Good afternoon and welcome to the Nanometrics First Quarter 2012 Financial Results Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder this conference is being recorded today April 26, 2012. At this time I would like to turn the call over to Claire McAdams, Investor Relations/Council for Nanometrics. Please go ahead.

Thank you and good afternoon everyone. Welcome to the Nanometrics first quarter 2012 financial results conference call. On today’s call Dr. Timothy Stutlz, President and Chief Executive Officer, and Ronald Kisling, Chief Financial Officer. Shortly, Tim will provide a recap of the first quarter and our perspective looking forward. Then, Ron will discuss our financial results for the first quarter and second quarter outlook. After which we will open up the call for Q&A. The press release detailing our financial results, was distributed over the wire services shortly after 1:00 PM Pacific this afternoon and it’s also available on our website at nanometrics.com. Today’s conference call contains certain forward-looking statements including but not limited to financial performance and results including revenue, margins and earnings per share, customer concentration, tax rate and product adoption. 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 factors including changes in levels of industry spending, the adoption and competitiveness of our products, our ability to successfully integrate acquisition, to realize operating efficiencies and to achieve reduced tax rates, including the receipt and timing of pending approvals from tax authorities, changes in product mix, and the additional risk factors and cautionary statements set forth in the company’s Form 10-K on file for fiscal year 2011 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 over the call over to Tim Stultz. Tim?

Thank you, Claire and good afternoon everyone. Q1 was a good start to 2012. Total revenues increased 23% over Q4, while product revenues increased 30% bolstered by record revenues in our flagship product line, Optical Critical Dimension or OCD more than offset in sequential declines in some of our other business areas. We also benefited from strong strategic positions with the industry’s technology leaders and the two top industry spenders. And we saw continued strength and demand for and rapid adoption of our newest OCD platform the Atlas-II. Launched just last quarter, the Atlas-II represented nearly a third of our revenues in Q1 easily surpassing the initial revenue contribution and growth rate of any new product we’ve ever brought to market. And is on track to be the most successful new product ever developed by Nanometrics. Now turning from the top line, I’ll take a few moments to discuss our performance in other areas starting with gross margin. Last quarter, we discussed the negative impact on our near-term gross margins driven by sales of our Atlas-II. We also made it clear that the initial low margin of this product was a result of its cost structure and not the result of pricing pressures or concessions. Over the last quarter or so, our manufacturing, engineering and procurement teams have been hard at work negotiating long-term volume purchases agreements and driving improved manufacturing efficiencies in order to increase margins on this product as we ramp it up. I’m pleased to say that those efforts are starting to produce results as evidenced by the quarter-on-quarter improvement in our product gross margin and specifically for the Atlas-II. We are confidence that we are on track to raise the margin of this key product and bring it up to our more traditional levels of 55%…

Thank you Tim. Good afternoon. Before I begin my comments, I’d like to draw your attention to a new schedule of supplemental information we have made available in the investor section of our website at nanometrics.com. This schedule summarizes GAAP and non-GAAP financial results as well as revenue segment information regularly provided on our conference call. We believe this will allow us to focus on the key drivers in our discussion, while making this information readily available and acceptable to our investors. As always, a reconciliation of GAAP to non-GAAP results is also available on our website. In the first quarter, revenues of $55.5 million up 22.6% over the prior quarter. Total product revenues of $47.9 million increased 30% over the fourth quarter of 2011 reflecting increased spending by our largest semiconductor customers and strength in our OCD business. Service and upgrade revenues of $7.6 million were down 11% from the prior quarter due to lower revenues in both core services and upgrade, which tend to fluctuate quarter-to-quarter. As a reminder, the revenue segmentation data I’m about to provide is also available on our website. First by product area, sales of our automated metrology systems were our largest revenues growth driver in Q1 and were up 49% from Q4 to reach a record $41 million in the quarter comprising 74% of total revenues. Our flagship OCD Atlas-II led this growth at over 40% of Atlas shipments came from our newly launched Atlas-II. This strong growth more than offset sequential declines in our integrated metrology and materials characterization products. Sales of our integrated metrology products were $4.3 million down 14% in Q4 and comprising 8% of total revenues reflecting a reduction in capacity investments by our primary integrated metrology customers. And sales of our materials characterization products were $2.6 million, down…

Thanks you. (Operator Instructions) Our first question comes from Weston Twigg from Pacific Crest. Weston Twigg – Pacific Crest: Hi, yeah thanks for taking my question. Just, actually a couple of questions. I’m wondering on the gross margin profile through the year, so I know it’s still taking a hit in Q2, but how can we view that improving in the September-December quarters, maybe even in exit rate in December would be helpful.

