Good morning ladies and gentlemen thank you for standing by. Welcome to the MKS Instruments Fourth Quarter Earnings Conference Call. During today's presentation all parties will be in a listen-only mode following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today Wednesday, February 4, 2009. I would like to turn the conference over to Ms. Jonna Manes, Director of Investor Relations; please go ahead ma'am.

Thanks, Randy, good morning and thank you for joining our earnings conference call. Earlier this morning we released our financial results for the fourth quarter of 2008. 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 Securities 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, 2007 and most recent quarterly report on Form 10-Q, which are 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. Now, I will turn the call over to Leo Berlinghieri, Chief Executive Officer, and President of MKS.

Thanks Jonna and good morning everyone. Thank you for joining us on the call this morning. I will give an overview of the fourth quarter the year and our outlook, Ron Weigner, our Chief Financial Officer, who will review our financial results and guidance and then we will open the call for your questions. Fourth quarter results were slightly better than our revised guidance issued on December 23rd we generated $125 million in sales and breakeven profitability on a non-GAAP basis. We saw a sharper than expected drop in sales for semiconductor OEMs as spending for semiconductor capital equipment declined in a rapidly weakening global economy. While our total sales declined 21% quarter-over-quarter sales to these OEMs declined 34%. In this uncertain and challenging environment we continue to take actions to lower our cost we continue to reduce headcount, took six days of shut down adjacent to the holidays and further reduced non-essential spending. Ron, will discuss these fourth quarter actions later in the call. Sales to the Fabs increased 6% quarter-over-quarter primarily for spares in room ionization systems to reduce air borne contamination and increased yield in a major fab expansion. After three strong quarters our non-semiconductor business was not immune to turmoil in the global economy. And sales to non-semiconductor markets declined 15% quarter-over-quarter. Non-semi business represented 50% of fourth quarter sales. Our technology is essential in many applications and our strategy is to leverage our technology breath and leadership in high growth markets such as solar and provide process critical technology in these and other markets. Solar is a growing and evolving market with opportunities to leverage more of our technology portfolio. For example, after gaining a key design win earlier in the year, in the fourth quarter we provided DC power generators for a solar manufactures…

Thank you, Leo and good morning everyone. 2008 sales of $647 million were 17% less than 2007 sales of $780 million. Our sales for the semiconductor market dropped 31% but this decline was somewhat mitigated by an 11% increase in sales to other markets primarily from increased sales for the solar market. Primarily as a result of lower volume and higher R&D, our 2008 non-GAAP net earnings decreased 57% to $41.4 million or $0.82 per diluted share, compared to $95.6 million or $1.67 per diluted share in 2007. GAAP earnings include special charges of net $11.3 million for an intangible impairment above normal charges for excess and obsolete inventory, discrete tax items and adjustments, a one-time foreign exchange gain and amortization of intangibles. GAAP net income decreased 65% to $30.1 million or $0.59 per diluted share, compare to $86.4 million or $1.51 per diluted share in 2007. Early in the year, we increased our spending to support development of products for next generation tools and for other markets, and second half for the year as the semiconductor industry continue to decline we initiated actions to reduce R&D and SG&A expense. As the semiconductor market continue to soften even below our original expectations, fourth quarter sales declined 21% to $125.2 million compared to third quarter sales of $157.4 million. Sequentially, sales of semiconductor OEMs declined 34%, sales of semiconductor fabs increase 6% and sales for other markets decreased 15% primarily as a result of slightly lower sales to the solar market and reduced sales to the flat panel market in a variety of other markets. The sequential modest reduction in sales for the solar market primarily reflects the variation in ordering patterns from our solar customers. In the fourth quarter sales the semi OEMs represented 36% of sales and sales to…

Operator?

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

Good morning, Leo and Ron, how are you doing?

Great.

Good thank you.

Good, a couple questions first I have got when you look, you commented earlier about solar could grow this year, and I was wondering if you could, it sounds like that's going to be driven by thin film. But I was wondering if you could you have any size that you think it's going to grow to rate it is going to grow out this year?

