Good afternoon and welcome to Nanometrics first quarter 2010 financial results conference call. Before we get started, I would like to call your attention to the following Safe Harbor statement. This conference call contains certain forward-looking statements, included but not limited to, statements regarding Nanometrics’ expected results for its most recently completed fiscal year, which remains subject to adjustments in connection with the preparation of Nanometrics’ financial statement and periodic report on Form 10-Q for the quarter ended April 3, 2010. The continued adoption and competitiveness of its products, the expansion of the company’s served markets and future revenue growth, profitability and cash flow. Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of risks, including slower than anticipated market adoption, a contraction in current levels of industry spending, and the addition of risk factors and cautionary statements set forth in the company’s Form 10-K for fiscal year 2009 as well as other periodic reports filed with the SEC from time to time. Nanometrics disclaims any obligation to update information contained in any forward-looking statements. Leading the call today will be Dr. Timothy 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 a listen-only mode. I would now like to turn the call over to Dr. Stultz. Please proceed sir.

Thank you. Good afternoon everyone and welcome to our first quarter 2010 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 the next few quarters. With the benefit of having the wind at out back, we are beginning to deliver results that demonstrate the operating leverage and efficiency we have worked hard to put in place. Semiconductor industry capital spending and outlook have dramatically improved and those combined with our strengthened competitive position, expanded served markets and improving financial operational performance have helped us deliver quarterly results with significant revenue growth, strong gross margins and improved profitability. Financial highlights for the quarter include revenues of $37.2 million, a 41% growth over the previous quarter and 270% growth year-over-year. GAAP gross margin of 55% and GAAP earnings of $0.26 per share. Bolstered by the receipt of multiple unit orders of standardized products following key customer wins, which in turn lead to improve manufacturing efficiency, we have exceeded our gross margin performance and profitability achieved at prior similar revenue levels. We are truly pleased to be able to report that we have managed to grow into our business model earlier than we projected and with efficiencies better than planned. On the commercial front, we are highly encouraged by growing adoption of Nanometrics Advanced Optical Metrology products by industry leading customers into an expanding number of high volume in line applications. These include optical critical dimension or OCD, wafer-scale packaging and overlay registration for lithography. We see growth in each of these areas as our…

Thank you Tim and good afternoon everyone. Nanometrics’ press release containing first quarter fiscal 2010 results were sent out by Business Wire today May 6th, around 1 p.m. Pacific Time. The press release may also be found on our website at nanometrics.com. Also on our website, our reconciliations to non-GAAP figures referred to in our prepared remarks such as non-GAAP operating income. That being said, all the figures referred to in my comments are GAAP, unless otherwise noted. First quarter revenues of $37.2 million were up 41% from the previous quarter and were up 270% from the first quarter of fiscal year 2009. Product revenues of $28.5 million increased 43% quarter on quarter and 478% year-on-year. Service revenues, which include both upgrade and core service revenues were $8.6 million, up 37% from $6.3 million in the prior quarter and up 68% from $5.1 million in first quarter of fiscal year 2009. Revenue by geographic region is based upon the ship to or first in use destination and during the quarter the breakdown was Korea at 43%, US at 35% and rest of world at 22%. Revenue by product type was automated and integrated metrology at 65%, service and upgrades at 23% and materials characterization at 12%. Gross margin in the first quarter was 55.3% compared to the 50.7% in the previous quarter and 28.3% in the first quarter of fiscal year 2009. Product gross margins increased to 56.3% compared to 53.3% in the prior quarter as a result of higher sales volume and more favorable factory utilization. Service gross margins came in at 51.9% in Q1 compared to 42.3% in the prior quarter as a result of a more favorable mix of technology upgrades. Total operating expenses in the first quarter came in at $14.6 million, which was $1.9 million…

(Operator Instructions). Your first question comes from the line of Mahesh Sanganeria with RBC Capital Markets. Please proceed, sir. Mahesh Sanganeria – RBC Capital Markets: Tim, a question on your systems and material characterization, both seems like up more than 40%. And I thought that system benefit from a revenue mix last time, but the material characterization is up pretty strongly. So can you give us some more color on what drove the material characterization that much?

Sure Mahesh, and thanks for calling in. The primary driver behind the material characterization has been high been high-brightness LED customers and tools. Mahesh Sanganeria – RBC Capital Markets: High-brightness LED, okay.