Yeah, hi Wes. I don’t have a number that I want to give you for the exit rate in the end of the quarter. I did say that we except to get back to our traditional margins of 55% or better within the next 12 months. We’re doing our best to bring that in as quickly as we can. There are some extended negotiations and then there’s receipt of materials and there is the normal flow-through through finances. It does impact the actual timing of the recognition, but we have a plan to get that tool up to where but needs to be. The teams have done a terrific job. We will get there and we’ll do our best to get there sooner than later. Weston Twigg – Pacific Crest: And I know you tried to address this in the call little bit, but I’m still having hard time understanding why the big surprise in Q1 on gross margin? Why did this seem to take longer than maybe expected a quarter ago?

So the big hit on the margin actually turns out to be the service margin decline which was based on revenues upgrades and the lower upgrade sales and some additional investment. The other side of it was on the Atlas-II and whereas we realized a large part of what we have set out to pull in on margin improvement, there are couple of things that are slipping into the quarter. So we miss it by few weeks, we miss it – but we’re not going to miss it in terms of the entire program. Weston Twigg – Pacific Crest: Okay. And then just finally on the OCD ramp, so it sounds very strong especially with the Atlas-II. So can you help me understand why revenues got to lower in Q2? What piece of the business is coming down?

We’re kind of a little bit lower flat and the primary issues that we’re seeing in some wind down in some of the fab fan-out activities that consume a lot of tools and we’re seeing a shift in the demand and purchasing towards the new technology nodes. This quarter we actually had record standalone business, record OCD business, which was certainly over offset some of the declines in some of our other business areas. But, all of our new business that’s coming in and we’re receiving the strength is down in the 1X nodes both for Logic and the NAND and we’re starting to see some improvements in the foundry contribution too. But we’re seeing some of that more in the second half than in the next quarter. Weston Twigg – Pacific Crest: Okay very helpful. Thank you.

Okay.

Thank you. Our next question is from Patrick Ho from Stifel Nicolaus. Patrick Ho – Stifel Nicolaus: Thank you very much. Tim, maybe can you give a little bit of color in terms of some of the variables on the improvements that you’re making in both the manufacturing the supply chain over the Atlas-II? I understand that you’re going to probably start seeing those improvements in the second half of the year and into ‘13, but what are some of the specific actions taken that will lead to these tangible gains?

Sure Patrick. What we really did is, when we launched the Atlas-II, which went out a little faster we planned, most of that was based on engineering bias and not benefiting from high volume long-term purchase agreements. So the team went out and looked at this tool from the eight items down, look at the big ticket items such as the stage, the head assembly, the packaging, the automation, factory automation and worked with our suppliers to both give them visibility in towards the ramp of the tools as well to get the benefit of some improved cost models. In addition, we’re doing some – we’re finding about the transferring to manufacturing we’re doing, we’re having the opportunity to train more of the folks inside to get a better efficiencies and quicker turnaround, which will ultimately lowers their cost, but we’re leaving no stones unturned. We see – we saw, we’ve identified actually some very significant opportunities. I’m very confident that they’re going to come into place, because based on the conversations we’re having with our supply chain and I – this Atlas-II which is going gangbusters and we’re pretty excited about it actually. Patrick Ho – Stifel Nicolaus: Great, that’s very helpful. Second question maybe to what’s this question about the revenue outlook, I’ll take a different approach to it, what is the customer concentration looking like for the second quarter, because obviously you were very heavily tilted towards two customers in Q1. What’s the customer concentration like one of them falling off or is it going to be the same mix but on a lower revenue basis?

