Welcome to Veeco Instruments fourth quarter 2008 conference call. (Operator Instructions) For opening remarks and introductions, I'd like to turn the conference over to Senior Vice President of Corporate Communications and Investor Relations, Miss Debra Wasser.

Thank you all for joining today's call. I'm Debra Wasser, Veeco's Senior Vice President of Investor Relations. Joining me today are John Peeler, our Chief Executive Officer, and John Kiernan, our Senior Vice President of Finance and Corporate Controller. Unfortunately, due to a death in the family, Jack Rein is unable to join us for today's conference call. Today's earning release was distributed at 4:00 p.m. this afternoon and is available on the Veeco web site. Also posted on our site is a Power Point overview of our fourth quarter financial results. The slides include all financial results, detailed business segment information and forward-looking models related to our restructuring plan. If you haven't already received a copy we encourage you to visit the web site or call my office. This call is being recorded by Veeco Instruments and is copywrited material. It can not be recorded or broadcast without Veeco's express permission. Your participated implies consent to our taping. To the extent this call discusses expectations about market conditions, market acceptance and future sales of the company's products, future disclosure, future expectations or otherwise make statements about the future, such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These factors are discussed in the business description and management's discussion and analysis sections of the company's report on Form 10-K and annual report to shareholders and in our subsequent quarterly reports on Form 10-Q, stock reports on Forms 8-K and press releases. Veeco does not undertake any obligation to update any forward-looking statements including those made on this call to reflect future events or circumstances after the date of such statements. During this call management may address non-GAAP financial measures. Information regarding such non-GAAP financial measures including reconciliation to GAAP measures of performance is available on our web site. I'd now like to turn the call over to John Peeler.

Thank you all for joining us today. I'm pleased to report that despite the challenging market environment, we executed on our plans to refocus Veeco, grow revenue and improve profitability, and our Q4 and 2008 results were in line with guidance. We have swiftly implemented a restructuring program to transform the company to a simpler, more cost effective structure and lower our break even with a goal to return to profitability by the fourth quarter. I'm confident that we are creating a scalable operational model, capable of delivering better than 15% EBITDA when the market recovers. During 2008, Veeco increased revenue 10% to $443 million from $402 million in 2007. We grew the company without increasing operating spending and drove 163% increase in EBITDA to0 $28 million versus $11 million last year. We generated cash and paid down debt to significantly improve our balance sheet. We also delivered on our commitments to street every quarter. We made good progress in 2008. We grew revenue in our LED and Solar business by 43% to $166 million, making this our largest and most profitable segment. We secured new customers for MOCVD and gained traction with our K465, increased R&D investments by 38% and grew our solar revenues to over $40 million. We realigned our data storage business by consolidating overhead and locations and increasing outsourcing while at the same time, maintaining alignment with our customers' technology roadmaps and this resulted in a 10% increase in revenue to $149 million and a significant improvement in profitability. In Metrology, while revenues decreased by 15% primarily due to the challenging semi-conductor market, we've refocused the business with new leadership to execute an operational turn around. I'm also encouraged by Veeco's progress in 2008 to strengthen our organization and increase effective across the company in areas…

