Welcome to the MKS Instruments Fourth Quarter Earnings Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operators Instructions). This conference call is being recorded today, Thursday, February 7th, 2008. I would now like to turn the conference over to Jonna Manes, Director Investor Relations. Please go ahead ma'am.

Thank you. Good morning and thank you for joining our earnings conference call. Earlier this morning, we released our financial results for the fourth quarter and the full year of 2007. You can access this release at our website www.mksinstruments.com. As a reminder, various remarks that we may make about future expectations, plans and prospects for MKS constitute forward-looking statements for purposes of the Safe Harbor Provisions under the Private Security Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in today's press release, and in the company's Annual Report on Form 10-K for the fiscal year-ended December 31, 2006, and most recent quarterly report on Form 10-Q, each of which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations, only as of today. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today. We ask that you limit questions to two per firm, and we will circle back as time allows. Now, I'd like to turn the call over to Leo Berlinghieri, Chief Executive Officer and President of MKS.

I am pleased to report that fourth quarter sales were $184 million and non-GAAP earnings of $0.33 per share exceeded both our third quarter sales and Q4 guidance. We entered the fourth quarter with concerns about the near-term outlook, based in part on semiconductor OEM and industry projections about the downturn in capital equipment spending. As it turned out, our OEM business was better than expected, although down 6% quarter-over-quarter. The decline in sales to OEMs, however, was offset by higher sales to fabs and non-semiconductor markets quarter-over-quarter. As we noted in the third quarter, fab sales can be lumpy. Fourth quarter sales to fabs increased 19% on higher demand from Asian fabs, especially in Korea. Our growth demonstrates that we are executing on our strategy to increase fab penetration. We are convinced that fabs will need to improve uptime yield and throughput in order to meet cost targets, as they transition to smaller geometries and new materials. We are providing solutions to improve productivity in addition to service and spares. Our gas analysis and data management and analysis technologies detect process contamination, analyze process variation and resolve process problems that impact yield. We also work with fabs to upgrade tools and process solutions that reduce contamination for improved yield and higher throughout. In the fourth quarter, we achieved 10% sales growth in non-semiconductor markets as demand increased in solar and flat panel display markets; greenhouse gas emissions in monitoring; and other analytical applications with project-based spending. Solar and flat-panel display markets provide a lot of opportunity for MKS. Most of our technology for semiconductor processes can be applied with little or no modification in these adjacent markets with similar thin film processes. This strategy allows us to leverage our technology for higher growth opportunities, while reducing the impact of…

Thank you Leo and good morning everyone. As Leo stated, 2007 sales of $780.5 million were approximately the same as 2006 sales of $782.8 million. Lower sales to semiconductor OEMs were offset by higher sales to semiconductor fabs and non-semiconductor markets. As a result of a slightly lower gross margin and increased investment in R&D and information technology, our GAAP net income decreased 8% to $86.4 million or a $1.51 per diluted share, compared to $94.2 million or $1.68 per diluted share in 2006. Non-GAAP net earnings decreased 7% to $95.6 million or $1.67 per diluted share, compared to a $102.3 million or $1.83 per diluted share in 2006. Gross margin was primarily affected by mix and other costs, including higher charges for excess inventory, as a result of flattening sales and slightly higher overhead costs, which were offset by lower warranty costs in 2007. We continue to increase our investment in R&D to support development of products for next generation tools and technology, in order to improve end-customer production yields. We also increased IT spending to a comparable level required to support current and future initiatives to implement and maintain our global ERP system. Fourth quarter sales of $184.1 million were 2% higher compared to third quarter sales of a $181 million. Sequentially, a 19% increase in sales to semiconductor fabs, and an 8% increase in sales related to our other markets, was offset by a 6% decrease of sales to OEMs. In the fourth quarter, sales to OEMs represented 52% of sales, sales to fabs 12% and sales to other markets 36%. Geographically, fourth quarter sales in Asia increased by 20% sequentially. This was a result of increased demand from OEM and fab customers, especially in Korea, and represented 30% of total sales. Sales in the US decreased…

Thank you. (Operator Instructions). And our first question comes from Brett Hodess with Merrill Lynch. Please go ahead.

This is actually [Joe Herrick with Gutterman Research]. Couple of things. Leo, what you guys do in terms of looking at lean manufacturing, keeping in Six Sigma to improve your overall continuous improvement processes? And what you expect benefits to be in terms of a throughput value plan?

Okay. Well, first of all, I think we're one of the earlier adapters of lean manufacturing, at least in this space. So, as far as almost all of our plants run, other than sometimes a new acquisition, they are already set up in the flow lines and lean manufacturing, and all operate on practices of total quality. I think where we would see the most leverage is really in our low cost region sourcing and manufacturing, and we've talked about that on numerous occasions. But there is still leverage in terms of moving more material to low cost country. Also, there is still leverage to have more of the manufacturing in low cost country. I would say that those would have more leverage than anything going on in-lean, since we have been involved with lean manufacturing for more than 10 or 15 years.