That’s a good question. I’d like to kind of rephrase that question in two areas. One is that, we do really well and we’ve got strong positions in logic and memory. And so although our performance with the foundry business is growing, it’s not as bigger contributor and so the swings in foundry spending don’t benefit us as much as it do some other folks. That being said, we’re seeing a decrease in the concentration on going into Q2, in particular the Q1, we have 71% of our business came out of two customers. We’re seeing some slowdown in spending on one and we’re actually seeing picked up in some of the other customers who haven’t been represented strongly in the last couple of quarters which will more than make up for that in general. Patrick Ho – Stifel Nicolaus: All right. That’s very helpful. Thanks again guys.

Okay.

Thank you. Our next question is from Mahesh Sanganeria from RBC Capital. Richard Grace – RBC Capital: Hey, thanks. This is Richard Grace here for Mahesh. Hey Tim, you had mentioned you’re seeing benefit as due to delays in EV, is this simply because there are more process steps being added in or is that more to it than that? And then secondly, when do you see EV ramping?

I’ll give you an answer to the first question and I’ll let somebody that closer to the business on the second. So, it is basically more steps. It’s more mask level, so when you’re doing double patterning and quadruple patterning that be gets additional process steps and sequences and therefore you apply more metrology. It doesn’t necessarily go to one-to-one it’s not four lethal steps meaning four times and many process steps because some are done sequentially. But it is an incremental benefit to us on the process control. And as far as when the EV is coming through, I think I’ll let to talk to Eric Morris (ph) or someone else on that. Richard Grace – RBC Capital: Hi, you’re actually seeing customer view quadruple patterning right now?

Absolutely. Yes we are.

Double, triple.

We’re engaged with the multiples including quadruple with our tools. Richard Grace – RBC Capital: Okay. Thank you. That’s all I have.

Thank you. Our next question is from Tom Diffely from D.A. Davidson. Tom Diffely – D.A. Davidson: Yeah, good afternoon. I guess first hoping for a little bit of an update on your view of the growth of OCD and your company specifically versus the market. In the past, you said that you expected to outgrow the market by 10%, 20% I’m wondering that still the case or if the customer concentration has changed that view?

Yeah, Tom I think what we have said before is that based on our calculations, the OCD market grew about 30% last year and our OCD business grew 40%. If you look at our standalone business in our and attraction of both the Atlas-II and the Atlas XP our two flagship products we’re achieving record revenues on that and we believe that that growth is still greater than the growth of the sector in itself. And I think it’d be at least to us come into a conclusion that we’ll continue to gain some market share. Tom Diffely – D.A. Davidson: Okay. So markets like to be flat down a little bit this year, you’d expect to outperform that from both the share gain as well as this year OCD, the faster growing segment. So how was that balanced in by some of the other markets been a little weaker right now? Do you see recovery in the adjacent markets as well then?

Yeah, I don’t know about that. When I look at the materials characterization, which is driven a lot by LED and solar that’s been, it’s coming down quite bit, it has come down quite a bit. The bare silicon wafer our substrate market we have seen come down and so those areas I don’t see anything that’s going to suggest are going to have a significant turnaround. We’d hope to see some improvement. But there is nothing out there on the horizon that drives it. What I’m really optimistic about and pleased by is that, our core business, which is in process control metrology primarily serving the semiconductor industries, is growing nicely. And that’s not just OCD, but as I mentioned during my script or my prepared remarks, we’re seeing some nice improvements in the contribution from the UniFire and some initial indications that we’re going to see similar nice – similarly nice contributions from the SPARK. And so when I look at what’s going to drive our business and what’s going to really improve our outlook it’s really all about process control metrology and I have less dependents or less confidence in the areas of solar LED and bare silicon substrate. Tom Diffely – D.A. Davidson: Okay. And what about an update on the more of the advanced packaging or 3D packaging. In the past I guess that seem to become late 2012 timeframe, is that still in the cards you think?

Yeah I think that’s probably right in terms of timing that’s one of the things when it finally takes off you’ll all recognize it. We’ve got tools deployed basically everywhere. We now have multiple tools deployed in most places both looking at the (inaudible) as well as the micro bumps. We’ve got applications not only for the UniFire but potential applications for the SPARK as well. And so we’re pretty excited about that and I think when it’s I think it’s a – there is a inevitability to it and so for me it’s being properly placed so when it turns, we benefit and I think we are. Tom Diffely – D.A. Davidson: Okay. And then finally, when you look at the OCD market itself what’s the relative capital intensity of OCD tools when you compare the DRAM to the NAND to the foundry markets?

