UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---

FORM 10-Q

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[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2011

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 000-24838

MATTSON TECHNOLOGY, INC.(Exact name of Registrant as Specified in its Charter)



|Delaware                                                       | 77-0208119                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

47131 Bayside Parkway
Fremont, California      94538

(510) 657-5900

---

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES    x NO     ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
    YES

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filer      ̈ | Accelerated filer    x | Non-accelerated filer     ̈ (Do not check if a smaller reporting company) | Smaller reporting company     ̈
|----------------------------- | ---------------------- | ------------------------------------------------------------------------ | ------------------------------

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES     ̈ NO    x Number of shares of common stock outstanding as of July 29, 2011: 58,222,802
Note:PDF provided as a courtesy
MATTSON TECHNOLOGY, INC.TABLE OF CONTENTS


PagePART I. FINANCIAL INFORMATIONItem 1.
Financial Statements (unaudited):Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended July 3, 2011 and June 27, 2010
2Condensed Consolidated Balance Sheets as of July 3, 2011 and
December 31, 2010
3Condensed Consolidated Statements of Cash Flows for the
Six Months Ended July 3, 2011 and June 27, 2010
4Notes to Condensed Consolidated Financial Statements
5Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
19Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
27Item 4.
Controls and Procedures
28PART II. OTHER INFORMATIONItem 1.
Legal Proceedings
29Item 1A.
Risk Factors
29Item 6.
Exhibits
40Signatures
411PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)


MATTSON TECHNOLOGY, INC.
                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (unaudited, in thousands, except per share amounts)


Three Months Ended

Six Months EndedJuly 3,

June 27,

July 3,

June 27,2011

2010

2011

2010Net sales

$          51,259

$          32,120

$          98,308

$          57,315Cost of sales

35,852

22,194

68,957

39,627Gross margin

15,407

9,926

29,351

17,688Operating expenses:Research, development and engineering

6,645

7,059

13,160

13,465Selling, general and administrative

12,803

12,558

25,378

24,931Restructuring charges

(13)

(93)

(78)

(77)Total operating expenses

19,435

19,524

38,460

38,319Loss from operations

(4,028)

(9,598)

(9,109)

(20,631)Interest income

58

30

85

60Interest expense

-

(30)

(48)

(62)Other income (expense), net

(969)

1,425

(2,475)

1,883Loss before income taxes

(4,939)

(8,173)

(11,547)

(18,750)Provision for (benefit from) income taxes

274

207

(60)

386Net loss

$           (5,213)

$           (8,380)

$         (11,487)

$         (19,136)Net loss per share:Basic and diluted

$               (0.10)

$               (0.17)

$                (0.22)

$                (0.38)Shares used in computing net loss per share:Basic and diluted

54,550

50,052

52,395

50,018The accompanying notes are an integral part of these condensed consolidated financial statements.2MATTSON TECHNOLOGY, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                      (unaudited, in thousands, except par value)

July 3,

December 31,2011

2010ASSETSCurrent assets:Cash and cash equivalents

$           40,045

$           16,863Short-term investments

-

2,151Restricted cash

2,830

4,026Accounts receivable, net of allowance for doubtful accountsof $988 as of July 3, 2011 and $681 as of December 31, 2010

17,056

24,127Advance billings

4,060

3,177Inventories

31,670

34,673Prepaid expenses and other current assets

5,135

5,770Total current assets

100,796

90,787Property and equipment, net

12,666

15,011Intangibles, net

875

1,000Other assets

4,778

4,826Total assets

$        119,115

$        111,624LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$           16,114

$           20,860Accrued liabilities

19,056

13,452Deferred revenue

6,697

5,349Total current liabilities

41,867

39,661Income taxes payable, non-current

4,130

4,287Other liabilities

4,961

5,021Total liabilities

50,958

48,969Commitments and contingencies (Note 6)Stockholders' equity:Preferred stock, 2,000 shares authorized; none issued and outstanding

-

-Common stock, par value $0.001, 120,000 shares authorized;       
                 62,392 shares issued and 58,211 shares outstanding as of July 3, 2011;54,440 shares issued and 50,259 shares outstanding as of December 31, 2010

62

54Additional paid-in capital

649,120

634,944Accumulated other comprehensive income

23,012

20,207Treasury stock, 4,181 shares as of July 3, 2011 and December 31, 2010

(37,986)

(37,986)Accumulated deficit

(566,051)

(554,564)Total stockholders' equity

68,157

62,655Total liabilities and stockholders' equity

$        119,115

$        111,624The accompanying notes are an integral part of these condensed consolidated financial statements.3MATTSON TECHNOLOGY, INC.
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (unaudited, in thousands)


Six Months EndedJuly 3,

June 27,2011

2010Cash flows from operating activities:Net loss

$    (11,487)

$      (19,136)Adjustments to reconcile net loss to net cashprovided by (used in) operating activities:Allowance for doubtful accounts

294

(711)Depreciation and amortization

3,227

3,655Inventory valuation charges

2,442

492Stock-based compensation

1,403

1,267Other non-cash items

-

72Changes in assets and liabilities:Accounts receivable

6,756

(4,864)Advance billings

(886)

(1,963)Inventories

1,352

(400)Prepaid expenses and other current assets

824

982Other assets

212

746Accounts payable

(5,004)

3,262Accrued liabilities

4,865

(183)Deferred revenue

1,223

2,156Income taxes payable, non-current and other liabilities

(170)

(495)Net cash provided by (used in) operating activities

5,051

(15,120)Cash flows from investing activities:Purchases of available-for-sale investments

-

(9,329)Maturities of available-for-sale investments

2,151

13,125(Increase) decrease in restricted cash

1,196

(17)Purchases of property and equipment

(496)

(428)Net cash from investing activities

2,851

3,351Cash flows from financing activities:Proceeds from issuance of common stock, net

13,128

171Net cash from financing activities

13,128

171Effect of exchange rate changes on cash and cash equivalents

2,152

(2,443)Net increase (decrease) in cash and cash equivalents

23,182

(14,041)Cash and cash equivalents, beginning of period

16,863

45,346Cash and cash equivalents, end of period

$     40,045

$        31,305The accompanying notes are an integral part of these condensed consolidated financial statements.4MATTSON TECHNOLOGY, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS       
                                  (Unaudited)

1.	Basis of Presentation

Nature of OperationsMattson Technology, Inc. (the "Company" or "Mattson Technology") was
incorporated in California in 1988 and reincorporated in Delaware in 1997.  The Company designs, manufactures, markets and globally
supports semiconductor wafer processing equipment used in the fabrication of integrated circuits.

Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information and with the instructions
to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by such
accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair statement of financial position and operations have been included. The
accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements of Mattson Technology for the year ended December 31, 2010, which are included in the Annual Report on Form
10-K filed by the Company with the Securities and Exchange Commission on March 11, 2011. Certain prior year amounts have been
reclassified to conform to the current presentation.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in consolidation.

The results of operations for the three and six months ended July 3, 2011 are not necessarily indicative of
results that may be expected for future quarters or for the entire year ending December 31, 2011.

Fiscal YearThe Company's fiscal year ends on December 31. The Company closes its first fiscal quarter on the Sunday
closest to March 31.  The second and third fiscal quarters are each 13 weeks long and the fourth quarter closes on December 31.

Management EstimatesThe preparation of the condensed consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those
estimates.

Liquidity and Management PlansAt July 3, 2011, the
Company had an accumulated deficit of $566.1 million. The Company has incurred operating losses and generated negative cash flows
for the last three years. As of July 3, 2011, the Company had cash, cash equivalents and restricted cash of $42.9 million and working
capital of $58.9 million.The Company believes that these balances will be sufficient to
fund its working and other capital requirements over the course of the next twelve months.The Company's operations require careful management of its cash and working capital
balances. The Company's liquidity is affected by many factors including, among others, fluctuations in its revenue, gross profits and
operating expenses, as well as changes in its operating assets and liabilities. The cyclicality of the semiconductor industry makes it
difficult to predict the Company's future liquidity needs with certainty. Any upturn in the semiconductor industry would result in
short-term uses of cash to fund inventory purchases and accounts receivable. Alternatively, any renewed softening in the demand for the
Company's products or ineffectiveness of its cost reduction efforts may cause the Company to incur additional losses in the future and
lower its cash balances.


5The Company may need additional
funds to support its working capital requirements, operating expenses or for other requirements. Historically, the Company has relied on
a combination of fundraising from the sale and issuance of equity securities (such as its common stock offering in May 2011) and cash
generated from product, service and royalty revenues to provide funding for its operations. The Company intends to continue to review
its expected cash requirements, make commercially reasonable efforts to collect any aged receivables, and take appropriate cost
reduction measures to ensure that the Company has sufficient liquidity. The Company periodically reviews its liquidity position and may
decide to raise additional funds, and may seek them from a combination of sources including issuance of equity or debt securities
through public or private financings. In the event additional needs for cash arise, the Company may also seek to raise these funds
externally through other means, such as the sale of assets. The availability of additional financing will depend on a variety of factors,
including among others, market conditions, the general availability of credit to the financial services industry and the Company's credit
ratings. As a consequence, these financing options may not be available on a timely basis, or on terms acceptable to the Company,
and could be dilutive to our stockholders. The Company's current liquidity position may result in risks and uncertainties affecting its
operations and financial position, including the following: the Company may be required to reduce planned expenditures or investments;
the Company may be unable to compete in its newer or developing markets; the Company may not be able to obtain and maintain
normal terms with suppliers; suppliers may require standby letters of credit before delivering goods and services, which will result in
additional demands on the Company's cash; customers may delay or discontinue entering into contracts with the Company; and the
Company's ability to retain management and other key individuals may be negatively affected. Failure to generate sufficient cash flows
from operations, raise additional capital or reduce spending could have a material adverse effect on the Company's ability to achieve its
intended long-term business objectives.

