Good afternoon. My name is Christian [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA-Tencor Corporation Fourth Quarter Fiscal Year 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Lockwood, you may begin your conference.

Thank you, Christian. Good afternoon everyone and welcome to KLA-Tencor's fourth quarter fiscal year 2008 earnings conference call. I'm Ed Lockwood with KLA-Tencor Investor Relations. Joining me on our call today are Rick Wallace, our CEO; and John Kispert, our President, COO and Chief Financial Officer. We are here today to discuss fourth third quarter results for the period ended June 30th, 2008. We released these results this afternoon at 1:15 Pacific Time. If you haven't seen the release, you can find it on our website, www.klatencor.com or call 408-875-3600 to request a copy. Rick will lead off today's call with highlights from the quarter; updates on the current market environment and key product activity, and provide guidance for the September quarter. Afterwards, John Kispert will review the preliminary financial results for the quarter, and then we will open the call for questions. On the Investors section of our website, you will find a simulcast of this call, which will be accessible on-demand for 90 days. On the website, you will also find a calendar of future investor events and links to KLA-Tencor's security filings, including our most recent 10-Q filing for the period ended March 31, 2008, and our 10-K for the period ended June 30, 2007. In those filings, you will find descriptions of risk factors that could impact our future results. As you know, our future results are subject to risks. Any forward-looking statements, including those we make on this call today are subject to those risks. KLA-Tencor cannot guarantee these forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements; and although we take no obligation to update those forward-looking statements, you can be assured that any updates we will do will be broadly disseminated and available over the web. With that, I will turn the call over to Rick Walace. Richard P. Wallace: Thank you, Ed. Good afternoon, everyone and thank you for joining us for our Q4 earnings call this afternoon. Today I'll discuss highlights of our fiscal year '08 performance, I'm talking about the June quarter and give an update on the current market environment. Lastly, I'll provide guidance for the September quarter. KLA-Tencor advanced our market and technology leadership in FY '08. We executed our growth strategy both organically and through M&A. We improved our cost structure. We generated strong cash flow and returned value to shareholders. Revenue in FY '08 was $2.5 billion down 8% year-over-year. Net income including share based comp but excluding one time a deal related cost was $512 million or $2.78 per diluted share. We generated approximately $668 million in cash flow from operations and were active in returning value to shareholders in the year, repurchasing just over $1.1 billion in common stock and paying cash dividends of approximately $109 million. I'd like to highlight some key developments in FY '08 in context of our four strategic objectives which are customer focus, growth, operational excellence and talent. As most of you know, at KLA-Tencor we solve mission critical, production problems for our customers. We do that by delivering a portfolio of differentiated solutions, utilizing both inspection and metrology. Our tools help our customers increase their ROI and keep pace with the increasing complexity of the old requirements in advanced technology nodes. Today we are market leaders in 20 of the 22 markets that we serve. We do that as a result of our higher level investment in innovation and close collaboration with our customers, that enabled us to anticipate their future needs and develop appropriately bringing technology when it's needed. Our goal is to leverage our leadership in financial resources to deliver long term growth, at least 5% faster than the industry. And although, our revenue was down in FY '08, our relative performance exceeded this 5% goal. We're well positioned to continue to out pace industry growth, through a comprehensive product portfolio and our product road map which will address the future challenges our customers face, at 45- nanometers and beyond. In terms of our growth objective, the increasing complexity of advance design rules, just feeling [ph] growth in our core inspection metrology markets. And this is based on the fact that the new processes require more and complicated and difficult inspection. We are modeling an increase potential of 30% in the revenue opportunity as we transition from 45 to 32-nanometer nodes when we look back and compare to the 65 to 45-nanometer transition. We'll look back, our Q4 orders about 75% of those were 45-nanometers, pilot lines and development. On the strategic growth front, in June, we completed the acquisition of ICOS Vision Systems, furthering our expansion in the new markets both back-end package inspection, solar and high brightness LED. And yesterday, we announced the intent to acquire the Microelectronic Inspection Equipment Business of Vistec Semiconductor Systems. This business has product leadership and mass registration and that CD metrology compliments our own leadership in mask inspection and strengthens our product roadmap to address future market opportunities, particularly the double-patterning lithography. Additionally, the business has highly regarded legacy for developing precision and inspection and metrology equipment that will compliment and enhance KLA-Tencor's own core competencies, when the process of securing regulatory approval for this acquisition and subject to those approvals, we expected to close within the next few months. We will continue to execute our M&A strategy as a key component of our long term growth objective. We're also continuously focusing on improving our business model. Today we're driving many initiatives worldwide as a result of structural changes we've put in place two years ago, to improve our profitability by optimizing our global footprint and enhancing our organizational efficiency. These changes have began to bear fruits and today our model is performing better in terms of profitability than it has at comparable revenue levels in the past