Statements contained in this Quarterly Report on Form 10-Q which are not purely historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on management's estimates, projections and assumptions that underlie such statements at the time they are made. Forward-looking statements may contain words such as "may," "will," "should," "would," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this Quarterly Report on Form 10-Q include statements regarding:

º expected savings from cost reduction plans;
º the sufficiency of funds and sources of liquidity;
º estimates of capital expenditures;
º the level of research and development expenditures;
º the ability to finance activities;
º our expected effective tax rate;
º accounting policies and estimates; and
º effects of new accounting standards.

Management cautions that forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. The risks, uncertainties and other important factors that may cause our results to differ materially from those projected in such forward-looking statements are detailed under the heading "Risk Factors" and elsewhere in our Annual Report on Form 10-K for our fiscal year ended September 30, 2008. We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.

Documents to Review in Connection with Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes presented in this Form 10-Q and the financial statements and notes in our last filed Annual Report on Form 10-K for a full understanding of our financial position and results of operations for the three and six month periods ended March 31, 2009.

Overview

We design, manufacture, install and service highly-engineered equipment for use in the fabrication of semiconductor devices. Our products are focused on the wet chemical process steps in integrated circuit, or IC, manufacturing and include systems for wafer surface preparation and electrochemical deposition, or ECD, applications. Our surface preparation systems are designed for Front End of Line (FEOL), Back End of Line (BEOL) and wafer level packaging of ICs processes. Our single-wafer FEOL surface preparation systems are used for photoresist stripping, post etch and pre-diffusion cleans. Our BEOL surface preparation systems are used for polymer removal and backside etch applications. Our surface preparation systems are also used for cleaning and etching processes for wafer level packaging and for processing wafers used in the fabrication of solar panels. Our ECD systems are used to plate copper and other metals, which are used for the IC's internal wiring, or interconnects; to plate copper for through-silicon via plating used in chipstacking; to plate solder and lead free solder bumps for wafer level packaging applications; and to plate other metals for various semiconductor and related applications. Our primary product for all of these processes is the Raider platform, which is a multi-chamber single-wafer tool. Our products address critical applications within the semiconductor manufacturing process, and help enable our customers to manufacture more advanced semiconductor devices that feature higher levels of performance. The fabrication of semiconductor devices typically requires several hundred manufacturing steps, with the number of steps continuing to increase for advanced devices. Due to the breadth of our product portfolio and advanced technology capabilities, our solutions address over 150 of these manufacturing steps.

Key Performance Indicators

Our management focuses on revenues, gross margin, operating expenses and profitability in managing our business. In addition to these financial measures found in our condensed consolidated financial statements, we also use bookings, backlog, shipments and deferred revenue as key performance indicators. Bookings are firm orders for which we have received written customer authorization in the fiscal period. Backlog is the balance of undelivered orders at the end of a fiscal period. In order to be included in bookings or backlog, an order must be scheduled to ship within the next 12 months. Backlog and forecasted orders drive our production schedule. Shipments measure how well we have met our production plan and are viewed as a primary measure of factory output. Deferred revenue primarily represents tool shipments for which we are awaiting final customer acceptance.

A summary of key factors which impacted our financial performance during the second quarter includes:

º Second quarter fiscal 2009 bookings were $24.6 million, down from $66.2 million in the second quarter of fiscal 2008.

º Shipments in the second quarter of fiscal 2009 were $22.9 million as compared with $66.8 million in the second quarter of fiscal 2008.

º Net loss was $4.6 million on revenues of $27.2 million as compared with a net income of $2.1 million on revenues of $63.0 million during the second quarter of fiscal 2008.

º Our gross margin was 39.4% of net sales as compared with a gross margin of 47.8% of net sales in the second quarter of fiscal 2008.

º Cash and cash equivalents, including restricted cash and marketable securities, was $31.4 million as of March 31, 2009.

Results of Operations

The following table sets forth our condensed consolidated results of operations
for the periods indicated as a percentage of net sales:

