OVERVIEW
We design, manufacture and support complex power conversion and control systems, and gas flow control and thermal measurement devices used in plasma-based, thin-film processing equipment. This equipment is essential to the manufacture of products as follows:
• Semiconductor devices for electronics applications;

• Solar panels or photovoltaics;

• Flat panel displays for television and computer monitors;

• Compact discs, DVDs and magnetic hard drives;

• Low emissivity architectural glass;

• Other markets where thin film deposition is a critical part of the manufacturing process.

We also design, manufacture and support commercial grade inverters for the solar power market which convert power generated by solar panels into usable power.
Our global network of service centers provides local repair and field service capability in key regions. Our installed base provides a recurring revenue opportunity as we sell repair services, conversions, upgrades and refurbishments.
We provide solutions to a diverse range of markets and geographic regions with the semiconductor capital equipment industry being our largest market and sales to the solar market being our second largest market. Sales to customers in the semiconductor capital equipment industry comprised 52% and 66% of our sales in the three months ended June 30, 2008 and 2007, respectively and 58% and 69% of our sales in the six months ended June 30, 2008 and 2007, respectively. Demand in the semiconductor capital equipment market has weakened over the past year and as such our revenues to that market have dropped. This cyclical downturn was the result of excess capital spending in 2006 and 2007 in the semiconductor market followed by a lack of spending in the market in 2008. Sales to customers in the solar market comprised 14% and 6% of our sales in the three months ended June 30, 2008 and 2007, respectively, and 12% and 6% of our sales in the six months ended June 30, 2008 and 2007, respectively. The investments in capacity for solar panel production lines have driven this growth in revenue. Our products are aligned with the polysilicon, copper indium gallium selenide (CIGS), copper indium selenide (CIS), cadmium telluride, and thin-film solar production processes. Other markets we sell to include flat panel display, data storage, architectural glass, and other industrial thin-film manufacturing equipment. Our customers in these markets are predominatly large original equipment manufacturers (OEM's) for new equipment and we also derive additional revenue from our installed base by providing services to the end manufacturer. Our solar inverter revenue is included in our sales to the solar market. Results of Operations
OVERVIEW
Sales for the second quarter of 2008 were $88.0 million, a 14.6% decrease compared to second quarter 2007 sales of $103.0 million. In the second quarter of 2008, we generated net income from operations of $6.9 million, or 7.9% of sales, compared to the second quarter of 2007, when we generated net income from operations of $16.3 million, or 15.8% of sales. Gross margin decreased to 40.1% in the first quarter of 2008 from 43.6% in the second quarter of 2007. We generated earnings of $0.14 per diluted share in the second quarter of 2008 compared to $0.25 per diluted share in the second quarter of 2007.

SALES
   The following tables summarize our unaudited net sales and percentages of net
sales by semiconductor and non-semiconductor markets for the three and six month
periods ended June 30, 2008 and 2007:

                            Three Months                                              Six Months Ended
                           Ended June 30,           Increase/          %                  June 30,              Increase/          %
                         2008          2007          Decrease       Change          2008           2007          Decrease       Change
                                   (In thousands)                                              (In thousands)
Semiconductor
capital equipment      $ 45,502      $  68,350      $  (22,848 )      (33.4 )%    $ 103,171      $ 144,473      $  (41,302 )      (28.6 )%
Non-semiconductor
capital equipment        42,494         34,699           7,795         22.5 %        73,712         65,899           7,813         11.9 %

Total sales            $ 87,996      $ 103,049      $  (15,053 )      (14.6 )%    $ 176,883      $ 210,372      $  (33,489 )      (15.9 )%




                                                    Three Months Ended June 30,                Six Months Ended June 30,
% of sales                                           2008                 2007                 2008                 2007
Semiconductor capital equipment                          52 %                  66 %                58 %                 69 %
Non-semiconductor capital equipment                      48 %                  34 %                42 %                 31 %

100 % 100 % 100 % 100 %

The following tables summarize our unaudited net sales and percentages of net sales by geographic region for the three and six month periods ended June 30, 2008 and 2007:

                           Three Months Ended                                           Six Months Ended
                                June 30,                                                    June 30,
                          2008           2007         Increase/          %            2008           2007         Increase/          %
                             (In thousands)            Decrease       Change             (In thousands)            Decrease       Change
Sales (1):
United States/Canada    $  33,666      $  56,838      $  (23,172 )      (40.8 )%    $  75,974      $ 118,176      $  (42,202 )      (35.7 )%
Asia Pacific               40,991         36,193           4,798         13.3 %        75,803         68,847           6,956         10.1 %
Europe                     13,339         10,018           3,321         33.1 %        25,106         23,349           1,757          7.5 %

Total sales             $  87,996      $ 103,049      $  (15,053 )      (14.6 )%    $ 176,883      $ 210,372      $  (33,489 )      (15.9 %)

(1) These sales amounts do not contemplate where our customers may subsequently transfer our products.

