• Solar panels or photovoltaics;

• Flat panel displays for television and computer monitors;

• Compact discs, DVDs and magnetic hard drives;

• Low emissivity architectural glass;

• Other markets where thin film deposition is a critical part of the manufacturing process.

We also design, manufacture and support commercial and utility grade inverters for the solar power market which convert power generated by solar panels into usable power.
Our global network of service centers provides local repair and field service capability in key regions. Our installed base provides a recurring revenue opportunity as we sell repair services, conversions, upgrades and refurbishments.
Results of Operations
SALES
Overall sales were $84.5 million and $261.4 million for the three and nine months ended September 30, 2008, respectively. This was a decrease of 6.6% and 13.1%, respectively, compared to sales of $90.5 million and $300.9 million for the same periods of 2007.

We generated net income from operations of $5.4 million, or 6.4% of sales in the three months ended September 30, 2008, compared to $5.9 million, or 6.5% of sales, in the three months ended September 30, 2007. Gross margin increased to 41.7% in the current quarter of 2008 from 40.6% in the same quarter of 2007. We generated earnings of $0.13 per diluted share in both the three-month periods ending September 30, 2008 and 2007.
The following tables summarize our unaudited net sales and percentages of net sales by semiconductor and non-semiconductor markets for the three and nine month periods ended September 30, 2008 and 2007:

                          Three Months Ended                                          Nine Months Ended
                            September 30,            Increase/          %               September 30,            Increase/          %
                          2008           2007         Decrease       Change          2008           2007          Decrease       Change
                            (In thousands)                                              (In thousands)
Semiconductor
capital equipment      $   38,363      $ 60,802      $  (22,439 )      (36.9 )%    $ 141,534      $ 205,274      $  (63,740 )      (31.1 )%
Non-semiconductor
capital equipment          46,147        29,689          16,458         55.4 %       119,859         95,589          24,270         25.4 %

Total sales            $   84,510      $ 90,491      $   (5,981 )       (6.6 )%    $ 261,393        300,863      $  (39,470 )      (13.1 )%




                                                         Three Months Ended September 30,                  Nine Months Ended September 30,
% of sales                                                 2008                     2007                    2008                     2007
Semiconductor capital equipment                                45.4 %                   67.2 %                  54.1 %                   68.2 %
Non-semiconductor capital equipment                            54.6 %                   32.8 %                  45.9 %                   31.8 %

                                                              100.0 %                  100.0 %                 100.0 %                  100.0 %

The following tables summarize our unaudited net sales and percentages of net sales by geographic region for the three and nine month periods ended September 30, 2008 and 2007:

                           Three Months Ended                                          Nine Months Ended
                             September 30,            Increase/          %               September 30,            Increase/          %
                           2008           2007         Decrease       Change          2008           2007          Decrease       Change
                             (In thousands)                                              (In thousands)
Sales (1):
United States/Canada    $   33,614      $ 48,453      $  (14,839 )      (30.6 )%    $ 109,589      $ 166,629      $  (57,040 )      (34.2 )%
Asia Pacific                36,774        33,129           3,645         11.0 %       112,577        101,975          10,602         10.4 %
Europe                      14,122         8,909           5,213         58.5 %        39,227         32,259           6,968         21.6 %

Total sales             $   84,510      $ 90,491      $   (5,981 )       (6.6 )%    $ 261,393      $ 300,863      $  (39,470 )      (13.1 %)

(1) These sales amounts do not contemplate where our customers may subsequently transfer our products.

                                                       Three Months Ended September 30,                  Nine Months Ended September 30,
% of sales                                               2008                     2007                    2008                     2007
United States/Canada                                         39.8 %                   53.5 %                  41.9 %                   55.4 %
Asia Pacific                                                 43.5 %                   36.6 %                  43.1 %                   33.9 %
Europe                                                       16.7 %                    9.9 %                  15.0 %                   10.7 %

                                                            100.0 %                  100.0 %                 100.0 %                  100.0 %

We provide solutions to a diverse range of markets and geographic regions with the semiconductor capital equipment industry being our largest market, and sales to the solar market being our second largest market. Product sales to customers in the semiconductor capital equipment industry comprised 45.4% and 67.2% of our sales in the three months ended September 30, 2008 and 2007, respectively, and 54.1% and 68.2% of our sales in the nine months ended September 30, 2008 and 2007, respectively. Demand in the semiconductor capital equipment market has weakened over the past year and as such our revenues to that market have dropped. We believe this cyclical downturn was the result of excess capital spending in 2006 and 2007 in the semiconductor market followed by a lack of spending in the market in 2008 as semiconductor manufacturers absorb the capacity that they added in 2006 and 2007. We believe overall semiconductor manufacturers are optimizing the output from their installed capacity and are finding ways to improve output without spending capital on expansion in response to the global credit crisis.
Product sales to customers in the non-semiconductor markets comprised 54.6% and 32.8% of our sales in the three months ended September 30, 2008 and 2007, respectively, and 45.9% and 31.8% of our sales in the nine months ended September 30, 2008 and 2007, respectively. The markets that comprise our non semiconductor markets include solar, flat panel display, data storage, architectural glass, and other industrial thin-film manufacturing equipment. Our customers in these markets, other than the solar market, are predominantly large original equipment manufacturers (OEM's) for new equipment. We also derive additional revenue from our installed base by providing services to the end manufacturer. This shift in the balance of our business partially offset the decline in the semiconductor capital equipment market.