Okay. And a follow-up to that question; what metrics are you using in your manufacturing process to measure success? Are you looking at [RONA], OE? How are you judging yourself against competition or even against your fellow peers to measure your success? And in terms of going forward for 2008, what systems and solutions are you going to be putting in place to accelerate continuous improvement initiatives. I know you mentioned you are at the second phase implementing your ERP system. Is that going to be applicable to [CI] initiatives? And can you expand on some of that?

Yeah. I think, so we keep it to two questions to everyone. I think I will just answer the one that you talked about in terms of what we are doing, relative to measuring our manufacturing capability. I think one of the things we look at is moving materials to low cost country, as we measure purchase price variance as a measure of improvement in cost. And the other is obviously productivity measures that we have internally. So thanks very much for your question.

And your next question comes from Jim Covello with Goldman Sachs. Please go ahead.

Good morning guys. Thanks so much. I am sorry if I missed it. I don't think I did. What is the breakdown of the revenue guidance between semi and other?

Yeah. We didn't break that out, Jim. I think Leo gave sort of an estimate for the year where we thought we would do in the other markets.

Well, certainly, Jim, we didn't give an estimate in the guidance, but I think when I talked about what we could potentially grow in 2008 for incremental revenue. I think that just an indicator of where semi is, but we don't know yet where semi is, obviously, because no one seems to know exactly where that is, and we don’t really give guidance beyond the first quarter. But we don’t break down guidance relative to markets.

Can we assume that with the first quarter guidance, there was some kind of difficulties in the semi market?

Absolutely.

Absolutely.

So, the reason for the good revenue guidance is the fact that you are seeing the benefit in the other market that’s offsetting the weakness in the semi side?

Right, we're getting some offset.

Appreciate that, thank you.

Although Jim, let me just say that I don’t think we see anything unusual in the first quarter compared to the fourth quarter in semi. That doesn’t mean they are exactly the same, I wouldn’t read that, I just don’t know where your question was heading. But it certainly doesn’t mean that. There is some significant change in semi, just to point that out.

Okay. Thank you.

You are welcome.

And your next question comes from Tim Summers with Stanford Research. Please go ahead.

Hi, thanks for taking my question. Could we get a little bit more detail on this piece of Korean business that came into the fourth quarter? Where you expecting it, going into the fourth quarter? And was it equipment or was it service? And then, is this business expected to continue as we go into the first quarter, and through '08? Thanks.

Tim thanks for the question. It was equipment, and it was not expected as early as it came in, because it came in the fourth quarter. We get some type of forecast that's rolling, so it is repetitive. It's sort of with the customers that get repetitive business. So we absolutely are expecting more of it, but we have got more of it in the past too. So I don't think there is anything unusual there. It's just that we hadn't anticipated an order in the fourth quarter.

Okay. And just again two questions. Let me ask number two. On yield dynamics, did that have any material impact on revenue and earnings in the fourth quarter? And what should we be assuming about an incremental benefit, going forward?

First of all Tim, it didn’t really have any material impact in the fourth quarter. There were some additional that we did acquire them at the beginning of December. So there was a small amount of operating expenses that were included in the fourth quarter expenses. But going forward, I think as we have said, the real value of acquiring yield is that this will allow us the opportunity to sell a complete package of hardware and software to improve productivity. So to look at the financial impact of yield on itself is really not doing justice to the value that we think it will bring to the company.

Yeah and I would say it is certainly on its own. It doesn't have a huge impact across our total business.

Right, it is relatively neutral and it is small. And we say it's about 64 people that were added as a result of that acquisition.

Okay. Thank you.

Thank you. And we have time for one final question and our last question comes from C. J. Muse with Lehman Brothers. Please go ahead.

Yeah, good morning. Thank you for taking my question. I guess first off, I would love to follow-up on a couple of previous questions on the semi business. You have been running at around $18 to $22 million in the last three quarters. And I guess you had somewhat of a surprise in terms of Korea coming in December. How sustainable is that business given the current environment? How should we be thinking about that? Should we tracking utilization rates or unit volumes? Can you give us a little help in modeling that out for 2008?

Yeah C.J, I guess first of all I didn't understand what the 18 to 20 I thought I heard something about 18 to 20 something million.

$18 million to $22 million is where I am modeling, June, September, December for the semi business, but not OEM business.

Are you talking about fab semi business?

Yeah exactly.