I will start with a review of Q4 '08 results. Sales for Q4 '08 were $110.3 million, up $3.5 million or 3% versus Q4 '07 and met guidance. The increase was primarily due to 21% higher sales in our Data Storage business and 12% higher sales in our LED and Solar business. LED and Solar included a 50% increase in MBE products as well as $7.9 million in revenues for our solar web coders. Partially offsetting this was a 23% decrease in Metrology sales due to weakness in semi-conductor, scientific instrument and data storage. Orders for Q4 '08 were $88.5 million down $26.4 million or 23% from Q4 '07. Veeco's book to bill ratio was .8 to 1 for the quarter. Veeco's backlog as of December 31, 2008 was approximately $147.2 million, down $28.8 million from September 30, 2008. Backlog adjustments in Q4 '08 totaled $6.9 million including $4.9 million from order cancellations and $2 million from changes in foreign currency rates. Overall gross profit for Q4 '08 was $40.2 million or 36.4% of sales compared to $35.7 million or 33.4% of sales for Q4 '07. Purchase accounting adjustments related to our acquisition of Mill Lane as well as inventory write offs in our Metrology associated with the decline in demand for Legacy semi-conductor products adversely impacted Q4 '08 gross profit by $3.5 million, or 3.1 margin points. LED and Solar gross margin declined to 35% from 39.8% in Q4 '07 which includes the Mill Lane purchase accounting impact of 1.5 margin points. The gross margin reduction was also attributable to a 33% decline in MOCVD sales. Data storage gross margin improved significantly to 44.2% from 22% in Q4 '07, due to increased volume, richer product mix and favorable material costs. Inventory write offs in our Ion Beam business associated…

Clearly Veeco's financial results for the beginning of this year will be poor. However, we believe that our restructuring activities have the potential to dramatically improve our future performance. We expect that gross margins will improve to the 41% to 42% range at the $80 million quarterly revenue level and can go higher than 43% with a revenue north of $90 million. With all of the restructuring activities factored in, plus a full end market recovery and revenues in the range of $110 million to $120 million, we believe that we could see gross margins in the range of 45% to 46%. And for comparison, in Q3 '08, we reported $116 million in revenues and 41% gross margins. Obviously future gross margins will depend on mix and other factors, but this should serve as a guideline for what we're trying to accomplish. While we are dramatically changing the organization and cutting spending in 2009, we're continuing to fund R&D programs with particular focus on high growth opportunities in LED and Solar, and new applications for Metrology instruments. In LED and Solar, we'll remain focused on growing a profitable equipment business in green technology. Despite the current pause in capacity spending, we anticipate strong multi-year MOCVD growth tied to further adoption of LED's for applications such as TV's and laptops. We continue to deliver MOCVD cost of ownership and uniformity improvements designed to increase yield and decrease our customers' cost per wafer. Veeco's MOCVD also offers a seamless transition to larger wafer sizes which is more important than ever for customers focused on maximizing their capital investments, and we think this potentially is a significant competitive advantage for Veeco. We're also making meaningful investments in our CIGS' Solar business and engaging potential new customers for our integrated CIGS product solution. Veeco's…

(Operator Instructions) Your first question comes from JoAnne Feeney – Ftn Capital Markets. JoAnne Feeney – Ftn Capital Markets: I have a few questions about the segment development. First of all, can you elaborate on how you see yourselves doing during this downturn relative to your competition MOCVD?

Our competition hasn't reported their results yet, so there's no actual data there to base that on, but we think we will do well moving ahead. Our products have some unique productivity advantages. They are scalable and make it easy to move to larger wafer sizes which are important for our customers, and we've seen good traction in good customers. So we're expecting to do well. JoAnne Feeney – Ftn Capital Markets: And the pause that you're seeing out there, is it equally occurring in Asia as well as North America and Europe or is there any difference there on how capacity utilization is hitting at your customers and how it might change over the next few quarters from your perspective.

The pause appears to be world wide but I'd say it's stronger in the Taiwan markets where there was a significant purchasing last year, so probably Taiwan is more overbought than other areas of the market. JoAnne Feeney – Ftn Capital Markets: On the restructuring side, I was just looking at one of your slides and you're going to be trying to do a lot more outsourcing it seems. How long is it going to take you to move the manufacturing out of the New Jersey site and what's the current state of that effort? Do you have partners in mind, and has that begun at this point?

