To the MKS fourth quarter 2012 earnings conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions). I would now like to introduce your host for this conference call, Mr. Seth Bagshaw. You may begin, sir.

Good morning, everyone. I'm Seth Bagshaw, Vice President and Chief Financial Officer, and I'm joined this morning by Leo Berlinghieri, Chief Executive Officer and President. Thank you for joining our earnings conference call. Yesterday, after market close, we released our financial results for the full year and fourth quarter 2012. You can access this release at our website, www.mksinstruments.com. As a reminder, various remarks that we make about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in yesterday's Press Release, and the Company's most recent Annual Report on Form 10-K 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'll turn the call to Leo.

Thanks Seth. Good morning everyone and thank you for joining us on the call today. I'll give a recap of the full year and fourth quarter 2012 as well as our outlook for the first quarter. Following me Seth will go through our full year and quarterly results and guidance and then we’ll open the call for your questions. The global economy has continued to be depressed and the business slowdown which we began to see in the second half of 2011 persisted and deepened through much of the second half of 2012. As a result, sales for the full year were down 22% to $644 million. Our semiconductor sales saw progressive declines through the year and were down 20% from 2011 to $401 million. Sales to our other advanced markets were down 24% for the year, driven primarily by a sharp decline in capital spending in the solar and LED industries. We did see some bright spots, including process control software and gas analysis products, where sales continued to grow in 2012. Now turning to the fourth quarter. As noted in the last call, order levels did being to stabilize late in the third quarter and have remained relatively steady since then. Revenue for the quarter came in at the higher end of our guidance at $134 million as we were successful in booking and shipping an order from a large solar customer, as well as an unanticipated additional order for our microwave products and an industrial application bringing sales up 7% in our other advanced markets. As expected our semiconductor sales were down in the fourth quarter but declined a little less than we thought, down 14% from Q3. Despite last year’s slowdown in the semiconductor market, industry fundaments are sound in current industry forecasts are projecting the…

Thank you Leo. First I will discuss the full year results and then our fourth results before providing further details on our Q1 2013 guidance. Sales for the full year were $644 million a decline of 22% from $823 million in 2011. Sales for the semi-conductor market were $401 million, declining 20% compared to $502 million in 2011 reflecting a slowdown in the industry spending in the second half of 2012. Sales for semi-conductor market represented 62% of sales in 2012, compared to 61% in 2011. Within the semi-conductor market sales for semi-conductor OEMs were down 24% and comprised 47% of total sales. Sales for semi-conductor device manufacturers were down 7% and comprised 15% of total sales. Sales for other advanced markets decreased 24% and were $243 million. The decrease in other advanced markets was primarily driven by the expected decrease in solar and LED revenues, which together were down more than 60%, compared to record levels in 2011. Sales to our top ten customers' totaled 42% of revenue in 2012, compared to 41% in 2011. Sales to our largest customer Applied Materials comprised 14% of revenue in both 2012 and 2011. Gross margin for the year was 41.9%, compared to a 45.6% in 2011. As we’ve mentioned in previous calls our 2011 results included the benefit of a favorable import custom settlement resulting in a $3.4 million refund, or a 40 basis point positive impact on our gross margin. Excluding the impact of this refund, the year over year decrease in gross margin was due to lower sales and production volumes, offset by improved product mix. We continue to take a variety of steps to lower our production costs, including reduction in workforce and shutdowns in the U.S. in the latter part of Q3 and in Q4. Operating expenses…

(Operator Instructions). Our first question comes from Chris Sankar with Bank of America.

Leo, I have a couple of ones. Number one, you said that you are not quite seeing any order activity from your customers. Is it said to say your OEMs build plans are still pretty stable in the sense you are not seeing any improving build plans so far?

As you know we don’t really comment on our customers build plans. They give us information to help us plan, and we are not supposed to reveal those. So you’d probably have to talk to them about that but I think in general the order rate hasn’t significantly changed.

