Jeffrey Hall - Chief Financial Officer Richard Wallace - Chief Executive Officer John Kispert - President and Chief Operating Officer

Jay Deahna - J.P. Morgan Jim Covello - Goldman Sachs Brett Hodess - Merrill Lynch Satya Kumar - Credit Suisse First Boston Timothy Arcuri - Citigroup Edward White - Lehman Brothers Michael O’Brien - Bear Stearns Stuart Muter - RBC Capital Markets Suresh Balaraman - Thinkequity Partners Gary Hsueh - CIBC World Markets Stephen O'Rourke - Deutsche Bank Securities Marisa Hernandez - UBS Securities, LLC Ben Pang - Prudential Raj Seth - Cowen & Company Robert Maire - Needham Gus Richard - First Albany Capital

Thank you Derek. Good afternoon and welcome to the KLA-Tencor's fourth Quarter Fiscal Year 2006 Conference Call.

I'm Jeff Hall, the Chief Financial Officer. Joining me today on our call is Rick Wallace, our CEO, and John Kispert, our President and COO.

We're here today to discuss our results for the periods that ended June 30th 2006. We released these results this afternoon at 1:15 p.m.

Pacific Time. If you haven't seen the release, you can find the copy on our Website, http://www.kla-tencor.com/ or call 408-875-3600 to request a copy.

Rick will lead off today's call with a discussion of industry development and KLA-Tencor's progress and strategy. Afterwards, I'll review selected financial results for the fourth quarter and fiscal year.

And then we will open the call for questions until approximately 3 o’clock Pacific Time. On the investor section of our Website, you'll find a simulcast of this call, which will be accessible on demand on the website, you will also find a calendar for investor events and presentations at investor conferences.

You will also find links to KLA-Tencor's security filings. In those filings, you will find the description of risk factors that can impact our future results.

And as you know, our future results are subject to risks and any forward-looking statements we make are subject to those risks. KLA-Tencor cannot guarantee that those forward-looking statements will come true.

And although we take no obligation to update those forward-looking statements, you can be assured that any update we do make will be broadly disseminated and available over the Web. Before I turn it over to Rick, let me give you a brief update on the status of the options investigations.

As we have previously announced the Company’s Board of Directors has appointed a special committees of independent Directors to conduct an internal investigation relating to the stock options granted to employees. On June 30th we announced that the special committee had reached a preliminary conclusion that the actual measurement date for financial accounting purposes of certain stock option grants issued in prior years likely differed from recorded grant dates with such awards.

The special committee has not yet determined whether any resulting compensation charges or tax implications are material or whether the company will ultimately have to restate previously issued financial statements. On July 24th we announced that as a result of the ongoing investigation and potential forward statement that at this time the company is unable to provide detailed GAAP or non- GAAP financial by quarter or for the year end it’s June 30th 2006.As a result on this call we will not be able to provide any specifics about growth margins, operating expenses inventory, taxes or other item that might be affected by share based compensations, because we cannot determine those amounts in accordance with GAAP until the special committee complete this review.

As a result all financial numbers for the Q4 discussed on this call are not final and should be considered estimates. On July 24th we also announced that the company will not be in a position to file it’s annual report on form 10-K until after the special committee completes this review and that we do not currently inspect the investigation to be completed until after the form 10-K is required to be filed.

In the meantime we are working diligently to make sure that we file our form 10-K as quickly as possible after the investigation is concluded. We have also consulted with the NASDAQ staff and while there is still a lot of work to be done, we are optimistic that we can avoid a situation where the delay in filing our forum 10-K affects our standing with the NASDAQ stock market, and with that I will turn it over to Rick.

Thank you Jeff, and thank you for joining our Q4 FYO6 quarterly call. Today I would like to provide you an update on our performance in the June quarter and our outlook on the rest of the year.

I will also review highlights of our business strategy and several of our latest products that we are very enthusiastic about. Lastly I will close with guidance for September.

As Jeff mentioned there are limits to the financial information that we are able to provide during the ongoing internal investigation, and the possibility that may be necessary to restate our historical financial results. The company continues to perform well both from a strategic and financial prospective.

The nature of the investigation precludes us from providing financial results until we have determined whether or not we will need to restate. When that happens we will be in a position to provide complete financials.

The management team continues to be focused primarily on executing on our strategy. Now we will share bookings revenue and shipments today.

KLA-Tencor had 3rd consecutive quarter of accelerated bookings growth; orders for the June quarter came in at $814 million. Revenue for June was $579 million and shipments would ere support $624 million.