even in this down market. Of course, none of this is possible without world-class talent within KLA-Tencor. We've worked very hard to attract, develop and retain an outstanding workforce. And we've been successful in building our team and I am especially proud of the performance of the entire team during fiscal year '08. In summary, we are pleased with our execution in '08, and what's been a very challenging year for semiconductor equipment manufacturers, our strategy is working, and we are excited about the opportunities that lie ahead as we help our customers continue to tackle difficult yield issues as they adopt new technology. Turning now to reveal the fourth quarter. In general, we continue to operate in a difficult demand environment and visibility remains poor. There are some bright spots however, the market leaders continue to invest in technology development and to drive design rules down. The business is down in all our major markets and across all product lines as the semiconductor industry works to resolve an excess capacity condition, while facing increased headwinds from four macroeconomic conditions and diminished end user demand. Despite this weak demand conditions, we continue to execute well financially in the period, with the June quarter revenue coming in above the range of guidance of $591 million, and net income excluding some one-time charges was at the top of the range of $0.60 per share. Cash flow was also strong as we generated approximately $188 million in cash from operations in the quarter. Bookings for the June quarter came in at $469 million down 15% from March. At our Analyst Day in June we said that we saw order timing pushing out late in the quarter with order volume trending to the bottom end of the range guidance. In the final weeks of the quarter we experienced a further slowdown with orders that we're originally expecting to see in June pushing out to the December quarter and beyond. However, Q4 was another good quarter for logics demand as customers continue to drive investment in 45 nanometer build out and 32 nanometer development. Logic was 46% of the bookings in the quarter foundries grew sequentially and was 35% of the orders in the fourth quarter, as foundries continue to build out their 45 nanometer capacity. Memory was approximately 19% of orders in Q4, well below recent results due to push outs from the end customers and continued restraint in DRAM spending. Demand [ph] was 29% of memory orders in the quarter. Looking ahead in the second half of calendar '08, the outlook for near term recovery and orders is muted. Although we expect some pockets to strength among our large customers as they invest in development of advanced best design roles, the global economic weakness continues to dampen end user demand, for hi-tech products as we remain cautious in our expectations for a broad based recovery in the second half. In this tough environment we are driving the formal [ph] key factors to enable continued strength in our market leadership. We are focusing on our customer experience, we're maintaining a high level of investment and innovation. And we are improving our cost structure to drive a better business model performance and deliver high returns to our shareholders. All these efforts position us well to capitalize and growth when the cycle conditions improve. Now I would like to discuss some key products and competitive highlights from the quarter. First, in defect inspection, technology and product differentiation continues to enable market leadership to the company. We had another strong quarter of Brightfield adoption in Q4 placing 28xx full spectrum Brightfield tools with industry leaders in both foundry and memory. Our Brightfield portfolio is unparallel in the marketplace and delivering advance capability required to find the killer defects in critical patterning layers while outperforming competitive technologies and trends of sensitivity, defect capture and speed [ph]. In reticle inspection we continue to drive our product development roadmap. Some time earlier this month we introduced the latest version of our computation lithography tool called as the 11. This new tool and the industry leading product line is the only lithography stimulator capable of modeling topography and predicting in fact specific to double patterning for 32 nanometers. This provides an essential tool for reticle manufacturers to control their development cost without having to commit the resources of a mass shop. We continue to invest heavily in our reticle business to address and speaking complexity of a reticle manufactures at advanced design roles and creating opportunities for KLA-Tencor. In metrology KLA-Tencor continues to be the market leader by offering a comprehensive suite of metrology products to offer customers the ability to maintain tighter controls of their process window. In the June quarter our next generation overlay metrology platform the RII-200 [ph] was chosen as tool of record with the logic customers for 32-nanometer production demonstrating superior performance in production environment over an extensive five month evaluation period. RII-200 features an enhanced optical system that provides significant performance improvement, that are critical to helping customers to meet the much tighter overlay requirements, the double patterning lithography at the 32-nanometer design role node. These are just a few examples of our market successes in the quarter each an indication of continued emphasis on delivering an outstanding customer experience and delivering superior customer experience, in best in breed [ph] technology KLA-Tencor creates a significant competitive advantage that translates the strong market leadership, revenue growth and profitability. Moving on to the September quarter guidance keep in mind September is typically seasonally down for KLA-Tencor, the bookings being down sequentially, an EBIT loss to 11 years. Given the poor demand environment today we expect the same pattern to repeat in Q1 '09 we are projecting bookings for Q1 to be down 15% with a range of plus or minus 10%. Revenues expected to be between $510 million and $525 million and EPS in the range of $0.32 to $0.36 including stock-based compensation and excluding one-time charges. With that now I'll turn the call over to John Kispert.