Brett, this is Leo, thanks I think at this point, it's not quite as clear I think obviously there have been discussions about the credit market tightening and would that have an impact. We haven’t really seen that yet. We are scrutinizing, we have got 120 customers, many of them new. We are looking at each of those and how they seem to be faring. On the other side of it, the order rates still look pretty good and we have had some good success in the past several months. So, we are still positive on it and then the current administration seems to be focused on alternative energy and solar being a piece of it. So, that could give us a boost if there is some investment or credits in that area. So, I would like to give you more color, but right now it’s a little difficult to do that, but I think we are still expecting the business would grow.

Okay. And on the semi side, do you think that your customers inventories are pretty low now so that your semi business matches whatever they are seeing in shipments? Or do you think that they are (inaudible) process? Do you think of taking down the inventories lower given the harsh landscape, how do you see that side?

I think the same benefit we get on the upturn, every time their rates go down, at least the theory is that there is an inventory consumption and they don’t need to buy as much to cover the shipments and I would say over the last couple of quarters they keep announcing further expectation of reduction quarter-to-quarter. And so for me, I believe we are still in that process. So, I would expect that some point in time, even if things don’t change drastically we get some benefit out of that. So, again with the idea that each time they drop their rates, there should be some additional consumption of inventory and it takes a while to do that, just like it takes us a while to do that. But, then we get some benefit out of it. So, we are still in that mode, somewhat.

One last for Ron. Ron, if you look at the cost reductions that you have been making over the last couple of quarters, and going into this quarter in 2Q. Do you have a feeling for us to categorize how much of the cost reductions are temporary things like the shutdown days, salary reductions things like that versus so what percentages more prominent structural changes so that we can sort of judge what the leverage will be as we come back out of the downturn in terms of what we will add back fairly quickly and what will stay low?

Yes, what we were saying is exiting a second quarter. Our goal is to hit a breakeven level of about $123 million and that exclude any time-off and some other things that we are doing that are lowering the current breakeven level. Those other items have an affect maybe of $3 million to $4 million reduction in that $123 million if we continue those actions.

Below that.

Below that. So, and even at that $123 million, Brett that would probably we get a gross margin maybe in around a 38% range, which would mean the operating expenses would be in the $47 million range if you did that based on that calculation.

Got it.

But obviously we are going to look at ways to continue to reduce our operating expenses and reduce our gross margin.

Got it. I understand. Thank you.

Thank you. Our next question comes from the line of Jay Deanha with JP Morgan. Please go ahead.

Thank you very much and good morning. The first question is given the severity in this downturn as you look across your various businesses, do you see any smaller competitors that perhaps might be on the ropes. It's my understanding that some of the big semiconductor OEMs are starting to classify their suppliers in different buckets based on risk they are potentially going under. And I am wondering if you are seeing any opportunities to gain shares as a result of that or you are starting to get inquiries from your big customer because it concern of weakness or potential bankruptcy in some of your competitors?

I would say that we have seen some indication of what you described. We had some opportunities to quote some additional business that we shared with other suppliers. I think that I haven't seen it at a panic level or anything like that, but there is some indication. And I think as you said sort of a customer base of us is in the semi side at least, spending a lot of time looking at their supply base, looking at risk in it and obviously with our cash position in the way we manage the business we become even more attractive in this environment. So, in all of these product areas we are typically the number one choice or number two in the market by market standpoint. So, it puts us healthy cash position, healthy business position compared to a lot and then we are also preferred by their customers and so that helps us up. But we have seen some indications although I wouldn’t call it a large amount of concern at this point in terms of actually people going under or getting lots of opportunities but we are starting to see those opportunities.

I see. And on your solar business, you indicated that if there is growth in the business this year which right now you think there might be, you indicated a concept that you have some upside from some new customers and also that it might be driven, the growth might be driven by some customers in Asia, you made those comments earlier in the call.

Correct.

Could you put a little more detail into that, I mean, in terms of Asia we are talking thin film side both in terms of new people or some of these meaningful companies?

