This quarterly report on Form 10-Q contains forward-looking statements, which are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs, including estimates and projections about our industry. Our forward-looking statements may include statements that relate to our future revenue, gross margin, customer demand, market share, competitiveness, margins, product development plans and levels of research and development (R&D) activity, outsourcing plans and operating expenses, tax expenses, the expected effects, cost and timing of restructurings, excess inventory reserves, the level of our vendor commitments as compared to our requirements, cost-saving initiatives, and consolidation of operations and facilities, economic conditions in general and in our industry, and the sufficiency of our financial resources to support future operations and capital expenditures. Forward-looking statements typically are identified by use of terms such as "anticipates," "expects," "intends," "plans," "seeks," "estimates," "believes," and similar expressions, although some forward-looking statements are expressed differently. These statements are not guarantees of future performance and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict. Such risks and uncertainties include those set forth in Part II, Item 1A under "Risk Factors" and Part I, Item 2 under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our actual results could differ materially from those anticipated by these forward-looking statements. The forward-looking statements in this report speak only as of the time they are made and do not necessarily reflect our outlook at any other point in time. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or for any other reason.

Documents to Review In Connection With Management's 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 Quarterly Report on Form 10-Q and the consolidated financial statements and notes in our last filed Annual Report on Form 10-K, for the year ended December 31, 2008 (our 2008 Form 10-K).

Overview

We are a supplier of semiconductor wafer processing equipment used in the fabrication of integrated circuits (ICs). Our manufacturing equipment is used for transistor level, or front-end-of-line manufacturing, and also in specialized applications for processing the interconnect layer, or back-end-of-line processing. Our manufacturing equipment utilizes innovative technology to deliver advanced processing capabilities and high productivity for the fabrication of current and next-generation ICs.

Our business depends upon capital expenditures by manufacturers of semiconductor devices. The level of capital expenditures by these manufacturers depends upon the current and anticipated market demand for such devices. Because the demand for semiconductor devices is highly cyclical, the demand for wafer processing equipment is also highly cyclical.

Beginning in the second half of 2007and through the first half of 2009, we experienced weakness in the overall semiconductor market combined with the overall weakness in the economy, particularly in the financial sector, and we expect the weakness to continue through the remainder of 2009 and perhaps into 2010. We are seeing improved business conditions specific to the semiconductor capital equipment sector, but the industry remains in the early stages of recovery. Industry utilization rates and semiconductor demand are on the rise, and customer activity has continued to increase, particularly involving technologies in our new product portfolio. Meaningful memory spending and capacity additions for memory applications, however, remain muted, with the timeline for more normal industry conditions and a sustainable recovery still well in the future.

There continue to be several uncertainties that could impact our financial performance during 2009. Revenue projections are unclear for the next year, and if revenue remains at the current low levels we may be required to book additional reserves for excess inventory, and/or vendor commitments that may be in excess of our requirements, and we will also continue to have significant under-absorption of our factories. These factors will have a major impact on our gross margin percentages for the remainder of 2009.

Going forward, the success of our business will be dependent on numerous factors, including, but not limited to, the market demand for semiconductors and semiconductor wafer processing equipment, and our ability to (a) significantly grow the Company, either organically or through acquisitions, in order to enhance our competitiveness and profitability, (b) develop and bring to market new products that address our customers' needs, (c) grow customer loyalty through collaboration with and support of our customers (d) maintain a cost structure that will enable us to operate effectively and profitably throughout changing industry cycles and (e) generate the gross margins necessary to enable us to make the necessary investments in our business.

Results of Operations

The following table sets forth our condensed consolidated results of operations
for the periods indicated, along with amounts expressed as a percentage of net
sales, and comparative information regarding the absolute and percentage changes
in these amounts:

                                        Three Months Ended
                                  -------------------------------
                                  June 28, 2009    June 29, 2008     Increase (Decrease)
                                  --------------   --------------   ---------------------
                                  (thousands)      (thousands)      (thousands)      %
                                  ------------     ------------     -----------   -------
Sales:
   Products                           $ 7,532         $ 40,443       $ (32,911)    (81.4)
   Services                               536            1,347            (811)    (60.2)
                                  ------------     ------------     -----------
      Net sales                         8,068           41,790         (33,722)    (80.7)
                                  ------------     ------------     -----------

Cost of sales:
   Products                             9,576           22,735         (13,159)    (57.9)
   Services                               101              610            (509)    (83.4)
                                  ------------     ------------     -----------
      Total cost of sales               9,677           23,345         (13,668)    (58.5)
                                  ------------     ------------     -----------