                            Three Months Ended June 30,           Six Months Ended June 30,
 % of sales                   2008                2007             2008               2007
 United States/Canada             38 %                 55 %            43 %                56 %
 Asia Pacific                     15 %                 35 %            14 %                33 %
 Europe                           47 %                 10 %            43 %                11 %

100 % 100 % 100 % 100 %

Sales were $88.0 million in the second quarter of 2008, a decrease of 14.6% compared to sales of $103.0 million in the second quarter of 2007. Our sales to the semiconductor capital equipment industry decreased approximately 33% compared to the second quarter of 2007, and decreased approximately 29% compared to the six months ended June 30, 2007. The decline was due to a reduction in demand from the semiconductor capital equipment industry as capital spending in the first half of 2007 for capacity expansion was strong. Demand in 2008 has reduced as semiconductor manufacturers absorb the capacity that they added in 2006 and 2007. Overall semiconductor manufacturers are optimizing the output from their installed capacity and are finding ways to improve output without spending capital on expansion. Sales to the markets outside of the semiconductor capital equipment market grew 22% which partially dampened the effect of the decline in the semiconductor capital equipment market. Sales to the solar market were strong as solar panel manufacturers invested in capacity expansion for solar panel production. Revenues to the solar market grew to 14% for the second quarter of 2008. Sales to the flat panel display market grew as well, as the leading flat panel display manufactures continued their investments in additional capacity. Our other non-semi markets showed growth which resulted in a shift in the balance of our business to 52% semi and 48% non-semi in the second quarter. This mix of revenues has been in the range of 67% semi and 37% non-semi in the past several quarters.

GROSS PROFIT
Our gross profit was 40.1% and 40.2% in the three and six months ended June 30, 2008, compared to 43.6% and 44.3% in the three and six months ended June 30, 2007. The decline in revenues caused a lower absorption of our fixed costs which caused the decline decrease in our gross margin.
RESEARCH AND DEVELOPMENT EXPENSES
The markets for our products constantly present us with opportunities to develop our products for new or emerging applications, along with requirements for technological changes driving for higher performance, lower cost, and other attributes that will advance our customers products. We believe that continued and timely development of new and differentiated products, as well as enhancements to existing products to support customer requirements, is critical for us to compete in the markets we serve. Accordingly, we devote significant personnel and financial resources to the development of new products and the enhancement of existing products, and we expect these investments to continue. Since inception, all of our research and development costs have been expensed as incurred.
Our research and development expenses were $13.8 million, or 15.6% of sales, in the second quarter of 2008 and $12.9 million, or 12.5% of sales, in the second quarter of 2007. The 6.6% increase from 2007 to 2008 was primarily due to increased efforts in the development of solar products and our inverter product line. We expect to continue these investments in order to deliver an expanded product suite to the solar equipment market as well as the solar inverter market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Our global sales and marketing activities comprise our selling expenses, which include personnel, trade shows, advertising, third-party sales representative commissions and other selling and marketing activities. Our general and administrative expenses support our worldwide corporate, legal, patent, tax, financial, governance, administrative, information systems and human resource functions in addition to our general management.
Selling, general and administrative ("SG&A") expenses were $13.9 million, or 15.8% of sales, for the second quarter of 2008 and $15.4 million, or 15.0% of sales, for the second quarter of 2007. The $1.5 million decrease in SG&A expenses from 2007 to 2008 was primarily due to the ongoing implementation of our cost reduction program in the second quarter and $300,000 for the reversal of bad debt expense related to a balance that was collected in the second quarter. We expect the effect of the cost reduction efforts to continue through the end of the year. Partially offsetting these decreases, SG&A expenses in the second quarter included approximately $400,000 in legal fees related to litigation on various matters.
RESTRUCTURING CHARGES
Restructuring charges of $393,000 were incurred in the three months ended June 30, 2008 and restructuring charges of $1.1 million were incurred during the six month period ended June 30, 2008. The charges were severance charges incurred as the result of restructuring a portion of our sales and administrative operations. We expect to incur additional restructuring costs in the second half of 2008 including $185,000 in connection with the restructuring announced in the first half of 2008.
Our restructuring charges in the first and second quarters of 2007 were incurred in conjunction with the closing of our factory located in Stolberg, Germany. The closure of the facility was completed by October 31, 2007. Related to this closure, we recorded restructuring charges of $158,000 and $3.0 million during the three and six month periods ended June 30, 2007, respectively, consisting of employee severance and benefit costs and an asset impairment charge relating to the write-down to estimated fair value of certain real and personal property at the facility.