                                   Three Months Ended                  Six Months Ended
                              -----------------------------     ------------------------------
                               March 31,        March 31,         March 31,        March 31,
                                  2009             2008             2009              2008
                              ------------     ------------     -------------     ------------
Net sales                            100.0 %          100.0 %           100.0 %          100.0 %
Cost of sales                         60.6 %           52.2 %            58.7 %           51.4 %
                              ------------     ------------     -------------     ------------
Gross profit                          39.4 %           47.8 %            41.3 %           48.6 %
Operating expenses:
 Selling, general and
administrative                        39.5 %           31.9 %            48.5 %           34.8 %
 Research and development             23.4 %           11.0 %            23.5 %           12.4 %
 Downsizing costs                      5.6 %             -- %             4.0 %             -- %
                              ------------     ------------     -------------     ------------
Total operating expenses              68.5 %           42.9 %            76.0 %           47.2 %
                              ------------     ------------     -------------     ------------
Income (loss) from
operations                           (29.1 )%           4.9 %           (34.7 )%           1.4 %
Other income (expense),
net                                     -- %            0.7 %            (0.7 )%           0.8 %
                              ------------     ------------     -------------     ------------
Income (loss) before
income taxes                         (29.1 )%           5.6 %           (35.4 )%           2.2 %
Income tax provision
(benefit)                            (12.1 )%           2.2 %           (15.4 )%           1.0 %
                              ------------     ------------     -------------     ------------
Net Income (loss)                    (17.0 )%           3.4 %           (20.0 )%           1.2 %
                              ------------     ------------     -------------     ------------

Net Sales

                              Three Months Ended           Six Months Ended
                           -------------------------   ------------------------
                            March 31,     March 31,     March 31,    March 31,
                              2009          2008          2009          2008
                           -----------   -----------   -----------   ----------
                                (In thousands)              (In thousands)
             Net sales      $   27,158    $   62,958    $   60,224    $ 111,550

Net sales consist of revenues from sales of semiconductor equipment, spare parts and service and royalties. Our revenue recognition policy provides that a portion of revenue from sales of semiconductor equipment may be recognizable upon shipment if the tool incorporates proven technology ("existing tool") and is shipped to a customer environment in which we have already successfully installed and gained acceptance of our products and the revenue recognition criteria in SEC Staff Accounting Bulletin (SAB) 104, "Revenue Recognition" have been met. Alternatively, revenue will be 100% deferred and only recognized upon final customer acceptance for tools that are new technology products ("new tools") or where an existing tool is sold into a new customer environment. Revenue for elements other than equipment, such as installation revenue, is included in tool acceptance revenue.

Our products are highly customized. Each customer has specific technical requirements for the performance of the equipment in the fabrication of semiconductor devices. Consequently, the specific terms of the acceptance provisions are negotiated with each customer on a tool-specific basis in order to reflect the technical specifications that will be used to determine whether the tool passes the applicable acceptance tests. These acceptance specifications are lengthy, technically complex and vary greatly from customer to customer and product to product.

We have a proven track recording of obtaining customer acceptances within a reasonable timeframe. In the rare event when acceptance does not occur because the customer does not believe that the tool has met the applicable technical specifications, the parties treat the matter as a contractual issue that needs to be resolved before the customer accepts the equipment. That resolution can take many different forms, including re-testing the equipment, making technical modifications to resolve the disagreement or extending the warranty to accommodate a delayed acceptance. Whether or not a customer may have any further remedy where a resolution cannot be agreed between the parties, including any right of return of the equipment, would be a question of contract interpretation that ultimately would have to be adjudicated in accordance with applicable law.

Net sales decreased by $35.8 million or approximately 57%, in the second quarter of fiscal 2009 as compared with the second quarter of fiscal 2008 and by $51.3 million or approximately 46% in the year-to-date comparison. Fiscal 2009 revenues have been significantly impacted by the current worldwide economic crisis, which has resulted in customers delaying placing orders and customers pushing out delivery dates for tools already ordered and scheduled for delivery. Most Raider revenues in the first half of fiscal 2009 were related to wafer-level packaging applications while Raiders for cleaning applications, primarily related to capacity purchases, declined the most sharply. Revenue from tool shipments declined approximately 65% in the quarterly comparison and approximately 56% in the year-to-date comparison. Revenue from tool acceptances decreased approximately 34% in the quarterly comparison and 8% in the year-to-date comparison.

Geographically, our sales mix year-to-date was weighted toward Europe, with Asian sales declining because our major customers in Asia placed their capital budgets on hold.

Gross Profit

                                    Three Months Ended            Six Months Ended
                                --------------------------   --------------------------
                                 March 31,      March 31,     March 31,      March 31,
                                    2009          2008           2009          2008
                                ------------   -----------   ------------   -----------
                                  (Dollars in thousands)       (Dollars in thousands)
    Gross profit                  $   10,691    $   30,072      $  24,852    $   54,244
    Gross margin percentage             39.4 %        47.8 %         41.3 %        48.6 %

Gross profit decreased by $19.4 million or 64.4% and by $29.4 million or 54.2% in the second quarter and first half of fiscal 2009 compared with the second quarter and first half of fiscal 2008.