Thanks, Rick. Revenue for the quarter was $591 million and fully diluted GAAP earnings per share was $0.43. Non-GAAP earnings per share was $0.60 the difference between the GAAP EPS and non-GAAP EPS numbers are as follows; first acquisition related charges of $50.4 million or $0.22 after tax is related to the acquisition of ICOS Vision System. Second, stock option restatements related charges of $2.7 million or $0.01 after tax finally there were two benefits, first a net gain of $1.4 million related to the sales buildings that was partially offset by some restructuring severance charges and second, a non-recurring tax gain of $8.4 million or $5.50 after tax. In summary, this totals to $0.17 of after tax adjustments and non-GAAP earnings per share of $0.60. In our press release you will find a GAAP to non-GAAP reconciliation which covers the non-GAAP adjustments I've just mentioned in more detail. The remainder of my comments in the quarter will be focused on the non-GAAP results which exclude the adjustments I just mentioned, but does include stock-based compensation which is reflective of the financial performance of KLA-Tencor is how we run the business and enabled the transparent comparison of results across peers and amongst peers. As previously mentioned we completed our acquisition of ICOS Vision Systems at the end of May, so the results for this June quarter include ICOS operations for one month, and for this month ICOS's revenue was $9 million and its impact on gross margins and EPS was dilutive. Excluding ICOS revenues for KLA-Tencor was $582 million slightly above the guidance range provided in April of $560 million to $580 million and earnings per share was $0.60, which is at the top end of the guidance range of $0.56 to $0.60. This is a solid quarter for KLA-Tencor in terms of financial performance and operational execution. However, as we discussed in early June and again just a few weeks ago the ordering environment significantly weakened as the quarter progressed. A number of expansions for the period started in April pushed out one after the other through May and then accelerated in June and as a result net orders for the quarter was $469 million that's down 15% from the March ending quarter and at the low end of our guidance range. The slowing demand environment we first began to experience late in September quarter of last year continues in each of our markets. And it declined further over last few months. And now make instability is continuing to additionally [ph] impact the demand for our customers' product and as a result it is clearly affecting their capital investment decisions, both in size and in timing. While their pockets in strength driven by customers continuing to focus on new technology development for next generation production nodes. Most of our customers are in an aggressive capital preservation mode and are eliminating their equipment investment to only the most critical applications. Our market position in all markets is consistent with the last several quarters. In short we are winning the orders but not just that many of them. The regional distribution of orders is as follows; the US was 37%, Europe is 7%, Japan with 17% Korea is 15% Taiwan was 7% and the rest of Asia with 18%. The approximate distribution of orders by market was wafer inspection approximately 30%, reticle inspection approximately 10%, metrology approximately 19% and services approximately 27%. Storage, solar energy and other non-semi add up to be approximately 4%. With customers of spending capital it is at a lending ends technology node. In semiconductor 45 nanometer and below development in product activity, investments were roughly 75% of our orders received in the quarter. In total we ended the quarter with approximately $1.1 billion of backlog. This dollar amount is after backlog adjustments for order [indiscernible] acquisition related adjustments and in-door foreign exchange impact. We break this backlog into what is shipped and what is not. The break down is as follows; $715 million of shipment backlog orders that have not yet shipped to customers we expect to ship over the next six to nine months. And $364 million of revenue backlog [indiscernible] and in voice but have not yet been signed off by customers. Keep in mind, that we do not include any service contracts in this backlog. Looking forward, as we have said in the last couple of conference call, visibility into a meaningful time in the business continues to be low. Similar to June, a number of significant memory, foundry and wafer expansions in the sales funnel for the September quarter have now pushed out other [ph] September quarter against the backend of the calendar year. In addition, the September quarter is historically been seasonally down quarter KLA-Tencor. Given these factors we do not anticipate a sequential turn in the September quarter. And as a result we will continue to run the business in a very conservative manner and so visibility into a turn is clear. Recently we updated you in detail on our progress, on a number of operational initiatives, that enable higher profitability, improved operational flexibility and operating cash flow. Those with our historical performance at various revenue level will improve, while preserving our investments in the research and development and customer support. These initiatives around globalization, product development and acquisition integration are now beginning to favorable impact the business model for KLA-Tencor. These efforts are critical to positioning the company, to growing a mix cycle both organically and through the new markets we have acquired, at a lower operating expense to revenue ratio and without having made any significant capital investments beyond our current levels. Looking at our current income statement, we feel our team has executed [ph] extremely well against aggressive business model targets in a difficult environment. Revenues for the quarter were 591 million, this level is down 2% quarter-to-quarter and down 20% from the same quarter last year. Non-GAAP gross margins were 56.6% down 25 basis points for the March quarter. We continue to focus on size in our organizations for the current business level while maintaining capability to ramp new products globally. And of course, focus on possibly being able to respond to any rapid shift in demand when it occurs. In the September ending quarter, our systems revenue and shipments will both decline sequentially. We expect that quarter gross margins to decline in a similar incremental margins as the last few quarters. Keep in mind that we also need to continue to work through these acquisitions that currently carry diluted gross margins to our base business. Non-GAAP operating expenses were 193 million or up 3.5 million from the March quarter. R&D was 97.2 million, up 2.4 million from Q3. As we continue to invest in key research and development activity, and customer care relations for the next generation technology, irrespective of the business requirements. Our plan is, introduced [ph] 16 new products in the past twelve months and our plan is to introduce another 18 new products over the next eighteen months. SG&A for the quarter was 95.3 million, up slightly quarter-to-quarter, as we continue to focus on sales channel efficiency and elimination of acquisitions and redundancies. Our focus over the coming quarters will continue in this area, in the core business as we believe there are additional opportunities there. In the September quarter non-GAAP operating expenses will increase, say about 12 million to 15 million as we absorb a full quarter on the ICOS operations. We expect these expenses to decline from this point over next several quarters, as SG&A efficiency improvements in the core business partially offset the increase driven by our M&A activities. Non-GAAP other income for the quarter was 7.1 million, as earnings on our cash portfolio exceeded the interest expense associated with our mid-quarter debt offering. In the September ending quarter, we expect other income to decline to 3 million to 4 million, as we increased -- as the increase interest expense from our long term debts for the full quarter offsets the expected other income and increase on the investment portfolio that is lower due to weak interest environment. The pro forma tax rate was 28.6% in the quarter, lower than the 30% range that we've discussed in conference call last quarter, due to higher than expected revenue from products shipped from offshore facilities to non U.S. customers. Going forward, we expect the pro forma rate to be approximately 29% plus or minus 2 to 3 points. Non-GAAP net income was 107 million or $0.60 per diluted share. This number includes stock based compensation expenses of 29 million. In the September quarter, we expect expenses for stock based compensation to be roughly flat. Now let me turn to the balance sheet. Tax and investment ended the quarter at roughly 1.6 billion, an increase of 265 million quarter-to-quarter. In the quarter, we repurchased approximately 122 million of stock at an average price of $43 and paid a divided of 26 million. Tax from operations was 188 million in the quarter as we continue to leverage solid profitability and working capital management to enable predictable cash flow. For the fiscal year ending in June, operating cash flow increased by over 9%, at year ago [ph], when net income was down 21%. Inventory increased by 16 million quarter-to-quarter to 459 million. Note that ICOS added 33 million of inventory in the quarter. The company has continued to focus on reducing our cycle time, to lower inventory -- our inventory on hand requirements, short and long lead time material risk and improve our overall [indiscernible] utilization. As well we to respond very quick to customers needs, when the time is right. Cycles times across KLA-Tencor's prior portfolio, down 30% over the last 12 months. Accounts receivable finished the quarter at 492 million down 81 million from the prior quarter. ICOS added approximately 25 million to that number. Net fixed assets increased by 28 million, 10 million was actual capital expenditure within the core business and the remaining 18 million due to ICOS acquisition. So, again capital expenses were 10 million in the quarter. Pro forma depreciation was 14 million. Fully diluted shares ended the quarter at just over 178 million. For the June quarter, fully diluted shares are expected to be at about 175 million. Headcount ended the quarter at 6060. Finally as we commented earlier, the business environment continues to be challenging, both in terms of cyclical depth [ph] and duration. As we go, we remain extremely cautious in this environment. We believe that it is financially prudent to adjust our expected revenue down to more closely align with the current business level. While we continue to run the big company in a way that will enable us to maintain sufficient backlog and continuously make key investments and of course ensure sustained profitability in cash flow. Our guidance for the upcoming quarter does not include the impacts of our recently announced intent to acquire Microelectronic Inspection Equipment Business of Vistec Semiconductor Systems. With that to reiterate our guidance for the quarter is, bookings expected to be minus 15%, plus or minus 10 points, revenue between 510 million and 525 million and EPS including stock based compensation but excluding one time charges and amortization of $0.32 to $0.36. This concludes our remarks on the quarter and I'll now turn the call back over to Ed to begin the Q&A.