And given your prior experience, if you look at the last few years, does that order rate, let’s assume in the beginning of the recovery, does that order rate really start improving after the Chinese New Year or is it just a matter of just pure timing rather than trying to like actually time the system?

Yeah I honestly have no idea if Chinese New Year has anything to do with the order rate at all. We plan more of our capacity around it in China than focus on that and I don't anticipate anything unusual happens on the order rate because of that.

And then Seth in terms of your buyback, how much do you have in buyback left?

We have a $186 million available; it has no expiration date on that.

Got it and then so how many weeks shutdown did you guys have in 4Q and is there any shutdown schedule for Q1?

Well there is certainly, it's probably about in total if you look at holidays and shutdown days, it is probably closer to the half as many in Q1.

Our next question comes from CJ Muse with Barclays.

Hi this is (inaudible) calling in for CJ. I guess looking at your overall semi-market trends; it looks like over the last year or two you've underperformed from a kind of the year over year basis relative to the double EFE space, likely due to and some level of inventory depletion and then market share moves amongst your customers. And then the environment that you highlighted for this year of flat to down 10, could MKSI semi revenues outperform that level as a result of inventory replenishment or how should we think about that on the overall market?

I think you made a good point. Normally as the business turns down our OEM customers are consuming their inventory to use for shipments. So we're never seeing this shipment rate. So I would expect that we would perform differently. I guess historically, we tend to come back stronger, if you look at probably the last couple of cycles because their probably replenishing that. So if history repeats itself I guess we would see that happen again.

Got it and then within the sort of the non-semi markets, if I exclude solar from the mix, you've seen pretty steady growth there over the last few years and you highlighted some opportunities and design wins that you’ve had so far. Could we see this kind of approximately 10% growth rate coming into this year, anything that you're identifying right now that would drive the growth rate higher or lower?

Yes, I don't think we are ready to comment on the year. With the lead times we have and the way things change, we don't have that kind of visibility but I would say that it's possible that as certainly the global economy doesn't seem to have settled all its issues and so that has no in addition to the MOCVD and the solar declines in the past year, there is nothing that seems to driving significant change globally over the past year. So if that changes, I would hope that we would get back to more historical growth rates.

Got it, and then just final clarification question. Given that your OpEx from March is impacted by some of these IT and consulting spending, would you expect an OpEx decline into the second quarter as that sort of fades away or is this the level we should be thinking about.

Actually in Q1 we also have reinstatement of payroll taxes impacts the first quarter but to answer your question in Q2 we have wage increases and also some other project spending in R&D and in IT. So we're still looking at roughly these levels for next several quarters, $50 million -$51 million type range. That could obviously change based on foreign exchange and timing of the projects but that's what we're looking at right now.

Our next question comes from Patrick Ho with Stifel Nicolaus.

Leo, maybe just a little color in terms of the outlook. You obviously did a little bit better on revenues the past quarter due to some of your adjacent markets. Is the range that you've given for Q1 driven more by the potential semis or is it still the adjacent markets that causes some of that variability.

Yes, Patrick I would say that certainly as Seth mentioned, we got about $5 million of revenue that we hadn't anticipated orders in revenue in that quarter and where the midpoint of the guidance at least is kind of in the same range of the Q4 revenue. I would think that most of that would be related to semi, but we have so many skews and so many different markets, we don't plan it down to that level of detail but I would guess that some of that would be a semi improvement.

Great, and just to get a little color on some of your different collaborations in the design wins, obviously you guys have been a long time semi supplier so I assume that some of the design times or the times needed for design wins are a lot shorter. Can you just characterize the differences between some of the work you do on the semi side, versus the time needed to get I guess qualification of wins in some of your adjacent markets?

