Good afternoon and welcome to the Nanometrics Third Quarter 2012 Financial Results Conference Call. A question-and-answer session will be held at the end of the call. Until that time, all participants will be in a listen-only mode. Please note that this conference call is being recorded today, October 30, 2012. At this time, I would like to turn the call over to your host, Claire McAdams. Please go ahead. Claire McAdams – Investor Relations: Thank you and good afternoon everyone. Welcome to the Nanometrics third quarter 2012 financial results conference call. On today’s call are Dr. Timothy Stultz, President and Chief Executive Officer, and Ronald Kisling, Chief Financial Officer. Shortly, Tim will provide a recap of the third quarter and our perspective looking forward. Then, Ron will discuss our financial results for the third quarter and fourth quarter outlook. After which we will open up the call for Q&A. The press release detailing our financial results was distributed over the wire services shortly after 1:00 PM Pacific this afternoon and is also available on our website at www.nanometrics.com. Today’s conference call contains certain forward-looking statements including, but not limited to financial performance and results including revenue, operating expenses, margins, profitability, and earnings per share, customer concentration, tax rates, and technology and product adoption. Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of factors including general economic conditions, changes in levels of industry spending, the adoption and competitiveness of our products, industry adoption of new technology and manufacturing processes, shift and timing of orders or product shipments, changes in product mix, our ability to successfully identify, complete, and integrate acquisitions to realize operating efficiencies and to achieve reduced tax rates, and the additional risk factors and cautionary statements set forth in the company’s Form 10-K on file for fiscal year 2011 as well as other periodic reports filed with the SEC from time-to-time. Nanometrics disclaims any obligation to update information contained in any forward-looking statements. I will now turn over the call over to Tim Stultz. Tim?

Thank you, Claire. Good afternoon everyone, and thank you for joining us on the call today. Before beginning, we want to take a moment to recognize the extraordinary challenges and suffering that are taking place on the East Coast as a result of Hurricane Sandy and express our sincere hope that conditions will return to normal as soon as possible. Now, turning to my prepared remarks, Nanometrics third quarter revenues were generally in line with guidance. Our bottom line performance exceeded our guidance largely due to stronger than expected gross margins and lower than forecast OpEx. Ron will provide you with more detail on these items during his remarks. In addition to our performance against plan however, two notable milestones occurred within the third quarter. The first was the full acceptance of our first 450-millimeter Atlas OCD tool. The superb execution of our engineering, manufacturing and service teams resulted in a smooth delivery and installation of this first of its kind product, which met out-of-the-box specs and resulted in tool acceptance in a relatively short timeframe. Though it is still very early in the 450-millimeter conversion cycle, metrology tools such as our Atlas will play a key role in the evaluation of new 450-millimeter process tools and the development of new processes on larger wafers. Further, we believe the early adoption of our Atlas OCD platform positions us well for future 450-millimeter business. The second milestone was that for the first time in Nano’s history, the revenue contribution from our leading pure-play foundry customer exceeded 10% of our total revenues for the quarter. As many of you are aware, gaining traction in this important segment of our industry has been high in the list of our key initiatives for the last few years and reaching this milestone is a good…

Thank you, Tim and good afternoon. Before I begin my comments, I’d like to remind you that a schedule which summarizes GAAP and non-GAAP financial results as well as revenue segment information provided on this conference call is available in the Investors section of our website. In the third quarter, revenues were $43.9 million, coming at above the midpoint of our guidance, but down 17% from the second quarter and 25% from the third quarter of 2011. Total product revenues of $32.3 million, declined 22% from the second quarter of 2012 reflecting a significant decrease in spending by our three largest customers. Service and upgrade revenues were $11.6 million flat with the record second quarter with continued strength in both core service and upgrades. Service and upgrade revenues were 26% of total revenues compared to 22% in Q2. By product area, sales of our automated metrology systems, which are the primary systems sold into our largest customers and where our all-time record levels for the first half of 2012 declined 28% quarter-on-quarter to $26.6 million and comprised 61% of total revenues in the quarter. Integrated metrology sales increased 7% from Q2 level and comprised 6% of total revenues. And sales of our materials characterization products, which primarily served the LED, solar, and silicon substrate market – end markets increased 56% over low Q2 levels to comprise 7% of total revenues, but remained well under year ago level with the decline of 64% from Q3, 2011. Turning to total revenues by geographic region, we report revenue based upon the ship to or first-in-use destination. In the third quarter, revenues from South Korea were 42%, North America 16%, Taiwan 14%, Japan 13% and 14% for the rest of our geographic regions. Four customers contributed 10% or more to our revenues in the…

