Ed Lockwood – Senior Director, IR Rick Wallace – President and CEO Mark Dentinger – EVP and CFO

Timothy Arcuri – Citi C.J. Muse – Barclays Capital Jim Covello – Goldman Sachs Vis Vellore – Credit Suisse Krish Sankar – Bank of America/Merrill Lynch Gary Hsueh – Oppenheimer & Co. Adam [ph] – UBS Patrick Ho – Stifel Peter Kim – Deutsche Bank Casey [ph] – RBC Capital Markets

Good evening. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA-Tencor Corporation Fourth Quarter 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, operator, and good afternoon everyone. Welcome to KLA-Tencor's fourth quarter and fiscal year 2009 year end financial results conference call. Joining me on our call today are Rick Wallace, our President and Chief Executive Officer, and Mark Dentinger, our Chief Financial officer. We're here today to discuss fourth quarter and fiscal year results for the period ended June 30, 2009. We released these results this afternoon at 1:15 PM Pacific Time. If you haven't seen the release, you can find it on our website at www.kla-tencor.com, or call 408-875-3600 to request a copy. Rick will lead off today's call with updates on the current market environment and the company's performance in the June quarter and provide guidance for the September quarter. Afterwards, Mark Dentinger will review the preliminary financial results for the quarter, and then we'll open the call for questions. A simulcast of this call will be accessible on-demand following its completion on the Investors section of our website. On the website, you'll also find a calendar of future investor events, presentations and investor conferences, as well as links to KLA-Tencor's SEC filings, including our Annual Report on Form 10-K for the year-ended June 30, 2008, and our subsequently filed 10-Q reports. In those filings, you'll 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 those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking results. More information regarding factors that could cause those differences is contained in the filings we make with the SEC from time to time, including our fiscal year 2008 Form 10-K, our subsequently filed quarter reports on Form 10-Q such as the report we filed for our quarter ended March 31, 2009, and our current reports on Form 8-K. We assume no obligation and do not intend to update those forward-looking statements. However, you could be assured that any updates we do provide will be broadly disseminated and available over the web. With that, I'll turn the call over to Rick.

Thanks, Ed. Thank you all for joining us for our call today. Because we provided a strategic and business model update last week during our analyst briefing at SEMICON West, I'm going to keep my commentary brief and focus on a few key highlights of the fourth quarter and provide guidance for September. Then Mark will follow with a more detailed review of our financials for Q4 and for fiscal 2009. In general, the business environment today seems to have stabilized and visibility has improved with order activity focused primarily on technology buys and investment in the leading edge. New orders for June were $327 million, up 19% compared to March and at the upper end of the range of guidance, largely on the continued strength in the foundries and steady logic demand. Memory remained at lower levels as expected. Revenue in the fourth quarter was $282 million and non-GAAP loss per share, which we projected to be a loss of between $0.08 and $0.24, came in at $0.09 per share. We generated positive cash flow of operations in the fourth quarter of $73 million and we were cash positive for the year on the order of approximately $196 million. A good achievement in such a challenging economic and demand environment and a testimony to the discipline and focus of the KLA-Tencor team as we manage our way through this downturn. Mark will provide more details into the financial drivers in the quarter. But as demand stabilizes, we are encouraged to see improved margin and operating results in Q4, reflecting the benefit of new products and the revenue mix as well as continued discipline and good execution on the cost side. We remain focused on maintaining our cost discipline while sustaining a high level of investment in R&D to support our customers as they make their advanced technology investments. Now, I would like to provide our outlook for the September quarter. New orders in September are expected to be flat to up 20% compared with June. Revenue is expected to be in the range of $295 million to $335 million, and earnings ranging from a loss of $0.10 per share to breakeven. Consistent with that, we remain on track to achieve our breakeven objective by calendar year end. And with that, I will turn the call over to Mark.

