Good afternoon and welcome to Nanometrics first quarter 2011 financial results conference call. (Operator instructions) 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. Please note that this conference call is being recorded today, April 28, 2011. At this time, I would like to turn the call over to Clair McAdams, Investor Relations/Council for Nanometrics. Please go ahead.

Thank you and good afternoon everyone. Welcome to the Nanometrics first quarter 2011 financial results conference call. On today’s call are Dr. Timothy Stutlz, President and Chief Executive Officer and Ronald Kisling, Chief Financial Officer. 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 including but not limited to statements regarding financial results for our most recently completed fiscal quarter, which remains subject to adjustment in connection with the preparation of our financial statements and periodic report on Form 10-Q for the first fiscal quarter 2011, the continued adoption and competitiveness of our products, the expansion of our served markets and future revenue growth, profitability and cash flow. Although Nanometrics believes the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of factors including a contraction in current levels of industry spending, shifts in the timing of customer orders and product shipments, slower than anticipated market adoption, changes in product mix, increased operating expense and the additional risk factors and cautionary statements set forth in the company’s Form 10-K for fiscal year 2010 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. I will now turn the call over to Tim Stultz. Tim.

Thank you Clair and good afternoon everyone and thank you for joining us today. With me today for his first conference call with Nanometrics is Ron Kisling, our new Chief Financial Officer. We are quite excited about the added dimensions bring to the management team and as you will soon see, he has hit ground running. In my remarks this afternoon, I will discuss the business and financial highlights for the first quarter of 2011 and our view of the current and near term industry environment. Following that, Ron will provide a closer review of our financial performance, after which I will return with our guidance for the forthcoming quarter. In the first quarter of this year we saw a continuation of healthy investments in capital equipment by the leading semiconductor device manufacturers in all three areas of technology development, capacity expansion and new fab construction. These, combined with our leading market position in OCD, where we continue to gain market share through competitive wins, our growing position in Metrology for 3D device structures and strong operating performance have enabled us to deliver another record quarter of financial results. In addition to record revenues of $62 million and ten year operating profit margin of 27.5%, Q1 marked the seventh straight quarter of positive cash flow and gross margins exceeding 50%. This consistency of solid performance across the cycle reflects the strength of our business model, our ability to compete, our success in shifting fixed costs to a largely variable cost structure and solid operational execution. We also believe our above average gross margins reflect the competitiveness of our products and the efficiency of our operations and we know that consistent profitability and strong positive cash flows enable us to make the investments in our business necessary to remain competitive and…

Thank you Tim and good afternoon. Nanometrics press release containing our first quarter results was sent out by business wire today, April 28, around 1:00 pm Pacific time. The press release may also be found on our website at nonometrics.com. In our release and on our website, are reconciliations to non-GAAP operating income, which is management’s measure of cash flow generation from the P&L. That being said, all the figures referred to in my comments today are GAAP based measures unless otherwise noted. After a great 2010, we started 2011 with another quarter of strong financial performance. We achieved record revenues of $62.1 million, up 35% from the prior quarter and up 67% from the first quarter of last year, exceeding our guidance of $56 million to $60 million as a result of favorable shifts in delivery schedules and strong operational execution against the steep customer ramp. This growth was primarily driven by a significant increase in shipments of our automated Metrology system. Total product revenues of $54 million were up 41% from the fourth quarter and up 89% from the first quarter of 2010, while revenue from service and upgrades of $8.2 million increased 3% sequentially and declined 5% from the year ago quarter. As I mentioned previously, the primary driver of our revenue growth in the quarter was a significant increase in demand and shipments of our automated Metrology systems. Automated Metrology systems grew to 63% of our total revenues, up from 46% in the prior quarter. Materials characterization and service upgrades each comprised 13% of total revenues while integrated Metrology comprised the remaining 10% of total revenue. While we believe automated Metrology systems will continue to make up the largest share of our product, we will see quarter to quarter fluctuations in our mix. Consistent with our…