Thank you, sir. (Operator Instructions) Our first question comes from the line of Mahesh Sanganeria from RBC Capital Markets. Mahesh Sanganeria – RBC Capital Markets: Thank you, guys. Tim, a question on the foundry revenues increasing becoming more than 10%, can you talk about little bit what product group that is where we are getting traction in the foundries, is that – does that include the 450-millimeter tool? Can you give us some color on that one?

Hi Mahesh, thanks for calling in. Yeah, I’m giving a little bit color with regard to our penetration of foundry, no, it doesn’t, it’s not part of the 450-millimeter platform, but we have made inroads and I’ve gotten tool acceptance across multiple platforms, including our OCD, our UniFire product, our SPARK platform, and our integrated metrology. So, we are making inroads on we are coming in every door that’s available to us. Mahesh Sanganeria – RBC Capital Markets: And on the OCD – OCD is it on, I would think that you are winning some of the applications and is that related to 20-nanometer or it’s in 28 nanometer?

Yeah, most of our opportunities are in the 20-nanometer, some of it in the early part of the 20-nanometer, some of it will be targeted at the second phase 20-nanometer as they move into 3D-dimensional devices, but it definitely is in the advanced technology nodes. Mahesh Sanganeria – RBC Capital Markets: So, that would imply that the actual the production ramp up probably happened towards the end of next year at the new win situations?

Yeah. I think that’s why we understand the spending patterns too to the extent that they have been shared. Mahesh Sanganeria – RBC Capital Markets: Okay. And then on one of the comments you made that seems like things will improve sequentially in Q1, but you don’t think that the pace will be so strong. So, can you give us your sense of what your customers are saying by segments as to when do you think that inflection is likely and what will drive that beside system macro? It seems like that the ramp right now is focused more on 28-nanometer foundries, where you don’t have use exposure and so is that the memory has to come back for your revenues to really pickup significantly?

Well, memory plays a very big role as kind of the big swing factor. As you know that there is a lot of wait-and-see spending and investment in that sector. There is a little more predictability to logic. That’s been a little more consistent in the way the deployment of their capital on investments and with our tool record positions in leading-edge logic, we expect to benefit accordingly. We do see some improvement in the spending based on fab investments in memory, but in terms of the actual timing of deployment, there is probably big and uncertainty bars, there is a kind of the sweet spot for where it’s going to be. And as you have seen in this industry, this could be – it may not manifest itself and on the other hand it could snap back. And we are just that’s what we say, we are guardedly optimistic as we believe that well there will be some improvement, the magnitude, which is probably equal to the uncertainty. Mahesh Sanganeria – RBC Capital Markets: Thank you very much. I’ll get back in the line.

Thanks, Mahesh.

Thank you. And our next question comes from the line of Patrick Ho from Stifel Nicolaus. Patrick Ho – Stifel Nicolaus: Thank you very much. First off, Tim, in terms of just the outlook that you provided both the Q4 and just a little bit of the call you provided for Q1, how do you see the memory manufacturers as they shape up exiting 2012, which obviously ended up on it down now? How do you see them entering 2013 and some of the opportunities there given your pretty strong exposure to that customer segment?