Thanks, Rick. As most of you know, we present our income statement in two formats, one under Generally Accepted Accounting Principles or GAAP and the other in a non-GAAP format which excludes amortization and write-downs of goodwill and intangibles assets associated with acquisitions, expenses associated with our stock option investigation and related litigation, any other costs and expenses which we do not expect to be recurring such as restructuring charges. Our balance sheet and cash flow statements are presented in a GAAP format only. Most of my prepared remarks on operations will reference to the non-GAAP income statement but where I reference GAAP number, I will make the distinction. A full reconciliation of our GAAP to non-GAAP income statement is attached to our press release and available at our corporate website at kla-tencor.com. Revenue for Q4 was $282 million within the range of guidance we provided in April of $270 million to $310 million and the non-GAAP loss per share was $0.09 at the favorable end of our guided range of an $0.08 to $0.24 loss per share. Our Q4 GAAP loss per share was $0.15. A summary of the differences between the Q4 GAAP and non GAAP numbers are as follows. Acquisition related charges of $12 million or $0.04 per share after taxes, restructuring and severance charges of $7 million or $0.03 per share after taxes, stock option related restatement related credits of $2 million which had a $0.01 per share of after-tax benefit this quarter. The improved order activity we experienced towards the end of Q3 continued into Q4 and although the environment is still challenging especially in the memory sector, new foundry orders for advanced production nodes drove Q4 orders to the top end of our guidance range. While we expect the remainder of calendar 2009 to be stable but not necessarily robust, we are satisfied the adoption of our new products and our continued market leadership coupled with the fiscal discipline we have exercised through this downturn have positioned us to capitalize on a sector rebound. New orders for Q4 were $327 million, an increase of 19% over Q3 and at the high end of our guided range of flat plus or minus 20% from last quarter's new bookings of 274 million. Approximately $67 million pushed out the 12 months delivery window resulting in net new orders of $260 million. We expect most of the push out orders to reenter our backlog over the next year. We ended the quarter with $518 million in total systems backlog after adjusting for push outs and foreign exchange impact. Backlog at fiscal year end included $186 million of revenue backlog or products that have been shipped and invoiced but have not yet been recognized as revenue and $332 million of system orders that have not yet shipped. We expect a majority of the unshipped backlog to ship over the remainder of the calendar year. The approximate regional distribution of new systems orders and the quarter to quarter change in distribution was as follows. The US was 29% of new system orders in Q4, down from 43% in the March quarter. Europe had 4% of new systems orders up from 2% in Q3 of 2009. Japan was 4% down from 11% last quarter. Korea was 13% up from 9% last quarter. Taiwan was 46% up from 31% last quarter. And the rest of Asia was 4%, which was flat with Q3. The approximate Q4 distribution of new systems and services orders by product as well as the quarter to quarter change in distribution was as follows. Wafer inspection was 34%, up from 32% last quarter. Critical inspection was 10%, down from 17% last quarter. Metrology was 18%, up from 10% in the prior quarter. And solar, storage, high brightness LED and other non-semi was approximately 7% up from 2% last quarter. Service was 31% of new orders in Q4 down from 39% last quarter. Foundry customers comprised 53% of semiconductors systems orders in Q4 versus 40% in Q3. Logic and memory orders were 37% and 10% respectively in Q4 versus 46 and 14% in Q3. Technology purchases generated most of the activity with 45 nanometer and below development pilot activity comprising 97% of the semiconductor system orders received this quarter versus 95% in the March quarter. Although we are encouraged by the current order activity and the sales funnel for the September quarter, we are cautious about the intensity and duration of the recent upturn. As a result, we are assuming new orders in Q1 in the range of flat to plus 20% from Q4. Shipments in Q4 were $344 million, up 24% from 277 million last quarter. Systems revenue for Q4 was 176 million or 63% of total revenue versus 207 million or 67% of revenue in Q3. Services revenue in Q4 was 105 million or 37% of total revenue. Services revenue improved by 3 million from the prior quarter and strengthened as the quarter progressed. Our expectations for total revenue in Q1 is a range between 295 and 335 