These numbers are indicative of the strong demand we are seeing as our customers continued to invest in process control required for 90 nanometer capacity additions and for the yield ramp requirements of next generation 65 nanometer fabs. As new technologies become more difficult and challenging.

The need for measurement and inspection increases in process control and gain share. Our outlooks for the orders in the second half of 2006, is for some increase from first half levels but at a slower rate that we saw in the first half.

We continue to run our business with five to six months of unshipped backlog and three to four months of deferred revenue. In general our customer’s businesses are improving at a steady pace, roughly two to three time GDP semi revenues increase 7% in 2005 and our forecast to be up a 11 % in 2006 and to increase another 10% in 2007.

Fabs are running at high utilization levels migrating rapidly to new more difficult technologies and a growing number of chipmakers are building few fabs. We are now tracking 17 new 300mm fabs scheduled to qualify by the end of 2007 which is up from the 15 that we have been tracking NAND flash is the major new product category which continues to have annual bit rate growth on the order of 200%.

In this environment the outlook for investment and process controller is excellent. Now we are going to talk a little bit about the business strategy and the target business model that we discussed Semicon, Semicon West a couple of weeks ago.

There we explained that our strategic focus is to extend our global leadership in metrology and inspection with differentiated technology and customer solutions in the semi and adjacent markets. We believe that strategy will enable us to get stronger, more profitable and even more effective in helping our customers keep pace with the technical demands of advancing technology nods, accelerating yields and faster time to markets.

We are well positioned to execute on the strategy as we are building on very strong positions in our core market. At SemiCon we showed data and quarterly market positions in our core markets over the last eight quarters.

I stated at that time that in 16 of the 17 markets that we compete in and we hold market leadership positions and in most of these, over the past eight quarters we have gained share. Our strong market share enables us to continue to invest the research funds necessary to meet our customers’ ongoing challenges.

Our booking strength in the June quarter illustrates the market demand for inspection and metrology products as well as our leadership position in this critical market segment. In June we saw continued strength and bright field pattern way for inspection as well as gains in our core metrology and radical businesses.

Market leadership is critical to our strategy. Our goal is to be market leaders in each segment in which we compete.

While we are willing to be patient in cases where we don’t have a leading position we will only do so if we see a third path to market leadership through differentiated solutions. In the case of CD-SEM we determine that while we had a good product and it once of key accounts, we do not see a path to market leadership.

Jeff Hall will provide the details around the one time cost associated with exiting the segments. Another reason that we determined we should exit CD-SEM is that this decision will make it easier to focus our efforts in this market segment with our optical CD tool where we are experiencing high market growth and enjoy a very strong market position.

My expectation is that there are very few market segments that we will be unable to drive to leading positions and therefore the type of costs associated with the exit of the CD-SEM business should be rare. The core of our business model and what we will drive at success is great products and high gross segments.

Let me talk for a minute about a few of the current products that we are particularly enthusiastic about. As I mentioned our optical CD tool has leading and growing market share as it provides our customer better precision in measurements at higher throughput.

Our combined hardware and software solution and our experienced worldwide support team deliver a better CD and profile control at lower cost. Optical CD has become standard practice for FCI an gate control at 90 nanometers and we allowed even more levels at 65 and 45 nanometers.

Bright field inspection is a market that we pioneered and we have left for over 20 years. The market continues to grow in size and it’s critical to our customers.

We work very hard to maintain our market leadership over various products and technology transition. Our most recent major technology transition was our introduction of the 2800 broadband DUV/UV tool, approximately one year ago.

When we developed the tool we decided to go with the unique architecture utilizing a broadband life spectrum. Our technology that has paid off over the last year as the 2800 has been widely accepted by our customers.

Our product differentiation has enabled us to maintain our strong market position. When customers tell us whey they picked our tool, they say it out performs the alternatives in terms of sensitivity, data capture and speed.

Gaining strong acceptance with our DUV/UV tools was critical over the last year and goes well for our market position and Brightfield going forward. Dark-field Brightfield pattern inspection is another market that we pioneered and have lead for over 10 years.

As with Brightfield we recently introduced our latest technology, this one called puma, which utilizes our new streek architecture. The customer reaction has been positive and we have been able to actually build our market share in Dark-field particularly in memory fabs, we have displaced competitive tools and leading edge memory fabs.

Customers report that the streek architecture allows significant improvement in speed and cost of ownership while extending our leading capability and sensitivity and defect capture. Puma is also used extensively in logic and foundry fabs as its ease of use, and short set up time greatly exceed competitor capabilities.

