Our results historically have been driven primarily by worldwide demand for consumer electronic products that utilize semiconductors, flat panel displays, magnetic or optical storage, and industrial products such as solar panels and architectural glass. Our business is subject to cyclical industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for semiconductor devices, solar panels, flat panel displays and other electronic devices, as well as other factors, such as global economic and market conditions, and technological advances in fabrication processes.
We incurred net losses for the three and six months ended June 30, 2009, and management expects that industry conditions will remain challenging for the remainder of 2009. Credit constraints in the financial markets and the weak global economy are compounding the impact of the highly cyclical markets in which we operate. Negative trends in consumer spending and pervasive economic uncertainty led many of our customers to significantly reduce factory operations and to reduce their projected capital spending plans for capacity expansion during the first half of 2009, which severely impacted demand for our products. Factory utilization rates among a number of our end markets began to increase in the second quarter of 2009; however, meaningful improvement in the capital equipment sector will depend on a sustainable recovery in our customers' end markets that can keep factories running at higher utilization rates and drive investments in new capacity, in addition to advanced technologies. In this uncertain macroeconomic and industry climate, our ability to forecast customer demand and our future performance is limited. Overall, we expect that orders and net sales will be down in 2009 compared to 2008, and we will continue to operate below our breakeven point through the end of 2009. We believe our investments in new technology, which has remained strong during these challenging market conditions, will position us well when our markets begin to recover.
Our analysis presented below is organized to provide the information we believe will be instructive for understanding our historical performance and relevant trends going forward. However, this discussion should be read in conjunction with our consolidated financial statements in Part I Item 1 of this report, including the notes thereto.
Results of Operations
SALES
The following tables summarize net sales, and percentages of net sales, by customer type for each of the three and six months ended June 30, 2009 and 2008:

                                   Three Months Ended June 30,             Increase/                               Six Months Ended June 30,             Increase/
                                   2009                  2008             (Decrease)         % Change             2009                 2008             (Decrease)         % Change
                                                    (In thousands)                                                                (In thousands)
Product:
Semiconductor capital
equipment                     $       12,190        $        35,251       $   (23,061 )          (65.4 )%     $     21,770        $        82,071       $   (60,301 )          (73.5 )%
Non-semiconductor capital
equipment                             14,569                 36,607           (22,038 )          (60.2 )            29,901                 63,469           (33,568 )          (52.9 )

Total Product                         26,759                 71,858           (45,099 )          (62.8 )            51,671                145,540           (93,869 )          (64.5 )
Global Support                         8,808                 16,138            (7,330 )          (45.4 )            16,523                 31,343           (14,820 )          (47.3 )

Total Sales                   $       35,567        $        87,996       $   (52,429 )          (59.6 )%     $     68,194        $       176,883       $  (108,689 )          (61.4 )%


                                   Three Months Ended June 30,                                                     Six Months Ended June 30,
                                   2009                  2008                                                     2009                 2008
Product:
Semiconductor capital
equipment                               34.2 %                 40.1 %                                                 31.8 %                 46.4 %
Non-semiconductor capital
equipment                               41.0 %                 41.6 %                                                 43.9 %                 35.9 %

Total Product                           75.2 %                 81.7 %                                                 75.7 %                 82.3 %
Global Support                          24.8 %                 18.3 %                                                 24.3 %                 17.7 %

Total Sales 100.0 % 100.0 % 100.0 % 100.0 %

Overall sales for the three months ended June 30, 2009 were $35.6 million, representing a 59.6% decrease from $88.0 million in the three months ended June 30, 2008. Overall sales for the six months ended June 30, 2009 were $68.2 million, representing a 61.4% decrease from $176.9 million in the six months ended June 30, 2008.
Product sales for the three months ended June 30, 2009 were $26.8 million, representing a 62.8% decrease as compared to $71.9 million for the three months ended June 30, 2008. Product sales for the six months ended June 30, 2009 were $51.7 million, representing a 64.5% decrease from $145.4 million for the six months ended June 30, 2008. The decrease in product sales was due in part to a significant reduction in worldwide demand from our end markets which significantly reduced the need for capacity expansion in those markets.
Sales to the semiconductor capital equipment market were $12.2 million, or 34.2% of total sales, for the three months ended June 30, 2009, as compared to $35.3 million, or 40.1% of total sales, for the three months ended June 30, 2008 and $21.8 million, or 31.8% of total sales for the six months ended June 30, 2009, as compared to $82.1 million, or 46.4% of total sales, for the six months ended June 30, 2008. Demand in the semiconductor market fell significantly as end market demand for products that include semiconductors fell in the wake of the global economic crisis. The drop in demand reduced factory utilization and significantly reduced the need for semiconductor fab expansion. The semiconductor capital equipment market was severely affected by these results and, consequently, demand for our products in these markets decreased from year ago levels.