That’s a good question. And I’m not sure – I don’t have that in front of me. I’d rather not guess I’d rather get back to you on that and give you some of that. Clearly it was a DRAM process it’s a much more complex process. But there is not a lot of spending going on either, so but I what I’d like to do is, let me get some accurate numbers and get back to you on that. Tom Diffely – D.A. Davidson: Okay. Thank you.

You bet.

Thank you. (Operator Instructions) Our next question is from Gus Richard from Piper Jaffray. Auguste Richard – Piper Jaffray: Yes, thanks for taking my questions. Just real quick on 450 on the three-year signed you spend on it, I mean why don’t you give some idea of what that investment profile looks like for you when you think you might start shipping 450 tools for frontend SAT and not wafer manufacturing?

No we actually ship – the tools really shipping our forefront in fab, they’re not for wafer manufacturing. The first tools that they going out. And we’re actually starting discussions about some additional tools going out to other location. So we already have multiple tools on a multiple locations it’s not for the wafer manufacturing it’s actually for some frontend process and development as well as tool characterization. I think that we’re going to see probably a some frontend loading of those tools and tool demand and there is probably going to be a little bit digestion period sometime in the 2013 timeframe in the middle of it and then before you start to see any meaningful ramp in that product line, but we’re seeing pull across it’s not just OCD but we’re actually seeing pull for the SPARK platform, the UniFire and the overlay tool (ph). Auguste Richard – Piper Jaffray: Okay. And so where are you in the development of 450 area, its most about spending in your R&D already or you got more to go kind of what is the spending profile look like?

So the spending profile is captured in our current engineering spend, we’re within a few couple of months, two to three months of shipping our first tool. And so the guidance for giving our OpEx includes not only the product roadmap in spending but it also captures the spending for the 450. Auguste Richard – Piper Jaffray: Okay. And then to get to flat year-on-year you’re going to have, I would imagine a pretty healthy step up in the back half. Is that sort of if you’re going to outperform the slight to slightly down, is that kind of how you’re thinking things are going to play out?

Yeah, I think I mean if the spending goes away over this at least were consensus is rather we see it being flat and if you’re going to outperform it, where we see the contributions coming from is, as I mentioned earlier, is almost all 1X notes for new technology development and conversion both in logic and in the memory side and in particular the NAND. We don’t have – we’re not seeing any significant step ups in DRAM spending right now. We’re also seeing some improving contributions from foundry. We’ve actually been had some nice new games and footprint and penetration into foundry for across our product line both in the UniFire, the OCD and integrated metrology and those should play out when we get down into the low two, and the 1X nodes and then we’re I think you’re going to start to get the point where the UniFire and the SPARK give us some contributions as well. Auguste Richard – Piper Jaffray: Got it. And then so this one, I apologize in advanced, I’m sorry I didn’t quite catch it advance, could you go over the tax rate for the first and second quarter just one more time?

Yeah. The – so the combined rate that we expect to see for the first half is going to be in the mid-30s. The rate for the, in Q1 where we weren’t able to benefit certain foreign losses came in at about 54%. Q2, on a GAAP basis, is going to be at a rate that brings the first to that 30.5%. Our non-GAAP numbers assume a rate in both Q1 and Q2 at the mid-30s. Auguste Richard – Piper Jaffray: Got it. Okay, got it. So both GAAP and non-GAAP are in the mid-30s and you just need to address the GAAP to compensate for the tax benefit you can capture in Q1?

Or should be captured in Q2 correct. Auguste Richard – Piper Jaffray: Right, got it. Got it. Thank you. Thank you so much for stating that out.

Thanks.

Thank you sir. Our next question is from Graham Tanaka from Tanaka Capital. Graham Tanaka – Tanaka Capital: Hi guys. Thanks for the level of detail, there is a lot going on. The service margins, you’re talking about the more positive swing in the second quarter. Can you sort of put bookings around that kind of size it?