Thank you Ron. Summarizing this report, we had a very good quarter with good operational execution and a continuation of solid financial performance. Industry demand and fundamentals remain on the positive side, driving the long term need for additional investments in technology and capacity. Customer confidence and trust in our products and our services has been rewarded with increased market penetration, gains in market share and strong positions with the leaders in our industry, and we are addressing the higher growth sectors of our industry; notably, three dimension Metrology. With that as a backdrop, our guidance for Q2 is as follows. We see second quarter revenues coming in between $62 million and $65 million with gross margins of 54% to 55%. Operating expenses are expected to remain flat quarter on quarter. Operating income will be between 25% and 27% and our earnings per share will be between $0.41 and $0.047 per share with a nominal tax rate of 35%. With that, we will now open the line for questions. Operator.

Our first question is from Mahesh Sanganeria with RBC Capital Markets. Your question please. Mahesh Sanganeria – RBC Capital Markets: Thank you. Congratulations Tim and team. Pretty good numbers here. I guess you probably know the obvious question here is are your larger peers are seeing pretty significant push out from what we estimate at TSMC, but you don’t have exposure, but Samsung also in the NAN arena and so can you help us with deciphering what is the difference, why aren’t you seeing that weakness from your largest customer I would say.

Hi Mahesh. Thanks for calling in and thanks for the comment. I think the way to look at this is that our guidance reflects the business, the backlog and the customer demand for our products as we move forward. As you know, we’ve got a number of customers that have been ramping up, expanding their use of our tools and giving us a very good solid business in particular in the OCD automated systems. We certainly are aware of the reported push outs notably with Samsung and TSMC and as you correctly point out, we don’t have a lot of exposure to TSMC but Samsung is one of our largest customers. The other side of that is Intel, which is another strong customer of ours and I have not put out, we have not seen any reports indicating push outs on their side. So we have a little bit of a balance on that and that’s why we think that Q2 will come in at the numbers we’ve projected. Mahesh Sanganeria – RBC Capital Markets: So just a little bit more clarification on that. When you compare your Q1 to Q2 revenue, can you help us understand what is changing in terms of the source of revenue regionally or by customer type I mean in terms of thermologic or DNAM or (inaudible) versus Taiwan versus US, so in terms of the composition between Q and Q2.

In terms of our guidance into Q2, we certainly wouldn’t, are not providing you with any forward guidance on segmentation. Our product revenues have typically been balanced between our two largest customers, between Intel and Samsung and those have shifted quarter to quarter and they continue to be very strong customers for us and Heinix has started spending as we all know. And other than that I can say that we expect to see some balance going forward into the next quarter. Mahesh Sanganeria – RBC Capital Markets: You’ve reported 10%, is the Samsung and Intel, they’re both 10% of the revenue in Q1. Is that what you said or I missed that?

We actually reported three customers; Intel, Samsung and Heinix all contributing more than 10% to our quarterly revenues. Mahesh Sanganeria – RBC Capital Markets: So you don’t report the exact percent from these three customers?

We actually, we do. So Intel came in at 28.7%, Samsung was 27.5% and Heinix was 11.7%. Mahesh Sanganeria – RBC Capital Markets: Okay. And when you said balancing you were saying that this balancing – I know you don’t want to forecast, but is that something that remains similar in the Q2 or did you imply that or not?

I’m just, the only implication I’m saying is that our relationship with these customers are strong. They have been for multiple quarters and we don’t expect any significant changes in the balance of our customers. Mahesh Sanganeria – RBC Capital Markets: Okay. Okay. That’s very helpful.

Terrific. Mahesh Sanganeria – RBC Capital Markets: I think that’s good for me for now. Thank you.

Thank Mahesh.

Thank you. Our next question is from Weston Twigg with Pacific West Securities. Your question please. Weston Twigg – Pacific West Securities: Sure. Just a couple of quick questions. First, just wondering, you mentioned the UniFire traction and I’m wondering if you can give us an idea of how big do you think the UniFire business can get for you this year and then maybe even into next year? And then after that, I’d love it if you can just give us an update on whether or not you’re getting any, if you feel like you’re maybe getting some additional business with foundries later this year.