Revenue RecognitionThe Company derives revenues from the following primary sources - equipment (tool) sales, spare part
sales and service and maintenance contracts.  In accordance with the authoritative guidance on revenue recognition, the Company
recognizes revenue on equipment sales as follows: 1) for equipment sales of existing products with new specifications and for sales of
new products, revenue is recognized upon customer acceptance; 2) for equipment sales to existing customers who have purchased the
same equipment with the same specifications and previously demonstrated acceptance, or equipment sales to new customers
purchasing existing products with established reliability, the Company recognizes revenue on a multiple element approach in which
revenue is recognized upon the delivery of the separate elements to the customer and when the Company receives customer
acceptance or is otherwise released from its customer acceptance obligations.  For multiple element arrangements initiated at or prior
to December 31, 2010, the revenue relating to the undelivered elements is deferred at its estimated fair values until delivery of the
deferred elements; and for arrangements initiated or materially modified subsequent to December 31, 2010 containing multiple
elements, the revenue relating to the undelivered elements is deferred using the relative selling price method, which allocates revenue
to each element using the estimated selling prices for the deliverables when vendor-specific objective evidence or third-party evidence
is not available. The maximum revenue the Company recognizes on a delivered element is limited to the amount that is not contingent
upon the delivery of additional items such as installation and customer acceptance. Under this approach, generally 90 percent of the
total invoice amount is recognized as revenue upon shipment and transfer of title; 100 percent of the associated tool costs is also
recognized upon shipment; and the remaining portion, generally 10 percent of the total invoice amount, is contingent upon customer
acceptance and is recognized once installation services are completed and final customer acceptance of the tool is received. From time
to time, the Company allows customers to evaluate systems, with the customer maintaining the right to return the systems at its
discretion with limited or no penalty. For this type of arrangement, the Company does not recognize revenue on the evaluation systems
until customer acceptance is received. For spare parts, the Company recognizes revenue upon shipment. For service and maintenance
contracts, the Company recognizes revenue on a straight-line basis over the service period of the related contract. In all cases, revenue
is only recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and
collectability is reasonably assured. Accounts receivable for which revenue has not been recognized are classified as advance
billings.

Recent Accounting PronouncementsIn October 2009, the Financial Accounting Standards Board ("FASB") issued an
amendment to its previously released guidance related to revenue recognition for sales arrangements with multiple deliverables.  The
amended guidance requires an entity at the inception of an arrangement to allocate the arrangement's consideration to all of its6deliverables using the relative selling price method, which allows for management's best estimate of a deliverable's selling price when
vendor-specific or other third-party evidence of fair value are not available.  The residual method of allocating consideration, required
under previous guidance, is no longer permitted.  Effective January 1, 2011, the Company adopted this guidance for
revenue arrangements entered into or materially modified on or after that date.  The adoption of this guidance did not have a material
impact on the Company's condensed consolidated financial statements.

This guidance did not change the units of accounting for the Company's revenue transactions. The Company
typically recognizes revenue on equipment sales as follows: 1) for equipment sales of existing products with new specifications and for
sales of new products, revenue is recognized upon customer acceptance; 2) for equipment sales to existing customers who have
purchased the same equipment with the same specifications and previously demonstrated acceptance, or equipment sales to new
customers purchasing existing products with established reliability, the Company recognizes revenue on a multiple element approach in
which the Company bifurcates such sale transactions into two separate elements.  For multiple element arrangements initiated at or
prior to December 31, 2010, the revenue relating to the undelivered elements is deferred at its estimated fair values until delivery of the
deferred elements; and for arrangements initiated or materially modified subsequent to December 31, 2010 containing multiple
elements, the revenue relating to the undelivered elements is deferred using the relative selling price method, which allocates revenue
to each element using the estimated selling prices for the deliverables when vendor-specific objective evidence or third-party evidence
is not available.

In May 2011, the FASB issued Accounting Standards Update ("ASU") 2011-04, an
amendment to Accounting Standards Codification ("ASC") 820, Fair Value Measurements, providing a consistent
definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial
Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value
measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. This amendment
will be effective for the Company's fiscal year beginning January 1, 2012. The adoption of this amendment is not expected to
have a material effect on the Company's condensed consolidated financial statements, but may require certain additional disclosures.

In June 2011, the FASB issued ASU No. 2011-05, which amends current comprehensive
income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as
part of the statement of stockholders' equity.  Instead, the Company must report comprehensive income in either a single
continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or in two
separate but consecutive statements.  ASU 2011-05 will be effective for the Company's fiscal year beginning January 1, 2012.
 The adoption of this update will not have an impact on the Company's condensed consolidated financial position, results of
operations or cash flows as it only requires a change in the format of the current presentation.

There were no other recent accounting pronouncements or changes in accounting pronouncements during the
six months ended July 3, 2011, as compared to the recent accounting pronouncements described in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2010, that are of significance or potential significance to the Company.


72.	Balance Sheet Details

The Company's cash and cash equivalents, short-term investments and restricted cash as of July 3, 2011 and
December 31, 2010 are carried at fair market value, as shown below:

July 3,

December 31,2011

2010(thousands)Cash and cash equivalents:Cash in bank

$        19,995

$          13,978Money market funds

20,050

2,885$        40,045

$          16,863Short-term investments:United States agency securities

$                     -

$             2,151Restricted cash:Certificates of deposit

$           2,830

$             4,026As of July 3, 2011 and December 31, 2010, the Company had restricted cash of $2.8 million and $4.0 million,
respectively, which is securing standby letters of credit provided to certain landlords and vendors, as more fully described in Note 6.

The Company did not have any short-term investments as of July 3, 2011.  All short-term investments as of
December 31, 2010 were considered available-for-sale and were marked to market, with unrealized gains
and losses recorded as a component of other comprehensive income.  As of December 31, 2010, all short-term investments had
contractual maturities due within one year.

Components of inventories as of July 3, 2011 and December 31, 2010 are shown below:

July 3,

December 31,2011

2010(thousands)Inventories:Purchased parts and raw materials

$        13,482

$          14,266Work-in-process

9,955

9,225Finished goods

8,233

11,182$        31,670

$          34,673Components of property and equipment as of July 3, 2011 and December 31, 2010 are shown below:

July 3,

December 31,2011

2010(thousands)Property and equipment, net:Machinery and equipment

$        51,331

$          52,608Furniture and fixtures

11,268

10,741Leasehold improvements

18,745

17,81381,344

81,162Less: accumulated depreciation

(68,678)

(66,151)$        12,666

$          15,0118Components of accrued liabilities as of July 3, 2011 and December 31, 2010 are shown below:

July 3,

December 31,2011

2010(thousands)Accrued liabilities:Compensation and benefits

$           6,764

$             5,941Warranty

4,085

2,539Value-added tax

1,203

748Restructuring

338

436Other

6,666

3,788$        19,056

$          13,452Components of other liabilities as of July 3, 2011 and December 31, 2010 are shown below:

July 3,

December 31,2011

2010(thousands)Other liabilities:Deferred revenue, non-current

$           2,625

$             2,875Other

2,336

2,146$           4,961

$             5,0213.	Fair Value

The Company's cash and cash equivalents, short-term investments and restricted cash are carried at
fair value, and its accounts receivable and accounts payable are valued at their carrying amounts which approximate fair value due to
their short-term nature. The Company had no debt outstanding as of July 3, 2011.

Assets and Liabilities Measured at Fair Value on a Recurring BasisAssets and liabilities measured at fair value on a recurring basis are shown in the table below by their
corresponding balance sheet caption and consisted of the following types of instruments as of July 3, 2011 and December 31, 2010:

July 3, 2011

December 31, 2010Fair Value Measurements at

Fair Value Measurements atReporting Date Using

Reporting Date Using(Level 1)

(Level 2)

Total

(Level 1)

(Level 2)

Total(thousands)

(thousands)Assets measured at fair value:Cash equivalents:Money market funds


$ 20,050

$                     -

$ 20,050

$   2,885

$                     -

$     2,885Short-term investments:United States agency securities


-

-

-

2,151

-

2,151Other assets:Equity instruments


144

-

144

164

-

164Total assets measured at fair value


$ 20,194

$                     -

$ 20,194

$   5,200

$                     -

$     5,200Liabilities measured at fair value:Other liabilities:Deferred compensation


$         144

$                     -

$         144

$        164

$                     -

$          1649Equity instruments in the preceding table represent plan assets under the Company's Deferred Compensation
Plan, which offset corresponding deferred compensation plan liabilities as of the dates presented.
4.	Intangible Assets

The Company's identified intangible assets consisted of the following as of July 3, 2011 and December 31, 2010:

July 3,

December 31,2011

2010(thousands)Intangibles, net:Developed technology



$               1,250

$               1,250Accumulated amortization



(375)

(250)$                    875

$               1,000For the three months ended July 3, 2011 and June 27, 2010, the Company recorded amortization expense of
approximately $0.1 million each period.  For the six months ended July 3, 2011 and June 27, 2010, the Company recorded amortization
expense of approximately $0.1 million each period.
5.	Restructuring Charges

In 2008 and 2009, the Company implemented several restructuring programs, resulting in restructuring charges
principally comprised of employee severance costs and lease contract termination costs. The following table summarizes changes in
the restructuring accrual for the three and six months ended July 3, 2011 and June 27, 2010:

Three Months Ended July 3, 2011

Three Months Ended June 27, 2010Employee

Contract



Employee

ContractSeverance

Termination



Severance

TerminationCosts

Costs

Total

Costs

Costs

Total(thousands)

(thousands)Beginning balance
$                -

$         392

$         392

$          135

$         477

$         612Payments
-

(56)

(56)

(11)

-

(11)Reserve adjustments
-

(13)

(13)

(3)

(93)

(96)Foreign currency changes
-

15

15

-

-

-Ending balance
$                -

$         338

$         338

$          121

$         384

$         505Six Months Ended July 3, 2011

Six Months Ended June 27, 2010Employee

Contract



Employee

ContractSeverance

Termination



Severance

TerminationCosts

Costs

Total

Costs

Costs

Total(thousands)

(thousands)Beginning balance
$               94

$         342

$         436

$             89

$         520

$         609Payments
-

(56)

(56)

(24)

-

(24)Reserve adjustments
(94)

16

(78)

56

(136)

(80)Foreign currency changes
-

36

36

-

-

-Ending balance
$                -

$         338

$         338

$          121

$         384

$         505Remaining employee severance cost contingencies were resolved in the first quarter of 2011. The Company is
currently engaged in an ongoing negotiation with a landlord with respect to a lease contract termination, and the payment of the lease
termination expense depends on the timing of a final agreement with the landlord.