Yes. Mahesh Sanganeria – RBC Capital Markets: So, is that going forward, should we look at that as a – or are there is going to be some lumpiness in the material characterization business?

No, I don’t – the materials characterization business is – I think it’s up about – the height has been in almost two years. We are seeing a nice contribution to it from LED. Historically, we also used to have a fair amount of business for materials characterization from the bare silicon wafer inspection, and that really hasn’t even kicked in yet. So I think what we are seeing is growth on the LED, some contribution from solar, and we can look forward to some additional contribution to wafer defect inspection as capacity and volume continues to increase. Mahesh Sanganeria – RBC Capital Markets: And so, on the wafer inspection side, why isn’t that business picking up, because I have heard that there is a capacity constrain across the board, and the wafer guys have increased their prices I have heard. And so – do you think there is enough capacity that that’s the reason that we are not getting some orders on the wafer side?

Yes, our channel checks indicate that the capacity put in place in 2007 still has some bandwidth, there may be a timing issue that are driving it. And we think that that’s going to be on the near horizon for some benefit. But we have put an awful lot of inspection tools out there in the 2006, 2007 timeframe. And I think they are just getting to the point where they are been close to fully utilized. Mahesh Sanganeria – RBC Capital Markets: And then, getting back to the metrology systems, you have the benefit of $3 million from last quarter. So we should take the basis close to $21 million and I would say that things still looking up, but you still – if I take the base as $21 million, we should still see a growth throughout the year, is that a reasonable rate to look at things?

This is probably one of the nicest and the best business environments I have been in a long time. We see continued strength in the industry. We see continued strength within specific customers. And as I mentioned during my script, we are also very encouraged by the announced of new fabs, some of the – them are Greenfield fabs and some of them are going to be extension of existing fabs. But all those are opportunities either for retooling in our new tools being put in place. So we are very optimistic about this year. Mahesh Sanganeria – RBC Capital Markets: Are you beginning to see the orders for the new fabs? And can you talk about some – I mean, we know – I mean we talk about 10 fabs and the most – the most closest one is, I mean besides the foundry one, is the IM Flash. Are you beginning to see some of the extended lead time orders from some of those fabs?

We are certainly engaged in conversations about lead time tools and population in a number of geographic regions. So, they are out there and they are starting to occur. Mahesh Sanganeria – RBC Capital Markets: Okay. I will ask just one last question and then I will be done. So, on the service side upgrade, I would say that was pretty healthy level, I guess somewhere between $2 million to $3 million that would be my guess. And should we see that to go back to more $1 million to $2 million level next quarter?

As we mentioned in our last call, our service – our upgrade business has been on the order 6% to 8% of total revenues. It’s certainly the most lumpy part of our business. But as our systems business grow and our materials characterization business grows, and then the service then itself grows, then I think that you are going to seeing less influence on the overall – on the overall numbers by the upgrades and they continue to be good contributions to revenue, a nice contributions to margin, but probably aren’t going to play as large as swing factor in our – in the actual business numbers when you roll them up. Mahesh Sanganeria – RBC Capital Markets: Okay, thank you. Thank you very much.

You bet.

Your next question comes from the line of Wenge Yang with Oppenheimer & Co. Please proceed, sir. Wenge Yang – Oppenheimer & Co. Hi, thank you for taking my questions. First question regarding your logic exposure after your successful penetration of some of the large logic accounts. And we assume that your main revenue source will come when the 22-nanometer ramp starts. But you have been listing some of the logic names as your top 10 customers in the past two quarters and I assume similar for this quarter. So could you comment on your current status with logic accounts? And which products have you been successfully penetrated and which products are you engaging with those customers?

Okay. Well, let me back to the two things. One is our two 10% customers this quarter were once again Samsung and Intel. And we have talked about them before that’s the third quarter in a row. Logic continues to be a very nice contributor to our revenues. Our thin film tools, our OCD tools, our integrated metrology for CMP tools are all playing the role in those contributions and we are engaging a few other areas as well. Wenge Yang – Oppenheimer & Co. Okay, so you mentioned about a UniFire revenue recognition. I would assume it’s also from your logic customer, right?

Yes, it is. But we also have – we also have – the UniFire has had gained in success not only in the semiconductor, but also in the data storage, which is starting to be a nice market for us with some growing contribution, both in OCD as well as the UniFire area. Wenge Yang – Oppenheimer & Co. Okay, that’s helpful. Just continuing on the Greenfield new fab subject. You have been engaging some – with some major NAND suppliers in terms of market penetration. Could you update us on your status in those penetration efforts?