All of these tools have been key contributors to the 65-nanometer yield ramps now in progress and they would be essential with the 65-nanometer volume ramps in 2007. As expected our customers continue to rely on us.

Our ongoing market strength in terms of our ability to provide our customers with the solutions they need to deal with the ongoing challenges of metrology and inspection. These challenges continue to grow at each technology node.

The industry is now starting to focus on 45-nanometer technology and 10% of our bookings last quarter were for 45 nanometer fabs and lines. The problems and challenges in 45 nanometers will be significant.

Ongoing introduction of new materials for High-K gate oxides and Low-K insulators merging lithography and 3D transistors will all present yield management challenges to our customer base. We have been working for several years on the solutions for the measurement inspection problems at 45 nanometers and we are ready for the challenge.

Now let me turn over our guidance for the September quarter. Remember the September is a seasonally down quarter for KLA-Tencor with bookings generally down 10%.

September appears to have that seasonality this year and our booking projections are to be in the range of down 10% with a range of plus or minus 10%. Our revenue is expected to be between $610 million and $630 million.

Now to give you the details, let me turn it back over to Jeff.

Thank you Rick, as Rick mentioned for the June ending quarter, net bookings raised $814 million. This number includes $12 million of orders de-booked in the quarter in accordance with our booking policy, which restricts actual bookings to a said criteria.

In addition as a result of our CD-SEM decision we reduced our shipment backlog by an additional $21 million for tools that we have booked in previous quarters. After this adjustment we ended the quarter with $1 billion, $1.003 billions to be precise, a backlog for unshipped orders.

Remember we do not include any service contract consignment or unreleased systems in this backlog number. We also have $475 million of revenue backlog related to products that have been shipped but not yet signed off by customers.

It does not include any service revenue and is made up of tools delivered but are awaiting a written acceptance from the customer. Our ability to maintain this significant level of both shipment and revenue backlog continues to help KLA-Tencor sustain high profitability throughout any business cycle.

The regional distribution of orders for the June quarters was as follows. The US was 25% in line with its historical average of 25%; Taiwan was 24% higher than its historical average of 20%, Korea, China and Singapore combined to put 22% higher than their historical average of 20%.

Europe was 9% lower than its historical average of 15% and Japan was 20% inline with this historical average of 20%. The product distribution of ordered was Wafer inspection was 54%.

Radical inspection was 16%. Metrology was 15%, data storage was 2% and service was 14%.

Before I turn to the income statement details, let me remind you that as a result of the ongoing investigations, we are only able to provide details on items that aren’t affected by its share base compensations. Revenues for the quarter that with 579 million, which is up 12% quarter over quarter and 18% from the same quarter last year.

Revenue for the year was 2.069 billion versus 2.085 billion for the prior year and we added 300 million of total backlog over the course of the year. In the fourth quarter we incurred them one-time charges mostly inventory related as a result of our CD-SEM division.

In addition, our fourth quarter GAAP results when finalized will include a one-time charge for our best estimate of the cost in effect to incur related to the ongoing investigations. Operating margins for the quarter excluding share-based compensations met our expectations as our team continued to execute well driving continuous cycle time and cost improvement in most areas.

Other income for the quarter was 18.7 million. In the June quarter we again closed a substantial number of tax audit and statute and as a result we recognize the significant onetime benefit to our tax rate.

Turning to the balance sheet, cash and investments end of the quarter at 2.3 billion an increase of $40 million quarter to quarter. And during the quarter we repurchase stock valued at approximately 78 million up 33% from the March quarter and we paid a dividend of 24 million.

As a reminder our systematic Buy Back program is currently halted as a result of the absent investigations and while we are not certain when we will be able to restart to Buy Back. It is our intention to restart our systematic Buy Back plan as soon as possible.

Accounts receivable finished the quarter at 440 down 16 million from march as a result of strong collections in the quarter. Capital additions related to fixed assets were approximately 15 million for the quarter and depreciation was 14 million.

On a net basis, including retirements fixed assets increased by one million over the quarter. Head count end of the December quarter at 5900 up 130 from March.

Primarily to support our production increases Field support and new product introduction. The majority of this increase was for people at customer site and at our new low cost manufacturing facility in Asia.

This concludes our remarks on the quarter. We will now open the call for questions.

Before I turn the call over to Derick to give the instructions, let me request that you refrain from asking multi purpose question to give others some time and as all ways rather on a tight place schedule. So Derick can you pull-in please?