106. 	Commitments and Contingencies


WarrantyThe following table summarizes changes in the product warranty accrual for the three and six months ended
July 3, 2011 and June 27, 2010:

Three Months Ended

Six Months EndedJuly 3,

June 27,

July 3,

June 27,2011

2010

2011

2010(thousands)

(thousands)Beginning balance

$           2,954

$           1,808

$           2,539

$           1,310Warranties issued in the period

988

775

2,077

1,611Costs to service warranties

(617)

(634)

(1,610)

(928)Warranty accrual adjustments

760

145

1,079

101Ending balance

$           4,085

$           2,094

$           4,085

$           2,094GuaranteesIn the ordinary course of business, the Company's bank provides standby letters of credit or other guarantee
instruments on behalf of the Company to certain parties as required.  The standby letters of credit are secured by certificates of deposit,
which are classified as restricted cash in the accompanying condensed consolidated balance sheets.  The Company has never
recorded any liability in connection with these guarantee arrangements beyond what is required to appropriately account for the
underlying transaction being guaranteed. The Company does not believe, based on historical experience and information currently
available, that it is probable that any amounts will be required to be paid under such guarantee arrangements. As of July 3, 2011, the
maximum potential amount that the Company could be required to pay was $2.8 million, the total amount of outstanding standby letters
of credit, which were secured by $2.8 million of certificates of deposit.
In connection with the Company's acquisition of Vortek Industries, Ltd ("Vortek") in 2004, the
Company became party to an agreement between Vortek and the Canadian Minister of Industry (the "Ministry") relating to
an investment in Vortek by Technology Partnerships Canada. Under the agreement, as amended, the Company or Vortek (renamed
Mattson Technology, Canada, Inc. or "MTC") agreed to various conditions, including (i) payment by the Company of a royalty to the
Ministry of 1.4 percent of revenues from certain Flash RTP products, up to a total of CAD 14.3 million (approximately $14.9 million
based on the applicable exchange rate as of July 3, 2011), (ii) MTC maintaining a specified average workforce of employees in Canada
through October 27, 2009, (iii) investment of a certain amount by October 27, 2009 and (iv) certain other provisions concerning
protection of intellectual property rights and other terms. Under the provisions of this agreement, if the Company, or MTC, did not
materially satisfy its obligations pursuant to the covenants, the Ministry could have demanded payment of liquidated damages in the
amount of CAD 14.3 million less any royalties paid by MTC or the Company to the Ministry. The Company is no longer subject to the
conditions under (ii) and (iii), as discussed above; but is still subject to the payment of royalties on revenues from the sale of Flash RTP
products through 2020. If MTC is dissolved, files for bankruptcy, or MTC or the Company do not materially comply with certain material
terms and conditions of the contract prior to its termination on February 15, 2021 or upon earlier payment of the maximum royalty
obligations, the Company could be subject to liquidated damages in the amount of CAD 14.3 million less any royalties paid by MTC or
the Company to the Ministry.
The Company is a party to various agreements, pursuant to which it may be obligated to indemnify other parties
with respect to certain matters. Typically, these obligations arise in the context of contracts under which the Company may agree to
hold other parties harmless against losses arising from a breach of representations or with respect to certain intellectual property,
operations or tax-related matters. The Company's obligations under these agreements may be limited in terms of time and/or amount,
and in some instances, the Company may have defenses to asserted claims and/or recourse against third parties for payments made
by the Company. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due
to the conditional nature of the Company's obligations and the unique facts and circumstances involved in each particular agreement.
Historically, payments made by the Company under these agreements have not had a material effect on the Company's financial
position, results of operations or cash flows. The Company believes if it were to incur a loss in11any of these matters, such loss would not have a material effect on its financial position, results of operations or cash flows.

Government AgenciesAs an exporter, the Company must comply with various laws and regulations relating to the export of
products and technology from the U.S. and other countries having jurisdiction over the Company's operations. In the U.S. these laws
include the International Traffic in Arms Regulations ("ITAR"), the Export Administration Regulations ("EAR")
administered by the Bureau of Industry and Security ("BIS"), and trade sanctions against embargoed countries and
destinations administered by the U.S. Department of Treasury, Office of Foreign Assets Control ("OFAC"). These laws
govern products, parts, technology and software which present military or weapons proliferation concerns, so-called "dual
use" items. Prior to shipping certain items, the Company must obtain an export license or verify that license exemptions are
available.  In addition, the Company must comply with certain requirements related to documentation, record keeping, plant visits and
hiring of foreign nationals. In 2008, the Company self-disclosed to BIS certain inadvertent EAR violations and this matter is pending with
BIS.  Any failures to comply with these laws and regulations could result in fines, adverse publicity and restrictions on the Company's
ability to export its products, and repeat failures could carry more significant penalties.
While at this time the Company is unable to estimate the extent of any fines or penalties or other potential losses that it may incur
with respect to this matter, the Company believes that it is unlikely that the ultimate outcome would have a material adverse effect
on the Company.

LitigationIn the ordinary course of business, the Company is subject to claims and litigation, including claims that it
infringes third party patents, trademarks and other intellectual property rights. Although the Company believes that it is unlikely that any
current claims or actions will have a material adverse impact on its operating results or its financial position, given the uncertainty of
litigation, the Company cannot be certain of this. The defense of claims or actions against the Company, even if not meritorious, could
result in the expenditure of significant financial and managerial resources.

The Company records a legal liability when it believes it is both probable that a liability has been incurred, and
the amount can be reasonably estimated. The Company monitors developments in its legal matters that could affect the estimate it has
previously accrued. Significant judgment is required to determine both probability and the estimated amount.
7.  Stockholders' Equity
Common Stock

On May 16, 2011, the Company completed a registered public offering of 7,820,000 shares of
the Company's common stock. The common stock was issued at a price to the public of $1.80 per share.  The Company received net
proceeds of approximately $12.6 million from the offering after deducting underwriting discounts and estimated offering
expenses of $1.4 million.

Common Stock Repurchase ProgramIn March 2007, the Company's Board of Directors approved a common stock repurchase plan
("Repurchase Plan") that authorized the repurchase of up to $20.0 million of outstanding shares of the Company's common
stock through open-market purchases or private transactions. In October 2007, the Company's Board of Directors expanded the
Repurchase Plan, authorizing the repurchase of up to an additional $30 million of shares of the Company's common stock through
open-market purchases or private transactions. By December 31, 2008, a total of 3.8 million shares had been repurchased against the
original and expanded Repurchase Plan, at a weighted-average purchase price of $9.20 for a total purchase price of approximately $35
million. The Company's last repurchase of common stock under this plan was in the first quarter of 2008.  On May 2, 2011, the
Company terminated the Repurchase Plan.


Accumulated Other Comprehensive IncomeAccumulated other comprehensive income as of July 3, 2011 and
December 31, 2010 was $23.0 million and $20.2 million, respectively, comprised primarily of cumulative translation gains.



128.  Employee Stock Plans

As of July 3, 2011, the Company had approximately 1.6 million shares available for future grants under the
Company's 2005 Equity Incentive Plan (the "2005 Plan"). The following table summarizes the combined activity under all of
the Company's equity incentive plans for the six months ended July 3, 2011:

Weighted-

Restricted

Weighted-Awards

Stock

Average

Stock

AverageAvailable

Options

Exercise

Units

Grant DateFor Grant

Outstanding

Price

Outstanding

Fair Value(thousands)

(thousands)



(thousands)Balances at December 31, 2010

2,263

6,278

$          5.51

343

$          3.67Stock options:Granted


(1,270)

1,270

$          2.39

-

-Exercised


-

(47)

$          1.01

-

-Cancelled or forfeited


576

(576)

$          9.09

-

-Restricted stock units:Granted


-

-

-

-

-Released


12

-

-

(18)

$          6.14Cancelled or forfeited


1

-

-

(1)

$          5.65Balances at July 3, 2011

1,582

6,925

$          4.67

324

$          3.53Stock OptionsStock options granted under the 2005 Plan are for periods not to exceed seven years. Generally, options to
purchase stock under the 2005 Plan are granted at exercise prices that are at least 100 percent of the fair market value of the
Company's common stock on the date of grant. Generally, 25 percent of the options vest on the first anniversary of the vesting
commencement date, and the remaining options vest 1/36 per month for the next 36 months thereafter.

During the three months ended July 3, 2011 and June 27, 2010, the Company granted options to purchase 0.1
million shares of common stock each period, with an estimated total grant-date fair value of $0.1 million and $0.4 million, respectively.
During the six months ended July 3, 2011 and June 27, 2010, the Company granted options to purchase 1.3 million and 1.4 million
shares of common stock, respectively, with an estimated total grant-date fair value of $1.9 million and $2.7 million, respectively.

Supplemental disclosure information about the Company's stock options outstanding as of July 3, 2011:

Weighted-Weighted-

AverageAverage

Remaining

AggregateExercise

Contractual

IntrinsicShares

Price

Life

Value(thousands)



(in years)

(thousands)Stock options:Outstanding options

6,925

$           4.67

4.4

$       1,140Vested and exercisable options

4,339

$           5.84

3.5

$            876The aggregate intrinsic value shown in the table above represents the total pretax intrinsic value, based on the
Company's closing stock price of $1.97 as of July 1, 2011, which would have been received by the option holders had all option holders
exercised their "in-the-money" options at that date. The Company settles employee exercises of options with newly issued
shares of common stock.
Restricted Stock Units ("RSUs")The Company's 2005 Plan provides for grants of time-based and performance-based RSUs.

13Time-Based Restricted Stock UnitsGenerally, 25 percent of the time-based RSUs vest on each anniversary of the vesting commencement date or
date of grant. On occasion, the Company grants time-based RSUs for varying purposes with different vesting schedules. Time-based
RSUs granted under the 2005 Plan are counted against the total number of shares of common stock available for grant under the plan
at 1.75 shares of common stock for every one share of common stock subject thereto.

During the three and six months ended July 3, 2011 and June 27, 2010, the Company did not grant any time-based RSUs.
The associated stock-based compensation expense on time-based RSUs is determined based on the fair value of the
Company's common stock on the date of grant of the RSU and recognized over the vesting period.

Performance-Based Restricted Stock UnitsThe vesting of performance-based RSUs is contingent on the Company's achievement of certain
predetermined financial goals and in some cases, the achievement of certain market performance. The amount of stock-based
compensation expense recognized in any one period can vary based on the achievement or anticipated achievement of specific
performance goals. If a performance goal is not met or is not expected to be met, no compensation cost would be recognized on the
underlying RSUs, and any previously recognized compensation expense on those RSUs would be reversed.