Well, we can’t give you anything customer specific. But we feel very strong, we have been very – we reported that we have been strong both in the NAND area. Clearly, the memory area, which has supported us very well. We are seeing continued benefits from there. And we are also seeing some other memory players come – start to make commitments and look for tools in the latter part of this year. The – so we see strength in both sides of NAND and in the DRAM and flash. We are seeing flash actually increase now as a portion of the total memory side compared to the last quarter. So I think you are going to see some increased spending of the flash folks. Wenge Yang – Oppenheimer & Co. Okay, I understand. And the last question is regarding your overlay product. It’s been discussed several quarters in terms of customer evaluation activities. Is there any revenue stream coming out of that product? And if so, from which segments?

So, the answer is yes. The overlay product is contributing with multiple systems going out to multiple customers. We don’t give you any more granularity to it than that, but it’s a good product, it’s gaining some nice traction now. Wenge Yang – Oppenheimer & Co. Okay, thank you.

You bet.

Your next question comes from the line of Weston Twigg with Pacific Crest Securities. Please proceed, sir. Weston Twigg – Pacific Crest Securities: Hi. Yes, just a couple of questions on the model. Looking at the gross margin performance, over 55% this quarter is great. But I am wondering, should we continue to look at a service gross margin above 50% or do you think it might drop down a bit as maybe some upgrade revenue slows as a percentage of the overall (inaudible) 30% on just the service piece alone?

Yes. Our core service margins are not as high as that. There is a nice contribution of upgrade. But as we look at it right now, our upgrade businesses is still got a lot of life, I think it’s going to contribute in the forthcoming quarters. And our core service margins have been steadily improved and they are kind of leveling off right now slightly above our model. So I think that the model that we are presenting it here is – in general in terms of the gross margins are going to stay intact and we have a room for improvement. Weston Twigg – Pacific Crest Securities: So you think 55% is your baseline gross margin and maybe a little higher moving forward?

Well, we think that there are some opportunities both in further efficiencies. And if we get increased, if the revenues grow, then we should see some of the benefits on the gross margin line. Weston Twigg – Pacific Crest Securities: Okay. And then just dropping down to R&D, that 4.6 level, is that something you might trying to hold at that level moving forward or does that increase along with revenue?

We would continue to invest a little bit with the R&D. Actually, when we look at the our overall OpEx, we see that it will increase a small amount compared to revenues, but it will still increase to track with the – some of the revenue increases that we anticipate. We had a larger jump this quarter as Jim pointed out, but some of that had to do with folks going back to work and having to fully engaged work force. But I think what you are going to see is an awful lot of nice flow through between incremental revenues, benefits of the gross margin line, and ultimately benefit to the operating line. Weston Twigg – Pacific Crest Securities: Okay. That actually brings me to one more question, which is I am starting to get a little bit concerned. You have had some nice big wins recently with some big customers. But I am concerned that there might be some risk to increasing expenses, maybe more than expected to accommodate higher customer demands, things like accelerated delivery requests or equipment troubleshooting or quality control or meeting purchase-back requirements and so on, and maybe they might have to hire more people. Do you have any concern or do you see that maybe happening a little bit later this year as some of your larger customers continue to ramp?

So, the first thing is, I want you to get a good night’s sleep and let you know that the hiring that we do is actually in support of revenue driven opportunity. We are not seeing demand that’s going to impact our bottom line and that we are seeing improved efficiencies as we get to work with the same customers, but fan out to their other facilities. Weston Twigg – Pacific Crest Securities: Okay. So you would expect to hold a similar OpEx trend, maybe a little bit higher on increasing revenue, but not a big surge at any point as you increase higher ramp support for some of these larger customers?

We will manage against surges in OpEx spending, I promise you. Weston Twigg – Pacific Crest Securities: Okay, that sounds good.

Your next question comes from the line of Gus Richard with Piper Jaffray. Please proceed, sir. Gus Richard – Piper Jaffray: Yes, thanks for taking my question. Nice quarter, guys. This is the first quarter you have had an opportunity to recognize revenue from the UniFire product. Can you just give us sort of a sense of the contribution from that product in the quarter?