Yeah, that’s a really good question. We are all trying to – we are trying to sort that out. I’ve had direct meetings with our largest customers in the memory space. And the way they characterized it is that they have got money, they are ready to spend, but they are doing a wait-and-see until they see some recovery in the pricing and the demand on the market side and they are encouraging us to be ready to respond in a very strong notice. Patrick Ho – Stifel Nicolaus: Yeah, great, that’s really helpful. And I was great to see that you guys are expanding up your foundry customer base looking forward not only in 28 and 20, but as the foundry segment starts moving to the FinFET technology. Do you see that tame expansion coming for you as well and increased penetration has put that type of process technology?

Yeah. That’s a good question. All along, we believe that this maybe a card that plays well for us, since we have the only high volume manufacturing deployment of OCD in the FinFET world. And so as other companies adopt that architecture, we would like to believe that our experience and proving capabilities will give us an edge in the competitive environment. Patrick Ho – Stifel Nicolaus: Right. And final question from me, I see the advanced packaging market obviously growing over the next several years and it could be a large opportunity for you guys. Can you give us a little bit of color on where you see TSV at this moment, and when you believe the adoptions were more, I guess, high volume manufacturing or high volume process, when do you see that adoption achieving that?

So, that’s a good one question also, and we are still bottom at the bottom of the S-curve on the ramp on advanced packaging. There we are clearly are engaged on TSV on multiple customer sites. We have a wonderful tool position and production position with our UniFire, which has capabilities really are unparalleled with other products on the field and the question then becomes timing. And also as they move been through the 2.5D or the interposer model on to their full 3D packaging, again discussions with our most advanced customers do indicate that they have a continued commitment and they see this becoming a deployed technology. It’s driven by the need in the form factor, and we think we are well positioned. Timing the uncertainty, I don’t know is it one year, is it two years, it’s very hard to say. It’s one of these things that when they go, it will go at a pretty quick pace and we think we’ll be in a ready in a position to respond to it. Patrick Ho – Stifel Nicolaus: Great, thank you very much.

Thank you. And our next question comes from the line of Tom Diffely from D.A. Davidson. Tom Diffely – D.A. Davidson: Yeah, good afternoon. Couple of more I guess clarifications on the memory side, would you say NAND was 14% and DRAM was 29% in the quarter?

DRAM was 14% and NAND was 29%, yes. Tom Diffely – D.A. Davidson: Okay, I think that was backwards.

Reverse of what you said. Tom Diffely – D.A. Davidson: Yeah, alright. And then it sounds like you expect those to decline in the fourth quarter as well before rebounding sometime next year. So, my question is do you have a relative exposure or relative benefit from one or the other NAND versus DRAM, are you more highly leveraged to one or the other?

Now, they agree. The DRAM products tend to be more complex and have a higher capital-intensive requirement in general, but NAND has a higher volume in the fabs, they build bigger fabs. And so when we kind of just take a kind of squint at it, opportunities are pretty balanced. I just think that the overall – the global demand suggest that NAND is going to be more important for all of us as spending in investment and demand improve, and it’s only mobile DRAM which is not enough to pickup and replace the decline in DRAM demand for the weak PC market that will be complemented to that. Tom Diffely – D.A. Davidson: Okay. And it sounds like most of the equipment guys expect NAND spending to come back at some point in the first half of next year. On the DRAM side though, when you hear news about you guys went from the 4X node to the 3X node, does that spur demand for you specifically or do they have tools at the 4X node that they can use or reuse?

Yeah, Tom we actually, when they are making a node movement, it will increase the demand of our tools. We are going to see increase both the capital intensity as well as the use of process control. So, we believe it does give us increased demand. And why you are on the topic you might saw one of the other topics that does come up is this whole issue of tool reuse and that’s across and I want to just make kind of a general statement across the industry is that for those of you who have been following the company for the last 3 to 5 years, you realize that our key positions in our tool-of-record positions are all relatively new in the most advanced nodes. And we have gotten some very important wins in the last few years, but they are the most advanced fabs. And so our exposure to tool reuse is relatively low, because tool reuse is usually at least two technology nodes if not three technology nodes behind if they can bring the tools forward. In addition to that, what drives the most advanced nodes and are the most advanced technology capabilities and we are continuing to invest and develop new tools to address those as well, and so that also plays against the concern about tool reuse going forward. Tom Diffely – D.A. Davidson: Okay, that’s helpful. And then Ron, you talked about the very strong margins in the quarter, would you have reached your fourth quarter goal if the actual volumes were flat quarter-over-quarter?