Gross profit decreased in absolute dollars in both comparative periods because of lower sales volumes. Our gross margin declined 8.4 percentage points and 7.3 percentage points in the second quarter and first six months of fiscal 2009 from the second quarter and first six months of fiscal 2008 primarily due to a higher than normal level of under-absorbed overhead costs because of under-utilized plant capacity during both fiscal 2009 comparative periods and increased inventory reserves taken in response to the current economic slowdown. Tool margins declined approximately five percentage points in the second quarter of fiscal 2009 related to selective tool placements for new business opportunities. These decreases were partially offset by improved spare parts and service margins in both the second quarter and first six months of fiscal 2009.

Selling, General and Administrative

                                    Three Months Ended                  Six Months Ended
                              ------------------------------     -------------------------------
                                March 31,        March 31,         March 31,         March 31,
                                  2009              2008              2009              2008
                              -------------     ------------     --------------     ------------
                                  (Dollars in thousands)             (Dollars in thousands)
Selling, general and
administrative                  $    10,715      $    20,070        $    29,178      $    38,766
Percentage of net sales                39.5 %           31.9 %             48.5 %           34.8 %

Selling, general and administrative (SG&A) expenses include employment costs for sales, marketing, customer support and administrative personnel as well as travel, communications, professional fees and expenses related to sales and service offices at North American and international locations. SG&A expenses decreased $9.4 million and $9.6 million in the second quarter and first half of fiscal 2009, respectively, as compared to the second quarter and first half of fiscal 2008.

Employment costs decreased approximately $3.9 million and $5.6 million in the second quarter and first half of fiscal 2009 as compared with the second quarter and first half of fiscal 2008. In the first six months of fiscal 2009, we took measures to realign our cost structure to expected business levels by reducing our staffing worldwide, implementing management pay cuts and mandatory leave. In the first quarter of fiscal 2009, we also shut down our facilities for three weeks. Because of these cost management measures, travel expenses declined $1.3 million and $1.8 million in the second quarter and the first six months of fiscal 2009 compared with the same periods in fiscal 2008. Commission expense decreased $1.7 million and $2.2 million, respectively in the second quarter and first six months of fiscal 2009 when compared with the comparable periods in fiscal 2008. All other major expense categories have also declined year-over-year. These savings have been somewhat offset by the write-off of two customer accounts receivable, totaling approximately $3.6 million and which included the write-off of a major tool sale to a customer that filed for insolvency protection in a German court.

Research and Development

                                     Three Months Ended            Six Months Ended
                                 --------------------------   --------------------------
                                  March 31,      March 31,     March 31,      March 31,
                                    2009           2008           2009          2008
                                 -----------    -----------   ------------   -----------
                                   (Dollars in thousands)       (Dollars in thousands)
    Research and development       $   6,343      $   6,947      $  14,177    $   13,926
    Percentage of net sales             23.4 %         11.0 %         23.5 %        12.4 %

Research and Development (R&D) expense consists of salaries, project materials, laboratory costs, consulting fees and other costs associated with our product development efforts. In the second quarter of fiscal 2009, R&D expense decreased approximately $604,000 when compared with the second quarter of fiscal 2008 and increased approximately $251,000 in the year-to-date comparison.

Employment costs decreased approximately $1.0 million and $1.7 million in the second quarter and first half of fiscal 2009 as compared with the second quarter and first half of fiscal 2008 as we implemented cost savings measures in response to the worldwide economic crisis. Depreciation expense increased by approximately $500,000 and $1.0 million in the quarter-to-date and year-to-date comparative periods as we replaced older technology tools in our demonstration laboratories with new technology tools in order to support our customers' development efforts. Prototype expense increased by approximately $1.0 million in the first half of fiscal 2009 as we wrote-down two experimental tools from our work-in-process inventory. We continue to work on a number of leading edge projects including on-going development of porous silicon for the solar industry.

Our research and development expense has fluctuated from quarter-to-quarter in the past. We expect such fluctuations to continue in the future, both in absolute dollars and as a percentage of net sales, primarily due to the timing of expenditures and fluctuations in the level of net sales in a given quarter. We expect to continue to fund research and development expenditures with a multi-year perspective and are committed to technology leadership in our sector of the semiconductor equipment industry.

Downsizing Costs

                                    Three Months Ended            Six Months Ended
                                --------------------------   --------------------------
                                 March 31,      March 31,     March 31,      March 31,
                                    2009           2008         2009           2008
                                ------------    ----------   -----------    -----------
                                  (Dollars in thousands)       (Dollars in thousands)
    Downsizing costs             $     1,531      $     --    $    2,412        $    --
    Percentage of net sales              5.6 %          -- %         4.0 %           -- %

In November 2008 and January 2009, we announced and implemented plans to align our cost structure closer to then-current business activity levels. On a combined basis, the cost reduction plans consisted primarily of a 35% reduction in our worldwide work force, salaried pay cuts, reduced working hours and overtime, mandatory leave and a three-week facilities shutdown in December 2008. One-time involuntary termination costs of $1.5 million and $2.4 million, respectively, were reported as a separate component of operating expenses in our fiscal 2009 second quarter and first half. Most costs related to the downsizing plans were incurred and paid in the first half of fiscal 2009. We have a remaining liability of $345,000, primarily related to involuntary termination costs in Europe. Approximately one-third of those costs have been incurred.