During the first quarter of 2008, the Company's Board of Directors approved the grant of 0.7 million
performance-based RSUs to certain of its senior-level management, with vesting in four equal tranches upon the achievement of four
sequentially increasing revenue performance targets and contingent on the achievement of certain operating profit margin and stock
price thresholds. By December 31, 2008, the Company determined that due to the deteriorating market conditions during the fourth
quarter of 2008, it was not probable that any of the four revenue targets and the operating profit targets would be met by the specified
dates. As a result, the stock-based compensation related to these RSUs was deemed unrecognizable. Since the fourth quarter of 2008,
the Company has cancelled a total of 0.4 million of these performance-based RSUs based on employee terminations, leaving 0.3
million units outstanding as of July 3, 2011.  If and when the Company determines that the related targets are probable of being
achieved, the Company will begin recognizing expenses in the period that such determination is made. The outstanding performance-based
RSUs will expire during the first quarter of 2012 if the performance targets are not achieved by then. The Company did not
record any compensation expense related to these performance-based RSUs during the three and six months ended July 3, 2011 and
June 27, 2010.

Supplemental disclosure information about the Company's stock options and RSUs with time-based vesting is
as follows:

Three Months Ended

Six Months EndedJuly 3,

June 27,

July 3,

June 27,2011

2010

2011

2010(thousands, except weighted-

(thousands, except weighted-average fair values)

average fair values)Stock options:Weighted-average fair value of options granted

$               2.22

$               2.96

$           2.39

$           1.99Intrinsic value of options exercised (1)

$                    15

$               110

$                69

$           224Cash received from options exercised

$                    10

$                    22

$                48

$                59Restricted stock units with time-based vesting:Weighted-average fair value oftime-based RSUs granted

$                  -

$               3.96

$                  -

$           3.96(1)Amount represents the difference between the
exercise price of the option and the Company's closing stock price on the date of exercise.149.	Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with the applicable authoritative guidance,
which requires the measurement of stock-based compensation on the date of grant based on the fair value of the award, and the
recognition of the expense over the requisite service period for the employee.
Valuation AssumptionsThe Company uses the Black-Scholes valuation model to determine the fair value of stock options. The Black-
Scholes model requires the input of subjective assumptions, which are summarized in the table below for the three and six months
ended July 3, 2011 and June 27, 2010:

Three Months Ended

Six Months EndedJuly 3,

June 27,

July 3,

June 27,2011

2010

2011

2010Expected dividend yield

-

-

-

-Expected stock price volatility

77%

74%

77%

74%Risk-free interest rate

1.7%

2.2%

2.1%

2.3%Expected life of options in years

5

5

5

5The Company estimates the expected life of options based on an analysis of its historical experience of
employee exercise and post-vesting termination behavior considered in relation to the contractual life of the option; expected volatility is
based on the historical volatility of the Company's common stock; and the risk-free interest rate is equal to the U.S. Treasury
rates, with maturity approximating the expected life of the option. The Company does not currently pay cash dividends on its common
stock and does not anticipate doing so in the foreseeable future; accordingly, the expected dividend yield is 0 (zero) percent.

The Company's stock-based compensation expense for the three and six months ended July 3, 2011 and June
27, 2010 was as follows:

Three Months Ended

Six Months EndedJuly 3,

June 27,

July 3,

June 27,2011

2010

2011

2010(thousands)Stock-based compensation by type of award:Stock options


$           640

$           546

$        1,320

$        1,083Restricted stock units


30

69

68

164Employee stock purchase plan


5

10

15

20$           675

$           625

$        1,403

$        1,267Stock-based compensation by category of expense:Cost of sales


$              22

$              17

$                 56

$                 35Research, development and engineering


115

87

241

190Selling, general and administrative


538

521

1,106

1,042$           675

$           625

$        1,403

$        1,267The Company did not capitalize any stock-based compensation as inventory for the three and six months ended
July 3, 2011 and June 27, 2010 as such amounts were inconsequential.

As of July 3, 2011, the Company had $3.1 million in unrecognized stock-based compensation expense related
to stock options, net of estimated forfeitures, which will be recognized over a weighted-average period of 2.8 years.  As of July 3, 2011,
the Company had $0.1 million in unrecognized stock-based compensation expense related to unvested time-based RSUs outstanding,
net of estimated forfeitures, which will be recognized over a weighted-average period of 0.5 years.


1510.	Reportable Segments

The Company has one reportable segment - designing, manufacturing and marketing of advanced fabrication
equipment to the semiconductor manufacturing industry.  All Company revenues and profits are generated from the sales of systems
and services in this business segment, whose chief operating decision maker is the Company's Chief Executive Officer.

The following shows net sales by geographic areas based on the installation locations of systems sold and the
locations of services rendered:

Three Months Ended

Six Months EndedJuly 3, 2011

June 27, 2010

July 3, 2011

June 27, 2010(thousands)

%

(thousands)

%

(thousands)

%

(thousands)

%Net sales:United States
$       1,740

3

$            991

3

$       2,823

3

$       1,950

3Korea
21,388

42

18,848

59

43,521

44

34,841

61Taiwan
14,378

28

4,964

15

23,332

24

5,636

10China
3,643

7

3,207

10

10,218

10

4,387

8Japan
3,455

7

487

2

6,234

6

1,745

3Other Asia
2,965

6

2,074

6

4,391

5

5,869

10Europe and others
3,690

7

1,549

5

7,789

8

2,887

5$    51,259

100

$    32,120

100

$    98,308

100

$    57,315

100In the three months ended July 3, 2011, two customers accounted for 38 percent and 14 percent of net sales,
respectively. In the three months ended June 27, 2010, two customers accounted for 46 percent and 14 percent of net sales,
respectively.  In the six months ended July 3, 2011, two customers accounted for 39 percent and 14 percent of net sales, respectively.
In the six months ended June 27, 2010, two customers accounted for 50 percent and 13 percent of net sales, respectively.

As of July 3, 2011, two customers accounted for 35 percent and 27 percent of the Company's accounts
receivable balance, respectively. As of December 31, 2010, four customers accounted for 19 percent, 13 percent, 11 percent and 11
percent of the Company's accounts receivable balance, respectively.

Geographical information relating to the Company's property and equipment, net, as of July 3, 2011 and
December 31, 2010 is as follows:

July 3,

December 31,2011

2010(thousands)Property and equipment, net:United States

$               7,730

$              9,880Germany

1,833

2,236Canada

2,500

2,507Others

603

388$            12,666

$           15,01111.	Income Taxes

On a quarterly basis, the Company evaluates its expected income tax expense or benefit based on its year-to-date
operations, and records an adjustment in the current quarter.  The net tax provision (benefit) is the result of the mix of
profits earned by the Company and its subsidiaries in tax jurisdictions with a broad range of income tax rates.  For the six months
ended July 3, 2011 and June 27, 2010, the Company recorded a $0.1 million benefit from income taxes and a $0.4 million provision for
income taxes, respectively. The provision for (benefit from) income taxes primarily consists of provisions or benefits from foreign taxes.
The $0.1 million tax benefit for the six months ended July 3, 2011 includes a $0.4 million tax benefit related to the release of uncertain
tax benefits due to a lapse of the statute of limitations, offset by a tax provision of $0.3 million.

16As of December 31, 2010, the Company had $27.1 million of unrecognized tax benefits exclusive of interest and
penalties described below.  Included in the $27.1 million are approximately $3.0 million of unrecognized tax benefits (net of
federal benefit) that, if recognized, would favorably affect the effective tax rate in a future period, before consideration of changes in the
valuation allowance. The Company believes that it is reasonably possible that there will be a decrease of $1.6 million in its
unrecognized tax benefits exclusive of interest and penalties within the next twelve months.

The Company's practice is to recognize interest and/or penalties related to unrecognized tax benefits in income
tax expense. As of December 31, 2010, the Company had $1.2 million accrued for estimated interest and $0.1 million accrued for
estimated penalties. For the six months ended July 3, 2011, the recorded income tax benefit included estimated interest expense of
$0.1 million.

The Company and its subsidiaries are subject to United States federal income tax as well as to income taxes in
various foreign and state jurisdictions. The Company's federal and state income tax returns are generally not subject to examination by
tax authorities for years before 2007 and 2006, respectively.  The Company had no tax audits in progress as of July 3,
2011.
12.	Net Loss Per Share

The Company presents both basic and diluted earnings per share on the face of its condensed consolidated
statements of operations.  Basic earnings per share are computed by dividing net income by the weighted-average number of shares of
common stock outstanding for the period. Diluted earnings per share are computed using the weighted-average number of shares of
common stock outstanding plus the effect of all dilutive securities representing potential shares of common stock outstanding during the
period. For the purposes of computing diluted earnings per share, weighted average common stock equivalents do not include stock
options with an exercise price that exceeded the average market price of the Company's common stock for the period.

The following table summarizes the incremental shares of common stock from these potentially dilutive
securities, calculated using the treasury stock method:

Three Months Ended

Six Months EndedJuly 3,

June 27,

July 3,

June 27,2011

2010

2011

2010(thousands)

(thousands)Weighted-average shares outstanding - Basic

54,550

50,052

52,395

50,018Diluted potential common shares from stockoptions and restricted stock units

-

-

-

-Weighted-average shares outstanding - Diluted

54,550

50,052

52,395

50,018On May 16, 2011, the Company completed a registered public offering of 7,820,000 shares of the
Company's common stock.  These shares are included on a weighted-average basis for the three month and six month periods ending
July 3, 2011.

All outstanding stock options and restricted stock units are potentially dilutive securities, and as of July 3, 2011
and June 27, 2010, the combined total of stock options and RSUs outstanding were 7.2 million and 6.4 million, respectively.  However,
since the Company had net losses for the three and six months ended July 3, 2011 and June 27, 2010, no potentially dilutive securities
were included in the computation of diluted shares for those years as inclusion of such shares would have been anti-dilutive.
Accordingly, basic and diluted net loss per share were the same in each period reported.