We started on our operational restructuring programs really over a year ago. As we've moved to a strategy, or started to implement a strategy where we would create a more centralized manufacturing organization and move to a greater number of outsourcing partners and a higher percentage of variable cost. So back in 2008, we brought in new leadership. Again, our manufacturing organization for Process Equipment and in our Metrology business, we put a big focus on changing the way we manage the supply chain to qualify outsourcing partners in Asia. We brought up a new partner in Asia that could do complete systems manufacturing as well as moving substantial of our purchasing of machine parts and other items to Asia. So we got a good start in 2008. A lot of those benefits will show in 2009, although we got benefit in 2008. It takes time for some of these things to fully kick in. We have partners picked for the different types of products that we need and we're well along in the path. In New Jersey, we were outsourcing about 60% or more of the product line as of a year ago. So what we're really talking about doing is taking the remaining products in the New Jersey site and moving those to an outsource model. So we're far along the way. We expect that to be complete in 2009. JoAnne Feeney – Ftn Capital Markets: When you talk about centralizing the supply chain, can you tell us what you mean by that? Are you using a fewer number of suppliers or centralizing the way it's run out of Veeco?

It's really, if you look at our Process Equipment manufacturing organization a year ago, we had six manufacturing sites that were relatively independent and there was some moves, some corporate programs to look for partners that would supply metal work and various commodities to multiple businesses. We actually went to a model where we hired a senior executive in charge of all Process Equipment operations. We took each of those six Process Equipment organizations and had them report solid line to the new executive, and at the same time took the materials people and had them report to one supply chain person. So we're on a move to run with less suppliers, more strategically picked instead of picked locally by six different manufacturing organizations, to be picked on a more strategic basis, some in Asia, some in the U.S., and we think there's significant benefits from that. We actually know there's significant benefits from it because we've already seen a good bit of it. JoAnne Feeney – Ftn Capital Markets: So when we think about that #36 million in savings and we think about your modest recovery quarter where you are hoping to do 42% to 44% gross margin, should we view that sort of at the conclusion of all these restructuring efforts and is the $36 million savings, which quarter should we use as a benchmark for that run rate from which you'll be reducing spending?

We will have most of the operational changes made to get us to the $80 million break even level from an expense perspective by the third quarter. There will be some additional savings that will flow into the fourth quarter, but we expect to have most of the operational benefit of our restructuring done by the end of the third quarter. JoAnne Feeney – Ftn Capital Markets: So in theory, and I don't think anybody wants to go out on a limb yet and say that the world's going to recover by the end of the year, but if it were to, you could potentially have enough leverage in the model to reach 42% gross margin by the end of the year.

Yes, it's possible.

Your next question comes from Brett Hodess – Merrill Lynch. Brett Hodess – Merrill Lynch: On the market side, you commented that the Solar side was one area that held up a bit. Is that still holding up and also, you mentioned that there was quite a bit of push out from the first quarter and first half into the second half, was it across the board or predominantly in the MOCVD or Solar? Could you help us with those two questions?

On the market side of Solar, you know we participate in three areas. We participate in the concentrator solar cell market with our MOCVD systems. We participate in thermal sources for CIGS suppliers, and then we have our CIGS web coding systems. What we see is that there's a lot of activity. First of all, there's been good activity in the concentrator solar cell market over the last year. We think we had a good year there. We haven't seen a big change yet. And we do see continuing activity in the CIGS market. There are customers buying our sources and investing in their businesses and ramping their lines. We think the market is holding up well. It certainly depends on whether a company has funding or not, and I think that's a real critical factor here, because there's some companies that have substantial funding and they're moving ahead on their expansion plans, and moving forward with that. As I think everyone know, for companies that don't have funding, it's a very difficult time to go and get it. I think the market is still solid but it really depends on company by company, what their cash situation and funding level is. On the push outs, the push outs were really about equally split between Data Storage and LED and Solar, and they were really focused on the LED and Data Storage markets. Brett Hodess – Merrill Lynch: You gave a great explanation of a lot of the things that you're doing to get to that margin model which would be quite a strong improvement than what we've seen in the past, but you also mentioned earlier on in the commentary that some of it is dependent on mix. So if we assume that the HB LED businesses and Solar business, that piece of the business is the higher growth piece of the business, is that a correct assumption that if we move to a heavier mix of HB LED and Solar that the margin model would work?