million. Non-GAAP gross margins was 46% in Q4, up eight percentage points from the March quarter, primarily because our Outlook for production plans for the reminder of calendar 2009 stabilized during Q4 and therefore we reported $18 million less in excess and obsolete charges than in Q3. In Q1, our gross margin percentage should remain flat or improve slightly from Q4. Operating expenses were $148 million, down $4 million from the March quarter. R&D was $78 million in Q4, up $1 million from Q3. And selling, general and administrative expenses or SG&A were $70 million, a $5 million decrease from last quarter. In Q1, assuming there are no significant additions required to our bad debt reserves, we anticipate that operating expenses would decline slightly from Q4 as the full quarter effect from our March staff r reduction should offset the impact of any higher variable compensation. Other income and expense or OIE was a net $11 million expense in Q4 or approximately $6 million higher than in Q3. The higher Q4 net expense was largely due to a nonrecurring gain on disposal of an investment and foreign exchange gains in the March quarter. In Q1, we expect net OIE to be approximately the same size as Q4. In Q4, our non-GAAP income tax benefit was $15 million or 50% of the Q4 pretax loss versus the $19 million charge in Q3. As I mentioned last quarter, we had a net expense in Q3 because of the $29 million charge in anticipation of a change to our California tax apportionment in fiscal 2012. Without the apportionment change, the Q3 tax benefit would have been $10 million or 26% of our pretax loss. Absent the apportionment charge, the increase in the tax benefit percentage from Q3 to Q4 was principally due to an increase in the asset value of deferred compensation plan, which is not taxable. As we have mentioned throughout 2009, lower negative pretax profits coupled with other unique factors each quarter make predicting short-term tax rates difficult but we continue to model a 30% rate for our September quarter and fiscal year 2010. Our non-GAAP loss was $15 million or $0.09 per share in Q4. These numbers include a pretax stock-based compensation expense of $26 million, a portion of our better than expected Q4 loss was due to the higher than modeled tax benefit of 50%. At our model rate of 30%, our non GAAP loss per share would have been $0.12. At the revenue range I've previously mentioned, we would expect Q1 non-GAAP operating results to be somewhere between breakeven and a loss of $0.10 per share, assuming a tax benefit of 30% and further assuming that there are no unanticipated charges required for customer collection issues or excess inventories. It is possible we could generate non-GAAP profit in Q1, especially at the higher end of our guided revenue range. Turning to the balance sheet, cash and investments ended the quarter at 1.3 billion, an increase of $72 million quarter to quarter. Cash generated from operations of $73 million from Q4 versus $76 million in Q3. A component in arriving at the $73 million in operating cash we generated this quarter was a $26 million semiannual interest payment which we did not have in Q3. Net accounts receivables ended the quarter at $210 million, down $31 million from March 31. DSOs were 68 days at June 30th versus 71 days at the end of March. Net inventory decreased by $42 million last quarter and ended the quarter at $370 million. Net capital expenditures were 2 million in Q4 versus 3 million in Q3. Weighted average shares in Q4 were 170 million the same as in Q3. For the September quarter, we are expecting a slight loss so our weighted shares are expected to be about 171 million and no stock repurchases are anticipated this quarter. If we post a profit in Q1, the weighted shares will increase any diluted securities. Total headcount ended the quarter at 4,939, a net decrease of 463 from March 31. The decrease in Q4 largely occurred following the reduction in force action we took in late March. We expect that our headcount will decline slightly during Q1. We have continually spoken about our plan to reduce our quarterly operating expenses to the $142 million to $145 million range by our December 2009 and doing so should allow us to achieve non-GAAP breakeven operating margin on revenue of $300 million to $325 million. We have taken significant steps towards us achieving these spending targets and we anticipate that we will not require additional significant actions in order to achieve these levels. In summary, our guidance for Q1 is new orders are expected to be flat to plus 20% versus Q4. Total revenue between 295 million and 335 million Non GAAP loss per share will be between breakeven and $0.10 assuming a tax benefit of 30% of the pretax loss. This concludes our prepared remarks on the quarter. I'll now turn the call back over to Ed to begin the Q&A.

