take a little longer than that?

Actually our levels are pretty close to that, I think you are going to see it exceeding these kinds of those 2008 numbers. I think there is going to be some good news coming out from that part of our business. Mahesh Sanganeria – RBC Capital Markets: Okay. So the other question that $3 million push out that happened, was that in the metrology division?

That was in our primarily in our standalone business, yes the metrology business. Mahesh Sanganeria – RBC Capital Markets: Okay. And just one more industry-wide question, I mean, looking at reports file, all the guys who have reported it’s kind of all over, usually normally they are all very correlated but we had LAM [ph] reporting a huge March quarter and some reporting a more slower growth. Can you – and then there is concern over first half loaded versus second half, and I guess there is a lot of – a lot depends on your customer exposure, but can you talk in general terms the linearity of the quarter through the years, is it something like Q2 being strong and there you see some kind of pause in Q3 and pick up in Q4? Or anything if you can help in that matter it will be helpful?

Sure. It is confusing, when I think you have numbers out there from 7% to 35%, it was in the sector, some of that’s timing as I am sure you are aware of whether or not they are buying some early adoption technology products, process equipment or moving into capacity purchases, for us what drives our opportunity is that as we are winning these slots, which is kind of a key to our future or the slots that have multi-year opportunities, a lot of that as we have reported in the past don’t really even kick in till the middle to the latter half of this year. So, I am not smart enough to tell you whether or not capital spending goes through – flattens out in general across in the second half of the year, but I believe with some levels of confidence that we are going to see sequential quarterly growth. I would also point out that the spending and as reflected by the different reports here that we have seen in this quarter whereas, when the tide rises in this one, not all the boats float at the same level. We see the spending bias towards technology enablers, lithography, process control and also some of the, like say copper tools for through-sell can be in bumps and in the stack wafers. And I think that those companies who offer those products as I mentioned in my script are the ones that probably get a slightly better benefit. And so I would expect going forward you are still going to see pretty good spread between outlook company to company on each quarter. But I feel pretty good about 2010 being a reasonably smooth growth year for us. Mahesh Sanganeria – RBC Capital Markets: Okay, then that’s good. So, one question on gross margins, so for the product and as well as the core service, the core service you hit the 35%. Is that close to your target or is this some kind of one-time benefit, what is the long-term sustainable rate we should be modeling for the core service? And same thing, same questions for the product side, you had a good quarter on the margin side, how should we model a long-term target basis?

Sure. Let me respond to the service. So we have a publish model, which you can now find on your web in our IR presentation, that shows what margins we might expect as a function of revenue going from 30 million, 40 million, 50 million. Our model is that service plus upgrades comes in about 33%. We have been beating that number pretty consistently, and now our core service has hit those numbers without the upgrade. So we think we are going to do a little bit better in that area but our model is still at 33%, we haven’t revised it yet. On our product margins we set our model at 50% gross margin at 30 million ramping to our 54% gross margin at 30 million, ramping to 50 million, and we think that we are going to – if these tools and the OCD products ramp out, and we get better factory absorption, I think we are going to be hitting our model. Mahesh Sanganeria – RBC Capital Markets: Okay. And then one last question on the other income, I missed Jim what your commentary at it, what was the reason, what was the special expense this time in the other income line?

The other income was $1.1 million. Mahesh Sanganeria – RBC Capital Markets: Go ahead, sorry.

The other expense was $1.1 million, and last quarter was essentially flat, and the driver between both quarters was – this quarter we had a FX translation loss of $400,000, and last quarter we had a translation gain of $600,000, and most of that had to do with the strength of the dollar versus both the yen and the pound. Mahesh Sanganeria – RBC Capital Markets:

The way you should model it without the FX is the other expense runs around $600,000, which is the combination of the interest that we paid for the loan on the mortgage of the building, which is about $300,000. And then the imputed interest we do based on the acquisition we made on Zygo Unifire product line, which is around 300,000, it dropped to about 200,000 in the second half of the year. So, it runs anywhere between 600,000 and 500,000 a quarter not counting the FX rate. And the FX rate we are looking at a way to try to modify that and moderate that, so we don’t see such big swings. Some quarters we see a favorable $0.5 million, last quarter we saw an unfavorable $400,000. So, we don’t really model that or give people and put the model at without – we should model about 600,000 in other expense in the quarter. Mahesh Sanganeria – RBC Capital Markets: Okay. Thank you very much.

Thanks Mahesh.

Your next question comes from the line of Edwin Mok from Needham & Company. Please proceed. Edwin Mok – Needham & Company: Hey, thanks for taking my question. First question regarding, I think, Tim your comment that you expect sequential growth throughout the year, I was just wondering how much visibility you have on that, and are you referring to product revenue since you said service [ph] could be somewhat lumpy?

Yes, well the – I think service of course won’t be lumpy. I think it’s is improving quarter-on-quarter at reasonable levels 5% to 10%. Clearly the driver would be the product revenues and – there is the lumpy part is the upgrades which is a little hard for us to give you a good forecast on. Our visibility improves when we win these technology notes because it causes to have engagements with their customers that address multi-quarter leads and so we are gaining some improved visibility that way. I would like to tell you of our absolute visibility, which I don’t, but we are doing our best to track it. Edwin Mok – Needham & Company: Yes, I think best visibility out there is right now for a top anyway. So, thanks for the color there. Second question is on your standalone and integrated – I think you reported 64% if I caught that correctly, can you give us a breakdown between those two pieces?