Yes, if the volumes were flat, we would have reached the goal. Tom Diffely – D.A. Davidson: Okay. So, really it’s just a loading issue then on the factories?

Yeah, exactly. That’s exactly what’s driving the decline in Q4. Tom Diffely – D.A. Davidson: Okay. And then finally on the foundry side, did you say you did sell kind of your flagship OCD tool into that space as well?

Yes, we did. Tom Diffely – D.A. Davidson: Okay. And is that shipped late in the quarter or is that – has that been for a while?

It’s actually they were shipped – it’s actually been shipped, installed, and accepted in the quarter. Tom Diffely – D.A. Davidson: Great. Alright, thank you very much.

Thank you. And our next question comes from the line of Chris Blansett from JPMorgan. Chris Blansett – JPMorgan: Hey, guys. Tim, just wanted to give a thought on the customer mix you are seeing in Q4, how you expect that to change as you had in the Q1 where you think your revenue is going to improve quarter-over-quarter?

Okay. I think that we are going to see some improvement in overall logic spending in the fourth quarter based on the announced investments. And then going into the first quarter, we would expect that we would like to see a little bit of improvement in memory, but then it’s – again it’s the one with the greatest degree of uncertainty for us and that’s because it has the wilder swings with the shortest notices and lead times in changing outlook. Chris Blansett – JPMorgan: When you say logic, could you give us some color over foundry versus IDM same two quarters?

Yeah, well, most of its IDM. Chris Blansett – JPMorgan: Okay. And then you mentioned that use of OCD is going to go up when you get to 20-nanometer versus 28 say for a foundry node, any sort of relative color you could provide there and it does sound like you are already selling some equipment for the 20-nanometer above R&D or pilots?

Relative color in what way, what kind of color you are looking for? Chris Blansett – JPMorgan: What kind of increase in OCD capital intensity you expect for 20-nanometer foundry versus 28, 32?

I don’t have a good number for you. I’d like to rather than pull something out of my hip pocket, can I get back to you on that one and see if we can give you something that’s got a little more substance behind it. Chris Blansett – JPMorgan: Sure.

Alright. Chris Blansett – JPMorgan: Last question for me really is given the trajectory of the revenue and the loss that’s going to occur in the fourth quarter, will this have a impact on next year’s tax rate, we are kind of just looking for modeling reasons?

This is Ron. I wouldn’t expected it to have an impact on the rates for 2013 and that we would continue to be at around our structural rate that we have talked about, which is in the mid 30s. Chris Blansett – JPMorgan: Even on a pro forma basis?

We haven’t really other than when we made the election in the first half we haven’t really broken out sort of the pro forma impact. I think yeah, we’ll still see something in the mid 30s could move around a little bit based on the timing of the reinstatement of the R&D tax credits, but we should still see something similar to something in the mid 30s. Chris Blansett – JPMorgan: Alright, thank you.

Thank you. And our next question comes from the line of Weston Twigg from Pacific Crest. Weston Twigg – Pacific Crest: Hi. Thanks for taking my question. First, I just wanted to follow up one more time on the foundry business at TSMC, so was it 13% number in the quarter? Just wondering it sounds like it doesn’t stay their jobs back down. Is that revenue locked in when the actual 20-nanometer ramp comes or these still considered development maybe tools that are still under selection or you are pretty confident that this type of a quarter translates into real production revenue in within the next year?

Yeah, Weston that’s good question. And we bought the tool wins that we are talking about are tool wins that will play out in a high-volume manufacturing environment. Timing is certainly out there when they start going into the 20-nanometer and then the second node on 20-nanometer, but we believe these are – we know these are solid positions. They are not just R&D they were tool selection for the advanced devices. Weston Twigg – Pacific Crest: Okay, good. Very helpful. And then also just a couple of other quick questions, one, the service revenue in Q4, does that come down as well or is that relatively stable?