1713.	Comprehensive Loss

The components of comprehensive loss are:

Three Months Ended

Six Months EndedJuly 3,

June 27,

July 3,

June 27,2011

2010

2011

2010(thousands)Net loss

$            (5,213)

$             (8,380)

$          (11,487)

$          (19,136)Cumulative translation adjustments

859

(2,344)

2,687

(3,669)Unrealized investment gain (loss)

116

1

118

(8)Comprehensive loss

$            (4,238)

$          (10,723)

$             (8,682)

$          (22,813)



18Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains forward-looking statements, which are subject to the Safe Harbor
provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on
management's current expectations and beliefs, including estimates and projections about our industry. Our forward-looking statements
may include statements that relate to our future revenue, gross margin, earnings, cash flow and cash position; growth of the industry
and the size of our served available market; the timing of significant customer orders for our products; customer acceptance of
delivered products and our ability to collect amounts due upon shipment and upon acceptance; end-user demand for semiconductors,
including the growing mobility electronics industry; customer demand for semiconductor manufacturing equipment, including as a result
of greenfield fab plans; our ability to timely manufacture, deliver and support ordered products; our ability to bring new products to
market, to gain market share with such products and the overall mix of our products; customer rate of adoption of new technologies;
risks inherent in the development of complex technology; the timing and competitiveness of new product releases by our competitors;
margins; product development plans and levels of research, development and engineering activity; our ability to align our cost structure
with market conditions, including outsourcing plans, operating expenses, and the expected effects, cost and timing of restructurings; tax
expenses; excess inventory reserves, including the level of our vendor commitments as compared to our requirements; economic
conditions in general and in our industry; the impact of any litigation or investigation on our operating results or financial position; any
offering and sale of securities pursuant to our shelf registration statement or otherwise; and the sufficiency of our financial resources to
support future operations and capital expenditures. Forward-looking statements typically are identified by use of terms such as
"anticipates," "expects," "intends," "plans," "seeks," "estimates,"
"believes" and similar expressions, although some forward-looking statements are expressed differently. These statements
are not guarantees of future performance and are subject to numerous risks, uncertainties and assumptions that are difficult to predict.
Such risks and uncertainties include those set forth in Part II, Item 1A under "Risk Factors" and this Part I, Item 2 under
"Management's Discussion and Analysis of Financial Condition and Results of Operations."  Our actual results could differ
materially from those anticipated by these forward-looking statements. The forward-looking statements in this report speak only as of
the time they are made and do not necessarily reflect our outlook at any other point in time. We undertake no obligation to update
publicly any forward-looking statements, whether as a result of new information, future event, or for any other reason.


This discussion should be read in conjunction with the condensed consolidated financial statements and
notes presented in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes in our last filed Annual
Report on Form 10-K for the year ended December 31, 2010 (the "2010 Form 10-K").

We are a supplier of semiconductor wafer processing equipment used in the fabrication of integrated
circuits ("ICs"). Our manufacturing equipment is used for semiconductor manufacturing and back-end packaging. Our
manufacturing equipment utilizes innovative technology to deliver advanced processing capabilities and high productivity for the
fabrication of current and next-generation ICs. We were incorporated in California in 1988 and reincorporated in Delaware in 1997.

Our business depends upon capital expenditures by manufacturers of semiconductor devices. The level of
capital expenditures by these manufacturers depends upon the current and anticipated market demand for such devices. Because the
demand for semiconductor devices is highly cyclical, the demand for wafer processing equipment is also highly cyclical. The
semiconductor equipment industry is typically characterized by wide swings in operating results as the industry moves through its cycle.
In 2010, our customers responded to an increasing demand for advanced products, expanding production by shrinking the chip size
thus increasing the number of chips that could be produced on the wafer.  This technology-driven phase of the cycle lasted roughly
through the first half of 2010.  As demand for chips continued through 2010, the technology phase of the expansion was replaced by a
capacity-driven phase, in which our customers added to the number of wafers being produced in their existing factories.  The second
half of 2010 was generally characterized by this capacity expansion phase as customers purchased equipment and in some cases filled
their existing facilities. As these facilities were nearing completion, many of our larger customers started building new facilities or
"greenfield" sites in preparation for their expected next round of expansion.  In some cases, tool purchases for this
greenfield expansion has started and we are beginning to see a new round of memory expansion primarily driven by NAND flash
technology in support of the new tablet products, smartphones and the solid state drives for computing.


19For 2011, our new positions in etch and RTP, added to our broad strip base, expand our available market,
especially in the new greenfield fabs, and transition us from productivity-driven markets into more technology-driven markets.
Our etch products, the paradigmE and Alpine, are targeted to meet the stringent requirements of advanced dielectric etch as well as packaging
applications. In the first half of 2011, we benefited from our strategic investment in our etch product line by recording and shipping many
paradigmE etch orders to a leading semiconductor manufacturer for volume manufacturing of advanced etch applications. We have
grown the etch business to over one-third of our total system revenue. The etch market represents a new market for us, and we believe
it is significantly larger than our other market sectors. In addition, we believe our etch product line will allow us to take better advantage
of future cycle ramps for technology-driven purchases in the semiconductor industry. During the second quarter of 2011, we
experienced the ninth consecutive quarter of sequential revenue growth in our business.  We continued to extend our etch products into
new applications including shipping our paradigmE product into one of the new greenfield fabs for NAND flash and selling our Alpine
etch product into a volume producer of packaging applications.  Elsewhere, our low-cost, high-volume strip product strategy appears to
be working as we announced a large shipment to the same greenfield NAND flash facility and in RTP our Helios product began
shipping to a customer expansion, again in the NAND flash sector.  We also announced a new customer penetration for our Millios milli-
second anneal product at an advanced 20 nanometer facility.

As of July 3, 2011, we had an accumulated deficit of $566.1 million. We have incurred operating losses and
generated negative cash flows for the last three years.  As of July 3, 2011, we had cash, cash equivalents and restricted cash of $42.9
million and working capital of $58.9 million.  We believe that these balances will be sufficient to fund our working and other capital
requirements over the course of the next twelve months.  Our operations require careful management of our cash and working capital
balances. Our liquidity is affected by many factors including, among others, fluctuations in our revenue, gross profits and operating
expenses, as well as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes it difficult for us
to predict our future liquidity needs with certainty.  We intend to continue to review our expected cash requirements, make commercially
reasonable efforts to collect any aged receivables, and take appropriate cost reduction measures to ensure that we have sufficient
liquidity. We may need additional funds to support our working capital requirements, operating expenses or for other requirements.  Weperiodically review our liquidity positionand may seekto raise
additional fundsfrom a combination of sources including issuance of equity or debt securities
through public or private financings (such as our common stock offering in May 2011). In the event additional needs for cash arise, we
may also seek to raise these funds externally through other means, such as the sale of assets.  The availability of additional financing
will depend on a variety of factors, including among others, market conditions, the general availability of credit to the financial services
industry and our credit ratings.  As a consequence, these financing options may not be available on a timely basis, or on terms
acceptable to us, and could be dilutive to our stockholders.  If adequate funds are not available or are not available on acceptable
terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited. Failure to
generate sufficient cash flows from operations, raise additional capital or reduce spending could have a material adverse effect on our
ability to achieve our intended long-term business objectives.

The success of our business will be dependent on numerous factors, including, but not limited to, the market
demand for semiconductors and semiconductor wafer processing equipment. Such factors will also include our ability to (a) significantly
grow the Company, either organically or through acquisitions, in order to enhance our competitiveness and profitability; (b) develop and
bring to market new products that address our customers' needs; (c) grow customer loyalty through collaboration with and support of
our customers; (d) maintain a cost structure that will enable us to operate effectively and profitably throughout changing industry cycles
and (e) generate the gross profits necessary to enable us to make the necessary investments in our business.

20

---



Results of Operations

The following table sets forth our condensed consolidated results of operations for
the periods indicated, along with comparative information regarding the absolute and percentage changes in these amounts:

|                                      |  | Three Months Ended |  |        |               |  |             |       
|------------------------------------- |  | ------------------ |  | ------ | ------------- |  | ----------- | ------
|                                      |  | July 3, 2011       |  |        | June 27, 2010 |  |             | Change
|                                      |  | (thousands)        |  | %      |               |  | (thousands) |       
|Net sales                             |  | $   51,259         |  | 100.0  |               |  | $  32,120   |       
|Cost of sales                         |  | 35,852             |  | 69.9   |               |  | 22,194      |       
|Gross profit                          |  | 15,407             |  | 30.1   |               |  | 9,926       |       
|Operating expenses:                   |  |                    |  |        |               |  |             |       
|Research, development and engineering |  | 6,645              |  | 13.0   |               |  | 7,059       |       
|Selling, general and administrative   |  | 12,803             |  | 25.0   |               |  | 12,558      |       
|Restructuring charges                 |  | (13)               |  | -      |               |  | (93)        |       
|Total operating expenses              |  | 19,435             |  | 38.0   |               |  | 19,524      |       
|Loss from operations                  |  | (4,028)            |  | (7.9)  |               |  | (9,598)     |       
|Interest income                       |  | 58                 |  | 0.1    |               |  | 30          |       
|Interest expense                      |  | -                  |  | -      |               |  | (30)        |       
|Other income (expense), net           |  | (969)              |  | (1.9)  |               |  | 1,425       |       
|Loss before income taxes              |  | (4,939)            |  | (9.7)  |               |  | (8,173)     |       
|Provision for income taxes            |  | 274                |  | 0.5    |               |  | 207         |       
|Net loss                              |  | $   (5,213)        |  | (10.2) |               |  | $   (8,380) |       
|                                      |  |                    |  |        |               |  |             |       
|(1)Not meaningful.                    |  |                    |  |        |               |  |            



|                                          |  | Six Months Ended |  |        |               |  |             |       
|----------------------------------------- |  | ---------------- |  | ------ | ------------- |  | ----------- | ------
|                                          |  | July 3, 2011     |  |        | June 27, 2010 |  |             | Change
|                                          |  | (thousands)      |  | %      |               |  | (thousands) |       
|Net sales                                 |  | $   98,308       |  | 100.0  |               |  | $  57,315   |       
|Cost of sales                             |  | 68,957           |  | 70.1   |               |  | 39,627      |       
|Gross profit                              |  | 29,351           |  | 29.9   |               |  | 17,688      |       
|Operating expenses:                       |  |                  |  |        |               |  |             |       
|Research, development and engineering     |  | 13,160           |  | 13.4   |               |  | 13,465      |       
|Selling, general and administrative       |  | 25,378           |  | 25.9   |               |  | 24,931      |       
|Restructuring charges                     |  | (78)             |  | (0.1)  |               |  | (77)        |       
|Total operating expenses                  |  | 38,460           |  | 39.2   |               |  | 38,319      |       
|Loss from operations                      |  | (9,109)          |  | (9.3)  |               |  | (20,631)    |       
|Interest income                           |  | 85               |  | 0.1    |               |  | 60          |       
|Interest expense                          |  | (48)             |  | (0.1)  |               |  | (62)        |       
|Other income (expense), net               |  | (2,475)          |  | (2.5)  |               |  | 1,883       |       
|Loss before income taxes                  |  | (11,547)         |  | (11.8) |               |  | (18,750)    |       
|Provision for (benefit from) income taxes |  | (60)             |  | (0.1)  |               |  | 386         |       
|Net loss                                  |  | $ (11,487)       |  | (11.7) |               |  | $ (19,136)  |       
|                                          |  |                  |  |        |               |  |             |       
|(1)Not meaningful.                        |  |                  |  |        |               |  |            

Net Sales

Net sales were $51.3 million for the three months ended July 3, 2011, an increase of approximately $19.2
million compared to $32.1 million for the three months ended June 27, 2010.  The increase reflects continued purchases of our core
products by our customers and the acceptance of the new etch position that we have entered into.