Thank you, Good after noon. Yeah, I think two questions.

one on the options one on the options and one on fundamentals. First of all on the options, what exactly is the actual ramifications of not filing your 10-K on time.

Give us a little more detail if you could on the potential for doing this thing or not. And then the second question on fundamental is for Rick.

Rick, would you say that the 90 nanometer built out is largely completed and when do you see inserted transition to other 65-nanometer for foundries or smaller for processors and memory, what are the implications for process control, thank you.

Thanks Jay, this is Jeffrey, I’ll answer the first question about NASDAQ then I’ll turn it over to Rick. You know, so our 10-K is due to be filed on September 15th as we said we don’t expect the investigation to be complete by that time.

However we are optimistic that it will be complete fairly shortly after that time. What will happen on September 15th is the NASDAQ will basically send us a notice that we didn’t file on time at which point we will start the Appeals process in going through it.

And like I said, we have been talking -- we have been in discussions with NASDAQ and although it’s possible, the investigations will go on a little bit longer than we anticipate. We are certainly doing everything we can to get set up for it and to complete the -- the audited financial statement as quickly as possible after that.

So we remain optimistic that we are not going to have any ramifications of this issue at the moment. Rick, you want to take the second question?

Sure. I think I have mentioned in my prepared remarks Jay that we are, okay about 30% of our bookings was 65 nanometer and below and we had about 10% employee -- 90 is running pretty well in most fabs.

As you know there is a tale for that, some people are ahead of others but by and large we basically anticipate the percent of business that’s going to be towards 65 and below it’s increased to all over half of our business by the end of the calendar year, so we are certainly in that transition where more and more of our business is coming from 65 and beyond and below I suppose.

Just a quick follow up to Jeff’s response on the option issue, two parts. Number one, why it’s taking so long t do the investigation I don’t know that it seems that complicated, and the second issue is that what gives you the confidence that if it does track out and talk a little bit you are not going to have issues with NASDAQ.

Well, first of all on why it’s taking so long. The special committee obviously is doing a very thorough and detailed investigations and it is completely independent of management.

They have got a lot of data reviewed here right we’re talking about you know, stock options from 5 to 10 and more years ago and you know, literally terabytes of data that they are having to go through. So well as we think it won’t be completed by September 15th but we have every reason to believe it’s going to be completed shortly thereafter.

And then we are you know, teed up and ready to go on -- on any of the statement or anything else just going to have to change if they find something and you know, like I said we are not even sure who they are yet, so that’s why remain optimistic at the moment.

And are they telling you that if it’s a short delay, it’s okay, you’re sort of indicating that to them or for what?

No, the – I’m sorry I guess I don’t understand the question.

Jay let me maybe help you out. By September 15th there is appeals process.

When you are calculate the amount of time that you have to respond to NASDAQ relative to, how long will we go through our analysis of what it would take to go through the financials and process them. We think we are still within the window of meeting our obligations for NASDAQ based on our discussions that we had with them.

We have had those, they do have a timetable, the outlines, it’s part of their governance, and our analysis right now says that given our schedule and what we believe to be true even in the case where we have to go do, back through and work through those financials. It will still be -– although will be tied, we are still within their timetable.

Okay, thank you.

Actually here is Jim Covello, how are you doing? Quick question on a scenario analysis kind of for the cycles we head down here in orders at least for this quarter.

Not necessarily that you guys would agree with the scenario, but just to help us with modeling purposes. If orders were to go down 35% from last quarter’s 814 peak to the trough, what do you think revenues would that amount at?

You know, in other words given all the deferred revenue you have on the balance sheet, how much -- how much do you think revenues would go down and orders will go down 35% from the peak to the trough, thanks.

Hey Jim, John Kispert. Unfortunately we haven’t modeled that for you.

I can –- I will pull back on our golden rule here as far as modeling is concerned you know we’ll run with five or six months of unshipped backlog and three to four months of deferred revenue and I don’t see any reason that will ever change from that, you know, if they were to pull off 35% as you know we have enough backlog well that’s not going to be a you know, significant issue for us. I think the bigger question if they were to come down 35% for us would be -– what does it look like for the next two quarters out and we would size our business again to five or six months of unshipped backlog and three to four months of deferred revenue.

Right now what I see is lot of customers want their shipments in their September, October, November timeframe and so we would have to work you know work through that but that would be the only issue as far as quickly sizing the business you know that kind of run rate.

Great, appreciate it.

Thanks Jim.

Good afternoon. I’m wondering when you shut down something like the CD-SEM business you know since that was a business where you didn’t get your normal share, will that have a positive immediate impact on the margins?