Okay. Thank you John. A good point, we would like to open the call for Q&A. And we once again request that you limit yourself to one question given the limited time we have today. Feel free to requeue for your follow-up questions and we'll do our best to get everyone in today's call. So, Christian, we are ready for our first question. Question And Answer

[Operator Instructions]. Our first question comes from the line of Jay Deahna, with J.P. Morgan.

Good afternoon, how are you doing? Richard P. Wallace: Hi Jay.

Hi.

Hi. A couple of years ago when pretty much all of your customers were buying, you guys were very bullish and were talking about at fairly lengthy cycle which pretty much started to drop, within the quarter of that commentary. And now that really nobody is buying and everybody is pushing out, you guys are sticking the knife in your stomach. So, I was just kind of wondering, if you look at it kind of objectively, at this point in the ball game, you talked about a lot of projects being pushed out over the last couple of months. Do you see a lot of projects left that are still at risk of being pushed out? Or do you think with the flash spending coming down recently, that we sort of flushed it out? Richard P. Wallace: Yeah, right now Jay, as we look forward. I think September, as we said we are guiding September down and there still are some projects in there, so there is still some rest. But I would say overall, I think we've got a pretty good sense of September given the visibility we have now. But if your point is, could it come back stronger than, it's very hard to see that right now.

No, that's not really the point. The point is, are there a lot of projects out there at this point that would be viewed as highly riskier, kind of flushed out most of those. Richard P. Wallace: I think many of them flushed out and as you know they tend to move out rather than and if that's what you mean, yeah. But there still is some risk, there is some risk in what people are forecasting for September and I think that people who see a strong December are just more bullish on the rift [ph].

Okay, thanks.

Our next question is from the line of Brett Hodess with Merrill Lynch. Richard P. Wallace: Brett?

Hello. Richard P. Wallace: Hi there Brett.

Hi, good afternoon. I just wanted to check on some of the progress on margins at this point you obviously very little decline this quarter only 25 basis points given the outsourcing going on new products coming in ICOS coming in how do you see the gross margin line trending in this environment?

Well I think the way to combine it I guess internally I think I am we are very happy with the speed and the progress we've made on the programs that we have and also our new product introductions some of which haven't actually announced. But we're shifting that data system right now. So we think the plus point is definitely coming down again a lot of that doesn't show up in the P&L for a while. We're happy with the backlog and the profitability of the backlog at this point. So I think that will bode well over the next couple of quarters. I think you hit upon the one thing that's little bit more difficult to predict and that's the acquisitions and how quickly we can lack of a better word integrate and do some things process wise and to help the profile. And as we talked about last time we were all together. We think that will take two to three quarters in general and obviously with ICOS have a great team and we've started those plants to make such improve the gross margin. And as we do other acquisitions again I think that's the hardest part of the project but we have plans improving and get them up the KT kind of standards in two to three quarters. So that helps.

Yes, that helps thank you.

Our next question is from the line of Deep Calick [ph] with Morgan Stanley.

Hi thanks for taking my question can you give the shipments for the June quarter?

Yes Deep [ph] they were about 545.

Okay and then a follow up on the Vistec [ph] acquisition. How should we think about the margins on these products, are they similar to reticulate inspection products or are similar to inspection products?