Wes thanks for calling in. We don’t report, we don’t segment UniFire yet because it doesn’t represent 10% of our business and we’ll break it out when it does that. However, you may see from some of our previous investor presentations where we segment the market that we estimate that that market that’s being addressed by the UniFire will be around $70 million by 2012. Weston Twigg – Pacific West Securities: And you would get the whole market for that product?

Well I don’t know. That’s a little bit bullish to say the whole market, but we’ll try for 98%. No actually, we’re uniquely positions. I’m sorry. I don’t mean to be glib about that. We have a product that really doesn’t have direct competition in the way we approach this and so we feel very, very confident about our position to be not only a leader but a dominant player in that space. Weston Twigg – Pacific West Securities: Great. Yeah, definitely helpful. On the foundry side?

On the foundry side again, as you know our history has been that foundry has been the weak link in our revenue story. We’ve been using our balance sheet and put in a lot of energy into and resources as much as energy into penetrating that and we have a good position with Samsung as a key customer, so we feel very confident that we should be able to leverage that into their space. And we are doing our best to penetrate the other accounts, with that being TSMC and Global Foundries and hope to be successful enough to break that out as better than 10% of our industry business in the near future. Weston Twigg – Pacific West Securities: Okay. Do you think it’s possible that one or more of the foundry players moves into a 10% customer position in 2012?

Oh I think in 2012 if we don’t we have failed. Weston Twigg – Pacific West Securities: Okay. All right. Thank you.

Thank you. Our next question is from Auguste Richard from Piper Jaffray. Your question please. Auguste Richard – Piper Jaffray: Yes, on the service gross margin had a nice step up sequentially. Can you just speak a little bit – I’m sure that’s the upgrade business. Is that what drove that improvement in service margin?

The upgrades actually contributed but it’s not what improved it. What improved it is that services got – the core service margins have improved. You know we actually had that dip in the previous quarter, which was below our model driven largely by the advanced hiring we did to put people in place to support the ramp up of our customers. Those investments are now starting to be part of our, fit within our model and you see that our core margins have gone up and we certainly had contributions from the upgrades, but I would kind of look at that as a blended business and a range to expect our margins to continue to be in on a blended business. Auguste Richard – Piper Jaffray: Okay. Got it. And then why the sequential decline in gross margin guidance 54 to 55?

The sequential decline is actually a consistent part of our model. We’ve modeled it at 54% to 55% and we had some nice favorable results in the mix that gave us margins up, but that’s just consistent and flat with the model that we’ve been putting out for the last several quarters. Auguste Richard – Piper Jaffray: Okay, but you don’t expect anything in your near term business momentum to change that would, could cause a shift in that. You’re just guiding to model.

We’re guiding to model and we also are being cognitive of the fact that we did have a couple of favorable elements of our mix and we can’t always count on that. Auguste Richard – Piper Jaffray: Okay. And then just quickly, a lot of people are seeing push outs. A lot of people are seeing pull ins. Have you seen either?

We’ve seen certainly, within the quarter, which is the only quarter we’re giving guidance on, we’re doing fine. We’re not seeing any big shifts and we don’t really speak to guidance in a forward quarter, but we do know and we have seen the same report said Samsung has pushed out orders with customers that have large exposure to them and we’ve seen it with TSMC, but as I mentioned, earlier in the call, we don’t have a large exposure to the TSMC side. Auguste Richard – Piper Jaffray: Okay. And then last one for me, just any update on the overlay product line? Any increased penetration?

We’re making some gains with that but obviously we haven’t broken it out so it’s not quite as large as we’d like it to be. I think what part of the story on this Gus, is that OCD is being so successful that even some of the other business units that are actually doing reasonably well in terms of contribution margin and gross margins, the LED, the solar and so on, they’re just not able to keep pace with what’s going on in our OCD environment. Auguste Richard – Piper Jaffray: All right. Well thank you very much.