In other words is that a lower margin business when you shut it down in your mid size, Richard?

Hi Brett, I guess but yeah, that was the idea. Yes, you are on the right page.

Okay and then second, just a quick follow on to that. You know when you when presented your new quarterly model and then your ability to get to the 60% type of gross margin and above at the Semicon last.

One of the things you talked about there was, you know, shipping some of the production and cost phase out of the US into lower cost regions and what not. And I was wondering if you could talk a little bit about, if you did get a slower period would that accelerate your ability to make some of those moves, could you talk a little bit about that?

That’s a great question Brett. If -- if I am not forecasting a slower period it certainly doesn’t feel slower right now but that would be certainly easier to move things quicker having said that we have a very aggressive plan in place in the next year or so as we talked about SemiCon.

For instance we’ve -- we’ve gone in our South East Asia plant over the last two quarters, we’ve gone from shipping zero basically front-end automation for most of our products in the company and shipping zero about a 100 days ago to up now, so this quarter we will probably ship out a 100 up. So we are being pretty aggressive with the move that is some transition cost particularly in kind of, ramp where that we are in right now, but now if we put the resources and search capacity in place to be able to handle it.

Great.

Thank you.

Yeah, hi thanks. If I think your mid point of your guidance was September and extrapolate your comment that second half orders will be up, if you are looking at December bookings down about 5% also, is that sort of the right map?

I guess it’s not the map I am looking at Satya. I would think that, let me say it in two ways.

Right now the -- the sales funnel would suggest that December is up from the average of the guidance that Jeff and Rick gave you. Now the drivers that really are this -- this orders are relatively large from the period we are right now, because people are filling out 300mm capacity.

The other big driver that we were looking at in the second half of the year for our business is the transition of 65 nanometer for particularly around the foundry and particularly around logic and I think one of the keys for us as we look in the second half of the year is that, is for our customers more and more to commit to -- to that but right now, it looks pretty solid for us, for December to be up. From the mid point of that September quarter and that -- and we are looking out at case to be flat the third driver as Rick mentioned early will certainly receive 45 nanometer pilot stuff picking up and that’s usually a pretty good business for us.

Okay, another quick follow-up. Did you guys give which your orders by device segment for June and if you can give a quick update on how it looks for September?

No. By -- by device.

Memory foundry and all that?

No. Logic for June was about 20%, foundry was about 20% and memory as we said semi kind of was 60%.

Going forward into the September quarter memory is still going to be strong but I think its probably more in the 40% to 45% range particularly in Japan, that I think memory will be fine. Logic we think it’s going to pick up at 35% and again that’s Japan look stronger towards in the September quarter and I think the US will be little be stronger for us you know, through the summer in logic and that’s uncommon, usually it’s a little bit slower.

And foundry about 25%, I think the question there is the transition to 65 nanometer and the timing of that is in the December quarter or the September quarter and I guess it’s something we will watch closely as a quarter goes on as far as the quarter on quarter order growth rate.

Great, thanks guys.

Hi guys couple of things number one, John or Jeff could you guide shipments for September?

About 650, Tim.

650 okay, and then you know, one of the big test vendors come in to the Japan the night before last that there has been a slowdown in the last couple of weeks in ROQ activities for some testers. Has there been any change in tone from your customers in terms of their orders during the you know, back half of the year?

In the last 24 hours or?

No just in the last say, you know month or so relative to what it was before?

No I don’t think so. I don’t, certainly in memory all you focus no but there is forever chatter both up and down, but I’d say in the last couple of days if anything has gotten more positive is now, does that mean that the rest of the week goes that way, I don’t know.

But we haven’t seen any change. The timing of the orders is always in question you know, is it this week or next week but the total sales funnel hasn’t changed much.

Thanks John.

Okay.

You mentioned that the Reticle area was strong. Can you go into more detail about what’s going on there and how you see that progressing going forward?

Ed, hi it’s Ric, yeah absolutely. Reticle continues to be strong for a couple of reasons.

One, as you know the challenges of advanced lithography continued to push our customers and so we provide there. The other thing is we’ve had some good success with Reticle and wafer fab and what we are seeing that that’s really helped us grow that business.

So really both of those impacts, and all coming from the increased challenges with the advanced lithography notes and the associated Reticle to support that, so that’s been a very solid business for us.

Great thanks.

Before we take the next question, this is Jeff, you picked up the wrong number Tim, shipments you know, higher than 650, probably in the 650 to 675 range.