As a result of the cost reduction plans, we expect ongoing savings of approximately $13 million to $14 million per quarter. Net of downsizing costs, we have realized savings of approximately $11 million and $17 million in the second quarter and first six months of fiscal 2009. These cost savings are reported in gross margin and operating expenses in the Condensed Consolidated Statements of Operations. We will continue to monitor the need for additional cost savings and implement cost reduction measures as needed.

Other Income (Expense), Net

                                          Three Months Ended          Six Months Ended
                                       ------------------------   ------------------------
                                       March 31,     March 31,    March 31,     March 31,
                                          2009          2008         2009          2008
                                       ----------    ----------   ----------    ----------
                                            (In thousands)             (In thousands)
 Interest income                        $      21     $      51     $     60      $    147
 Interest expense                            (225 )        (113 )       (346 )        (224 )
 Foreign exchange gain (loss)                 347           385          (29 )         663
 Other                                       (155 )         136          (70 )         320
                                       ----------    ----------   ----------    ----------
 Total other income (expense), net      $     (12 )   $     459     $   (385 )    $    906
                                       ----------    ----------   ----------    ----------

Other income (expense), net decreased $471,000 to a net other expense of $12,000 in the second quarter of fiscal 2009 as compared with a net other income of $459,000 in the second quarter of fiscal 2008. Year-to-date, other income (expense), net decreased $1.3 million from a net other income of $906,000 to a net other expense of $385,000. Foreign exchange gains and losses on intercompany balances held in Yen and Euros accounted for most of the change. We also determined that the one million shares acquired as an investment security in a sales transaction in fiscal 2008 had experienced an Other-than-temporary impairment under the guidance of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Investments in Certain Debt and Equity Securities" (SFAS No. 115). Accordingly, we revised our cost basis in the investment by writing off $240,000 to Other expense.

Income Taxes

                                         Three Months Ended           Six Months Ended
                                     --------------------------   ------------------------
                                      March 31,      March 31,    March 31,     March 31,
                                        2009           2008          2009         2008
                                     -----------    -----------   ----------   -----------
                                           (In thousands)              (In thousands)
  Income tax provision (benefit)      $   (3,305 )   $    1,369    $  (9,274 )  $    1,089

Our estimated effective tax rate for fiscal 2009 is 39% as of March 31, 2009 as compared to an estimated effective tax rate for fiscal 2008 of 36% as of March 31, 2008. Our fiscal 2009 tax rate was benefited from the extension of the federal research credit.

The first quarter of fiscal year 2009 included a benefit of $1.0 million related to the extension of the federal research credit as it pertains to fiscal year 2008. Legislation to extend the federal research credit was signed into law after the close of our fiscal year 2008; therefore we were unable to recognize the federal research credit in the last three quarters of fiscal 2008. This benefit was partially offset by the quarterly Financial Accounting Standards Board (FASB) Interpretations (FIN) 48, "Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109" (FIN 48) adjustment, resulting in an actual tax benefit of approximately 44% for the first six months of fiscal 2009.

--------------------------------------------------------------------------------
Backlog and Deferred Revenue

                                                           March 31,      March 31,
                                                             2009           2008
                                                          -----------    -----------
                                                            (Dollars in millions)
 Backlog                                                   $     46.6     $     71.6
 Percentage change in backlog year-over-year                    (34.9 )%        69.3 %
 Deferred revenue                                          $      2.5     $     21.2
 Percentage change in deferred revenue year-over-year           (88.2 )%        41.3 %

Approximately 88% of our current backlog is for Raider tools. Deferred revenue decreased $18.7 million at March 31, 2009 as compared with March 31, 2008 primarily related to lower business volumes in fiscal 2009. Current revenue deferrals include all or a part of 11 Raiders as compared with 31 Raiders at March 31, 2008. The fiscal 2008 figure includes five Raiders that represented shipments of new tools or to new customer environments requiring full deferral of revenue on those tools whereas the fiscal 2009 figure represents only deferrals of the installation component of revenue.

We include in backlog those customer orders for which we have written customer authorization and for which shipment is scheduled within the next 12 months. Orders are generally subject to cancellation or rescheduling by customers with limited or no cancellation fees. As the result of systems ordered and shipped in the same quarter, possible changes in customer delivery dates, cancellations and . . .