It really depends within the category of LED and Solar. There's certainly different mixes between sources and MOCVD systems and web coders. But there's also a bigger potential mix between Metrology and the Process Equipment businesses. Historically, and I'll say not necessarily in all quarters of this year, but over the longer term, the Metrology business tends to operate under a margin model that has a higher margin. That has potential to push us one way or the other. Margins have been depressed in Metrology recently due to some one time charges as well as the auto AFM business really having a tough year. But there has not been a large margin difference between Data Storage and LED Solar over the last year. A few years back, LED Solar was actually lower margin, but we really improved it over the last year, and it's become quite similar to Data Storage. Brett Hodess – Merrill Lynch: But we don't need to see Metrology go back to their old plus 50% range do we to make the model work? We just need to see it get at least back more to the other businesses, or how do you see that?

That's right.

Your next question comes from Brian Lee – Citigroup. Brian Lee – Citigroup: You're not giving specific booking guidance, but can you give me a sense directionally for how you think book to bill will look in Q1 above one, less than one?

We stopped giving bookings guidance in Q4 so we don't want to do that. It's just a very difficult time in terms of visibility and in terms of some large orders that can swing around and shift due to timing, so can't really give you much there. And the book to bill, it's possible for it to be above one or below one, I would tell you that, and it'll really depend on order timing. Brian Lee – Citigroup: Can you give me a sense for what percentage of bookings and revenues were from service and how you would expect that business to track here over the next couple of quarters?

Let me start off and John can join in in a minute. We've seen overall service some weakening of service and parts business or what we call non systems a little bit in Q4, but overall the business has held up pretty well. It kind of depends on a business by business basis, so in Data Storage for instance, in Q4 we didn't book any systems business and everything we booked was non systems or parts, consumables and services. So clearly in that case, the mix is shifting dramatically to that becoming most of the business and until we win some technology buys and ship some products or ship some products on backlog. Other businesses have different ratios, so John, do you want to add to this?

In the most recent quarter, we're still running about at the volumes that we're running at, somewhere in the 30% range of total non systems, everything besides our systems business. And as we look to Q1 with a smaller revenue forecast and a $60 million to $70 million range, we expect the percentage of that business to be a larger percentage, north of 40%. Brian Lee – Citigroup: On the $30 million push outs, I know you're keeping it in the backlog for now, but how confident are you that these shipment push outs don't result in outright cancellations? What are your customers telling you about what they're waiting for in terms of being able to take delivery? Is it just a basic pick up in demand or is it financing? Maybe if you could help us out there a little bit.

Our customers are telling us they're going to need the product but they are in an overcapacity situation and so they would prefer to take it later. A fairly good percentage of these products have deposits associated with them. At some point if the orders cancel, we will retain the deposits and those are significant, so that gives us some increase in confidence in it. But it's a tough environment, so it's hard to say. We will take anything out of that backlog that we don't think is a good order so we review our backlog on an ongoing basis and if there is product that fails to meet the criteria for an order, we'll take it out. We think its good backlog but I guess things could change. Brian Lee – Citigroup: In terms of the cost cutting, can you update us on your thinking here with respect to any potential structural changes to the business model? It seems like your breadth of product and end market exposure are more of a liability now given where the cycle is and so is there anything we can expect in terms of shuddering or divesting product lines to narrow the company's focus going forward?