Just real quick -- the 17 fabs, I think 17 for 2007, could you give me an idea of how you are tracking them from you know, which ones will be at some level of production volume as you exit through 2007 and which ones will you know, have the shell up and maybe only some R&D tools or some pilot line type tools. If you could give us an idea of how that’s going to impact wafer --?

Sure Mike, what we look out there is who is really ready to qualify which means they’ve got to have the shell up and they’ve got to have equipment, they got to be doing for Silicon. You know, we discovered when we talking to some customers at SemiCon West, and they’ve really gotten efficient at building these fabs fast and getting them up and going.

You know the fab faster and then you go to house to California, and so we are really -- we talked closely with them as you might imagine and work on those schedules, so it really is about who is ready to call upon.

When you look at right now Michael it looks as though it’s more front half of the year of loaded that second half, but as far as order dates and when we would expect something, but that will jack you around you know, business moves in 2006.

Now so first to have orders sound EOP getting the bulk of the orders for the 17, the way it looks like right now.

And that’s where the visibility is today, that’s right.

Okay, thank you.

Yeah, thanks good afternoon. You provided some regional commentary in terms of September booking.

Could you just finish the piece of the puzzle how does Taiwan look in China, Korea and Singapore?

Stuart, I’m sorry. For the September quarter for Asia.

Yes, thank you.

You know I think Taiwan will -- I think the foundries will probably be spending in generally the same rate, I think if anything that’s probably sum upside, and getting at the timing, so I'm looking for them in the September quarter. The little bit less than 20%, 15% to 20% of the order book.

Korea what we’ve learned though the years and then I said this many times is you know, there is -- a strong quarter usually followed by a weaker quarter and then followed by a stronger quarter. Right now it looks a lot of activities there, I would say it’s probably slightly down stay tuned.

China is definitely a stronger region for us in the second half of the year. I mean, there’s lot of focus on that and if we look at Singapore, I think September probably a slower quarter there followed by a stronger quarter in the December quarter based on what we are seeing today.

Great, that’s helpful. And then a quick question in terms of you know, meeting the operational goals that were laid out at SemiCon West you know, it seems that a good amount of work required to achieve that is cost reduction.

Will you need to strategically add new leadership in some of the division to achieve those cost cutting goals?

Stewart, I think crosscutting has been a part of Kelly for about 25 years. It does not serve as a new focus for us, it’s just wondering we are probably talked about a little bit more at the SemiCon.

So the short answer is no, I don’t see any changes, we are excited about the team we have and the teams certainly rallied around what we are going to get down over the next couple of years.

Great, thank you.

Thanks. When bookings were at much lower level, I understand the last range in guidance something like a plus or minus 10% of a particular number, at 800 million plus on bookings it seems like a pretty huge variation from the lower end of your guidance to the top end of your guidance.

Is it that much uncertainty related to when the bookings would fall?

Suresh, the way to think about it is when the -- it is that much larger right now. When you look at trying to millimeter phase buys right now, there is certainly north of $450 million for (inaudible) that would minimum, and some of them can be close to $100 million.

So yeah, the Math still works, the 10% range is about right for us, for a deal and deal and a half, it could actually be negotiated out of quarter of fourth into a quarter.

Okay, thanks.

Hi guys, how are you. I am looking at your wafer inspection product revenue and the number I get is the mid $400 million range and that’s the biggest number that I have in my model going back to 2000.

Can you kind of run us through what sort of sustaining or driving that kind of record number for booking for wafer inspection? And you know, if you could also talk whether or not wafer inspection on bare silicon wafers has any kind of impact on that number or has driven that number?

Hey Gary, let me say -- let me just correct one thing upfront, make sure we are all in the same page. What Jeff gives in this guidance is bookings, and so it’s orders.

That wasn’t revenue, you said revenue, I just want to make sure everybody understand, so that mid 400 number is certainly on the order side. And yes, it was a nice quarter it’s all of our newer products and newer architectures, which as Rick said in the prepared remarks where specially gratifying for us because of this stuff we’ve working out for a while.

Things like our (inaudible), our street technology in dark field, Rick mentioned our optical CD architecture. All of them are doing well.

You just mentioned wafer inspection if you go through Reticle and metrology old more we are strong and up in the you know, 35% range or above. Rick will mention you the products.