I think it's too early for us to say. As you know we just entered a term sheet with them and we have to go through regulatory. But we can say as we like their market position and we believe that it will help us build the franchise, but we are... it's preliminary for us to talk about margins.

Thanks.

Our next question is from the line of Timothy Arcuri with Citi.

Hi guys. John, can you give us some sense of what you think you'll ship in September? And then I have a follow-up.

Sure, Tim. The ship plan is moving around right now. I would say it's anywhere, unfortunately anywhere from $500 million to $450 million. Today it's closer to $500 million but given this as a conference call I mean there is probably given it for September quarter also things that can change quickly. So I give a wide range here. $450 million to $500 million.

Okay. So let's just take out mid-point of that range. So at that shipment level you'll have about total when you take your revenue backlog and your shipment backlog you have a 5.8 months which is on the very low end of what you had the last 3, 4, 5 years. So that would imply that unless bookings come back pretty significantly in December. That you wouldn't be able to ship a whole lot more, in fact may be a little bit less in December to actually build back up some backlog. Is that the right way to think about it?

Yes I would... I think generally let me give you a couple more things to put into the... into your algorithm as you are thinking about it. Two very important things. One is if you are looking at it over a period of time, the thing that I'd remind you is that service is not in 12 months of backlog. And you we are up about 40% or 50% over the last two years in service. And so it's a much bigger part of the total equation. So when I look at the months of backlog now I feel very good about it, I think the second piece as when we talked about in the past and just given that transition industry is going through right now. We have quite bit of inventory from data shipments that are out there right now. That we don't count as obviously accounts orders because we are working with the... on the leading edge 32 nanometer, 45 nanometer kind of R&D projects as those orders come in. We'll count them order shipments and revenue almost at the same time, and that's larger number than historically at least over last two years. So add those two extra pieces to it we feel much, we feel very good about the backlog. The other thing I would remind to everybody when it comes to backlog is the industry as Tim knows and most of you know that industry has changed quite a bit on this point over the last two or three years and in the wee times now have to be in that two to three months timeframe. So we have to be on turn quickly to take care of our customers so we're balancing that in that months of backlog. And so we feel relatively good about the next two quarters in revenue and kind of keeping in that pace that we just gave you in the guidance at.

Okay, John thanks

Yes.

Our next question is from the line of C. J. Muse with Lehman Brothers. C.J. Muse: Yeah good afternoon thank you for taking my question. I guess I was helping you could talk a little bit on ICOS and then what we should think about in terms of revenue contribution in the second-half of the calendar year as well as the impact on gross margins?

No, my view is to be helpful as I can but we decided not to get set the precedent of breaking out any of our businesses like we have done for the last 15, 20 years. We group one month of it obviously the month of June and that was about $9 million of revenue. Going forward if the backend is obviously, you guys know not strong as it usually is right now. The business is dilutive to our model, the basically a breakeven business over the next quarter. But that does have a bunch what I will call an integration or bubble cost as we work with the senior management team there and kind of source things out between the two organizations. So we think that it will be very profitable over time but I feel over the next quarter or so probably less profitable than historically for ICOS. C.J. Muse: Okay great and if I could sneak in a second question on the service front you talked about that being strong for the last few years. Could you put I guess some numbers around that from a growth perspective that you anticipate for calendar '08 and maybe an early read on calendar '09?

Yes. If you look at it over the last say ten years, it's been compounded growth rate at I think it's about 14% or 15%. We just shipped a lot of tools over the last two years that will come off warranty and will go on contract and so I think from what I can tell working with our customers they are all happy with the service KLA-Tencor provides constantly predictably at 300 millimeter with the challenges that they all have at 65 and 45 nanometer, I think our contract penetration will continue to be at the rate it has been. So I don't see any reason to see change from that kind that mid-teens growth rates in their service organization. C.J. Muse: Okay. Thank you.

Our next question is from the line of Satya Kumar with Credit Suisse.

Hi thanks for my question just on the radical inspection looking at your booking in this segment as being down a little more than your systems bookings have been over the last couple of fiscal years it used to sort of growth to be a bigger portion of your business in a some years ago is there any reason to be worried about market share versus just some kind of a cycle in the radical inspection business as you think about? Richard P. Wallace: Yes Satya its Rick I'll take that there's two things about radical what kind of good news or bad news so is bad news, bad news is the... is sort of spending right now and the reason they are not spending is because they built out the 45 nanometer capability the good news is we have done well in our share and we've seen strength in the new offerings that we have had since we have in WPI we are at in a product transition year so the 5XX product we've shifting for quite a while will transition over the next 12 months so we forecast the radical will pick up. When two things happen one with the mass shops turned back on and right now there subject to this slowdown as per analysis, anyone else in fact, in some respects they split down more than the second one has will have new products in the next 12 months to 18 months and we'll see a radical build up as a percent at the other business. The other factor when you look at it is on a percentage basis, as John has pointed out, services grown overtime so that would and we've added some businesses through acquisition.

Okay, that's helpful and then on foundry could I have follow up just some clarity on what's happening from a cyclical on a secular perspective foundry out of running pretty high in the first half the kind of the seasonal order strength. What do you see for the second half and from a longer term perspective, do you see some record at this morning and its staffing about taking down to the capital density circularly look at their capacity growth that actually. I think more wafer start capacity but less CapEx dollars in the last few years. How do I reconcile those comments versus capital intensity growing with technology transitions? How should I think about that?