In terms of the product, this is the first quarter we have recognized. I can tell you, it’s accretive at this point. Gus Richard – Piper Jaffray: Right. But what was the revenue size? Was it a few million dollars, was it – can you just quantify how much of the upside and revenue that the UniFire was or what the contribution was?

No Gus, I am sorry. We won’t break it out quite to that level of detail. But as we have announced that there has been multiple systems coming out of that. Gus Richard – Piper Jaffray: Okay, great. And then, obviously, the gross margin performance was good in the quarter, and it sounded like it was primarily volume related and then there was no mix – wasn’t driven by mix at all?

Yes, I think the typical thing that we have tried to pull out is that we have had an extraordinarily strong upgrades quarter that that gives us – as we did in Q3, then we would like to point out that there may be some artificial component to how good a margin might be. But we are king of tracking with our normal business mix and our product mix. And we think that this is representative of what we can do. Gus Richard – Piper Jaffray: Okay. So the upside was really a function of volume on the product side?

Yes, volume and efficiencies. It’s not – I mean we have been able to obviously hold the price, but it’s really just efficiency in the operation. Gus Richard – Piper Jaffray: Great. And then the final one for me is as you talk about the broadening out of customers, I mean clearly, there is only been two or three companies driving spending. Is there beyond, say the top three or four, are you seeing the second tier come in and become a significant mix of your revenue or is it really just the same old guys in the quarter?

No we’re actually starting to see some of the other spending occur. The – and the quotation activities indicate that the other – what I’d call the other first tier as well as some of the second tier is that part of the pipeline is actually picking up and I wouldn’t be surprised if in coming quarters we start announcing other 10% customers. Gus Richard – Piper Jaffray: Got it, got it. Alright, and just one final one for me. You have no exposure to Greece, correct?

I’m sorry what? Gus Richard – Piper Jaffray: You have no exposure to Greece, correct?

Yes that is correct. We don’t have any exposure to Greece. Gus Richard – Piper Jaffray: Okay, just checking, thanks guys.

Or Citi, Citigroup or Citicorp spend for stock trading. Gus Richard – Piper Jaffray: Got it. Alright, thanks.

(Operator Instructions). Your next question comes from the line of Jacob Strumwasser with Kem Capital. Please proceed. Jacob Strumwasser – Kem Capital: Hi guys congratulations on the great quarter, and also I didn’t get a chance but last quarter you did a great job explaining sort of the missed analyst numbers and talking about I think it was the Samsung order and I really wanted to commend you guys for not taking a discount on that order in order to bring in the number in line within those estimates. I just wanted to try and understand two things anymore clearly than you’ve already explained, but it might not be possible. One, just talk to me a little bit about the book to bill ratio as this continues to ramp, and then two, if you could just be very explicit about where you are on the cycle because I know I’m beginning to hear people say that you’re nearing peak orders, and it will help me better understand kind of what your run rate EPS can be?

So thanks for calling in. We don’t – we obviously or I shouldn’t say obviously but we do not publish book bill number but I did indicate during the script that our pipeline in order activity is very strong and will support our objective of growing quarterly. So I like what’s going on in the industry and we like the activities. I don’t think, I’ll step back and ask try to answer the industry question as there is not a lot of folks that are already spoken to this over the last couple of weeks. I think we’re still in an early phase of this turnaround with regard to industry spending. There may be some decrease in the rate of new spending in the later half only because of the early spending that’s occurred and the fact that some of the new fabs that have been announced. They won’t be able to populate them till the later part of the year next year. A lot of educated really buy scanners. If you want to look at the opportunities to populate Greenfield fabs it’s really the ASML scanners that are going to kind of dictate when mutuals start to populate those fabs. But we would like what’s going on. We think it’s healthy and this is I was looking at some of the numbers, this actually was a deeper downturn than the 2001, 2002 timeframe because it was compounded by the global economic downturn. So I think that there is a lot of time to – a lot of capacity that needs to be put back in place. I think there is a lot of expansion and needs to occur and I think that those tools that address that record reminding ourselves that there is no wafer size change going on. So these are still 300 millimeter wafers. And so when you look at where the driving forces are they’re going on be on productivity and yield as supposed to a big shift in the wafer size and that means that lithography tools, process control tools or enabling technology tools are the ones that probably will benefit more than some of the traditional capacity tools. Jacob Strumwasser – Kem Capital: That’s really helpful. If I could just ask one follow-up, so basically it sounds like you’re not okay, I guess the one thing that maybe you guys could help make more clear to me is the earnings that we saw this quarter, is that something that could be run rated out and obviously, with room to improvement, but if we’re out of the woods of the downturn of the past couple of years and back into a kind of a normal semi cycle could we see this number as a baseline run rate for the next elongated period of time, obviously we don’t know what’s going to happen in two years, but do you understand what I’m trying to ask?