Net sales were $98.3 million for the six months ended July 3, 2011, an increase of approximately $41.0 million
compared to $57.3 million for the three months ended June 27, 2010. The increase in net sales for the first half of 2011 was primarily
due to significant sales of our etch products, coupled with increases in sales of substantially all of our other products.

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Cost of Sales

Cost of sales was $35.9 million for the three months ended July 3, 2011, an increase of $13.7 million
compared to $22.2 million for the three months ended June 27, 2010.  The increase was primarily due to costs associated with
increased product sales.  We also recorded $0.8 million in incremental warranty costs associated with new product introductions during
the three months ended July 3, 2011. Partially offsetting the year-over-year increase in product costs, cost of sales for the three months
ended June 27, 2010 included a $0.2 million charge for under-absorbed overhead, which due to higher manufacturing volumes was not
required in the current quarter.

Cost of sales was $69.0 million for the six months ended July 3, 2011, an increase of approximately $29.3
million compared to $39.6 million for the six months ended June 27, 2010.  The increase was primarily due to costs associated with
increased product sales.  We also recorded $1.1 million in incremental warranty costs associated with new product introductions.
Partially offsetting the year-over-year increase in product costs, cost of sales for the six months ended June 27, 2010 included a $1.1
million charge for under-absorbed overhead, which due to higher manufacturing volumes was not required in the current quarter.

Gross Profit

Gross profit for the three months ended July 3, 2011 was $15.4 million, an increase of $5.5 million compared to
$9.9 million for the three months ended June 27, 2010.  The increase was primarily due to the increase in sales and the reduction in
under-absorbed overhead costs.

For the three months ended July 3, 2011 and June 27, 2010, we sold $1.8 million and $1.1 million of
inventories, respectively, that were previously written-off as part of excess and obsolete inventory.  The benefit derived from the sale of
this inventory was partially offset by inventory valuation charges of $1.3 million and $17,000 for the three months ended July 3, 2011
and June 27, 2010, respectively, for other inventory deemed to be excess and obsolete.

Gross margin for the three months ended July 3, 2011 was approximately 30 percent, a slight decrease from
the 31 percent for the three months ended June 27, 2010.  The decrease was primarily due to the mix of product shipments in the
quarter ended July 3, 2011, which included shipment of some of our lower margin Aspen 3 tools.  The gross margin was also impacted
unfavorably in the current quarter by warranty cost overruns in servicing our new products.

Gross profit for the six months ended July 3, 2011 was $29.4 million, an increase of $11.7 million compared to
$17.7 million for the six months ended June 27, 2010.  The increase was primarily due to the increase in sales and the reduction in
under-absorbed overhead costs.

For the six months ended July 3, 2011 and June 27, 2010, we sold $3.6 million and $2.2 million of inventories,
respectively, that were previously written-off as part of excess and obsolete inventory.  The benefit derived from the sale of this
inventory was partially offset by inventory valuation charges of $2.4 million and $0.5 million for the six months ended July 3, 2011 and
June 27, 2010, respectively, for other inventory deemed to be excess and obsolete.

Gross margin for the six months ended July 3, 2011 was approximately 30 percent, a slight decrease from the
31 percent for the six months ended June 27, 2010.  The decrease was primarily due to the mix of product shipments in the quarter
ended July 3, 2011, which included a large shipment of our lower margin Aspen 3 tools.  The gross margin was also impacted
unfavorably in the current quarter by warranty cost overruns in servicing our new products.

Research, Development and Engineering

Research, development and engineering expenses were $6.6 million for the three months ended July 3, 2011, a
decrease of $0.5 million, compared to $7.1 million for the three months ended June 27, 2010.  The decrease is due in part to lower
depreciation expense resulting from significantly lower capital expenditures in 2010 and 2011, as compared to earlier years.  Otherwise,
spending levels were generally flat year over year across all expense categories.

Research, development and engineering expenses were $13.2 million for the six months ended July 3, 2011, a
decrease of $0.3 million, compared to $13.5 million for the six months ended June 27, 2010.  The decrease is due in

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part to lower depreciation expense resulting from significantly lower capital expenditures in 2010 and 2011, as compared to earlier years.  Otherwise,
spending levels were generally flat year over year across all expense categories.

Selling, General and Administrative

Selling, general and administrative expenses were $12.8 million for the three months ended July 3, 2011, an
increase of $0.2 million, compared to $12.6 million for the three months ended June 27, 2010.   The year over year increase reflects the
higher-level of revenues and related business activities in 2011, including a $0.8 million increase in salaries and sales commissions, a
$0.1 million increase in facility-related expenses, and a $0.3 million increase to the allowance for doubtful accounts resulting from a
$0.1 million increase to the reserve in the current quarter and a $0.2 million adjustment to lower the reserve in the second quarter of
2010.  This increase was partially offset by a $0.6 million decrease in costs associated with supporting our evaluation tools at customer
sites, which was due in part to our ability to convert certain of these evaluation tools into sales in the current quarter.  We also recorded
a $0.4 million decrease in customs duties, which related to a government review of our designated repair center in Korea during the
second quarter of 2010.

Selling, general and administrative expenses were $25.4 million for the six months ended July 3, 2011, an
increase of $0.5 million, compared to $24.9 million for the six months ended June 27, 2010.   The year over year increase reflects the
higher-level of revenues and related business activities in 2011, including a $1.1 million increase in salaries and sales commissions, a
$0.2 million increase in facility-related expenses, a $1.0 million increase to the allowance for doubtful accounts resulting from a $0.3
million increase to the reserve during the six months ended July 3, 2011 and a $0.7 million benefit to the reserve during the six months
ended June 27, 2010.  This increase was partially offset by a $1.2 million decrease in costs associated with supporting our evaluation
tools at customer sites, which was due in part to our ability to convert certain of these evaluation tools into sales during the six months
ended July 3, 2011.  We also recorded a $0.6 million decrease in customs duties and freight charges, which related in part to a
government review of our designated repair center in Korea during the second quarter of 2010.

Restructuring Charges

Amounts charged to restructuring reserves for the three and six months ended July 3, 2011 and June
27, 2010 were only nominal adjustments related to the restructuring programs we implemented in 2008 and 2009.

Remaining employee severance cost contingencies were resolved in the first quarter of 2011. We are currently
engaged in an ongoing negotiation with a landlord with respect to a lease termination, and the payment of any lease termination
expense will depend on the timing of a final agreement with the landlord.

Interest and Other Income (Expense), Net

Interest income for the three and six months ended July 3, 2011 and June 27, 2010 were nominal, reflecting low
levels of investments and the continuation of low interest rates.

Other income (expense), net was a $1.0 million expense for the three months ended July 3, 2011, which
primarily consisted of foreign exchange losses related to intercompany liabilities denominated in Euros at our U.S. operations during the
period when the U.S. dollar weakened 2 percent against the Euro.  Other income (expense), net was $1.4 million income for the three
months ended June 27, 2010, which included $0.9 million of foreign exchange gains primarily attributed to Euro-denominated liabilities
as the Euro weakened approximately 9 percent against the U.S. dollar during the period.

Other income (expense), net was a $2.5 million expense for the six months ended July 3, 2011, which primarily
consisted of foreign exchange losses related to intercompany liabilities denominated in Euros at our U.S. operations during the period
when the U.S. dollar weakened 9 percent against the Euro. Other income (expense), net was $1.9 million income for the six months
ended June 27, 2010, which included $1.2 million of foreign exchange gains primarily attributed to Euro-denominated liabilities as the
Euro weakened approximately 14 percent against the U.S. dollar during the period.

23

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Provision for Income Taxes

On a quarterly basis, we evaluate our expected income tax expense or benefit based on our year-to-date
operations, and we record an adjustment in the current quarter.

The provision for income taxes was $0.3 million and $0.2 million for the three months ended July 3, 2011 and
June 27, 2010, respectively, primarily related to foreign taxes.  The net tax provision is the result of the mix of profits earned by us and
our subsidiaries in tax jurisdictions with a broad range of income tax rates.

The provision for or benefit from income taxes was a $0.1 million benefit and a $0.4 million provision for the six
months ended July 3, 2011 and June 27, 2010, respectively, primarily related to foreign taxes.  The $0.1 million tax benefit for the six
months ended July 3, 2011 includes a $0.4 million tax benefit related to the release of uncertain tax benefits due to a lapse of the
statute of limitations, offset by a tax provision of $0.3 million as a results of the mix of profits earned by us and our subsidiaries in tax
jurisdictions with a broad range of income tax rates.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations discuss our
condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, we evaluate our
estimates and judgments, including those related to reserves for excess and obsolete inventory, warranty obligations, bad debts,
intangible assets, income taxes, restructuring costs, contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be reasonable under the circumstances. These form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

Consistent with our 2010 Form 10-K, we consider certain accounting policies for the following areas as critical to
our business operations and an understanding of our results of operations:

- Revenue Recognition
- Allowance for Doubtful Accounts
- Warranty
- Inventories and Inventory Valuation
- Fair Value Measurement of Assets and Liabilities
- Impairment of Long-Lived Assets
- Restructuring
- Income Taxes
- Stock-based Compensation

In the first quarter of 2011, we adopted guidance related to revenue recognition for sales
arrangements with multiple deliverables.  The impact of this adoption on our revenue recognition policy is described in further
detail in our Recent Accounting Pronouncements and Accounting Changes section. There have been no other
material changes from the methodology applied by management for critical accounting estimates previously disclosed in our 2010 Form
10-K.