The solar market was our fastest growing market in the third quarter of 2008. Product sales to customers in the solar market, which is included in non-semiconductor revenue above, comprised 23.1% and 6.2% of our sales in the three months ended September 30, 2008 and 2007, respectively, and 15.5% and 6.4% of our sales in the nine months ended September 30, 2008 and 2007, respectively. The investments in capacity for solar panel production lines have driven this growth in revenue. Our products are aligned with the polysilicon, copper indium gallium selenide (CIGS), copper indium selenide (CIS), cadmium telluride, and thin-film solar production processes. Our solar inverter revenue is included in our sales to the solar market.
We expect near term weakness in the semiconductor capital equipment market to continue, which will result in a continued shift in our business towards our non-semiconductor markets as sales to non-semiconductor markets, particularly solar, continue to grow and we continue to invest in new products and technology for the solar market.
GROSS PROFIT
Gross margin for the three months ended September 30, 2008 was 41.7%, as compared to a gross margin of 40.6% in the same period last year. This slight increase was due to an increase in work in process and finished goods inventory related to the transfer of manufacturing and the introduction of a new product which, through absorption of factory costs, reduced cost of goods sold by $1.2 million for the quarter. Our mix of sales shifted as well during the quarter to a higher concentration of products with slightly higher profit margins, which reduced material costs as a percentage of overall revenue and increased gross margin.
Gross margin for the nine months ended September 30, 2008 was 40.7%, as compared to a gross margin of 43.2% in the same period of 2007. This decrease was due to the sharp decrease in revenue, which caused significantly lower absorption of our fixed costs.
RESEARCH AND DEVELOPMENT EXPENSES
The markets we serve constantly present us with opportunities to develop our products for new or emerging applications, along with requirements for technological changes driving for higher performance, lower cost, and other attributes that will advance our customers' products. We believe that continued and timely development of new and differentiated products, as well as enhancements to existing products to support customer requirements, is critical for us to compete in the markets we serve. Accordingly, we devote significant personnel and financial resources to the development of new products and the enhancement of existing products, and we expect these investments to continue. Since inception, all of our research and development costs have been expensed as incurred.
Our research and development expenses for the three and nine months ended September 30, 2008 were $14.7 million, or 17.4% of sales, and $41.5 million, or 15.9% of sales, respectively. For the three and nine month periods ended September 30, 2007, research and development costs were $12.9 million, or 14.3% of sales, and $37.9 million, or 12.6% of sales, respectively.
The increase in both periods presented, in both absolute dollars and as a percentage of sales, was primarily due to increased efforts in the development of products for the solar market including products that address the thin film solar market as well as our Solaron™ utility grade solar inverter product line. We expect to continue these investments in order to deliver an expanded product suite to the solar equipment market as well as the solar inverter market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling expenses are comprised of all global sales and marketing activities which include personnel, trade shows, advertising, third-party sales representative commissions and other selling and marketing activities. General and administrative expenses are comprised of our worldwide corporate, legal, patent, tax, financial, governance, administrative, information systems and human resource functions in addition to our general management.
Selling, general and administrative ("SG&A") expenses for the three and nine months ended September 30, 2008 were $14.3 million, or 16.9% of sales, and $42.8 million, or 16.4% of sales, respectively. For the three and nine months ended September 30, 2007, SG&A costs were $15.5 million, or 17.1% of sales, and $46.2 million, or 15.4% of sales, respectively.
The decrease in expenses for both the three and nine month periods ended September 30, 2008, as compared to the same periods for 2007, was a result of the reductions of personnel and their related costs that were implemented in late 2007 and early 2008 aimed at reducing administrative burden and increasing efficiencies. We have also implemented cost reductions in all discretionary spending