Yes well I think there's two things; one, is our value add is to help them increase their efficiency and overall to be able to leverage the equipment that they buy more effectively. And so we've seen foundries be a strong source of business especially as they try to juggle multiple product line and multiple design roles at the same time. So I think our foundry business has done reasonable well in that and we do see signs of additional starts happening and we see some good early indicators as we move forward. But I do think that there has been as you said the efficiencies clearly are playing out in the foundry space and our goal is to be part of the overall value add to that.

Okay, thank you.

Our next question is from the line Jim Covello with Goldman Sachs.

Hi this is [indiscernible] on behalf of Jim Covello. Quick questions about the push outs that you talked about you've been seeing over the last couple of months are those primarily push outs associated with previous plans by your memory customers to extend capacity or are those actually related to some of the technologies in old showings [ph] that perhaps are being pushed out today. Then also I was just curious what you are baking into your September order guidance in terms of memory orders that you are expecting in September? Thank you.

Sure Kate [ph]. Couple of things; one is push outs that we've seen are primarily associated with the capacity portions, we still see technology buys and it is just generally as John indicated we are seeing very conservative spend and bringing on new capacity from our customer base. So it's not anything in particular. In terms of memory we talked about memory being, overall we look forward to September and we think probably overall at around 55% after memory.

55% of orders you expect to be memory orders?

Yes.

Hi, Kate it's John Kispert. So 55% right now in our guidance for the September ending quarter I will say that's very fluid number particularly around I think the essence of your question which is really the kind of new fabric because I see kind of ads its sliding around between the December ending quarter and the September ending quarter and our best shot right now is probably 55% of the guidance we just gave you for the September quarter would be in the memory space and but we will see how it plays out.

And again Kate that's of the orders that are segmented in the memory line foundry in logic because we serve another 24% of our business that cap tie that space.

Okay. And just a quick housekeeping question you mentioned OpEx going up as a result of ICOS could you maybe talk about how that breaks out between R&D and SG&A. How we should think about, where we should expect the increase to come from?

Sure Kate, it's kind of 50-50, 50% and it's... I would tell you folks to kind of think of it in the range of $12 million to $15 million in total you can break them in half somewhere in that range and I would expect it to be close to the $12 million over some period of time then the $15 million.

Okay that's helpful. Thank you.

Our next question is from the line of Mahi Sanganeria with RBC Capital Market.

Thank you. Can you give us a break up on the acquisition related charges, which one, how much is the amortization of intangibles and how much are one-time and what should be model for the September quarter in terms of amortization of intangibles?

So the let's see the amortization of the intangibles this last quarter I don't have that in front of me it's roughly $8 million I think it was $7.8 million. The one-time for ICOS this quarter was about $36 million, $35.9 million if I remember right and obviously some of that... the prior acquisitions that will probably pop up with not only ICOS but with Vistec [ph] it is one that deal gets done. That helps?

Are you including that in the guidance for the September quarter?

No I am not.

Was this amortization excluded?

Amortization... what we have to do is in this last income statement we're talking about is $7.8 million and all I am trying to say is if it probably goes up a little bit overtime.

Okay, thank you

Yes.

Our next question is from Gary Hsueh with Oppenheimer.

Hi, guys thanks for taking my question. Just longer term here looks like the real story in terms of growth in your service business, that business is up roughly 17% year-over-year, your semi business, your product business is down 26, so I think if that's more sustainable kind of growth trajectory for you over the next year or two, independent of the cycle, I was just wondering for fiscal '09 I think this question was asked but what are your expectations for after wood [ph] kind of dollar value per quarter in terms of your service run-rate with tools actually coming up R&D which are forecast that for '09?

Well, Gary, I think you have got some math wrong and I asked the question, I am not sure the question is what is the '09 plan for service?

Yes, that's the first question, yes.

Okay, I am not going to give that out.

Okay.

We don't break out our plans over the next year--

Okay, but assuming that growth and knowing that the service business in terms of cost is fully loaded in the corporate sales number. I mean what's the disparity today between your service and your product business? And moving forward where do you see more wood to chop is it in your products business or in your service business? And if it is in your service business how do you go about doing that?

Let me just back up and say... you said something about our product business being down 26% year-on-year. And I guess I don't know how you can come up with that.

Just looking at the June quarter. Yes, the products business is down 26% and the service business is up 17% year-over-year.

From June to June?

Yes and for the fiscal year, product is down 12% and services is still up 16%, that's--

Okay I mean its... so is the rest of the industry. But I guess my point is it's far better than the rest of the industry.

As far as how we manage service in the rest of the divisions of the 40 different products that we have in gross margin. It's all very similar I mean it comes down to efficiency of training of folks, of engineers, not only in R&D but also in the field and we're going to stay focused on that across our entire stall base. We've talked many times about e-diagnostics we've talked many times about making it much more efficient from peoples' perspective. The other big piece obviously with each generation is the part side of the business which the cost of parts keep going up, the complexity keeps going up. So how we support our customers with the right parts, at the right place, at the right time has become a bigger and bigger part of business. I think we're doing very well at it. The efficiency in our service business has improved mildly. It helps the productivity of the service business but so as our manufacturing organizations and the gross margin also and I will say that probably improving at the same rate over the last couple of years.

Okay, thank you. John I guess in the last quarter you talked about service increasing as a percentage of sales and with some gross margin issues coming about because of naturally lower gross margins and service and you are talking about the need to kind of decent more work there I am just trying to follow-up on that comment from last quarter.