We made a bunch of structural changes and actually a good number of them are in the presentation, but one hand we centralized operations. We're going from eight manufacturing sites to four. We merged a number of business units together and that helps us reduce our G&A and improve our overall cost structure. We have taken layers out of the organization and running with a less layered, what we think is a faster and more effective organization in sales. So we did a lot of structural changes and actually, we started on this a year ago, but we really accelerated our efforts in the fall when we saw the Lehman Chapter 11, gave us a lot of motivation to move faster and harder and to assume that the world was going to get tougher very quickly. So we actually started our really aggressive restructuring program at that time, which we're just announcing now. We didn't want to announce part of it back in the fourth quarter because we wanted to announce the whole thing. We didn't want to roll out piece meal changes. So a lot of changes, and clearly we've gotten out of any product lines where we don't think we can be number one or number two. We did a good bit of that last year. Those proved to be good decisions. They worked well with our customers and they improved our economics. So the businesses we're in, we think have potential to grow and be profitable and be leaders going forward.

Your next question comes from Matt Petkin – DA Davidson & Company. Matt Petkin – DA Davidson & Company: Let me extend my deepest sympathies to Jack and his family. First, a housekeeping question, it looks like the guidance that you provided for Q1 excludes equity compensation although it also looks like your $0.11 number that you reported in Q4 included equity comp?

That is correct. Matt Petkin – DA Davidson & Company: So can you give us the equity comp for Q4 and for all of 2008?

It's about $8 million. We'll send it by email. Matt Petkin – DA Davidson & Company: But from now on out we should be looking at non-GAAP excluding both that and the non cash interest expense?

Yes. Matt Petkin – DA Davidson & Company: One other point of clarity, what were the cancellations in Q4?

The cancellations were overall about $5 million, and it was really a couple of LED systems. Matt Petkin – DA Davidson & Company: So was that bookings number, the $88.5 million a net number or gross?

Gross. Matt Petkin – DA Davidson & Company: In terms of strategic question, I'm noticing in the slide that you prepared which I think are fantastic by the way and very comprehensive, it looks like in the semi portion of the business, your incremental R&D expenses and investment is going down pretty notably. What should we read into that in terms of maybe the success or health of the AFT, the new auto AFM in the semi business?

First of all, since I've joined there's been an initiative to get more of our R&D dollars focused on high growth markets and there's a curve in the presentation that kind of shows where it was in 2007 and how we have shifted it. And that's not to say we're leaving all of our lower growth markets behind, but we are funding differently based on the potential of the markets. On the AFM business, our AFM business had two business areas. It has an auto AFM business and a research AFM business that we call Nano Bio. The largest portion of that business is the research business. It's focused on research markets and to some extent industrial markets. We're far and away the world leader in that area from a technology and market share perspective, so we think we're more than twice the size of the next competitor. The good news here is that we've been working to improve our product development capability in our AFM business. We've made a lot of progress. We've achieved a lot of predictability over the last year, and we've got our first major new research AFM product really in a few years. It's a product that is better than anything else on the market. It's a large sample AFM. It has better stability and better resolution and faster time to results and better productivity than anything out there. So we're really excited to be rolling out a new product because it's been a long time since we had one, and when you start to go do a business turn around, one of the things that takes a long time to do is to get it to show up in the new products, because they take a long time to develop. We think the AFM business is a good business and will do good things for us. But, we're spending more of our money on research and industrial markets and not focusing a giant investment into the semi conductor market. I think that's what you'd read out of that and we think we get better growth in these other areas. Matt Petkin – DA Davidson & Company: On the CIGS equipment product line, have you won any incremental customers for the flexible CIGS and you mentioned working on glass coder, are there any specific customers that you're going to be partnering with on that?

We have not won any additional customers on the CIGS web coding business, but what we have been doing is when we launched this product line it was focused on the molly and TCO layers. We're adding the CIGS layer. We have what we think is a really exceptional design and we have a great product line shaping up in this area. We haven't won any additional business. I don't think we've lost any either, so it's not like we're not winning, it's there's a lot out there being quoted and investigated. We've done very well in our CIGS thermal sources and we think that gives us a competitive advantage in the CIGS line, and we're working on a glass system. The market is split between flexible and glass applications and we think we can provide which ever type the customer wants.

At this time there are no further questions.

I want to thank you all for joining us today. That concludes our call.