The service revenues were relatively stable with, I guess Q2, but we do expect that the upgrade levels which in the last two quarters have been near record levels to be down in Q4. Weston Twigg – Pacific Crest: Okay. And then the final question, just wondering on the inspection side, Ultratech announced a new fast inspection tool that sounds very similar to the SPARK platform, and just wondering if you can comment at all on the competitive landscape if you see that changing or if you see these two tools budding hedge or maybe that even now the new entrants coming into that market?

Yeah, we have limited real hands on information about the tool, but everything I know about the tool doesn’t indicate that it’s really the same as or similar platform to the SPARK. We think the SPARK is still very highly differentiated from what they are doing. And we also see the application space is more targeted towards overlay and implied overlay through stress and that really isn’t a direct threat to our competitive position for the products that we are selling. Weston Twigg – Pacific Crest: Okay. So, you don’t really see a lot of overlap necessarily with the products even though they sound kind of similar?

Yeah, not on the SPARK, there maybe some areas where we see some competition against the UniFire, but we believe that there are some uniquely different capabilities. UniFire is an absolute and direct measurement with as that gives you quantitative data. And the other tool is more of as we understand it has some implied measurement rather than an absolute measurement, where they play together on the fab is still to be seen. Weston Twigg – Pacific Crest: Okay, very helpful. Thanks a lot.

Thank you. And our next question comes from the line of Edwin Mok from Needham. Edwin Mok – Needham: Hi, guys. Thanks for taking my question. Now, coming back to foundries, so beyond that’s almost your largest customer in TSMC, you mentioned on your call right, are you making progress with the other foundries as well?

Are we making progress with the other foundries? Edwin Mok – Needham: Yeah.

Yeah. Well, in fact if you look at – Edwin, if you look at our foundry revenues as a percentage of our total revenues, they have been between 40% and 50% or so for the last couple of quarters, I think. And so we have got – there is more than one foundry out there and we have had success with our largest customer in their foundry space as well as our TSMC. Edwin Mok – Needham: Great. So, it sounds like good progress there on that end. I am just curious could you mention 3D design, that’s one of the driver for that right? (Indiscernible) has just talked about pushing 3D as a differentiator for them, right? Is that a big driver for you because you also mentioned that obviously you guys have the strong position in logic and have a lot of experience in 3D?

Could you repeat the question for me again, please? Edwin Mok – Needham: Yeah, I guess just curious beyond those two foundries right, it sounds like overall foundry could be a non-customer that you guys are targeting, because of your advantage in FinFET, is that a good way to think about that?

Yeah, we certainly see that as an opportunity for us and it’s primarily in the 3D devices, it’s still early in their development phase, but we believe as they start to adopt the 3D structure, the FinFET structure again, this should be an opportunity for us to leverage and we see some other. We have some other engagements for it under tool evaluation that hopefully gains some traction in that front, but it’s still early with them. Edwin Mok – Needham: Great, that’s helpful. And then moving on to also 3D for NAND, how do you see that transaction benefit or help your business?

Well, I think the 3D NAND whether it’s the Toshiba version or the Samsung version like the VNAND brings to – brings forth some new challenges in our metrology. We are very engaged with that. We have got applications development and tool modifications to address that. What’s need to be sorted out is what are the measurements that are critical to tracking process and providing yield in that space. And we are working very closely with our customers who try to help them sort through that, at the same time as we bring the tools forth, but there is no doubt in my mind that it is going to be a very important metrology application. Edwin Mok – Needham: Great, very good color there. And lastly just on backend packaging, you mentioned that you need to move past 2.5D interposer to see more (actually on) adoption. I am curious – well, I am trying to understand that comment is it because during the adoption, 2.5D is more limited and as customers moved to TSV you see a much bigger tame there?

Yeah. So, most of our tools are currently used in the pillar and the micro-bump area, which applies to the 2.5D as well as the 3D, but when I think I was responding to the question about TSV. And TSV becomes a more prevalent technology and applied technologies will go into the – as we go into the full 3D packaging. Edwin Mok – Needham: I see. Okay, great, that’s all I have. Thank you.