Do more work we are very happy with the progress of service organization is making, it's the profitability is what it is and I think that's you can see that in the profitability of entire business in what we just talked. It's all in gross margin we're pretty happy with the gross margins of the company particularly displaying the cycle. So I miss in Gary what you want me try to predict what's the profitability of services over the next year or so--

Yes, I just trying to figure out what the... how much you can gleam in terms of incremental gross margin from higher digit in your service business that's all.

Yes, I wouldn't go and predict much improvement there I mean we're going to work like have to keep up the needs of our customers and its an newly business that is forever more and more challenging that we're very happy with the profitability on and it's a balancing act continuously.

Okay, great thank you.

Our next question is from the line [indiscernible] with JPMorgan.

Hi, good afternoon a quick question you mentioned some of your projects are getting pushed out to the end of the calendar year does that mean we could maybe and perhaps model it turning orders in that at the end in the calendar fourth quarter or shipments or I just kind of wanted to get some more clarity on that. Richard P. Wallace: Yes, what we said it's Rick clearly we see September historically has been down and it's really tough to predict whether December is up off of that, but when we look out we do see more projects happening in the December time frame than what we see in September. But as you know, visibility is very tough in this environment. So I'd see it's early and if you look at overall capacity for the industry, September is certainly pretty low number relative to historical numbers. So from that standpoint we are anticipating some improvement beyond September but we are running business, as John said we are doing everything prudently to run the business, maintain backlog and kind of work through this cycle and come out stronger than ever as we look to the other side, but it's very early to call the December

Okay great thank you.

Our next quarter is from the line of Bill Ong with American Technology.

Hi I think you mentioned memory orders and represent about 19% of booking mix is that correct?

Give me a second here Bill. I think I said memory DRAM was about... yes 19% with NAND and DRAM.

Okay. That is a pretty big drop because in absolute dollars that means its about 68% quarter-to-quarter sequential drop? And looks like logic went up in the quarter can you offer little bit color on what's the dynamics financing and what is happening in logic. I know why memory is down but it seems like it's down very severely.

Yes I think the memory as you know the industry is kind of recharging on memory logic we continue to see the investment for the 45 nanometer node and some work now on 32 and that is really been driving that segment for us and we are very happy with our performance there.

That means with $90 million in bookings and memory, you pretty much bottoming out now this doesn't seem like a whole lot down slide with memory over the next quarter?

I think you're right Bill, there is not a lot of orders in there.

Okay thank you

Our next question is from the line of Chris Ancorn [ph] with the Banc of Americas Securities.

Thank you for taking my questions. I have two questions. In terms of memory you guys are seeing 55% of your September orders would be for memory so that's a pretty big jump in terms of dollars from June to September how do you see that actually trending into December if you can just give some directionality? Richard P. Wallace: So I think if you look out and you did math Chris, you realize it's still not back even to the March level. So it is up but as we just pointed out it's not a pretty good number. December, it goes back to what you believe about forecast and the projects that are out there and right now that's -- it's very early to predict what December is going to look like although it's John's point of previous comment. It's certainly... things are pretty soft right now. So when we look out there it is not a reasonable thing we would see improvement after September and memory is definitely part of that.

I think the same to think about with DRAM right now for us, it certainly feels like stabilized and as the prior caller mentioned at very low levels when I think stabilize, I am talking about pricing but also we know that we are in the part of the year. Seasonally where pricing often becomes a little bit softer. So we are taking a conservative view on in our guidance and what we are talking to you about as far as what we think will land in the September quarter as far as orders are concerned. And when you added all up at that low level it does look to be anywhere from 45% to 55% of the total order in September. And there is increase some our sales bundles a bunch higher amount its actually sitting in the December quarter.

Okay, is this assume the scenario will foundry to because you said, CapEx on the first half of the year so obviously a foundry orders are going down in September. Is there any reason to think it's actually going to pick back in December.

Sure there is pretty of reasons to think it will pick up. If you look kind of customer by customer again it's hard to predict in this environment when they let the orders go we have a very I think prudent number in their for the September quarter which as you said is down, right now our customers would tell us it's higher in the December quarter. But we'll see how things go with the economy through the next three or four months, and how they decide to run their businesses. I think with the foundries the thing you need to think about and watch is the is utilizations. I mean utilizations in total for the foundries is relatively good, what's the leading edge?

Okay.

We'll get orders.

Okay just last question, were there any cancellation and What's your share count assumption for September

We did booked about 15 million across six different customers we booked about of $100 million over the last couple of quarters four quarters. So we think the backlogs in pretty good shape and the share count for the quarter I think was 178 million

Share count assumption to September.

I think about of 175.

Thank you

Our next question is from the line of Peter Kim [ph] with Deutsche bank

Thanks for taking my question hey I was wondered if you could give us an idea about what the ICOS contribution was for the guidance in terms of revenue bookings and shipment and how much of it added to your backlog?

Were you listening to the earlier part of the call activity and all

No I didn't hear you give guidance I think you only mentioned shipment to total number. And also I didn't know you mentioned anything about the ICOS's contributions to backlog?

So it is a relatively small contribution. We only took a month of the... think of it as the P&L side we took the whole balance sheet into our business. I also think the way to think about is that the back end isn't as strong as it has been in prior quarters. But that's... we don't normally break out our backlog for folks.

Okay so, with regards to the how it was trending, I mean is it trending in line with like the semiconductor cycle right now with the kind of similar to your front end business or is it slower decline? Could you kind of characterize that?