Yeah sure, I think we talked about 2800, the market acceptance we have seen over the last year, what happens when the product transition like this is, you got to get established as a tool of record and then what we are starting to see now is, we won those tool of records and they start turning into multiple buys. You mentioned the wafer inspection net profits and very strong for us, I think the overall performance is just illustrative of the growing percent of capital the people are putting on process control in terms of inspection metrology so, that’s what we are really seeing and that’s why you are seeing it, exceeding the levels that we had 2000 because this is becoming a growing, again a growing segment, there is a percent of overall sales.

Okay, one last thing, it wasn’t one particular product or product segment, I don’t know that’s what you push and ____ and was but it was broad based across everyone of the product lines and wafer inspections.

Great, thanks.

Thank you good afternoon. Considering your strategy to either of the markets, can you give us some idea of how you are looking at metal film metrology and macro defect inspection?

Good question Steve, in terms of metal film metrology that is the market we have been in and we did at the same time with (inaudible) that’s the market we discontinued our investment in because that’s one, that is another example but that was pretty small force so its not notable in terms of the overall financials. In terms of macro there is a great example of the market where we have had some tractions and we believe there is upside in our strategy and we are pretty confident of our ability to expand on our position there and other gives room for growth that we are -- I think we are neck and neck with in terms of leadership but we typically find ourselves giving high market shares, so we think there is an opportunity for growth and share.

Okay, and one another quick question can you give us a look up data on what your intentions are, with DNS, an electro-list deposition but that just starts to fall under these kinds of strategic decisions too?

Steve, you are right on. Yeah, absolutely that one is a example of we have a great product, the team has done a great job and we anticipate that will be an important technology probably 45 nanometer or 32 nanometer but Casey will lower our investment levels in that and get down below 20% so that we are not consolidating on that, on the book of that.

Thank you.

Hello?

Hi Marisa, go ahead.

I wanted to ask if you could give us the split between DRAM and Flash orders if you have it for June and what you think it is going to look like in September?

Yeah, the memory in June was about 60% of that. I’d say that Flash was probably about half of that total and of that half, half of the half, or the quarter was dedicated Flash and the other piece was obviously we would -- what we were going flexible kind of -- you can go memory, can go NAND and I think you know that the strategies some of our customers have certainly implemented with success.

Okay, and do you think that’s going to climb up the same in the September quarter?

I think the right way to think about it is 25-20 -- or half and half as far as NAND is concerned, going forward, I don’t see that changing much. And as I said earlier, I think the September quarter for memory is down a little bit and NAND will probably be down a little bit also, so probably about 20% of our orders would be out on NANDS area if you will.

Okay. And then how do you expect your trends to change in the September quarter, will it still be going up?

Yeah, it will continue up a little bit.

To one of the earlier questions, Marisa, one of the things we are dealing with here is the transition in operations to other parts in the world so headcount is you know increasing in Asia and we are not necessarily coming down another part in the world so there is a bunch of transitions going on as we move operations.

Okay, and finally if you could clarify say something for me be causing the investigations and the options in fact you said that on September 15th you will get a notice from NASDAQ, and did you say from there an appeal process starts? Is that what you said and if so what does it really mean?

It means you have time to just find out that one to understand when you are going to be able to file and there is a certain amount of time in that process that you need to respond it will go, have it hearing in a way typically it goes and work through the details and what I said in response to the question from Jay was that we would be in the position to you know base on what we understand today in event we had restate that we would be working on that and be able to get through that within the timeline allow by NASDAQ to get through the process.

Okay, and what is the timeline along those NASDAQ too?

Yeah it’s shorter of 180 days from the time you get those the notice and then there is another day, which is …

90 days after the hearing.

90 days after the hearing, so that’s why we are pretty confident because you could do that now on the timeline and then you can analyze what it takes if you had to go through restatement, and that’s why we think we would under that window.

Okay, and that the hearing involve presenting works coming been done by the special committee?

No.

Okay, thank you.

Yeah just a follow up on an earlier question regarding the range of the other guidance I think earlier when you guys started giving this range you mention that part of the reason was –- so that’s your you know customers coming for some of these bargaining, in a big bargaining tight deal but you know that is mutual guiding. What’s the motivation for the large orders or your customers are now in their 80s you know like $50-$80 million range I don’t think it break those quarters up?

Sure, that can happen Ben it has happened yeah so I don’t have to answer to the question, what’s the motivation exactly? What your question assumes is that it’s more economically feasible for them I think the key for them and for us is the deliver dates and do we have the right technology and the right solutions to solve what they are looking for and then I think secondarily as we talked before is kind of a negotiations of this and that’s where we try to sale the other thing driver of course is particularly with these newer products the pricing has gone higher so the range can kind of get figure just because one or two of those units might move in and out of the quarter and we don’t want to be in the position with that you know takes everything.