areas, such as travel and professional fees. Additionally, third party sales compensation to independent sales representatives was lower due to a decrease in overall sales revenue.
As part of our continuing cost reduction efforts in 2008 related to general and administrative expenses, we began consolidating worldwide accounting processing functions in a shared services center in Shenzhen, China. To date, this consolidation has taken place in certain locations, including the United States and Germany, and over the next year other functions and additional locations may be moved into the shared services center.
RESTRUCTURING CHARGES
In September 2008 we implemented a plan to transition the production of a number of our legacy products from our manufacturing facility in Fort Collins, Colorado to our manufacturing facility in Shenzhen, China. As a result, we reduced our workforce in Fort Collins and recognized a restructuring charge of $0.3 million in the three months ended September 30, 2008 related to severance and benefits. This transition will continue over the next three to six months and we expect to recognize restructuring charges for severance and benefits over that timeframe as the affected personnel are transitioned out of Fort Collins.
In March 2008, we restructured a portion of our general and administrative functions and recorded restructuring charges of $0.2 million and $1.3 million during the three and nine month periods ended September 30, 2008, respectively, for severance costs. We expect to recognize an additional $0.1 million related to this restructuring in the fourth quarter of 2008 for the remaining severance and benefit costs.
In March 2007, we announced the closure of our operation in Stolberg, Germany. Related to this closure, we recorded restructuring charges of $0.6 million in the three months ended September 30, 2007, consisting primarily of employee severance and benefit costs associated with the reduction of employees at the facility.
We expect to continue to look for ways to make our global workforce more efficient and effective, which will lead to additional cost reduction activities in the future.
OTHER INCOME, NET
Other income, net consists primarily of investment income and expense, foreign exchange gains and losses and other miscellaneous gains, losses, income and expense items. Other income increased 39.3% to $0.4 million in the three months ended September 30, 2008 from $0.3 million in the three months ended September 30, 2007, and other income decreased 30.8% to $2.3 million in the nine months ended September 30, 2008 from $3.4 million in the nine months ended September 30, 2007, primarily due to lower interest rates, decreased investment balance, and increased foreign exchange loss due to strengthening of the Japanese yen and the Euro in relation to the U.S. dollar.
PROVISION FOR INCOME TAXES
The income tax provision for the three and nine month periods ended September 30, 2008 was $0.6 million and $5.0 million which represented an effective tax rate of 9.4% and 22.4% in the three and nine month periods ended September 30, 2008, respectively, compared to $1.9 million and $14.9 million for the three and nine month periods ended September 30, 2007, respectively which represented an effective tax rate of 25.0% and 33.0% in the three and nine month periods ended September 30, 2007, respectively. The decrease in the effective tax rate as compared to 2007 resulted primarily from a shift in the mix of profits and losses, for which a future benefit is expected, in the U.S and our global subsidiaries, whereby more income was generated at our lower income tax subsidiaries during the three and nine month periods ended September 30, 2008. Liquidity and Capital Resources
Our primary sources of liquidity are our available cash levels and cash flows generated by operating activities. We utilize these capital resources to make capital expenditures primarily for our operational needs, investment in technology applications and tools to further develop our products and for other general corporate purposes, including repurchase of our common stock in the open market and to fund possible acquisitions. In future periods, we intend similar uses of these funds.

During the nine months ended September 30, 2008, we used $49.8 million in cash for the repurchase and retirement of our common stock, purchased $28.1 million of marketable securities, used $5.8 million for capital expenditures and used $0.4 million in other financing activities. Further, we generated $50.6 million from the sale of marketable securities, $18.8 million in cash from operating activities and received $1.1 million in cash from the issuance of stock, resulting in a $13.4 million decrease in available cash (including the unfavorable effects of international currency exchange rates on cash of $0.2 million).
Net cash flows provided by operating activities for the nine months ended September 30, 2008 were $18.8 million, compared to $40.3 million for the comparable period in 2007. The $21.5 million decrease in net cash flows from operating activities was due to a $13.4 million decrease in non-cash reconciling items such as depreciation and amortization, stock-based compensation, deferred income taxes, restructuring charges and unrealized gains on sales of marketable securities and a $13.0 million decrease in net income. The decreases were offset by a net increase of $4.9 million in cash flows from changes in operating assets and liabilities.
Capital expenditures, which are generally funded by cash generated from operating activities and available cash balances, were $5.8 million for the nine months ended September 30, 2008, compared to $5.7 million for the nine months ended September 30, 2007, an increase of approximately $0.1 million.
Our investment securities include auction rate securities that are not currently liquid or readily available to be converted to cash. We do not believe that the current liquidity issues related to our auction rate securities will impact our ability to fund our ongoing business operations. In October 2008, we received a commitment letter from the investment manager that manages our auction rate securities stating that the remainder of such securities held by us may be sold to them, at our option, at par value beginning June 30, 2010 until July 2, 2012. Additionally, the agreement provides the investment manager the right to acquire any individual securities held by us for par value at its option at any time after the execution of the agreement until July 2, 2012.
In December 2007, the Board of Directors authorized a program to repurchase up to $75 million of our common stock over a 12 month period. Under this program we repurchased and retired 3,775,000 shares of our common stock for a total of $49.8 million. We suspended this stock repurchase program in April 2008.
All shares repurchased were executed in the open market and no shares were repurchased from related parties. Repurchased shares were retired and assumed the status of authorized and unissued shares.
Our working capital decreased $77.1 million, or 25%, to $228.9 million at September 30, 2008 from $306.0 million at December 31, 2007. The decrease was primarily due to a decrease in cash and marketable securities of $70.4 million as a result of the reclassification of auction rate securities to long-term investments and the stock repurchase program, a decrease in other current assets of $11.6 million and an increase in accounts payable of $2.0 million and an increase in deferred revenue of $0.4 million. These working capital decreases were offset by increases in $3.1 million of inventory and $2.8 million of accounts receivable and a decrease of $1.4 million in accrued expenses.
On July 5, 2008, our $25 million secured revolving line of credit expired and was not renewed.
At September 30, 2008, we had $134.9 million in cash, cash equivalents and marketable securities. We believe that our current cash levels and cash flows from future operations will be adequate to meet anticipated working capital needs, funding of potential acquisitions, anticipated levels of capital expenditures and contractual obligations for the foreseeable future. Critical Accounting Policies and Estimates In preparing our financial statements, we must make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the following critical accounting policies, as discussed in this Form 10-Q and/or our Form 10-K for the year ended December 31, 2007, affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:
• Revenue recognition