Yes more similar, I think overall some of the back end has been down as well. So it's similar to what we are seeing.

Okay, thanks.

Our next question is from the line of Ben Pang with Caris & Company.

Thanks for taking my question. One question if you look up to the second half of the year, do you expect that your orders for less than 45 nanometer go up and can you put some color on that. How many customers may be there are that you have ordering type of equipment thank you.

Sure Ben, the 45-nanometer was about 75% of the business that we did in the June quarter just finished. And that seems about the right rate as you go forward. I think the question is these are pilot investments and what we're hoping to see is obviously the expansion into more manufacturing and more ramp up, so. We anticipate that as a percentage we probably won't see a lot of difference but we obviously we are hoping for the volumes to pick up for the end of the year.

Thank you very much.

Our next question is from the line of Stephen Chin with UBS.

My question is about the ICOS acquisition all seen it neither its integrated to the company does your plans in place to do manufacturing of their products over to Singapore and moment that the and how much could that help gross margins at some point?

Hey Steven John Kispert we don't have any plans to make any changes at this point we're working closely with managing the team at ICOS so I would say its very premature even to think about the things that you're talking about in your question.

Thanks, thanks John.

Yes.

Our next question is from the line of Patrick Ho with Stifel Nicolaus.

Hey thanks a lot. As you shift to the outsourcing in Singapore how quickly can you I guess react if there's a snap back in demand of request for shipments? Richard P. Wallace: That of course is the key to our business we feel very good right now, about at this level been able to quickly when I say quickly over two three quarters be able to double the size of our output. Our cycle time as I said in the prepared remarks are down the newer products are coming out with common platforms and much lower cycle times. Singapore plant is doing outstanding. So that is not one of my big concerns, I think we are react very quickly to any sort of pick up anywhere in the world.

Okay, great thank you very much. Richard P. Wallace: Yes.

Our next question is a follow up from the line of Timothy Arcuri with Citi.

Hi guys again, John, I am not super bearish memory but I guess the big argument to kind of make memory better over the longer term, is that the orders comedown and that kind of stay down for at least couple quarters. So I am just looking at the increase in September it's about tripling probably at low level in June, but is that increase pretty broad based or is that being driven by one particular standard.

Yes, I would think of that as being one maybe one and half large orders.

Okay. And then just kind of bigger picture question relative to 45 nanometer, the leverage in the story really that kind of didn't come out an opportunity at 45 versus 65 has been a big part of the story and I guess as I am looking at the order mix, you kind of already it seems like 75% of the way through the mix shift. Now so is the 45 nanometer story would you argue that kind of leverage that you get? Incrementally versus 65 is that kind of over now and so you are already looking forward to 32 incrementally? Richard P. Wallace: No. unfortunately we are not seeing much of these 45 production we are seeing 45 development in pilot lines. So we are getting early validation and you know in this kind of environment the reason we hold up relatively well is because we get a lot of technology buyers. And we get technology buyers and that's what's going on right now but they are not people aren't scaling production. And so we'd expect to see the ramp up of 45 play out in the models that we've discussed in terms of incremental opportunities.

And Rick, just to make sure you said that the incremental opportunity at 32 relative 45 is 30% and is that the same number as 45 relative to 65? Richard P. Wallace: Right.

Okay thanks.

Our next question is from the line of Gavin Duffy with Broadpoint Capital

Yes thanks guys. I was just wondering you talk about booking $15 million in the quarter and then you got his $750 million ship backlog and I'm just saying do you... were pretty comfortable with that number that's spread enough?

That is good great question. We're watching it very closely and I think the point I was trying to make was we've been watching it closely for last four quarters in other words we didn't just make this quarter and de-booked $15 million we've de-booked every quarter for the last four quarters and so we're still comfortable today with our backlog most of the deliveries are within the next six months. Couple of them have moved out to maybe seven or eight months but I feel very comfortable with it at this point of cycle with the backlog. If you look at our history every quarter we're de-booking so I am not giving you a number that all of sudden will drop on you. It's our very best estimate and we call it actually every two weeks in this environment and recheck with the customers. I think the other data point that you should think about with your question is the shipment number I gave that earlier also, the shipment quite a bit of it just in this quarter and also in the December quarter.

Okay and now I would say I appreciate and I think if I can sneak one more here with business being down across all the product lines. We have to see some improvement is there one area you think that might improve for the others in terms of wafer radical metrology?

You know the... is the one to there is a gap historically many of the focus we know that it as Rick mentioned this earlier as we come out with newer products particularly in the radical space and in the wafer space you might see those places pick up first because obviously that those are the you need radicals stinging their wafers to ramp those are typically the first jumps that would see. But in this case I think some of the prior questions we have a bunch of capacity like opportunities for large companies that taking the advantage of the environment the economic environment connected to jump on people with some other with newer fabs and in the case of memory, to Tim's question, they try to move quickly from 200 millimeter to 300 millimeter. They try to get below 6X technology you know as why because they want to lower their cost and drive profits So I think in this case you might see a pop sometimes in the end of the calendar year driven lesser brand technology more about just somebody trying to change the basis of their business.

Thank you very much.

Yes.

Ladies and gentlemen we have reached the allotted time for questions, Mr. Lockwood, please proceed with any closing remarks.

Okay great thank you Christian. Thank you all once again for your participation and your continued support. This concludes our call.

This concludes today's conference call. You may now disconnect.