24

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Liquidity and Capital Resources

Our cash, cash equivalents, short-term investments and restricted cash was $42.9 million as of July 3,
2011, an increase of $19.8 million from $23.0 million as of December 31, 2010. We had restricted cash of $2.8 million as of
July 3, 2011, which primarily secures letters of credit provided to certain landlords and vendors.  Stockholders' equity as of July 3, 2011
was $68.2 million compared to $62.7 million as of December 31, 2010. Working capital as of July 3, 2011 was $58.9 million compared
to $51.1 million as of December 31, 2010.

Liquidity and Capital Resources Outlook

At July 3, 2011, we had an accumulated deficit of $566.1 million. We have incurred operating losses
and generated negative cash flows for the last three years.Our operations require careful management of our cash and
working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our revenue, gross profits
and operating expenses, as well as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes
it difficult for us to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term
uses of our cash to fund inventory purchases and accounts receivable. Alternatively, any renewed softening in the demand for our
products or ineffectiveness of our cost reduction efforts may cause us to incur additional losses in the future and lower our cash
balances.

We may need additional funds to support our working capital requirements, operating expenses or for other
requirements. Historically, we have relied on a combination of fundraising from the sale and issuance of equity securities (such as our
common stock offering in May 2011) and cash generated from product, service and royalty revenues to provide funding for our
operations. We intend to continue to review our expected cash requirements, make commercially reasonable efforts to collect any aged
receivables, and take appropriate cost reduction measures to ensure that we have sufficient liquidity. We periodically review our
liquidity position and may seek to raise additional fundsfrom a combination of sources including
issuance of equity or debt securities through public or private financings. In the event additional needs for cash arise, we may also seek
to raise these funds externally through other means, such as the sale of assets. The availability of additional financing will depend on a
variety of factors, including among others, market conditions, the general availability of credit to the financial services industry and our
credit ratings. As a consequence, these financing options may not be available to us on a timely basis, or on terms acceptable to us,
and could be dilutive to our stockholders. Our current liquidity position may result in risks and uncertainties affecting our operations and
financial position, including the following: we may be required to reduce planned expenditures or investments; we may be unable to
compete in our newer or developing markets; we may not be able to obtain and maintain normal terms with suppliers; suppliers may
require standby letters of credit before delivering goods and services, which will result in additional demands on our cash; customers
may delay or discontinue entering into contracts with us; and our ability to retain management and other key individuals may be
negatively affected. Failure to generate sufficient cash flows from operations, raise additional capital or reduce spending could have a
material adverse effect on our ability to achieve our intended long-term business objectives.

Off-Balance Sheet Arrangements

As of July 3, 2011, we did not have any significant "off-balance sheet" arrangements, as defined in
Item 303 (a)(4)(ii) of Regulation S-K.

Contractual Obligations

Under accounting principles generally accepted in the United States of America, certain obligations and
commitments are not required to be included in our consolidated balance sheets. These obligations and commitments, while entered
into in the normal course of business, may have a material impact on our liquidity. For further discussion of our contractual obligations,
see our 2010 Form 10-K.

Cash Flows from Operating Activities

Net cash provided by operations of $5.1 million for the six months ended July 3, 2011 consisted
primarily of a net loss of $11.5 million offset by $7.4 million of non-cash charges and $9.2 million of cash flow increases reflected in the
net change in assets and liabilities.  Non-cash charges consisted primarily of $3.2 million of depreciation and amortization, $2.4 million
of inventory valuation charges, $1.4 million of stock-based compensation and $0.3 million for a provision

25

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for allowance for doubtful accounts. Cash flow increases resulting from the net change in assets and liabilities primarily consisted of a $6.8 million decrease in
accounts receivable, a $4.9 million increase in accrued liabilities, a $1.4 million decrease in inventories, a $1.2 million increase in
deferred revenue, a $0.8 million decrease in prepaid expenses and other current assets and a $0.2 million decrease in other assets,
partially offset by a $5.0 million decrease in accounts payable, a $0.9 million increase in advanced billings and a $0.2 million decrease
in income taxes payable, non-current and other liabilities.

Net cash used in operations of $15.1 million for the six months ended June 27, 2010 consisted primarily of net
loss of $19.1 million and $0.3 million of cash decreases reflected in the net change in assets and liabilities, partially offset by $4.3
million of non-cash charges.  Non-cash charges consisted primarily of $3.5 million of depreciation and amortization and $1.3 million of
stock-based compensation, partially offset by $0.7 million of credits to the allowance for doubtful accounts resulting from collection of
customer accounts previously provided for during the industry downturn.  Cash flow decreases resulting from the net change in assets
and liabilities primarily consisted of a $4.9 million increase in accounts payable, a $2.0 million increase in advanced billings and a $0.5
million reduction in income taxes payable, non-current and other liabilities.  Cash flow increases resulting from the net change in assets
and liabilities primarily consisted of a $3.3 million increase in accounts payable, a $2.2 million increase in deferred revenue, a $1.0
decrease in prepaid expenses and other current assets and a $0.7 million decrease in other assets.    The increases in accounts
receivable and accounts payable reflect the increase in revenue volumes during the first half of 2010.  The increases in advance billings
and deferred revenue were due to an increase in systems shipped during the first half of 2010 for which revenue was deferred as of
June 27, 2010, in accordance with the authoritative guidance for revenue recognition.  The reduction in prepaid assets resulted
primarily from VAT returns filed in the second quarter of 2010.

We expect that cash provided by or used by operating activities may fluctuate in future periods as a result of a
number of factors including fluctuations in our net sales and operating results, amount of revenue deferred, inventory purchases,
collection of accounts receivable and timing of payments.

Cash Flows from Investing Activities

Net cash provided by investing activities of $2.9 million for the six months ended July 3, 2011 consisted
primarily of $2.2 million of proceeds from maturities of available-for-sale investments and $1.2 million from a decrease in restricted cash
balances used to secure standby letters of credit provided to certain landlords and vendors, partially offset by $0.5 million of capital
spending.

Net cash provided by investing activities of $3.4 million for the six months ended June 27, 2010
consisted primarily of $3.8 million of proceeds from sales and maturities of available-for-sale investments, partially offset by $0.4 million
of capital spending.

Cash Flows from Financing Activities

Net cash provided by financing activities of $13.1 million for the six months ended July 3, 2011 consisted
primarily of $13.0 million of proceeds from our public offering on May 16, 2011 of 7,820,000 shares of our common stock at a
price to the public of $1.80 per share of common stock. The $13.0 million of proceeds is net of underwriting discounts and
offering expenses of $1.1 million and does not include other estimated accrued offering costs of $0.3 million. We intend to use the net
proceeds from this offering for general corporate purposes, including working capital.

Cash flows related to financing activities for the six months ended June 27, 2010 were not material.

Recent Accounting Pronouncements and Accounting Changes

In October 2009, the Financial Accounting Standards Board ("FASB") issued
an amendment to its previously released guidance related to revenue recognition for sales arrangements with multiple deliverables.
The amended guidance requires an entity at the inception of an arrangement to allocate the arrangement's consideration to all of its
deliverables using the relative selling price method, which allows for management's best estimate of a deliverable's selling price when
vendor-specific or other third-party evidence of fair value are not available.  The residual method of allocating consideration, required
under previous guidance, is no longer permitted.  We adopted this guidance on January 1, 2011 for revenue arrangements
entered into or materially modified on or after that date.  The adoption of this guidance did not have a material impact on our condensed
consolidated financial statements.

26

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This guidance did not change the units of accounting for our revenue transactions. We typically recognize
revenue on equipment sales as follows: 1) for equipment
sales of existing products with new specifications and for sales of new products, revenue is recognized upon customer acceptance; 2)
for equipment sales to existing customers who have purchased the same equipment with the same specifications and previously
demonstrated acceptance, or equipment sales to new customers purchasing existing products with established reliability, we recognize
revenue on a multiple element approach in which we bifurcate such sale transactions into two separate elements.

In May 2011, the FASB issued Accounting Standards Update ("ASU") 2011-04, an
amendment to Accounting Standards Codification ("ASC") 820, Fair Value Measurements, providing a consistent
definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial
Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value
measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. This amendment
will be effective for our fiscal year beginning January 1, 2012. The adoption of this amendment is not expected to have a
material effect on our condensed consolidated financial statements, but may require certain additional disclosures.

In June 2011, the FASB issued ASU No. 2011-05, which amends current comprehensive
income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as
part of the statement of stockholders' equity.  Instead, we must report comprehensive income in either a single continuous
statement of comprehensive income that contains two sections, net income and other comprehensive income, or in two separate but
consecutive statements.  ASU 2011-05 will be effective for our fiscal year beginning January 1, 2012.  The adoption
of this update will not have an impact on our condensed consolidated financial position, results of operations or cash flows as it only
requires a change in the format of the current presentation.

There are no other recent accounting pronouncements or changes in accounting pronouncements during the six
months ended July 3, 2011 that are of significance or potential significance to us.

Item 3.   	Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

As of July 3, 2011, our $20.1 million investment portfolio consisted entirely of highly liquid money market funds,
which we classify as cash equivalents.  Based on the short-term nature of cash equivalents, we believe we currently have only nominal
risk of fluctuations in interest rates.  Historically, we have also invested in marketable securities with maturity dates within one year from
date of purchase, which have a greater exposure to potential losses arising from changes in interest rates.

Our investment objective is to achieve the maximum return compatible with capital preservation and our liquidity
requirements. Our strategy is to invest our cash in a manner that preserves capital, maintains sufficient liquidity to meet our cash
requirements and maximizes yields consistent with approved credit risks. We place our investments with high credit quality issuers and,
by policy, limit the amount of our credit exposure to any one issuer. Our portfolio includes only marketable securities with active
secondary or resale markets to ensure portfolio liquidity. We consider investments in instruments purchased with an original maturity of
90 days or less to be cash equivalents and we classify our short-term investments as available-for-sale.

Our cash equivalents and short-term investment portfolios strategy is to invest primarily in money market funds,
commercial paper, corporate debt securities, and U.S. government and government-sponsored debt securities. Our short-term
investments are reported at fair value with unrealized gains and losses, net of tax, included in accumulated other comprehensive
income within stockholders' equity in the condensed consolidated balance sheets. The amortization of premiums and discounts on the
investments, realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are
included in other income (expense), net in the condensed consolidated statements of operations.