Okay. Thanks, Rick. Thanks, Mark. We will now be happy to take questions and we once again request each participant to limit to one question and a brief follow-up to allow us to get to as many callers as possible in the time allotted today. And with that, operator we are ready for our first question.

(Operator instructions) Your first question comes from the line of Timothy Arcuri from Citi. Your line is now open. Timothy Arcuri – Citi: Rick, if I cut the numbers, and I look at your share of the overall WSE market that I can include service, I can strip it out, I can even exclude litho, if I cut it pretty much any which way, it shows that your share of the adoption of inspection if you will has basically flattened off the last five or six years. And I'm wondering if you're starting to outgrow the market, that is going to have to start to pick back up. So, I'm kind of wondering what if you go back and look the last five years, why did it slowdown, and the next five years why is it going to pick back up?

Hi, Tim. What we're seeing now certainly as we go through the 45 nanometer, 40 nanometer transition for our customers, we are definitely seeing an increased percent of spend on process control coming from our two customers. So when we look at the data, I think it depends on as you know Tim a lot of it depends on what part of the ramp we are in and I would say that as we look at it and as we see the indications happening now what has happened over the last several quarters, our business has held up better because I think that there is an increasing challenge from our customers. So we stick with our thesis that the 45 nanometer, 40 nanometer transition is tough and requires a lot of investment. And as we look forward, we don't see those trends abating as people go further in reducing their design rules. So I think a lot of this has to do with the data and analysis that you're looking at but that is certainly what we have seen. Timothy Arcuri – Citi: Okay, thanks. And then just one quick follow-up from you, Rick, as you kind of look out to the second half of the year broadly, as foundries maybe have some moderating utilization as you get into Q4, I guess number one, do you even see that happening? And number two, if it does, do you think that there is enough kind of other business, memory, DRAM to basically offset that such that bookings can continue to grow through the rest of the year? Thanks.

Sure. When we look out certainly from a September perspective, we do see memory increasing as a percent of the overall, and so we guided flat up 20% for bookings for September. So we do see as a percent memory while not as robust as the logic or foundry segment overall, it will increase off the 10% base. December is still really hard to see what's going to happen in the December time frame. So I would say that we do see some return in memory to investment for technology transition but foundry still relatively stronger but down from the current levels. So we agree that foundry probably will not maintain its current rate of investment but will continue to invest in perhaps a little more balance with what we are seeing in memory. What we still don't see is real capacity investment for the rest of this calendar year. So we have some visibility in September. I think December is a tougher call because there are definitely other factors at work.

Your next question comes from the line of C.J. Muse from Barclays Capital. Your line is now open. C.J. Muse – Barclays Capital: I guess first one just to piggyback on the memory question, you know rather than asking when you see that ramp, I guess can you talk about where your product tool record and when it does ramp, what kind of share you would anticipate in a recovery?

Sure. You know when we look around, I think our share inside memory looks pretty similar to what it is in the logic or foundry. They are kind of puts and takes depending on the product mix question that we have, the different products. So overall I think we will benefit from an increased investment in the memory side, similar to what we benefited in the logic and foundry, particularly because as we engage with the customers, we will definitely see pressure on yields and pressure on making the technology transition. So just as an example, C.J., when I look at September, we did 10%, it was basically the percent we did on memory in June, and we are modeling September in the 25% to 30% will be out of memory for us. So, it is increasing, but as I said, still not quite as healthy as what we're seeing in foundry. So I think overall share doesn't really suffer, we do see some come back, but again not for major capacity expansion in memory, more technology buys. C.J. Muse – Barclays Capital: That is helpful. And as my follow-up, you had a nice pickup there in gross margins in June and clearly within the guide here, you're now guiding it at 60%, 70% incremental, I guess as you look through the second half of 2009, what other kind of puts and takes, positive negatives, as you look at the business mix and you look at under absorption, increased absorption and how should we see gross margin pickup from here?

I will let Mark take that one.

Yes. C.J., we did talk about gross margins being flat to slightly up entering into the September quarter. They could go higher depending on the mix. At this moment, if we don't have to make a capacity cut in terms of our manufacturing output, we shouldn't get any big negative surprises on the excess and obsolete front. We are still not fully utilized. We're headed towards that, and depending on the product mix and whatnot, that could give us some upside in the first half of the new fiscal year. So we continue to maintain that when we get back to more normal levels of business, that gross margin leverage should be there. C.J. Muse – Barclays Capital: Thank you.

Your next question comes from the line of Jim Covello from Goldman Sachs. Your line is now open. Jim Covello – Goldman Sachs: Hi guys. Good afternoon. Thank so much for taking the question. Just a couple of quick ones. Could you talk about the dynamics within memory of NAND versus DRAM in Q3 and then potentially beyond that?

Sure. Again Q3 was I guess… Jim Covello – Goldman Sachs: I mean calendar Q3 and beyond that, sorry.