No, we don’t separate those two, I apologize, but we just can’t lump them together into our product revenues. Edwin Mok – Needham & Company: Okay. That’s fine. And then maybe two questions more along with term rate, first one is regarding the OCD module, I was just wondering how do you view that market this year, next year and one of your competitor has talked a lot about OCD replacing or at least after much harder replacing, (inaudible) right now, are you seeing similar kind of pulls from your customer for your products as well?

Yes, I think the way to look at OCD is a pretty exciting area and it's evolving and it's also going to probably cause us all the – try to redefine what it mean. It's clearly disruptive. It is disruptive to traditional tools using copper, its disruptive to CD-SEM. It has got an expanding application base, and when you start looking at what the core capabilities of these tools are, as kind of looking them – the way we are starting to look at is there are optical metrology tools that happen to have reflectometry, ellipsometry, interferometry and OCD kind of more narrowly defined although it’s a traditional way to look at it. So, I guess there is long way to answer. We are pretty excited about how we think it is going to become a predominant metrology technology if properly defined encompassing all those different aspects used in process control. Edwin Mok – Needham & Company: Given the dynamics, do you expect this market to outperform the industry this year and next year?

Yes, I think process control does – as I mentioned earlier, I think lithography outperforms the market. I think process control outperforms it. I think some areas of inspection outperforms it because I think those are the areas where you give more juice to your customers to get more devices out. Until those recently announced fabs get put on line, the only way to make more money and meet the demand that our customers are still getting is to get higher yield and to go to shrinks and that favors certain types of tools. Edwin Mok – Needham & Company: Great, that was helpful. And then lastly, you have $43 million of cash end of last quarter, and you guys have done a pretty good job in terms of integrating basically some of the metrology company, right any thoughts of more acquisition and what's your view on that. Are you guys looking to make bigger acquisition on row or more smaller (inaudible) acquisition? Thank you.

Sure. I obviously would not respond to any specifics on M&A activities, but I do believe that this industry needs larger companies and that consolidation will occur and is usually in the shareholders' best interest to create the size to be competitive in this environment where you’ve got a shrinking customer base, you need to have a more concentrated delivery system of tools and support and service to leverage your channel. And so I do think there’s things are going to occur, and if I have my brothers [ph] we are going to be one of the consultants. Edwin Mok – Needham & Company: Great. That's all I have. Thank you.

All right.

Your next question comes from the line on Bill French, Ravenswood Capital. Please proceed. Bill French – Ravenswood Capital: Thank you. Tim, this $3 million push out, is that the result of tough negotiation over price or terms or was it the convenience for the customer or what?

That's a good question. No, it's really testing our resolve and to some extent exercising us. So the negotiations generally have, when these occur the negotiations have been completed, the commercial returns have been set, and then you get towards the end of the wire, and once in a while our customers will test our resolve and suggest that, it’s a little bit difficult to get all the paperwork done in this timeframe but maybe they could push it through while we make some sort of concession, and we are just not going to do that. We don’t lose the business and if it moves out a week or two, so be it. Bill French – Ravenswood Capital: Yeah, good. Very good. That's the way to go.

Thanks for calling Bill.

Your next question comes from the line of Michael Amari from Americo, Inc. Please proceed. Michael Amari – Americo, Inc.: Hello guys. You had – considering everything, a very strong quarter and strong future. And the only thing I’m concerned about, do you have any – do you expect any capacity or strength with the fact that you are having the same number of employees, and are you going to hire employees?

Michael, thanks for calling in and thanks for the comment. Actually couple of things. Number one is that, as you know, over the last couple of years, we have put a lot of energy into developing an outsource model where we leverage factories and manufacturers outside of our core business; that our manufacturing focus has been on our key technology the optical systems, the software systems and being a systems indicator as a final step. So we actually have a lot more leverage in our manufacturing environment. The second thing is that even though we have a significantly reduced headcount versus say two years ago. Most of that came as a result of our restructuring where we closed – duplicate operations and facilities. We at one-time had up to five manufacturing sites, and we had distributed the workforce where we have now consolidated those into core competencies. So I feel very good about the team. I will take this opportunity to say that, I think the challenge for all of us during these ramps is in our supply chain management, and although we haven't been impacted in a way that manifest itself on our revenues, I think all of us have to stay very close to our suppliers and our supply chains to make sure that they don’t impact our ability to deliver on time. Michael Amari – Americo, Inc.: That’s for sure. Another question, I’m curious to know whether you have a time limit to finalize your secondary offering, this could come anytime or you can't comment on it?

The secondary offering that we went on through the – first of all, there maybe two steps, let me just suggest. We filed an AS3 where we have had self registration of about 5 million shares. The formal secondary offering, we sold 2.3 million shares of ours and we sold almost a million shares of Vincent Coates, the founder of the company. That concluded that secondary offering. And, so, at this time we have no other activities in terms of funding or selling shares. Michael Amari – Americo, Inc.: Great. Thank you very much for your good quarter.

Thank you very much.

(Operator instructions) There are no further questions at this time. I will like to turn the call back over to Dr. Stultz for closing remarks.

Thank you. In closing I will say that we are very confident and enthusiastic as ever about the business and business opportunities for Nanometrics in the foreseeable future. I want to again give special recognition and thanks to our employees who have worked tirelessly through some very difficult times to help grow stronger and a more resilient company, and I want to thank all of you for joining our call. We look forward to updating you on our first quarter results in early May.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.