• Reserve for warranty

• Reserve for excess and obsolete inventory

• Stock-based compensation

• Commitments and contingencies

• Fair value measurements

• Income taxes

• Valuation of intangible assets

• Long-lived assets including intangible assets subject to amortization

REVENUE RECOGNITION - We recognize product revenue when title passes to the customer, based on the terms of the sale, at either shipment, delivery, or customer acceptance. Our post sale obligations are limited to product warranty obligations. In limited instances we provide installation of our products. In accordance with Emerging Issues Task Force Issue 00-21 "Accounting for Revenue Arrangements With Multiple Deliverables", we allocate revenue based on the fair value of the delivered item, generally the product, and the undelivered item, installation, based on their respective fair values. Revenue related to the undelivered item is deferred until the services have been completed.
In certain instances, based on the credit terms with the customer, we require our customers to pay for a portion or all of their purchases prior to the manufacture or shipping of these products. Cash payments received prior to shipment are recorded as customer deposits and deferred revenue in the condensed consolidated balance sheets, and then recognized as revenue as appropriate based upon the transfer of title of the products. We do not offer price protection to customers, or allow returns, unless covered by our normal policy for repair of defective products.
WARRANTY RESERVE POLICY - We offer product warranty coverage for periods typically ranging from 12 to 24 months after shipment. We estimate the costs of repairing products under warranty based on the historical cost of the repairs. The assumptions used to determine the warranty reserve are reviewed periodically based on actual experience and, when appropriate, the warranty reserve is adjusted. Estimated warranty costs are recorded at the time of sale and are reflected in cost of sales in the consolidated statements of income.
The following table summarizes the activity in our warranty reserve during the three and nine months ended September 30, 2008 and 2007:

                                        Three Months Ended          Nine Months Ended
                                           September 30,              September 30,
     (In thousands)                      2008          2007         2008          2007
     Balance at beginning of period   $    7,856     $  7,435     $   8,812     $  7,845
     Provisions                            2,076        5,000         6,211        9,225
     Usages                               (2,433 )     (3,241 )      (7,524 )     (7,876 )

     Balance at end of period         $    7,499     $  9,194     $   7,499     $  9,194

EXCESS AND OBSOLETE INVENTORY- Inventory is evaluated regularly for usability, and if it is deemed excess or obsolete, it is written down or written off accordingly. Estimates of the net realizable value of inventory are based primarily upon forecasts of product demand. Charges for excess and obsolete inventory are recorded, as necessary, within cost of sales in the consolidated statements of income.
STOCK-BASED COMPENSATION - On January 1, 2006, we adopted the provisions of SFAS No. 123(R) to account for our stock plans and employee stock purchase plan, which requires the recognition of the fair value of stock-based compensation in the statement of income. The fair value of stock options and purchase rights pursuant to the employee stock purchase plan is estimated using the Black-Scholes valuation model. This model requires the input of highly subjective assumptions, including expected life of the award, risk-free interest rate and expected stock price volatility. The fair value of restricted stock units is determined based upon the Company's closing stock price on the grant date. The fair value of stock-based awards expected to vest is amortized over the requisite service period, typically the vesting period, of the award on a straight-line basis.

COMMITMENTS AND CONTINGENCIES - The Company is subject to disputes and legal actions arising in the normal course of our business. We accrue loss contingencies in connection with our commitments and contingencies, when it is probable that a loss has occurred or may occur and the amount of the loss can be reasonably estimated. Loss contingencies may include, but are not limited to, litigation and contractual obligations.
INCOME TAXES - We account for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires deferred tax assets and . . .