OTHER INCOME, NET
Other income, net consists primarily of investment income and expense, foreign exchange gains and losses and other miscellaneous gains, losses, income and expense items. Other income decreased 33.8% to $996,000 in the three months ended June 30, 2008 from $1.5 million in the three months ended June 30, 2007, and other income decreased 38.7% to $1.9 million in the six months ended June 30, 2008 from $3.1 million in the six months ended June 30, 2007, primarily due to lower interest rates, decreased investment balance, and increased foreign exchange loss due to strengthening of the Japanese yen and the euro in relation to the U.S. dollar. As of June 30, 2008, we had $36.6 million in auction rates securities earning interest. Although these securities have been classified as long-term on our balance sheet, we expect them to earn interest at the rates on the face of the security. Any impairment charge pertaining to auction rate securities, if it is determined to be other than temporary impairment, will be recorded in other income in future quarters.
PROVISION FOR INCOME TAXES
The income tax provision for the three and six month periods ended June 30, 2008 was $2.1 million and $4.4 million, respectively, which represented an effective tax rate of 26.1% and 27.1%, respectively in such periods compared to $6.1 million and $12.9 million for the three and six month periods ended June 30, 2007, respectively, which represented an effective tax rate of 34.4% and 34.7%, respectively in such periods. The decrease in the effective tax rate resulted primarily from a lower tax rate in Germany's decrease of its tax rate from 39% to 30%. We expect that, for the balance of 2008, a greater portion of our income, as compared to 2007, will continue to be generated at our subsidiaries in jurisdictions with lower tax rates. Liquidity and Capital Resources
At June 30, 2008, our principal sources of liquidity consisted of cash, cash equivalents and marketable securities of $139.7 million. In addition, we have auction rate securities of $34.3 million resulting in total invested cash of $175.7 million. During the six months ended June 30, 2008, following the reclass of $34.3 million in auction rates securities and $50 million in the repurchase of company stock, our cash, cash equivalents and marketable securities decreased $65.5 million, or 31.9%, from $205.3 million at December 31, 2007. Our working capital decreased $77.6 million, or 25%, to $228.4 million at June 30, 2008 from $306.0 million at December 31, 2007 primarily due to the reclass of the auction rate securities to long-term investments and the stock repurchase program.
Our investment securities include auction rate securities that are not currently liquid or readily available to convert to cash. We do not believe that the current liquidity issues related to our auction rate securities will impact our ability to fund our ongoing business operations. However, if the global credit crisis persists or intensifies, it is possible that we will be required to further adjust the fair value of our auction rate securities. If we determine that the decline in the fair value of our auction rate securities is other than temporary, it would result in an impairment charge being recognized on our statement of income, which could be material and which could adversely affect our financial results. In addition, the lack of liquidity associated with these investments may require us to access our available lines of credit more frequently than otherwise until some or all of our auction rate securities are liquidated.
Operating activities provided cash of $20.6 million in the six months ended June 30, 2008 primarily due to decreases in accounts receivable and inventory.

Investing activities provided $36.2 million of cash in the six months ended June 30, 2008 and used $23.5 million in the six months ended June 30, 2007 primarily due to activity related to the sale of marketable securities. Capital expenditures in the first six months of 2008 were $3.9 million, compared to capital expenditures of $3.6 million in the first six months of 2007. We expect our total capital expenditures in 2008 to be approximately $8 to $10 million.
Financing activities used cash of $48.6 million in the first six months of 2008 compared to cash provided of $4.1 million in the first six months of 2007 primarily due our purchase and retirement of treasury stock in the first six months of 2008.
We believe that our working capital, together with cash anticipated to be generated by operations will be sufficient to satisfy our anticipated liquidity requirements for the next twelve months. Critical Accounting Policies
In preparing our financial statements, we must make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the following critical accounting policies, as discussed in this Form 10-Q and/or our Form 10-K for the year ended December 31, 2007, affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:
• Revenue recognition

• Reserve for warranty

• Reserve for excess and obsolete inventory

• Stock-based compensation

• Commitments and contingencies

• Fair value measurements

• Income taxes

• Valuation of intangible assets

• Long-lived assets including intangible assets subject to amortization