So let me back up, so June quarter for us, our fiscal Q4, from our perspective, we saw NAND was – it is must half and half now, we're talking about small numbers, right. So we could see that continuing, so we have different dynamics at work from the memory, as you know, in the NAND overall, but from our mix about 50-50 for the June quarter and as I said, we see the overall percent going up slightly in September, maybe to more normal downturn levels, and we see the mix as we model it right now about 50-50 with the range of 25% to 30% of the new systems bookings being out of memory. So not a big difference between what is happening in DRAM and what is happening in NAND and I think some of that relates to the different dynamics. The NAND guys I think are – they are pushing the technology perhaps a little bit harder on the design rule standpoint but the memory guys are maybe a little bit further behind. So there's more people that need to transition on memory right now. Jim Covello – Goldman Sachs: Are there any particular yield or diagnostic problems associated with DDR3, is that will be one of the drivers of the ramp up in the next of couple of quarters, is that just kind of normal course? Obviously it requires a lot of metrology of yield measurement and management, are there anything in particular there?

I think the issue there when I talk to customers is they have pressure I think because they are some capacity challenges around DDR3. I don't know Jim if you're seeing the same thing. So that in general they have a lot of capacity, in fact overcapacity in memory, but probably not enough on DDR3. So we are seeing a push to try to squeeze everything they can out. So from the standpoint of unique to the DDR3 design not so much but the need to make sure that they are optimizing, getting everything out of that. That is what we're seeing on the advanced DRAM side. Jim Covello – Goldman Sachs: That is very helpful. If I could just ask one more would be about the breadth of foundry orders, is it one, is it a broader both in terms of the June and then the September quarters and potentially beyond?

Yes, sure. It is not one, it is broader and I think that we had a couple of significant players, one smaller player in June and we see a broadening a little bit further in September. So I think that the foundry space in interesting because there seems to be more end demand driving that, and there is some unique challenges with the designs on the foundries. So we're seeing across the foundry space may be more pressure on utilization and a little more optimism from the perspective of end drivers. Jim Covello – Goldman Sachs: Terrific. Thank you so much.

Thank you.

Your next question comes from the line of Satya Kumar from Credit Suisse. Your line is now open. Vis Vellore – Credit Suisse: Hi. Thank you for taking my question. This is Vis for Satya. The memory even though it is coming off of a low base, is it – do you see the increase coming from companies making the transition from 7X to 5X or is it more on the bigger players pushing down towards the 4X technology?

Yes, that is a good question. It is probably and as I said, you have a split between NAND and DRAM, so there are if you will 1X off right to start with and I think that probably mix inside of that is a little bit more biased to the bigger guys right now. I think some of the smaller guys still are having not investing at quite the same rate and I think September will be interesting to see how that actually plays out. Does that make sense? Vis Vellore – Credit Suisse: Yes. And one quick follow-up is how should we think about services going forward with fab utilization rates kind of picking up? And also what percentage of orders in the June quarter was non semi?

Okay. Yes, so non semi in June was about 14% and service in June was 31% and we look forward and service will – we think it is off the bottom, will start growing again, but it'll take a little while to get back to its historic growth rates. So we see for example in the September quarter that it is up somewhat service as a percent probably holds right around the 30% range. So I think over time we saw utilization start picking up at the beginning of the calendar year and that followed on some serious business picking up in March/April/May time frame and we think it starts to climb from here but at a relatively slow rate. And the non semi stuff, it really depends on some of the end market dynamics. We had pretty good performance out of our non semi business and I think we see that continuing to grow as we move forward. Vis Vellore – Credit Suisse: Thank you.

Your next question comes from the line of Krish Sankar from Bank of America/Merrill Lynch. Your line is now open. Krish Sankar – Bank of America/Merrill Lynch: Thanks for taking my question. I have a question and a follow-up. First on the gross margin line, Q4 the gross margin looked pretty good, how much of that was a function of your cost reduction or product mix and also the fact that sources are so low that it kind of helps the gross margin boost up purely from a product front?

Yes. Let we just take it reverse. The eight point percentage point improvement quarter over quarter, you can bring it down to about six points of that was just lower EN&D [ph] charges. There is about a point of improvement due to capacity improvement which again gets into the fact that there were some staff reductions that affected us in the manufacturing area and about a point of it was mix. So you can think about that as sort of the bridging of Q3 to Q4 performance. Krish Sankar – Bank of America/Merrill Lynch: Got it. That is very helpful. Rick, can you give us an update on the dynamic you're seeing on your bare wafer product market and how do you seeing that trending over the second half and into 2010?