I say the biggest opportunity is in thin film. I think we have talked about one of those companies and I can't give a lot of detail because it’s critical I don’t, but we talked about one of those companies and we expect that will be very sizable and we don’t expect any change in schedule a forecast for that. And then we are still seeing new business in those areas both in thin film and crystal and silicon in Asia. So, it’s a new accounts for us, new business opportunities for us that I would say we didn’t see a year ago, that are happening towards the end of our last year that gives us some of that optimism for 2009.

Then last question is some of your emerging thin film opportunities, are these companies that are essentially creating their own lines for panel production as opposed to buying lines from equipments [wire]?

That would probably be a good guess.

Okay. Thank you.

So, some of that is definitely in that area. Its like the old semiconductor days where you do have some solar panel fabs who strictly by equipment from equipment companies and then you have some that feel that are at proprietary stage and what they do and are building their own equipment. So, that kind of makes it like the old days and we have experience with that so that’s very positive for us. And a lot of these companies come from the semiconductor industry even the fabs, so the people that we are talking to at very high levels, know who we are, and had experienced, not only using our products for power but atomic flooring generators in semi and flat panel, and they are saying we think we can utilize this in the solar. So, that’s why we have some optimism especially for 2009 and beyond.

And the last question, Leo, you once told me that your business with the customers that you just identified in other words to one that you essentially used the old semi model kind of like for solar and build their own kind of like for solar and build their own kind of tool set. You once told me that you grab an opportunity with those customers, it tends to be a little bit better than it is with the [critical] arms dealers because they tend to work with more suppliers. So, that’s still the case?

Did you mean revenue or did you mean margin? You said revenue. I wasn’t sure what you said.

Well, you could eliminate on both of it.

Okay. I guess. From the margin, it would be based on each customer. And it depends on exactly what they are transitioning from what cost and what benefits they get. But from a revenue standpoint the comment I made was, referring to 2008, when I said if we achieved that $40 million to $50 million number, we had a lot of people in the industry telling us who would be that largest customer and I said, don’t be surprised, it's not an OEM that would be our largest customers during that time. I was really referring to that. There is some sizeable opportunities with the fabs that buy equipment. But in the long run, it’s the equipment companies they will transition as well like semi. So, in the short run, we could absolutely see a higher total revenue. But I would not call it a revenue per fab opportunity. I would just say the orders that we were expecting and we were getting designed into, I just had strong feelings that 2008 or early 2009, the orders, the largest customers could be a fab as opposed to an OEM which you typically would think of.

Alright. Thank you.

You are welcome.

Thank you. Our next question comes from the line of Jim Covello with Goldman Sachs. Please go ahead.

Hi, this is [Kate Cuthlorksy] for Jim Covello. Quick question on your services business, what was the business in Q4? And just as you think about your guidance for Q1, how much of the Q1 revenues do you guys expect to come from the services part of the business?

Our service revenue in Q4 was about $20 million. And as Leo said, its kind of questionable what's going to happen to our service business in 2009 depends on fab spending and their capacity and so forth. But I think in general we would anticipate that at least our service business could remain relatively flat. I think impacted by some of the decrease in spending of fabs, it's difficult to tell.

Yes, I think that the key, it's very difficult to tell right now is the utilization. As the utilization goes down the need to get the consumption of either consumables or spares go down. So, right now obviously you know that utilization is extremely low and really they are investing almost nothing in new tools based on what we have heard the equipment companies that have reported. So, we are going to see some impact of that, it's hard to tell exactly what that is. How quickly they are in terms of shutting off this picket and in changing their rates. Sometimes it takes a while for the procurement systems to catch up with what's going in the fab, but we would expect some impact to the service business based on utilization being 40%, 50% lower than it was may be year ago at this time.

I mean what's your sense in terms of utilization rate for Q1 versus where you were in Q4?

No idea, but I can't imagine it's getting better. I thought it was horrible in Q4 from the date that I had seen. I had seen that in some whether its foundries or I think it was foundries that I saw -- 30s. I can't imagine its getting better in Q1, so that versus 80 or 90 last year says that's big reduction in consumption and I think that's one of the reason why our guidance would reflect where it is today.