Thanks Gus.

Thank you. Our next question is from Graham Tanaka with Tanaka Capital. Your question please. Graham Tanaka – Tanaka Capital: Yeah, hi. Hi guys, nice quarter and thanks for the guidance. Just a few things; if you could give us sort of an indication as to what you think the quarterly trends might be in basic volume in the next three quarters, just kind of like directionally. We’re talking about sequentially up each quarter or flattening or what? I’m thinking more in terms of second half versus second quarter, what the growth margin trend might be in that kind of environment. Thanks.

Sure. Well thanks for the question. Thanks for calling in. We’re really holding fast on not giving guidance specific to future quarters. I’ll kind of stand back and give you our general feel consistent with the script. We think that 2011 is a good year and there’s some good fundamentals. We understand some of the uncertainty that’s going into nominally the third quarter. I think a lot of this stuff gets cleared up by the fourth quarter and we like what’s going on in 2012. So we feel that our business will continue to improve year on year, but I won’t go down to the quarter on quarter. The second thing is in terms of our margins, we believe in our model and we’re doing everything we can to further improve the model with our guidance of 54% to 55%. We did a nice job of taking some corrective action on service, which helped us and we’re continuing to look at what we can do to further improve margins within our product area. Graham Tanaka – Tanaka Capital: And how about on the overhead side, SG&A in particular. You had said in the last call that you were in fourth quarter investing for the growth that, which you’re seeing now and I’m just wondering if you’re still investing ahead of need or are you kind of properly staffed on the overhead side?

That’s a good question. On the OpEx, actually most of the investments that we put forward were in the service group and that was to deal with the product ramps and the training necessary to respond to this pretty serious increase, significant increase in tool installations and sign off. That won’t show up in OpEx. That shows up in the gross margin side. On the OpEx side, our model is to manage our spending changes to be within 10% to 15% incremental against changes in revenues and we feel confident we’ll be able to stay on that model. Graham Tanaka – Tanaka Capital: So another was plus 10% to 15% incremental year to year annual rates on this thing or relative to what?

Relative to revenues. So it’s basically incremental spending against incremental revenues. Graham Tanaka – Tanaka Capital: So if your revenues are up 10% sequentially, what would your SG&A OpEx be up?

It’d be – it’s 10% of the revenues so incremental. So if there’s an incremental – whatever the incremental amount of revenues are, we would keep our OpEx to be one tenth of that. Graham Tanaka – Tanaka Capital: Sorry. Okay.

That’s okay. Graham Tanaka – Tanaka Capital: It’s such a low number I was astonished. So it’s only 10% of the increase.

Exactly. Exactly. In fact if you’ll notice that our guidance going into Q2, the revenues are slightly up and we’re guiding to flat OpEx so it’s consistent with that model. Graham Tanaka – Tanaka Capital: Right. Congratulation.

Thanks. Graham Tanaka – Tanaka Capital: On the new product you talked about, UniFire, just wondering since we really didn’t talk about it much in the past, how does that product stack up in terms of whatever other solution there is out there in terms of performance, price, cost, etc.?

That’s a good question. The primary way to look at it is the tool is the one we acquired from Zaigo almost two years ago and it’s another optical Metrology tool based on a technology called interferometry. The way to look at it competitively is, this tool has resolution and precision that’s greater than any of the tools out there and can immediately address the challenges of these 2X and 1X nanometer type devices through silicon via’s and micro bumps. The other tools that are in the market place that we ultimately would compete against are tools that were used on larger features and they’re trying to migrate that technology into this space. So we have a technological lead and therefore we have an adoption edge and we’re really the first movers in this space. Graham Tanaka – Tanaka Capital: Great. Congratulations. Thanks.

Thank you. Our next question is from Michael Lamari [ph] with Anoriko [ph] Inc. Your question please. Michael Lamari [ph] – Anoriko [ph] Inc.: Hello Tim. Congratulations on a great quarter.