Yeah, and I don't know if you caught my answer to the previous question, that the order in Korea was not all necessarily related to fab, but all related to hardware and repetitive, which is typically more equipment for OEM base.

Also is that flow-through into the OEM side?

That's correct.

Okay.

And so I think you asked the question if we thought it was repetitive and it is because it's being repetitive.

And there was some business to fab as well.

But I guess if you could just isolate to semi makers in terms of how to think about that trajectory in 2008?

Well, I think direct sales to the fab is less cyclical, obviously, than the sales for OEMs. We are typically tied to unit volume. It is a part of the business, which is service and spares, so that's absolutely tied to the use of the product and production, which is typically related to utilization and unit volume. And then we do have some capital items, which are more in the analysis area, that are sold directly to fabs or ozone, which can have a little more impact of sorts on the capital side of the business. And then we do focus on upgrades and improvement as we talked about, which usually aren't as affected as other cycles as well. So, I think to just provide you a number to put on for 2008, I can't give you that number. I think you can just look at, sort of, the history where we report fab sales, and you will get an idea. But it's roughly been within that; I think it was maybe 9% to 10% to few years ago and it was up to 12% this year. So I can give you an indicator. It's not going to jump 10% of the revenue. It's a percent or two at best I think.

Got you. Okay. And then I guess my second question, given the strength in the non-semi businesses, can you talk about what impact that will have on your gross margins?

Well, as you know, the gross margin already affects that mix of business. So we expect gross margins. It could have somewhat of a favorable impact, but I wouldn't call it significant, C.J. But certainly, I think it could have a small positive impact on the gross margin compared to semi.

Yeah, there may be higher operating expenses. As you know with the semi OEM's, there are a lot of consumers who we sell to and so there are lower operating expenses, sometimes offsetting those lower gross margins. So you may get a little better gross margin, but you may have slightly higher operating expenses. So I don't think it changes your model.

It is not significant?

I think it's more relative to the growth than anything else.

Yeah.

Thank you.

You're welcome.

Thank you. Well we have time for some more questions that come from Tim Summers from Stanford Research. Please go ahead.

Hi. Yeah, on the flat panel business, can you give us an idea of what you have seen from your OEM customers in the last 60 days? How steep is the ramp looking as we go into 2008? And how do you see your flat panel business doing, well, qualitatively through '08? Thanks.

As you know Tim, probably what the last six or plus quarters or eight, prior to the fourth quarter flat panel was down quite a bit. The fourth quarter was a strong quarter for flat panel, and the indication is that it should be a good 2008, based both on customers and external forecast. I think the VLSI forecast has it at 20 plus percent growth year-over-year, if I remember correctly.

I think it's around 25.

Okay, thanks.

Next question comes from [Jenny Yu] with JP Morgan. Please go ahead.

Hi, good morning. What's the tone among your OEM customers, and is it evenly spread out?

Jenny, I am not sure exactly what you mean by evenly spread out. But to me, the tone reflects the announcements they make in the information to get share publicity, as well as what they tell us. They share lot of details and demand information that keeps - it is constantly being refreshed. So, it's very difficult to get sort of the overall tone. But I think the 10% to 15% reduction in capital spending seems to be consistent with some of the comments that have been made on conference calls like this with some of our major customers. I think that's probably the best indicator of what's happening in general to them, and then we look at specific tools and things of that nature to pull up our forecast.

Are they all seeing the same 10% to 15% weakness, or some kind of sharing (inaudible)?

I don't think everyone is saying the same thing.

Why do you think that is?

I think everybody has different fabs that they are aligned with. I think it depends on which fabs, or which type of devices might have the more significant impact in those OEMs, which primarily sell equipment into those fabs, and would then be more impacted by another type of device that some other OEM is selling to. I think for us, usually we are not dependent on one type of device or one OEM, and we planned to keep it that way. So, we tend to look at the overall industry trends, as opposed to maybe one customer.

Okay. And if I can squeeze in one more, are you considering any shutdowns or what would you need to see before you would do something like that?

Well, as Ron and I both commented the last few quarters, we did take action and have had shutdowns during the third quarter and fourth quarters. We haven’t planned or announced any for the fourth quarter as the business, first quarter, I am sorry. As we saw our business recover a bit in the fourth quarter, and it looks like it will stay that way at least for the first quarter. So nothing is planned, but we consider that as a normal action as we see things slow down.

Okay. Great. Thank you.

You are welcome.

Thank you. And at this time, I'm showing that there are no further questions. So I will turn it back to you for closing comments.

Great, thank you for joining us on the call this morning. And as you can see, we continue to open up opportunities and markets with our broad portfolio of technology. Thanks for your interest in MKSI. And this will conclude our comments.

Thank you. Ladies and gentleman, we thank you again for your participation in today's conference call. And at this time you may disconnect.