Product sales to our non-semiconductor equipment markets declined year over year, accounting for $14.6 million, or 41.0%, of total sales, for the three months ended June 30, 2009, as compared to $36.6 million, or 41.6% of total sales, for the three months ended June 30, 2008. Additionally, sales to our non-semiconductor equipment markets were $29.9 million, or 43.9% of total sales, for the six months ended June 30, 2009, as compared to $63.5 million, or 35.9% of total sales, for the six months ended June 30, 2008. Our non-semiconductor equipment markets were also adversely affected by a number of the pervasive factors mentioned above, such as the credit constraints in the financial markets and the negative trends in consumer spending. The drop in end market demand reduced factory utilization and significantly reduced the need for capacity expansion in our non-semiconductor markets. The markets that comprise our non-semiconductor equipment markets include solar, flat panel display, data storage, architectural glass, and other industrial thin-film manufacturing equipment. Our customers in these markets, other than the solar market, are predominantly large original equipment manufacturers (OEM's) for new equipment. Our customers in the solar market are predominantly large system integrators, independent power producers and public utilities.
Over the past three years, the solar market has been growing the fastest of our non-semiconductor equipment markets; however, product sales to this market were adversely affected by the weakened global economy and the financial credit crisis which began in the second half of 2008 and has continued into 2009. Solar panel manufacturers installed substantial panel manufacturing capacity over the past three years, and as a result of declining panel sales caused in part by the global recession, built significant inventory. The majority of panel manufacturers must work through their current inventory levels before their factory utilization will be at a point where they will need to expand capacity. Sales to customers in the solar market decreased to $6.3 million, or 17.6% of total sales, for the three months ended June 30, 2009 and $12.5 million, or 18.3% of total sales, for the six months ended June 30, 2009, as compared to $12.6 million, or 14.3% of total sales, for the three months ended June 30, 2008 and $20.9 million, or 11.8% of total sales, for six months ended June 30, 2008. Our products are used in the thin-film deposition process for solar cell production, such as amorphous silicon, polysilicon, amorphous-microcrystalline silicon, cadmium telluride (CdTe), copper indium gallium selenide (CIGS), copper indium selenide (CIS) and cadmium telluride. Sales of our Solaron ® solar inverter, which converts DC power generated by the solar panel to AC power, are included in sales to the solar market.
Our global support business experienced a decline in sales falling to $8.8 million, or 24.8% of total sales, for the three months ended June 30, 2009 and $16.5 million, or 24.2% of total sales, for the six months ended June 30, 2009. This was a decrease from $16.1 million, or 18.3% of total sales, for the three months ended June 30, 2008 and $31.3 million, or 17.7% of total sales, for the six months ended June 30, 2008. The decrease in absolute dollars resulted in large part from a continuing practice by our customers of utilizing idle equipment for spare parts in efforts to conserve cash as opposed to repairing malfunctioning or worn parts.
Although we have experienced continued success in our non-semiconductor equipment industries, demand for our products is driven by requirements for capacity expansion in each of the markets we serve. We have experienced, and expect to continue to experience, near term weakness throughout 2009 due to the softness in the global economy. As discussed above, this global downturn has impacted our customers' expansion plans, and coupled with difficulties in obtaining capital and deteriorating market conditions which may lead to the inability of our customers to obtain financing, has also resulted in a reduction of our sales to the non-semiconductor equipment markets. We do, however, anticipate a continued shift in our business towards our non-semiconductor equipment markets as we continue to invest in new technology and products for the solar market.
GROSS PROFIT
Our gross profit was $7.9 million, or 22.2% of sales, for the three months ended June 30, 2009, as compared to $35.3 million, or 40.1% of sales for the three months ended June 30, 2008. Similarly, gross profit decreased to $14.3 million, or 21.0% of sales, for the six months ended June 30, 2009, from $71.1 million, or 40.2% of sales, for the six months ended June 30, 2008. The large decrease was due to an overall decrease in production volume related to the weakening economy which resulted in a lack of absorption of our factory costs therefore reducing our gross margin. We reduced our overall manufacturing costs throughout 2008 and in the first three months of 2009 by reducing fixed production and overhead costs including personnel costs through restructuring activities; however despite our ongoing efforts to reduce costs, we currently have excess manufacturing capacity related to buildings, machinery and unabsorbed overhead expenses.
RESEARCH AND DEVELOPMENT EXPENSES
The markets we serve constantly present us with opportunities to develop our products for new or emerging applications and require 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.
Research and development expenses for the three months ended June 30, 2009 were $10.7 million, or 30.1% of sales, as compared to $13.8 million, or 15.7% of sales, for the three months ended June 30, 2008. Similarly, research and development expenses decreased to $21.8 million, or 32.0% of sales, for the six months ended June 30, 2009, from $26.8 million, or 15.1% of sales, for the six months ended June 30, 2008.