Yes, Chris, great question. I think bare wafer is for us certainly a capacity play and right now very little activity. We do have some product coming out, some new capability, customers who are interested, but at this point there is no investment for additional capacity, and we don't anticipate significant capacity investment happening through the rest of this calendar year. So we think that the bare wafer market will continue to be slow and is not really contributing to our gradual recovery here. But as we look forward to calendar 2010 we think that will be one of the components that kicks in for us as we see business start to get back to some capacity investment, but right now very slow. Krish Sankar – Bank of America/Merrill Lynch: Thank you very much.

Thanks Krish.

Your next question comes from the line of Gary Hsueh from Oppenheimer & Co. Your line is now open. Gary Hsueh – Oppenheimer & Co.: Thank you for taking my question. Mark, just a quick question here on guidance for the September quarter. It sounds like you're cautiously optimistic that actually at the high-end of the revenue range, you could actually do much better than the high-end of the EPS range, and it seems like it centered on gross margin. Could you just run over again I mean why the cautiousness in terms of gross margin guidance for September and by my math if you were to kind if drop through like you normally should 60% plus of the gross margin line on the EPS line, you should be somewhere around $0.03 to $0.05 at the high-end. So what…

Yes Gary, it is several things. First of all, product mix is always a piece of the equation as it was this quarter as well. The other thing is the service versus product mix is also a contributor in there. And the final thing is that again any surprise on the EN&D front to the negative. We had a pretty good quarter in Q4. It would take at least a repeat of that to make sure that you're capturing all of the incremental margin that we talked about previously. But as they did indicate that there is room for that to be better and if that is better, that would be one of the drivers to get us to positive EPS. When I tell you that we are – you say cautiously optimistic, I would say cautious. If you come off of the last three quarters that we have had, you know you will learn not to get too far out ahead of yourselves in terms of guiding. But I did signal it does exist that upside scenario and we wanted to acknowledge it formally on the call. Gary Hsueh – Oppenheimer & Co.: Okay. And then in terms of modeling, I mean KLA historically has been pretty predictable in terms of the 60% plus drop through on the gross margin, 50% plus drop through on the operating margin side. I mean does the model start to stabilize where we can predictably start to model that way in terms of drop through starting the December quarter or when do you think that will happen for KLA?

Well, it may show itself as soon as the September quarter but we are certainly hoping that if the revenue and the bookings picture continues to improve throughout 2010 then that pattern will become very evident. But again we are just coming off the bottom right now and we are I guess cautiously optimistic is the words you used, we're feeling much the same way, but we don't want to get too far ahead of ourselves either. Gary Hsueh – Oppenheimer & Co.: Okay. And Rick just a quick follow-up here, I think you get it – you are calling for basically stabilization in the current quarter pattern here in September and December. I think semi cap equipment companies fall into two camps, one about stabilization, one camp they fall into is really about further sequential order growth, what is kind of the difference between or dividing line between those views in the December quarter?

That is a great question. You know I look back and I say that there is – it probably goes to the philosophical view people have of the macro side of things. And historically I look back in the last several quarters, we have to the camp concept you have, there is a group that has been pretty optimistic throughout this cycle about overall growth, and I think anticipated something's happening. So March point, we're pretty a careful company. We look at the last several quarters and think we don't want to get ahead of ourselves. I think there is no question in my mind we could respond to an upturn. So we're not doing anything that would preclude our ability, but on the other hand, I think after you go through the macro economic shock that we have been through, it is kind of hard to say that is all done and there is nothing else out there that can impact it and I think that that is probably at the basis of the different philosophies right now. Gary Hsueh – Oppenheimer & Co.: Okay great. And just a real quick housekeeping, did you guys guide to order percentage for memory in fiscal Q1 yet?

I did not. I talked a little bit earlier, it was about 10% we said in June, and we think it is 25 to 30%. It is not in the prepared comments, but we think 25% to 30% in the September quarter. Gary Hsueh – Oppenheimer & Co.: Right, great. Thank you.

Okay.

Okay.: Adam – UBS: Hi. This is Adam [ph] for Stephen Cheng. Could you please talk about the expected bookings linearity in the September quarter? Given that the expected bookings are better now, better than the historical trend, could we assume the visibility is better here than at the start of the September quarter compared to the end of the quarter?