Well, I think in some cases it’s similar to semi. So there are some situations, all of these products are critical to processes. They go through an extensive evaluation and so they're proven for the particular application do exactly what they want or get more results out of it. So in some cases these other applications look a lot of semi, in other cases they're more project oriented. So sometimes what you'll see is semi has usually a more steady flow. At whatever rate it is there tends to be regular less lumpy kind activity. We have so many other markets, some of that gets lumpy so some of the design wins could be a little shorter but I think in general for these kinds of products there is an extensive evaluation goes on in testing and proof and then designed in. So I don’t see it significantly different honestly.

Okay, great. And a final question from me. In terms of the solar, you guys obviously got a nice piece of business in the Q4. Are these type of I guess one offs or aberrations, are they very customer specific, project specific. How do you manage some of those one offs, given how depressed that industry is right now?

Well, the good news we’re quick turns business. So we usually have the ability to acquire materials of we have it and turn around and ship it quickly. As you can imagine with the solar market being depressed, it’s more related to a particular customer who either gets funding or decides they want to do some expansion. They’ve been delaying, delaying, delaying and then all of sudden they do something and they want to do it quickly. So, really our strength is the capability of turning that around, getting in order and being able to ship it out and that’s why we have that success in the fourth quarter. So I would just say it’s more customer related and as funding is available and they want to move on an expansion plan, they do it quickly.

Our next question comes from Jim Covello with Goldman Sachs.

Hi, it’s Mark Delaney calling in on behalf of Jim Covello. I was hoping to understand a little bit more your comments about mix impacting your gross margins for next quarter. I understand from some of the prior questions, it sounds like you think semi is maybe a little bit more your mix next quarter and then on flat revenues at the midpoint, gross margins are down a couple of hundred basis points. Can you walk me to a little bit more of what’s driving that?

Well Matt, to we’ve a lot of different products, different markets and so it can move in any one quarter. I wouldn’t necessarily attribute any change in the mix overall market.

Yeah. I would say also as I mentioned earlier, we probably have half as many days off in the first quarter than we did in the fourth. That will have some nominal impact on the margin as well.

Okay, got it. And then you guys mentioned you won some OLED business for 2013 and I was hoping you can maybe just quantify a little bit more on the size of that win and timing of it?

Well, we don’t talk typically about particular orders and size and who and the timing but we have been a leader in ozone for OLED and the largest producer of OLED panels has been buying from us regularly and as they always do they are constantly looking at next generation panels and evaluating other equipment. They evaluated us with others and again we were the best product on the market and they placed orders with us in the fourth quarter and that would ship in 2013. We have had orders from them before; we have been the leader and continue to be that leader. I think the other thing we noted is that we are starting to see OEMs in China and other parts of Asia making investments for OLED equipment. So we are looking forward to with the evaluations we have going on there, looking forward to expanding that.

And then just on the balance sheet and the cash flow, I understand even with the acquisition and increase in the dividend doing the buyback, you guys generated, I think about $50 million in cash onto the balance sheet over the course of the year. As you guys think long term, I understand that you have different priorities between returning cash to shareholders and M&A but can you help us understand maybe at what point you want to start thinking about certain points of your free cash flow as a percentage being returned to shareholders?

I don’t think we would comment in a number range. I think you have seen what we have done. We have utilized cash for M&A as you mentioned and dividend and also some of the buyback. I think we have an appetite to continue doing M&A. We have done a number of over the years, I think more than 17. I think we still have an interest in doing that, that we’ll look at both semi and non-semi areas. So depending on how that goes we’ll make our decisions on that and how the market is.

Our next question comes from Dick Ryan with Dougherty.

Seth, how should we be looking at CapEx and depreciation and amortization for the year?

I would say CapEx to 2013 probably at the $15 million range.

And just refresh me what it was in 2012?

2012 was about $17 million. And then depreciation and amortization probably take the Q4 run rates.

And Leo, you mentioned doing half as many shutdown days as Q4. How you are looking at discretionary spending going forward, whether it’s travel or even on a hiring basis. What do you think as you look into maybe the first of 2013?