Thanks Michael. Good to hear from you. Michael Lamari [ph] – Anoriko [ph] Inc.: How have you been?

I’m doing fine. Better than two or three years ago, right? Michael Lamari [ph] – Anoriko [ph] Inc.: That’s for sure. That’s for sure. We have big memories from when the stock went to $1.00 or $2.00. At any rate, I just wanted to ask you how you were affected by the Japan’s earthquake if any and did you have any capacity constraints or anything.

Michael thanks for asking that question. We were trying to be cognizant of time and also the fact that a lot of companies have addressed that and didn’t really want to add words that were not – didn’t contribute any useful information. But first of all, none of our facilities in Japan were directly impacted and none of our employees were directly impacted, so we’re very blessed from that perspective. The environment in Japan however, is still difficult with the rolling blackouts and some of the communications and transportation issues, and then there are some supply issues that have come up in the areas that are actually a secondary impact to our customers such as slurries and photo resistant and so on. So it is impacting our end users, but we don’t have – we haven’t had a direct impact on our own day-to-day operations in any meaningful way. Michael Lamari [ph] – Anoriko [ph] Inc.: Great. Thank you and keep on the good work and stay well sir.

Thank you Michael.

Thank you. Our next question is from Steven Shapiro with Intrepid Capital. Your question please. Steven Shapiro – Intrepid Capital: Yeah hi. Two questions for you. One on Metrology in general, could you just talk about your share or competition specifically with respect to KLA. Do you think that you’re taking share from them and how significant is that? Second question I have is just sort of broader. If I look out over the next couple of years, what’s happening in terms of the total available market for you guys, if there’s any way to measure that in terms of say machines per line, Metrology steps per line? Is that sort of driving demand over the next couple of year and where are we today and where do you think we go along that metric?

Sure. So let me try to respond to those as I recall them. With regard to market size, we do actually – I’d like to refer you to the investor report where we’ve actually broken down the different served markets for OCD and our overlay in our thin films and so on. I don’t have that sheet in front of me but it’s got a nice segmentation. With regard to our position within the market, as you rightly pointed out, our primary competitor on the high end tools has been KLA and our primary competitor on the Metrology is a company called Nova. And when you roll up the numbers as best we can, we believe that there’s solid evidence to suggest we are continuing to gain market share in that space based on our revenue growth and the customer wins, the competitive wins that we’ve been able to directly and indirectly announce over the last several quarters. With regard to the total SAM, I refer you back to that investor report or presentation that’s on our web and oh, and then you wanted to ask about trends in Metrology. We really like this space. One way to look at this thing is we’re into a space of three dimensional Metrology where you need to be in line and non-destructive and if you look at trends such as orthography, orthography has gone from patterning to double patterning to double, double patterning and every one of those steps drives the need for additional measurements. Furthermore, as they try to squeeze yield, they’re making more measurements on a wafer not only more measurements per wafer to wafer or total number of wafers. So our outlook we believe is that there’s a growth in the number of measurements being made. The growth both on number of wafers and total wafers and the growth on number of steps where you need to make the measurements, and we believe that gives us a pretty robust outlook for just Metrology, process control Metrology. Add to that the fact that we’ve made a couple of key acquisitions, notably, the one we’ve referred to, the UniFire, which has expanded our served market pretty dramatically and it’s a combination of the growth of the intrinsic markets that we’re serving and the acquisitions that have expanded our total available market. Steven Shapiro – Intrepid Capital: Thank you very much.

You bet.

Thank you. We have no more questions at this time. I would now like to turn the conference back over to Tim Stultz.

Thank you again for joining our call. We continue to be optimistic about the business environment going forward and we feel confident in our ability to continue to execute and deliver above average performance and solid financial results. Finally, I tip my hat again and give special thanks to all the folks at NANO who make it happen and who are directly responsible for all our accomplishments and whatever success we do enjoy. Thank you for joining our call. We look forward to reporting to you on our second quarter results in July.

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect and have a wonderful day.