Adam, it is a great question. I think we do have some pretty good indications because we're now engaged in conversations with customers that if I go back a few quarters earlier we didn't have this early in the quarter, and so we are talking about slots and trying to talk about support plans which is why we probably – we came out of SEMIWEST saying that we thought that we are going to flat to up. So I'd say that that is true and I think some of our customers have made more positive and affirmative commitments to investing at this phase of the quarter than we saw in the last few quarters. So I would say those are all the reasons why we don't get into linearity discussions per se. And as you know in this business, historically a lot of the stuff will happen at the end of the quarter, not necessarily exactly the case this quarter, partly because there is a scarcity of spots for people and so there are some people that had to move earlier to assure that they would make their commitments and ramp. Does that make sense? Adam – UBS: Yes, absolutely. That is great. Also, could you share your thinking on how bookings will be broken out by quarter, broken out by geography, and also your outlook for 2010 capital spending trends for the industry?

Sure. I will start with by geography. We look forward, we think September is probably in the range of little bit down as a percent from this quarter so probably in the 25% for the US. Europe very small, so US and Europe maybe 28, last quarter they were a little bit over 30. Japan continues to be soft and so we are in the 5% range for that. Taiwan healthy but down so we're at 46% last quarter and we're seeing probably around 30%. And the rest of Asia is probably 17% to 20% and Korea is probably a little bit more like the 20%, which is up from where they were last. So we do see a little bit of shift as we look at the order book right now. For 2010, there are a lot of models out there, a lot of estimates. Internally this is maybe back to the earlier question I got on why is our conservatism more so than others. I think it is very hard to handicap CapEx without making a statement out about overall economic condition. So we have a range of up 20% to up 50% for next year and I think that as we roll out our targets, it is very dependent on I believe what happens overall economy. But from our standpoint, we see there is definitely upside in that range of 20 to 50 and we will know more about that as we get later into the year. But so much of that is about whether people are back investing in a meaningful way in capacity. Right now it is just we don't have visibility to that. Adam – UBS: Okay, great. Thank you.

Thank you.

Your next question comes from the line of Patrick Ho from Stifel. Your line is now open. Patrick Ho – Stifel: Thanks a lot. Guys, can you give a little bit color in terms of your 32 nanometer, within that 45 nanometer percentage you gave earlier, how much are you seeing on that technology node, especially as the logic guys begins to transition to that technology node?

Yes. You know Patrick it is hard to say because people are buying. We introduced some tools that are capable for 32 node, but 32 is really a development play by and large for people with maybe the exception of one customer. So I would say that it is still a relative small percent of the overall business is 32. But we do see interest in the R&D space for sure for that development. So I don't – we haven't really broken that out but I would say that the bulk of what we're seeing right now is related to the transition to the 45 nanometer and 40 nanometer nodes on the foundry side. Patrick Ho – Stifel: Okay, great. And a follow-up question in terms of your cost cutting efforts and getting to your new breakeven target, a lot of those remaining I guess cost cuts are restructuring efforts targeted around your acquisitions or is it kind of mixed with your core businesses as well?

Yes, well, a good question (inaudible) completed at least if the world doesn't get any worse. So what we're talking about here is tweaking between now and the end of the year and then we get to announce previously that we had campus consolidation project here in the South Bay area that would kick in next year and give us a little more spending relief. But we don't at this moment, based upon today's business activities and the prospect that things aren't going to get worse from here, we don't have any major additional new cost reduction actions, and that would include both the acquired businesses and the extant businesses at KT. Patrick Ho – Stifel: Right, thanks.

: Peter Kim – Deutsche Bank: Hi. Thanks for taking my question. I was wondering if what your de-booking status is today, is that improving, were there less discussions about de-bookings in the current period?

Yes. The de- bookings are a function of whether or not orders actually slip out of what we think is a 12 month delivery window. And that is through discussions with customers, are you inside or outside the 12 month delivery window? And the reason that they are important is that in terms of sizing manufacturing capacity and where we have to ramp, that is the window we look at in terms of having to have capacity ready. So it is not unusual to see towards the end of the cycle that customers clarify whether or not they want to pull tools in as Rick indicated or whether or not they want to push a little bit further out and the de-bookings numbers essentially are a function of that. I should also clarify that the vast majority of those are not true de-bookings. They are basically rescheduling in or rescheduling out of existing orders. Peter Kim – Deutsche Bank: But bottom line, you don't expect an increase in activity, essentially it is very little de-bookings going on today?