Okay. And then just quick question on the solar business as well, you guys mentioned your expectation that is going to grow year-over-year, do you expect gross on a quarterly basis throughout the year or is the expectation that we sort of take a dip in the first half and then it comes back in the second half for the year?

I think for us it's a little different and I am going to refer back to couple of comments that Jay mentioned in terms of, we are selling to the OEMs and we are selling to the fabs. And sometimes these orders are more project base. So we could get a significant order with significant shipments in one quarter having nothing to do with sort of general solar market. But due to our penetration with that customer in the market and their timing of the project. So I still believe that solar activity is a bit lumpy compared to sort of the semiconductor. Now you could argue that in this environment semi is pretty lumpy to but normally in a growing environment semi has a lot of good things running on all cylinders. I think in solar when its running on all cylinders it tends to be lumpy because you have OEMs and you have end users and you have more project oriented things. Anytime you have more project oriented things you tend to get a big lump and then you may not repeat it in the next quarter.

Yes, I know you guys have a very diversified customer base in solar but have you seen at all this quarter meaningful push outs of project from your customers or is that something you haven't really seen yet?

I have not seen yet. That was why we commented that based on sort of where, we have seen orders from customers in Asia specially that we were pretty optimistic still. I mean, that obviously that can change but right now we are still optimistic about growth in 2009 and we do not had based it on a first half recovered back half where we are seeing strong right now. That's really I like to comment on in. Our lead time is short enough, so that they are placing orders now for next year, they are placing them for relatively soon in terms of shipments to begin.

Okay, thank you.

You are welcome.

Thank you. Our next question comes from the line of C.J. Muse of Barclays Capital. Please go ahead.

Yes, good morning. Thank you for taking my question. I guess first question on the non-OEM semi side of your business that's held up pretty well for you guys I guess, running around $18 million to $22 million over the last four to six quarters, and I guess the question here is how much of that is due to kind of one off projects that you've seen and I guess if that's the case what should we be looking for that business in 2009. And if its not one off then I guess that would suggest that that business have been rented at concurrent levels that it would be roughly 10% down year-over-year. So any help on that line item would be very helpful?

Okay. It's a little tricky because, I would say there are four components to that business and I will see if is could remember all four, but I know there are four. In service and repair and there is this one offs what I would call more upgrades or productivity solutions and then there is capital equipment type items that we sell. So there is four different ways that we look at it. I would expect the capital equipment side to be hit as severe as most of the capital equipment sides to be hit. I would expect the repairs to be hit less but as utilization is low, they will need to be repaired less frequently, the same thing with spares and then upgrade the one-offs, you can argue that when utilization is down how much incentive do people have to upgrade equipment for high productivity in yields on the other hand, they are always challenged by shrinks and new processes and they are pulling in new devices into a fab for business. So I do not know if the upgrades will change that much they typically have more opportunity to qualify them but I do not know how quickly they will deploy multiple sets on multiple tools. So I think best guess that is going to go down with the rest of the semi but I would agree that the probably doesn’t go down at the same rate as the OEM. So the OEMs are down 40% to 50% year-over-year, I would only want to guess sort of number what because I can't guess what the utilization rate will be. But it will go down.

Sure. Okay, helpful. And just turning to the LCD side of things, can you share with us what the revenues were in calendar '08?

I don’t think we report down with that, we don't report that level of detail in the LCD, I think, I was going ask you what LCD business at this point but obviously I think overall it might have been up slightly year-over-year, primarily due to a strong first quarter and first half of the year even. But I think it was almost non-existent in the second half of the year. So, overall the numbers were slightly up year-over-year, but I think if you look at where we are today, do not expect much. We are not going to see a drop if LCD business, is almost nothing in '09 as many people are talking about. You're not going to see a significant change from the fourth quarter for that content because it did not exist in fourth quarter as well.