Thank you. (Operator Instructions) Our next question is a follow-up from the line of Mahesh Sanganeria from RBC. Mahesh Sanganeria – RBC Capital Markets: Thank you again. So, just thinking into the spending for the next year, it looks like memory is going to be a wildcard and how it is difficult to figure out right now, but what are your thoughts on the logic, do you think that logic spending will improve next year or you think it could be down?

So, I think logic is actually going to be improved in spending relative to the total CapEx. So, it’s very – none of us really have a good, clear picture of what total CapEx is going to be, but it appears that a lot of the bricks and mortar work is being done and that we should see potentially a greater spend on equipment, WFE against that capital spend. And if it does that in the fab fan-outs and technology roadmaps, if they hold true to that, if our customers hold true to that, then we think that there is some – it’s a pretty steady and possible improvement for us. Mahesh Sanganeria – RBC Capital Markets: And you expect that spending to be pretty linear throughout the year?

It historically has been linear. We would hope it stays somewhat linear. It’s an easier model for us to run to, but like I said, we have seen more puts and takes on the quarterly basis and we have as a percentage of our total revenues than we have seen in long time. So, that uncertainty factor and the wildcard of what’s going to happen to memory still causes us to move forward with the cautious optimism. Mahesh Sanganeria – RBC Capital Markets: Okay. Thank you very much, Tim.

Sure.

Thank you. And we also have a follow-up from the line of Chris Blansett from JPMorgan. Chris Blansett – JPMorgan: Tim, now that we are heading into the fourth quarter, I wasn’t sure if you had any relative thoughts on the growth of OCD versus other process control or all process control as a whole and then WFE now they have kind of a trajectory for the fourth quarter?

Yeah. Are you talking about looking at the next year or what period or what time horizon you are looking? Chris Blansett – JPMorgan: This year and then also your kind of initial thoughts for next year, I think last time you mentioned that OCD was kind of going to grow 40% year-over-year. I wasn’t sure what that ended up being for this year and then your kind of initial take on next year?

Yeah, well the OCD growth will be probably be a little bit lower than we had originally thought just because of the slowdown in the market and a reduction in spending of our top customers, which drive our OCD business. And I think relative to total capital spending, I think that you’ve seen an increase in capital intensity somewhere to 12% to 15% of capital spend. I think process control continues to be an important player in that, and it’s gaining a little bit more percentage and OCD will continue before. But if you look at us in our competitive environment, there is one area where we don’t have a strong position in OCD has been with the largest pure-play foundry company. And so the shift in the emphasis of spending on OCD between that customer and our two largest customers is why it ultimately will roll up into where the OCD position is for all those involved. Chris Blansett – JPMorgan: And the other question I had with (tied to) integrated generally, it sounds like you’ve had some wins there as we have exited the year and maybe just your thoughts of integrated revenue of next year versus this year, would it be your biggest growth area potentially?

Well, that’s the beauty of small numbers. The integrated metrology business has really come down quite a bit from its historical levels along with our materials characterization. And in fact if you look at our overall business growth year-on-year, our decline most of that can be attributed to the IM and the MC. Now, (it’s about a) direct answer to your question, we do see some growth in IM, we do see some growth in MC, and because we are starting off at such a low base. Then on a percentage basis that probably is going to look like a large growth area, but the real revenue drivers and the real margin contributors are going to be our automated systems being in the SPARK, the UniFire and the Atlas platforms. Chris Blansett – JPMorgan: Alright, thank you. I appreciate it, Tim.

Sure.

Thank you. And I have no further questions at this time. I’d like to turn the conference back to Tim Stultz for any concluding remarks.

Well, thank you once again for participating in our call. I again gratefully acknowledge the terrific contributions and commitment to our business objectives expressed each and everyday by the entire Nanometrics team. I look forward to reporting on the results of our operational and financial performance for the fourth quarter and full year next February, and with that, goodnight.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a good day.