You mean with respect to the September quarter? Peter Kim – Deutsche Bank: Yes.

I would guess that the de-booking number will probably go down in September again based upon current business trends. Peter Kim – Deutsche Bank: Okay. One last question with regards to your bookings rate, your bookings is – excuse me, your shipments rate was pretty strong this quarter. And I think this is the first time your statements rate is running ahead of your shippable backlog number, and I was wondering if you could provide some comments about how you feel about shipping above your quarterly – your backlog number?

Yes. Maybe even the more important statistic is that we shipped ahead of revenue for the first time in eight quarters this quarter, back to our fiscal Q1 2008. So that again is a positive indicator. With respect to the shippable backlog number, that will go up and down depending on exactly what happens towards the end of the quarter, but there is no doubt that that trended up very, very nicely this quarter, and if that continues, that is a good sign. Peter Kim – Deutsche Bank: Thank you.

Your last question comes from the line of Mahesh Sanganeria from RBC Capital Markets. You line is now open. Casey – RBC Capital Markets: Hi guys. This is Casey [ph] calling for Mahesh. A couple of quick questions. When do you guys expect capacity buys to come in from DRAM and NAND makers?

We don't – I tell you what we don't expect, and we don't expect them over the next September quarter or December we think we will see much. Maybe at the end of December, depending on how the view of the market is, we might see some activity there. But as I talk to customers in the memory space, they don't anticipate making significant capacity investments the rest of this calendar year. So that is not any of our models and as I talked earlier, that is really I think the swing factor in what kind of calendar tenure the industry has in general. So I would say not for the next couple of quarters but assuming a normal economic kind of recovery in the environment, then we would see them starting in the calendar 2010. Casey – RBC Capital Markets: Okay. During the NAND conversion to 3X, can you talk a little bit about process control challenges?

Yes, sure. I think there are a number of challenges. In that case, people are really pushing design rules harder than in any other technology node. And from that perspective alone there are certain defect types that our customers are really struggling just to find. We have introduced the new Brightfield tool, we talked about for example at SEMICON West, last week we talked about it. And that we are seeing in R&D that that is providing unique value for customers to find unique defects that will impact them as they go to 3X. So in that case we anticipate demand increasing for our new Brightfield, our new Darkfield, our new review tool on the defect side and then metrology also is getting pushed pretty hard as well. So that is part of our analysis of why we see growth in process control as we move forward. New defect types, some are just associated with the structures, but some are just absolute size issues that there has been no other way to see them and until we get to that node, it hasn't really impacted our customers yield, but it will at 32 – I mean the 3X in general. Casey – RBC Capital Markets: And lastly in the RIG [ph] business segment, where are we on the order cycle with the mask shops, are they ordering tools in anticipation of tech upgrades?

I think there has been some activity. We talked about in the mask world that March was a regional percentage of overall bookings, about 17%. It dropped a little in June but we anticipate it popping back up in September. Our new technology needs but also we have some new product capabilities we will bring into the market and there is a strong interest in that from our customers. We just need to work through finishing and delivering those early tools. But it is driven on new technology and as we look forward, we expect the radical shops, the mask shops will renew their investment which frankly they took several quarters of very low investment as they just didn't see the needs from a capacity or technology standpoint. But we're at a position now where we have had new capability and they have got some new challenges. Casey – RBC Capital Markets: Okay, thanks a lot guys.

Thank you. I want to make one final comment for our fiscal 2009. Yes, this is certainly challenging year and we know it won't be the last time the semiconductor industry suffers a downturn. But 2009 for us was a year that allowed us to demonstrate the strength of our technology and our people in the face of what may well be the steepest industry downturn. KLA-Tencor earned a non-GAAP operating profit in FY 09 and generated about $200 million in cash flow from operations. We fully paid our dividend and we built upon our market leadership. So I would like to take this opportunity to thank our employees, our customers, and our suppliers for supporting us, and we're certainly looking forward to a better fiscal 2010. Thank you all.

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