Well I think that it’s going to get, it actually took those dip in Q1, I know there is a combination of slightly lower revenues and lower upgrades and we think that we’re going to see improvements in both of those and that generally just goes straight to the margin as because it’s almost – it’s revenues again almost a fixed cost on there. So I think you could look at our average, our average margins across most of quarters and start to think about those as being realistic and a way to look at it. Graham Tanaka – Tanaka Capital: Well so in other words, if gross margins improve as you expect while they’re going to get in bottom in the second quarter but as it improve in the second half, what are we going to see, how much of service revenue margins going to be effecting the Q2 in the second half gross margin? Are they nominal or are they having a significant?

Yeah it’s somewhere between nominal significant. I mean just because of the total revenues, this is – service revenues are anywhere between $6 million and $8 million, the margins have been – our core service margins have been kind of in the low 30% and our upgrade business tends to be at higher margins and it really depends on the contribution of upgrades to the total service. Graham Tanaka – Tanaka Capital: Now the industry spend you talked about encouraging signs and I just was wondering if you can maybe give us a little more granularity on that what sectors and particularly with some, I know it’s difficult, but some comment on 2013 if you can? Thanks.

Sure. Well I think that most of this – in most everyone seen in the announcements that the three biggest players Intel, Samsung and now and just SA, TSMC all announced fairly large increases in capital spending because you got drilled down a little bit deeper to understand what part of that WFE. But since they are the dominate spenders and players that’s important to us and if you take that against the expected flat to down of the – some of the other industries, I think the most of the consensus are getting to a kind of flat CapEx spend. Some of that CapEx spend this year is going to go into buildings and this leads into our discussion in 2013 where at least, I’ve read it, at least one report that suggest that Intel for instance will have CapEx down in 2013 but Wafer Fab Equipment will be up in 2013. And to that extent we benefit from that. We’re also starting to see some of the other memory folks who have been pretty silent over the last couple of quarters starting to spend and they will start to help us reduce the concentration against the couple of customers while some of the major ones slowdown but perhaps in the second quarter. Graham Tanaka – Tanaka Capital: By the memory folks being silent you’re talking about memory in general or you talking about NAND?

Pretty much – it’s NAND because it’s not a lot of spending in DRAM, but I mean if you look at capital spending across the board or without talking about specific to customers but just in general Hynix has been notably low on their spending, Micron and it’s NAND and (inaudible) but notably low and we’re starting to see some improvement in outlook for some of those companies. Graham Tanaka – Tanaka Capital: Okay. As you’re going to be ramping UniFire and SPARK, what kind of gross margin experience are you – are we going to be seeing there? Are we going to be seeing a little mini repeat or a repeat of what’s going on with Atlas or is that going to be a more higher gross margin to begin with?

Well that’s a fair question. So the SPARK platform because it’s a fairly straight forward platform because we manufacture it ourselves in fact that the SPARK platform is being transferred to the Milpitas facility. I’m pretty confident the SPARK is going to hit the ground running with good margins on the full up tool. The UniFire, as we spoken to several times before, does not enjoy quite a serious of margin or higher margin because of the margin share that goes with our relationship with Zygo. And what we’re doing to improve that is more about adding features that we can and benefits to the tool that have a value that we can charge for and that’s – it’s a different approach, but that’s a pretty much our major weapon to improve that margins on that tool. We’re also integrating that tool onto our link so we’re putting the SPARK onto the links. We’re putting the UniFire onto the links. We’ve got the overlay tool on the links and we have the Atlas-II on the link. So we’re going to get some additional benefits from having everything on a common platform. Graham Tanaka – Tanaka Capital: Okay, great. Thank you.

You bet.

Thank you. And I would now like to turn it back to Dr. Stutlz for any closing remarks.

Well thank you very much and thank you again for participating in our call. I’d like to remind everyone that Nanometrics performance is tied directly to the hard work and commitment to excellence of our global workforce whom I consider be among the very best in the industry and with whom I’m truly excited to work with each and every day. I look forward to reporting on the results of our operational and financial performance for the second quarter 2012 in July. With that, the call is ended.

Thank you. Ladies and gentlemen this does conclude your call for today. You may now all disconnect. Thank you very much and have a wonderful day.