The decrease in research and development expenses in absolute dollars for the three and six months ended June 30, 2009, as compared to the same periods for 2008, was primarily due to a reduction in personnel through the restructuring activities executed in the first three months of this year as well as in the fourth quarter of 2008. The decrease in personnel costs for the six months ended June 30, 2009 was partially offset by an approximate $0.8 million charge for excess and obsolete engineering inventory, for which management does not believe there will be utilizable demand.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling expenses are comprised of all global sales and marketing activities which include personnel, trade shows, advertising, third-party sales representative commissions and other selling and marketing activities. General and administrative expenses are comprised of 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 for the three months ended June 30, 2009 were $10.2 million, or 28.7% of sales, as compared to $14.0 million, or 15.9% of sales, in the three months ended June 30, 2008. Similarly, SG&A expenses decreased to $19.6 million, or 28.7% of sales, for the six months ended June 30, 2009, from $28.4 million, or 16.1% of sales, for the six months ended June 30, 2008.
The decrease in expenses in absolute dollars for the three and six months ended June 30, 2009, as compared to the same periods for 2008, was a result of the reductions of personnel and their related costs that were implemented throughout 2008 and early 2009 aimed at reducing administrative costs and increasing efficiencies, including the consolidation of our worldwide accounting processing functions in a shared services center in Shenzhen, China. Additional decreases for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008 include a reduction of third party sales compensation to independent sales representatives due to a decrease in overall sales revenue and a $1.0 million adjustment for depreciation expense related to our facility in Japan. We have also implemented cost reductions in all discretionary spending areas, such as travel and professional fees. These decreases were offset by an approximate $1.2 million increase in bad debt expense recorded in the six months ended June 30, 2009 as a result of certain customers' deteriorating financial condition. While we believe that our allowance for doubtful accounts at June 30, 2009 is adequate, we will continue to closely monitor customer liquidity and other economic conditions.
GOODWILL IMPAIRMENT CHARGE
We recorded a non-cash goodwill impairment charge in the amount of $63.3 million during the six months ended June 30, 2009 based upon the results of our impairment test performed during the first quarter of 2009. For further discussion of the goodwill impairment charge recorded, see Note 7 - "Goodwill, Purchased Technology and Other Intangible Assets" to the Condensed Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates
- Goodwill Impairment."
RESTRUCTURING CHARGES Throughout 2008 and, again, in the first three months 2009, we implemented cost reduction efforts in response to deteriorating economic conditions and weakening demand from our end markets. Overall, we reduced our global workforce by approximately 446 people or 26.1% of total headcount across all functional areas and geographies since the beginning of 2008. We incurred restructuring costs of $0.7 million and $4.1 million for the three and six months ended June 30, 2009, respectively, related to the cost reduction efforts. For the three and six months ended June 30, 2008, we incurred restructuring costs of $0.4 million and $1.1 million, respectively, related to the cost reduction efforts described above. We continue to look for ways to make our global workforce more efficient and effective, which may lead to additional cost reduction activities in the future.
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, net was $0.6 million for the three months ended June 30, 2009, as compared to $0.9 million for the three months ended June 30, 2008. Similarly, other income, net decreased to $1.0 million for the six months ended June 30, 2009 from $1.9 million for the six months ended June 30, 2008. The decrease in both periods was due to a reduction in interest rates earned on our cash and investments.