Yes let me again walk that fine line. I think the way I’d like to answer that is I don’t think that the spending within the industry has peeked yet. Jacob Strumwasser – Kem Capital: And but is spending in the industry where it is today obviously, without looking at the peak but is it sustainable at this level for an ongoing period of time, not looking at if it trends higher or trends lower, could this current level trend for a foreseeable future?

Are you talking about our performance? Jacob Strumwasser – Kem Capital: No, not your performance but basically, your customers. Could your customers continue to spend at current levels for an ongoing period of time or will they become kind of filled up on their needs and therefore kind of ratchet down. So you understand? I’m just trying to understand like right now you guys are at a run rate of $1, obviously that could grow and get better and should as you guys work through, but just as a baseline, because people are going to look back at the past couple of years and say Well, it was losing money, so I’m just trying to understand where people may look up and say, NANO is a $1 earner in a normal trend environment, that’s what I’m trying to –

Yes I think the way to try to look at the spending is that for the last two or three quarter, the spending has been totally dominated by three companies. Jacob Strumwasser – Kem Capital: Right.

TSMC and Samsung and Intel. And those companies still have some spending to take place but there is an awful lot of big spenders that haven’t even really weighted in yet. Toshiba and Hynix, Micron, and so what you’re going to see is you may see some dipping and this is totally speculation my part as an observer of the industry you may see some slowdown in spending of the top three although I think there is still spending going to occur but you’re going to see additive spending from those other companies and that’s why I said I really don’t believe that as a capital equipment, wafer fab equipment side of the world that that we’ve seen peak in the spending and therefore if we remain competitive we should benefit accordingly. Jacob Strumwasser – Kem Capital: That’s great, thank you very much.

Your next question comes from the line of Bill Frerichs with Radnorwood Capital. Please proceed sir. Bill Frerichs – Radnorwood Capital: Good afternoon, obviously a great quarter. Tim, I was wondering in your engagements the extent to which the Lynx System Architecture has been helpful to you as a differentiator and helping you win business, and if so, might the experience with Lynx drive your M&A philosophy?

Yes, Bill thanks for calling in, thank you. First of all we are shipping multiple Lynx’s. The Lynx’s gains some nice position and traction and as a differentiated platform having compatibility with our entire product line really helps us in terms of having a standardized interface and you’re absolutely – you’re spot on in terms of our interest in inorganic activities and M&A, that’s always a key question is how difficult would it be to make sure its fully Lynx compatible because that drives the model for putting in more tools on the given side and adding a different suite of options to a common platform in a given customer site. Bill Frerichs – Radnorwood Capital: And to carry that thought further might you have acquisition targets would be highly attractive, easy to snap onto the Lynx but y’all relatively small in the purchase price that you would have to pay?

Yes, of course Bill, I’m not going to tell you all the details of my M&A activities but one of the things that we do is there are three things that would suggest that this would be an area driving focus, the first one is we have a growing confidence and our ability to find those companies, integrate them and bring them to an accretive position rapidly. Second thing is we now have a balance sheet that will support some of the smaller acquisitions on the cash basis be non-dilutive to our shareholders and the third is we do have – our currency or equity is also strengthened so that it can be used in the same capacity. So we think we have both cash and equity that we can use and we have a management team that knows how to do it and we have an objective of growing through inorganic acquisitions and integration in particular on to Lynx platform. Bill Frerichs – Radnorwood Capital: Okay, very good. Thanks a lot.

Good bye.

(Operator Instructions). With no further questions in the queue I will now like to turn the call back over to Dr. Stultz for closing remarks. You may proceed sir.

Thank you. In closing we continue to be confident and enthusiastic about the business and business opportunities for Nanometrics in the foreseeable future. We move forward with results to distinguish ourselves through management and execution and we are committed to delivering above average performance and value to our shareholders. I will reaffirm that every element of our performance is directly tied to the wonderful and talented employees of Nanometrics who continue work tirelessly and with passion to grow stronger and more competitive company in one which we’re all very proud of. I want to thank all of you for joining our call and we look forward to update you on our second quarter results in early August.

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