   Gross margin                        (1,609)          18,445         (20,054)   n/m (1)
                                  ------------     ------------     -----------

Operating expenses:
   Research, development and
engineering                             6,810            9,215          (2,405)    (26.1)
   Selling, general and
administrative                         11,505           15,592          (4,087)    (26.2)
   Amortization of intangibles             -               128            (128)   n/m (1)
   Restructuring charges                 (100)             748            (848)   n/m (1)
                                  ------------     ------------     -----------
      Total operating expenses         18,215           25,683          (7,468)    (29.1)
                                  ------------     ------------     -----------

Loss from operations                  (19,824)          (7,238)        (12,586)   n/m (1)

Interest income                           154              837            (683)    (81.6)
Interest expense                          (23)             (76)             53     (69.7)
Other income, net                          51              145             (94)    (64.8)
                                  ------------     ------------     -----------
Loss before income taxes              (19,642)          (6,332)        (13,310)   n/m (1)

Provision for income taxes                254              422            (168)    (39.9)
                                  ------------     ------------     -----------

Net loss                            $ (19,896)        $ (6,754)      $ (13,142)   n/m (1)
                                  ------------     ------------     -----------


________________________

(1) Not meaningful

                                         Six Months Ended
                                  -------------------------------
                                  June 28, 2009    June 29, 2008     Increase (Decrease)
                                  --------------   --------------   ---------------------
                                  (thousands)      (thousands)      (thousands)      %
                                  ------------     ------------     -----------   -------
Sales:
   Products                          $ 12,231         $ 87,135       $ (74,904)    (86.0)
   Services                             1,409            3,310          (1,901)    (57.4)
                                  ------------     ------------     -----------
      Net sales                        13,640           90,445         (76,805)    (84.9)
                                  ------------     ------------     -----------

Cost of sales:
   Products                            22,706           49,846         (27,140)    (54.4)
   Services                               458            1,320            (862)    (65.3)
                                  ------------     ------------     -----------
      Total cost of sales              23,164           51,166         (28,002)    (54.7)
                                  ------------     ------------     -----------

   Gross margin                        (9,524)          39,279         (48,803)   n/m (1)
                                  ------------     ------------     -----------

Operating expenses:
   Research, development and
engineering                            13,460           17,061          (3,601)    (21.1)
   Selling, general and
administrative                         24,359           32,367          (8,008)    (24.7)
   Amortization of intangibles             -               256            (256)   n/m (1)
   Restructuring charges                  818              748              70       9.4
                                  ------------     ------------     -----------
      Total operating expenses         38,637           50,432         (11,795)    (23.4)
                                  ------------     ------------     -----------

Loss from operations                  (48,161)         (11,153)        (37,008)   n/m (1)

Interest income                           433            2,062          (1,629)    (79.0)
Interest expense                          (56)             (76)             20     (26.3)
Other income (expense), net             1,077           (1,247)          2,324    n/m (1)
                                  ------------     ------------     -----------
Loss before income taxes              (46,707)         (10,414)        (36,293)   n/m (1)

Provision for income taxes                416              556            (140)    (25.3)
                                  ------------     ------------     -----------

Net loss                            $ (47,123)       $ (10,970)      $ (36,152)   n/m (1)
                                  ------------     ------------     -----------


________________________

(1) Not meaningful

Net Sales decreased 81 percent to $8.1 million for the three months ended June 28, 2009 compared to $41.8 million for the same period in 2008. The decrease in net sales was primarily due to a $32.9 million decline in product sales and a $0.8 million decline in service sales. The decline in net sales is primarily due to the severity of the continued downturn in the overall wafer fabrication equipment market and the industry's reduced capital spending, compounded by the global economic and credit crisis. Although utilization rates are improving, our customers are still exercising extreme caution in their capital investments, which is adversely impacting our shipments of new tools, sales of spare parts as well as services.

Net Sales decreased 85 percent to $13.6 million for the six months ended June 28, 2009 compared to $90.5 million for the same period in 2008. Again, the decrease in net sales was primarily due to a $74.9 million decline in product sales and a $1.9 million decline in service sales. The decline in net sales is primarily due to the downturn in the wafer fabrication equipment market. Demand for semiconductors is low, and memory prices, though improving are not yet near their prior peak, resulting in low utilization at the customer production fabs. Consequently demand for semiconductor equipment has been limited to primarily new technology purchases during the first half of 2009.