Sure. I guess I'm trying to get that is. You talked about solar growing year-over-year in calendar '09, when you think about your non-semi business excluding solar, how should we think about the growth rate there?

Okay. LCD is a relatively small piece of that $280 million. So it might be 1% to 2% of that or 3%, somewhere in that 2% to 3% range when it is reasonably good might be a little higher in the real good times in the lower and the more difficult times in that market. But so that's not going to drive that information will not help you create a model or get an idea of what's happening, I thinks its very uncertain. We saw the drop in the fourth quarter of the non-semi business, and that was even with sort of the solar business holding up and so I really don't know. I do not know how deep this economic crunch will affect. We are seeing it worldwide, I think Ron reported sort of the Germany numbers or Europe numbers and when that's down that usually tells you that it's in a lot of different market areas. And so it's hard to tell whether that's, I could not even guess what that would be but we have not, I do not think anyone of this business been able to put a plan together for '09. And we're really trying to put our hands around Q1 at this point and that's what we are capable of doing. But I would expect it's going to be impacted downward other than maybe the solar business.

Okay. It's helpful. I guess last two questions. Ron, you talked about 29% tax rate is the best guess for '09. Is that what we should assume or is that what's embedded in your guide for Q1?

That's what in your guide for Q1 and I would assume that for the full year. And I said it could vary significantly because it depends on the geographic distribution and sales which we are not sure what they are going to be.

Sure. And then on the EPS guide you, alluded to some one time charges in the March quarter, is that embedded in the guide or you pull that out?

The guidance for non-GAAP does not include any special charges. So special charge like for the reduction in force would not be included in the non-GAAP guidance, but it's included in the GAAP guidance.

Sounds good. Thank you.

Thank you. Our next question comes from the line of Tim Summers with Wunderlich Securities. Please go ahead.

Hey, good morning, guys. Ron or Leo on the solar business you mentioned you had about $49 million in revenue in '08 and 120 customers. Is that a situation where is the 80-20 rule, 20% of the customers generate 80% of the revenue?

I had been able to break Pareto's law in a long time. So, I would think it fits into that range where the only thing that's interesting in the smaller customer sets. I mentioned this before. They usually need more help. I think the larger customers want to have a large supply base and they want to have multiple sources, because the risk is high for them and they have sort of the capability at the procurement level and its commodity management level. But I think in the smaller customers, they do not have that type of resource available to them. So the portfolio we have on products and technologies becomes very attractive to them. So, what I have seen in semi and I am expecting we are going to see the same thing and we have seen it some of the non-semi in the solar area. Is that I expect we get more content per tool or more opportunities because they are not looking, they do not have this established supply base and we come in and offer them a lot. They have hard time just getting what they need in and it's a challenge for them to build the fabs but they are building on the tools they are building. So, I would expect the 80-20 will hold true but I would expect that like semi we will have higher level of content on depending on the kind of tool on some of the second tier OEMs because they can utilize the supplier like MKS is sort of one stop shop.

Okay. And just second question is, you are guiding for revenues in the first quarter to be down roughly 30%, 35% quarter-over-quarter but you are only taking a one week shutdown. Can you help us reconcile the delta between the revenue and only a 6% or 7% decline in working hours per quarter?

Well don’t forget in addition to that we reduced our head count 10% in the first quarter.

So the first quarter has less resources, than we had in second quarter and we still maintaining shutdown.

Right. Well, as I said, the gross margin does, the guidance I gave include that they could be some inefficiencies when if we get down to those low levels of shipments. Because it’s difficult to size, your direct labor that quickly.

All right, exactly. All right, thanks guys.

Thank you and at this time we have no further questions in the queue.

Okay. Well, thank you very much for joining us on the call this morning and for your questions. As you can imagine it's a very challenging environment and we are focused on reducing costs without risking growth opportunities in the key markets that we discussed. And thanks for your continued interest in MKS as we move ahead continue to execute on these strategies. This concludes our comments.

Thank you ladies and gentlemen. This concludes the MKS Instruments fourth quarter earnings conference call. You may now disconnect. Thank you for using AT&T Teleconferencing.