PROVISION (BENEFIT) FOR INCOME TAXES
During 2008, based on our 2008 operating results and projection of future operating results within the United States, our management evaluated the recoverability of our deferred tax assets in the United States and concluded a portion of our United States deferred tax assets were not recoverable under the more likely than not criteria in SFAS No. 109, "Accounting for Income Taxes." As such, an increase to the valuation allowance of $18.0 million dollars was recorded during the quarter ended December 31, 2008.
For the three and six months ended June 30, 2009, we sustained further losses in the United States and, as a result, management determined that an increase to the valuation allowance of $11.1 million was necessary since management believes that we are not likely to utilize the benefits of the associated deferred tax assets. The ultimate realization of our overall deferred tax assets is dependent upon the generation of approximately $95.1 million of future taxable income in the United States, the timing and amount of which is uncertain. We assess the recoverability of our net deferred tax assets on a quarterly basis. If our expectation of future realization of our deferred tax assets changes, we will adjust the valuation allowance with a corresponding change in income tax expense in such period.
We recorded an income tax provision for the three months ended June 30, 2009 of $2.8 million, all of which related to taxable income in our foreign jurisdictions, and represented an effective tax rate of 21.3%. This rate was a decrease from a 26.6% effective tax rate for the three months ended June 30, 2008. The decrease in the current three month effective tax rate as compared to the rate for the three months ended June 30, 2008, resulted primarily from lower taxable income in our foreign jurisdictions, the recording of the additional valuation allowance discussed above, on continued losses in the United States, which includes the impairment of goodwill incurred during the current year, which is non-deductible for tax purposes.
Our future effective income tax rate depends on various factors, such as tax legislation and the geographic composition of our pre-tax income. We carefully monitor these factors and timely adjust the interim effective income tax rate accordingly.
Liquidity and Capital Resources
Our primary sources of liquidity are our available cash levels, available liquidity from our Credit Line Agreement and cash flows provided by operating activities. We utilize these capital resources to make capital expenditures primarily for our operational needs, investment in technology applications and tools to further develop our products and for other general corporate purposes, including the funding of possible acquisitions. In future periods, we intend similar uses of these funds.
During the six months ended June 30, 2009, we generated $24.4 million in cash from net changes in marketable securities and $0.1 million of proceeds from stock option exercises and used $1.4 million for capital expenditures and $1.1 million for operating activities, resulting in a $21.0 million increase in available cash (including $1.0 million of unfavorable effects of international currency exchange rates on cash).
Net cash flows used in operating activities in the six months ended June 30, 2009 were $1.1 million, compared to $20.6 million cash provided by operating activities in the six months ended June 30, 2008. The $21.6 million decrease in net cash flows from operating activities was due to a $107.6 million decrease in net income, offset by a $69.8 million increase in non-cash reconciling items such as goodwill impairment, depreciation and amortization, stock-based compensation, restructuring charges, provision for excess and obsolete inventory, provision for doubtful accounts and deferred income taxes and a $16.2 million increase in cash flows from changes in operating assets and liabilities, principally the collection of receivables.
Capital expenditures, which are generally funded by cash generated from operating activities and available cash balances, were $1.4 million for the six months ended June 30, 2009, compared to $3.9 million for the six months ended June 30, 2008. Capital expenditures in both periods presented primarily include the cost of lab and testing equipment to support sustaining engineering and new product development efforts.
At June 30, 2009, our ARS whose underlying assets are primarily student loans originated under the Federal Family Education Loan Program ("FFELP") have a fair value of $23.1 million. FFELP student loans are guaranteed by state guarantors who have reinsurance agreements with the United States Department of Education. In addition to the student loans, a smaller portion of our portfolio is held in municipal securities. Since February 2008, the majority of the auctions for our investment in these securities have failed to settle, causing us to hold the securities longer than originally intended. In November 2008, we executed the Put Agreement and expect to liquidate all of our remaining ARS at par when our rights under the agreement are effective beginning June 30, 2010. Since the period for which this Put Agreement is effective is now within twelve months and it is management's intent to liquidate the securities at the effective date, we have reclassified our ARS from long-term assets to current assets. We do not expect to incur any loss of principal; however, until we liquidate our ARS, we will recognize any decline in fair value of the ARS in earnings. We expect the subsequent changes in the value of the Put Agreement will largely offset any subsequent fair value declines of the ARS, subject to the continued performance by the financial institution of its obligations under the Put Agreement. Other than via the Put Agreement, the principal

could become available through three different means: (1) the ARS is called;
(2) auctions have resumed and are successful; and (3) the principal has reached maturity. On June 2, 2009, pursuant to the Put Agreement, we entered into a Credit Line Account Agreement (the "Credit Line Agreement") with UBS Bank USA ("UBS Bank"). The Credit Line Agreement provides us with an uncommitted, demand revolving line of credit (an intended "no net cost loan") of $21.0 million, as determined by UBS Bank in its sole discretion, which is secured by our ARS that we have pledged as collateral. Upon our request, UBS Bank may make one or more advances to us. The interest expense that we pay on the no net cost loan is not expected to exceed the interest income that we receive on the ARS that we have pledged to UBS Bank as security for the no net cost loan. If the payments on our ARS are not sufficient to pay the accrued interest on such advances before a due date, UBS Bank may, in its sole discretion (1) capitalize unpaid interest as an additional advance or (2) require us to make payment of all accrued and unpaid interest. UBS Bank may demand full or partial payment of the no net cost loan, at its sole option and without cause, at any time. UBS Bank may also, at any time, in its discretion, terminate and cancel the no net cost loan. If at any time UBS Bank exercises its right of demand under certain sections of the Credit Line Agreement, then UBS Financial Services Inc. or one of its affiliates shall provide, as soon as reasonably possible, alternative financing on substantially the same terms and conditions as those under the Credit Line Agreement and the Credit Line Agreement will remain in full force and effect until such time as . . .