Okay and a follow up for that when companies order in the calendar and your products, can they still get those in the calendar year?

Depends on the product, and we are certainly going to try. The question is just too high hypothetical but Rick and I have been around here for a long time, its kind of rule one, the customer wants it sooner.

You know, we’re going to put the slack in place in manufacturing to make sure we can get it to them and so many cases even if we don’t have the order yet but you know, we don’t try to push you know, we try to meet the delivery dates our want and try not to push them out, that’s for sure.

What does it really mean when you say that you try to run your business at a certain backlog level, that’s what I’m trying to understand here, your backlog was very strong and you have great deferred revenue, but at what side will you actually start to differ some of the orders?

We are not there yet I think one of the big keys for the company right now and we did a real good job in June I think, we are up to good start here in September is cutting our cycle time on this newer products and they are down about anywhere from 25% to 40% over the last couple quarters. And I think just a very key quarter can do exactly you’re pointing out which is to be able to decrease the cycle timing if the shipment as Jeff said earlier around the 675 level and that will meet customers demand in the sites that they want.

Okay, thank you very much.

Thank you, John, just a thought a little bit about his views that the optimal capital structure here and that structure, I’m curious what your view is on that topic that seems to be a big philosophical change and if this is something what you folks are trying to decide, how to do or if you should do and where the board is on that?

Hi Raj, this is Jeff let me take that. You know, we evaluate our capital structure you know, frequently.

If you, four or five quarters ago, putting the first dividend in the industry you know, we are going to keep looking at our alternatives here you know, if we come to the conclusion adding debt is going to make sense for shareholders you know, we will do it but we certainly haven’t come to that conclusion today but we will keep reviewing and that position may change over time.

Hi Raj, I doubt there hasn’t been a sea change in our philosophy on capital structure in the company.

And with regard to buybacks you are currently preclusive, I guess given investigation when does that open is that at the full conclusion of the investigation and whatever restatement et cetera, or is there something else that open the window for you?

No, we have to kind of review that as facts come out and we get through the investigation so you know, the hard to question to answer with a black line at the moment but we continue to review this and soon we can get back in the market we r all set and ready to go and to get back in the market keep going back.

Okay thanks.

Hi. Sorry to be the dead horse here but just to talk about the SEC timing and such, we’ve seen two other companies in the space Advance Energy and (inaudible) listed for missing the 180-day Q period after notice of deficiency and it would seem that you’re going to get that, I'm concerned that you’re going to be late on the K here.

Given that it’s been sort of two months that the committee has been working on it, we don’t have an end and we’re talking about a lot more data you just said five to ten years in Gigabytes of data, or whatever, have you been working on perhaps the numbers or a hypothetical situation what if in parallel to this investigation or, is there something that could be confidence that you can get it cured within the 180-day window where others haven’t been able to?

Yeah I appreciate the question, this is Rick. We have looked at the timeline, we work specifically at the timing in terms of what it takes to get you know, through the next filing, and as you suggested we have looked at the process of what it would take to go through the accounting if in fact we needed to restate and that’s why we –- at this time believe that we can make the timing.

Okay and is there sort of a date or callings from the committee to come up with a final you know sort of determination a month away, a week away, a couple of months away?

Yeah, what Richard said is that you know, we will miss the September 15th -day, but we expect committee report in and around that at the time and surely thereafter.

Okay, so it sounds like a relatively safe or it seems fairly, likely that you wouldn’t be able to report September numbers either.

That’s correct.

Okay thank you.

Do we have any -– we have time for one more question here.

Let’s take my question if looking at the BOM market some of the manufacturers has been having problems with very mixed variations, I’m wondering if you guys were doing anything along those lines to help us set out.

Gus, John Kispert, I'm fizzing through my mind all the -– many customers we have, SPR helping everywhere we can push the issues kind of range. I think one of the big help we’ve been able to bring given that particular over the last quarters has been the products that we announced number of years ago, has become a -- those issues in particular over the last quarters and you know and I know its solving problems in the memory space.

Got it. And then just one quick comments Rick congratulations from what I hear you are doing a good job making all decisions and kind of cleaning up the operation and clearing the structure.

Thank you, I think it’s a team effort and we are all committed to expanding business model and very pleased to be in a good position in the market.

Got it, thanks.

I would like to thank you all for participating in the conference call today. Our next conference call is currently scheduled for October 27th.

We look forward speaking to you next quarter, thank you.