Okay well let me just make one clarification. What I said was between holidays and shutdowns we have about half as many in Q1. There’s a lot of holidays in Q1 as well. Can you repeat the balance of the question? I was thinking about correcting the first part of it.

Yeah, just I mean, just what are your plans for may be hiring and kind of other cost containment, what discretionary spending, travel, are you still watching that pretty tightly or is it kind of loosening up as you look out over the first half of the year?

Yeah. I would say that nothing else significantly has changed. We are make some investment in some geographic regions for some of the products that are typically not related to semi, that need better support in terms of growing in regions that we haven’t even been really present in. So, as we have seen success in doing that in Europe and Japan we will extent that into other regions. Not a lot of resources to that, just a couple per country. We’ll probably do a couple of countries worth in the first six months of the year. And beyond that travel is still being held tight and other discretionary spending and still being held tight until we see order rates change that would support changing that.

Okay. And Seth, cash how much is held domestically and what’s overseas roughly?

About 55% in the U.S., 45% outside.

And the next question comes from Tom Difflely with D.A. Davidson.

First a question on the timing of your revenue. Based on your quick lead times I guess your customers inventory levels and revenue recognition, what does it correspond most closely to? Is it the orders of yours customer, specialty OEMs, maybe shipments or even revenues?

One customer doesn’t represent the entire industry. I guess. And they all of have different cycle times and they are getting better and shorter so that’s a good sign. But I would think first orders come and here is why I think this. First I would think orders come and that’s what probably changes their build schedules to increase them and then until they see the orders, they are not probably going to increase those schedules. And then when the schedules increase I’m guessing we’re a 30 to 60 days behind their shipment, at least in front of their shipment, so that if they are trying to ship something out, they probably need to look at us with their cycle time and everything else, somewhere between 30 and 60 days. That’s not an exact number, it just my own guess here.

Okay. So some of the big OEMs are talking about shipments going up in the first quarter. If that was to be I guess broad based, you’d start to see that pretty soon then.

I would think so. Assuming their inventory is perfectly balanced for the rates they are trying to ship that.

And you talked about some wins in 450 millimeter. Is it possible to meaningful revenues in something like that, say 450 before it becomes widespread adoption, just feeding the R&D activities.

Well, one of the things as you know Tom, we sell to all the equipment companies. So I would say even a little bit from each company as they do proof of concept and start building e-value and things like that. That hasn't happened yet. The focus is on getting designed in when you see that but I guess in these days, meaningful is much smaller. Today, everything is important to us. The design win is probably the most important at this time and meaningful revenue would come after.

Okay and then, last thing, do you have any meaningful FX exposure at this point?

Well, we would in Yen and some Euros. Europe is not big for us; right around 50 was none of our business. Japan is a good size of our business. That’s mostly in Yens and nominated sales and we do typical foreign exchange hedging on that. But FX would over the long term affect us obviously.

Okay, do you just hedge one quarter out or do you steer step it?

We latter it, steer step.

(Operator instructions). I'm not showing any further questions at this time. I'd like to turn the conference back to our host for closing remarks.

Thank you. We are encouraged by the announcement and forecasts made recently that we may be at trough levels and that business levels, should begin to grow within a quarter so and even be stronger in the second half of the year. Furthermore, in our own businesses as I said, we've seen stabilization of our order rates for several months and we've not seen inventory adjustments, cancelation or push outs for a while now, which is also encouraging. As Seth noted we are investing and we are investing in our manufacturing and IT infrastructure to better manage the business at all of our sites. We continue to make investments in technical resources as we see opportunities to grow several non-semi products in regions where we see new opportunities. This will strengthen opposition to enable further growth when the global economy recovers and when the semi-conductor industry up turn occurs. When that recovery occurs, we are prepared and committed to meeting our customer's needs which are often more accelerated and at higher levels than are forecasted. Thank you again, for joining us on the call today, and we look forward to updating you on our Q1 call in April.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.