Gross margin was a negative $1.6 million for the three months ended June 28, 2009, a decrease of $20.1 million when compared to $18.5 million for the same period in 2008. The decrease was primarily attributable to an 81 percent decline in net sales for the second quarter of 2009 when compared to the same period in 2008, and an increase in our reserves for excess inventory and vendor commitments of $3.8 million in the second quarter of 2009 compared to $0.6 million for the same period in 2008.

Gross margin was a negative $9.5 million for the six months ended June 28, 2009, a decrease of $48.8 million when compared to $39.3 million for the same period in 2008. For the six months ended June 28, 2009, the decrease in gross margin was primarily attributable to an 85 percent decline in net sales when compared to the same period in 2008, manufacturing under absorption of $3.7 million in 2009 when compared to $2.7 million for the same period in 2008, and an increase in reserves for excess inventory and vendor commitments of $13.1 million in 2009 compared to $1.4 million for the same period in 2008. During the six months ended June 28, 2009, we booked an additional $10.7 million for excess inventory reserves due to lower forecasted revenue volumes and $2.4 million of potential excess inventory resulting from vendor commitments, totaling $13.1 million. The weakness in the overall semiconductor equipment market resulted in lower revenue levels and the corresponding under absorption of fixed manufacturing overhead costs in our factories.

Research, development and engineering ("RD&E") expenses were $6.8 million for the three months ended June 28, 2009, a decrease of $2.4 million or 26 percent when compared to $9.2 million for the same period in 2008. The decrease in RD&E expenses was primarily due to restructuring activities implemented in fiscal 2008 and planned shutdowns in fiscal 2009, resulting in a $1.6 million reduction in salary related expenses, a $0.5 million reduction in travel, outside service and other expenses, and a $0.3 million reduction in project material expenditures.

RD&E expenses were $13.5 million for the six months ended June 28, 2009, a decrease of $3.6 million or 21 percent when compared to $17.1 million for the same period in 2008. Again, the decrease in RD&E expenses was primarily due to restructuring activities implemented in fiscal 2008 and planned shutdowns in fiscal 2009, resulting in a $2.8 million reduction in salary related expenses, a $0.7 million reduction in travel and outside service expenses, a $0.3 million reduction in project material expenditures, and a $0.2 million reduction in facilities related costs. These expense reductions were partially offset by additional lab tool depreciation of approximately $0.4 million.

Selling, General and Administrative ("SG&A") expenses were $11.5 million for the three months ended June 28, 2009, a decrease of $4.1 million or 26 percent when compared to $15.6 million for the same period in 2008. The decrease in SG&A expenses was primarily due to restructuring activities implemented in fiscal 2008 and planned shutdowns in fiscal 2009, resulting in a $2.1 million reduction in employee related costs. The decrease in SG&A expenses is also attributed to the overall decline in our sales activities, resulting in a $1.7 million reduction of travel and outside service expense and a $0.7 million reduction in freight costs. In addition, we realized $0.7 million of bad debt reserves upon payment from customers. These expenses reductions were partially offset by an increase of $1.1 million in amortization expenses for evaluation tools.

SG&A expenses were $24.4 million for the six months ended June 28, 2009, a decrease of $8.0 million or 25 percent when compared to $32.4 million for the same period in 2008. The decrease in SG&A expenses was primarily due to restructuring initiatives implemented in fiscal 2008 and planned shutdowns in fiscal 2009, resulting in a $4.0 million reduction in employee related costs. The decrease in SG&A expenses is also attributed to the overall decline in our sales activities, resulting in a $2.0 million reduction of outside service expenses, a $1.6 million reduction in travel expenses and a $1.3 million reduction in freight costs. In addition, we realized $1.3 million of bad debt reserves and savings in other expenses. These expenses reductions were partially offset by an increase of $2.2 million in amortization expenses for evaluation tools.

During the year ended December 31, 2008, we implemented several restructuring programs, beginning in the second quarter of 2008 in response to the weakness in the overall semiconductor industry. As a result of our restructuring activities, we reduced headcount by 35 percent, represented by approximately 200 employees, and optimized operations at our facilities worldwide over the course of 2008. The estimated annual savings from these restructuring activities are approximately $19.0 million. A percentage of the savings will be re-invested in our new product development activities and the remainder will help us reduce our cash loss from operations. As of December 31, 2008, we had $3.9 million in our restructuring reserves comprised of $3.5 million in severance reserves and $0.4 million for lease termination expenses.

During the three months ended June 28, 2009, we recorded additional restructuring accruals of $0.2 million, primarily consisting of severance costs. We paid $1.2 million against the restructuring reserves and recorded adjustments of $0.3 million, which decreased the reserves. During the six months ended June 28, 2009, we recorded additional restructuring accruals consisting of $1.1 million in additional severance costs and $0.1 in additional lease termination costs. We paid $3.9 million against the severance reserves and recorded adjustments of $0.4 million, which decreased the reserves. At June 28, 2009, we had a restructuring reserves balance of $0.8 million, comprised of severance costs of $0.3 million and lease termination costs of $0.5 million.

We expect to book additional severance reserves of approximately $0.1 million during the remainder of 2009 related to the 2008 restructuring plans. We anticipate that all severance payments against the reserves will be substantially completed by the end of the 2009 fiscal year. The payment of the lease termination expense is dependent on the timing of a final agreement with the landlord, which is anticipated to occur by the end of the 2009 fiscal year.

In July 2009, we announced an additional restructuring program to reduce our global workforce by approximately ten percent. We anticipate annualized cost savings of approximately $7.0 million from this program. The restructuring costs related to this program, which are estimated at $1.8 million and comprised primarily of severance costs, will be recorded in the third quarter of fiscal 2009. It is expected that these severance payments will be substantially completed by the end of the third quarter of fiscal 2009.

In the aggregate, the restructuring initiatives implemented in fiscal 2008 and 2009 have resulted in a headcount reduction of approximately 45 percent and an expected annualized cost-savings of approximately $26 million.

Interest income was $0.1 million for the three months ended June 28, 2009, a decrease of $0.7 million when compared to $0.8 million for the same period in 2008. The decrease was primarily due to lower cash investment balances and lower average interest rate yields, which decreased by 1.6 percent during the same period.

Interest income was $0.4 million for the six months ended June 28, 2009, a decrease of $1.6 million when compared to $2.0 million for the same period in 2008. The decrease was primarily due to lower cash investment balances and lower average interest rate yields. Interest rate yield decreased by 2.1 percent during the same period.

Other income, net for the three months ended June 28, 2009 and June 29, 2008 was immaterial. Other income, net for the six months ended June 28, 2009 was $1.1 million, an increase of $2.3 million when compared to an expense of $1.2 million for the same period in 2008. The increase is primarily due to foreign currency exchange gain of $0.9 million compared to a loss of $0.9 million for the same period in 2008, which is attributed to the significant fluctuation of the US dollar against the local currencies of certain of the countries in which we operate.

The provision for income taxes for the six months ended June 28, 2009 primarily consisted of a $0.4 million provision for foreign taxes. We did not record Federal or states tax provision for the six months ended June 28, 2009 primarily due to projected losses incurred in the United States.

The provision for income taxes for the six months ended June 29, 2008 primarily consisted of a $1.1 million provision for foreign taxes, which was partially reduced by a discrete item resulting in a foreign tax benefit of $0.5 million. We recorded no Federal or states tax provision for the first and second quarter of 2008 primarily due to projected losses incurred in the United States.

Our valuation allowance at June 28, 2009 was primarily attributable to Federal and state deferred tax assets, as well as certain foreign deferred tax assets. We believe that sufficient uncertainty exists with regard to the realizability of these tax assets such that a valuation allowance is necessary. Factors considered in providing a valuation allowance include the lack of a significant history of consistent profits and a lack of carry-back capacity resulting in the inability to realize these assets. Based on the absence of objective evidence, we are unable to assert that it is more likely than not that we will generate sufficient taxable income to realize these remaining net deferred tax assets.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, management evaluates its estimates and judgments, including those related to reserves for excess and obsolete inventory, warranty obligations, bad debts, intangible assets, income taxes, restructuring costs, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. These form the basis for making judgment about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Consistent with our 2008 Form 10-K, we consider certain accounting policies for the following areas as critical to our business operations and an understanding of our results of operations:

º Revenue Recognition

º Allowance For Doubtful Accounts

º Warranty

º Inventories and Inventory Valuation

º Fair Value Measurement of Assets and Liabilities

º Impairment of Long-Lived Assets

º Restructuring

º Income Taxes

º Stock-based Compensation

There have been no material changes from the methodology applied by management for critical accounting estimates previously disclosed in our 2008 Form 10-K.

Liquidity and Capital Resources

Our cash, cash equivalents, short-term investments and restricted cash were $79.8 million at June 28, 2009, a decrease of $23.6 million from $103.4 million at December 31, 2008. The restricted cash of $2.0 million secures letters of credit provided to landlords. Stockholders' equity at June 28, 2009 was $111.8 million compared to $156.8 million at December 31, 2008. Working capital at June . . .