27

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Foreign Currency Risk

The functional currency of our foreign subsidiaries is their local currencies. Accordingly, all assets and liabilities
of these foreign operations are translated using exchange rates in effect at the end of the period, and revenues and costs are translated
using average exchange rates for the period. Gains or losses from translation of foreign operations where the local currencies are the
functional currency are included as a component of accumulated other comprehensive income. Foreign currency transaction gains and
losses are recognized in the condensed consolidated statements of operations as they are incurred. Because much of our revenues
and capital spending are transacted in U.S. dollars, we are subject to fluctuations in foreign currency exchange rates that could have a
material adverse affect on our overall financial position, results of operations or cash flows, depending on the strength of the U.S. dollar
relative to the currencies of other countries in which we operate. Exchange rate fluctuations of greater than ten percent, primarily for the
U.S. dollar relative to the Euro or the Canadian dollar, could have a material impact on our financial statements.

The U.S dollar weakened 9 percent against the Euro during the six months ended July 3, 2011.  Realized
foreign currency exchange losses of $1.8 million for the six months ended July 3, 2011, included in the condensed consolidated
statements of operations, were primarily related to liabilities denominated in Euros at our U.S. operations during the period.  Cumulative
translation adjustment gains of $2.7 million, included in comprehensive loss for the six months ended July 3, 2011, were primarily due
to assets denominated in Euros at our foreign operations, which resulted in an increase in cumulative translation adjustments to $23.0
million as of July 3, 2011, compared to $20.3 million as of December 31, 2010.

Item 4.   	Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended, as of the end of the quarterly period covered by this report. Our disclosure controls
and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the
Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the
SEC's rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as the principal executive and financial officers, respectively, to allow timely decisions regarding
required disclosures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this report.

It should be noted that any system of controls, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is
based in part upon certain assumptions about the likelihood of future events.

Quarterly Evaluation of Changes in Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, also
conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the second
quarter of 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Based on that evaluation, our management concluded that there was no such change during that quarter.

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PART II.  OTHER INFORMATION

Item 1.  	Legal Proceedings

In the ordinary course of business, we are subject to claims and litigation, including claims that we infringe third
party patents, trademarks and other intellectual property rights. Although we believe that it is unlikely that any current claims or actions
will have a material adverse impact on our operating results or our financial position, given the uncertainty of litigation, we cannot be
certain. Moreover, the defense of claims or actions against us, even if not meritorious, could result in the expenditure of significant
financial and managerial resources.

Our involvement in any patent dispute, other intellectual property dispute or action to protect trade secrets and
know-how could result in a material adverse effect on our business. Adverse determinations in current litigation or any other litigation in
which we may become involved could subject us to significant liabilities to third parties, require us to grant licenses to or seek licenses
from third parties and prevent us from manufacturing and selling our products. Any of these situations could have a material adverse
effect on our business.

Item 1A.     Risk Factors

Because of the following factors, as well as other variables affecting our operating results, cash flows
and financial condition, past financial performance may not be a reliable indicator of future performance, and historical trends should
not be used to anticipate results or trends in the future periods.  Other events that we do not currently anticipate or that we currently
deem immaterial also may affect our results of operations, cash flows and financial condition.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

We are dependent on our revenue and the success of our cost reduction measures to ensure adequate
liquidity and capital resources during the next twelve months.

As of July 3, 2011, we had an accumulated deficit of $566.1 million.  We have incurred operating losses and
generated negative cash flows for the last three years. As of July 3, 2011, we had cash, cash equivalents and restricted cash of $42.9
million and working capital of $58.9 million.  Our operations require careful management of our cash and working capital balances. Our
liquidity is affected by many factors including, among others, fluctuations in our revenue, gross profits and operating expenses, as well
as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes it difficult for us to predict our
future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of our cash to fund
inventory purchases and accounts receivable. Alternatively, any renewed softening in the demand for our products or ineffectiveness of
our cost reduction efforts may cause us to incur additional losses in the future and lower our cash balances.

We may need additional funds to support our working capital requirements, operating expenses or for other
requirements. Historically, we have relied on a combination of fundraising from the sale and issuance of equity securities (such as our
common stock offering in May 2011) and cash generated from product, service and royalty revenues to provide funding for our
operations. We periodically review our liquidity position and may seek to raise additional funds from a combination of sources including
issuance of equity or debt securities through public or private financings.  In the event additional needs for cash arise, we may also
seek to raise these funds externally through other means, such as the sale of assets. The availability of additional financing will depend
on a variety of factors, including among others, market conditions, the general availability of credit to the financial services industry and
our credit ratings. As a consequence, these financing options may not be available to us on a timely basis, or on terms acceptable to
us, and could be dilutive to our stockholders. Our current liquidity position may result in risks and uncertainties affecting our operations
and financial position, including the following:





















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- our ability to retain management and other key individuals may be negatively
affected.

Failure to generate sufficient cash flows from operations, raise additional capital or reduce spending could have
a material adverse effect on our ability to achieve our intended long-term business objectives.

We are dependent on a highly concentrated customer base, and any cancellation, reduction or delay of
purchases by these customers could harm our business. Additionally, we may not achieve anticipated revenue levels if we are not
selected as "vendor of choice" for new or expanded customer fabrication facilities.

We derive most of our revenues from the sale of systems to a relatively small number of customers, which
makes our relationship with each customer critical to our business. For example, in the years ended December 31, 2010, 2009 and
2008, our three largest customers accounted for 59 percent, 55 percent and 39 percent of our revenues,
respectively. We currently depend on one customer for a significant portion of our revenues, and the loss of, or a significant reduction
in, orders from this customer would significantly reduce our revenue and adversely impact our operating results. Because
semiconductor manufacturers must make a substantial investment to install and integrate capital equipment into a semiconductor
fabrication facility, these manufacturers will tend to choose semiconductor equipment manufacturers based on established
relationships, product compatibility and proven performance. Customer order cancellations could result in the loss of anticipated sales
without allowing us sufficient time to reduce our inventory and operating expenses. In addition, changes in forecasts or the timing of
orders from customers could expose us to the risks of inventory shortages or excess inventory.  This in turn could cause our operating
results to fluctuate. If customer relationships are disrupted for inability to deliver sufficient products or for any other reason, it could have
a significant negative impact on our business.

A large percentage of our sales are concentrated among customers in the memory market, representing 60
percent and 54 percent of systems sales in the years ended December 31, 2010 and 2009, respectively.  As a result, a downturn or an
upturn in memory spending could impact us more than it would impact competitors who are more diversified with logic and foundry
customers.

Once a semiconductor manufacturer selects a particular vendor's capital equipment, the manufacturer generally
relies upon equipment from this "vendor of choice" ("VOC") for the specific production line application. In
addition, the semiconductor manufacturer frequently will attempt to consolidate other capital equipment requirements with the same
vendors. Accordingly, we may face narrow windows of opportunity to be selected as the VOC by significant new customers. It may be
difficult for us to sell to a particular customer for a significant period of time once that customer selects a competitor's product. If we are
unable to achieve broader market acceptance of our systems and technology, we may be unable to maintain and grow our business
and our operating results and financial condition will be adversely affected.

Although we maintain a backlog of customer orders with expected shipment dates within the next 12 months,
customers may request cancellations or delivery delays. Customers in some regions place orders a few weeks before the shipment. As
a result, our backlog may not be a reliable indication of future revenues. If shipments of orders in backlog are cancelled or delayed,
revenues could fall below our expectations and the expectations of market analysts and investors.

We may not be able to continue to successfully compete in the highly competitive semiconductor equipment
industry.

The semiconductor equipment industry is both highly competitive and subject to rapid technological
change. Significant competitive factors include the following:

























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Competitive pressure has been increasing in several areas. In addition to increased price competition,
customers are waiting to make purchase commitments based on their end-user demand, which are then placed with requests for rapid
delivery dates and increased product support. Some of our major competitors are larger than we are, have greater capital resources
and may have a competitive advantage over us by virtue of having:

























Growth in the semiconductor equipment industry is increasingly concentrated in the largest companies, resulting
in increasing industry consolidation. Semiconductor companies are consolidating their vendor base and prefer to purchase from
vendors with a strong, worldwide support infrastructure.

In addition, to expand our sales we must often displace the systems of our competitors or sell new systems to
customers of our competitors. Our competitors may develop new or enhanced competitive products that offer price or performance
features that are superior to our systems. Our competitors may also be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the development, promotion, sale and on-site customer
support of their product lines. We may not be able to maintain or expand our sales if competition increases and we are unable to
respond effectively.

The recent natural disaster in Japan could disrupt our customers' and suppliers' operations and adversely affect
our results of operations.

Certain of our customers and suppliers have headquarters and/or manufacturing facilities in Japan that have
closed or limited operations resulting from the recent earthquake and tsunami in Japan.  In addition, our customers' and suppliers'
supply chains and customer-base may be affected by the consequences of the natural disaster that has affected Japan, which have
included rolling blackouts, decreased access to raw materials, limited ability to ship inventory and the risk of nuclear contamination.  As
a result, our customers in Japan, as well as our customers who depend on their customer-base and suppliers in Japan, may defer,
delay, cancel or otherwise not place orders with us, and our suppliers may defer, delay, cancel or otherwise not deliver components or
subassemblies to us, each of which would cause our revenues to decline in the second half of 2011 and negatively impact our results of
operations.

The cyclical nature of the semiconductor industry has caused us to experience losses and reduced liquidity, and
it may continue to negatively impact our financial performance.

The semiconductor equipment industry is highly cyclical and periodically has severe and prolonged
downturns, which causes our operating results to fluctuate significantly. We are exposed to the risks associated with industry
overcapacity, including decreased demand for our products and increased price competition.

The semiconductor industry has historically experienced periodic downturns due to general economic
changes or due to capacity growth temporarily exceeding growth in demand for semiconductor devices. Our business depends, in
significant part, upon capital expenditures by manufacturers of semiconductor devices, including manufacturers that open new or
expand existing facilities. Periods of overcapacity and reductions in capital expenditures by our customers cause decreases in demand
for our products. This could result in significant under utilization in our factories. If existing customer fabrication facilities are not
expanded and new facilities are not built, we may be unable to generate significant new orders and sales for our systems. During
periods of declining demand for semiconductor manufacturing equipment, our customers typically reduce purchases, delay delivery of
ordered products and/or cancel orders, resulting in reduced revenues and backlog, delays in revenue recognition and excess inventory
for us. Increased price competition may also result as we compete for the smaller demand in the market, causing pressure on our gross
margin and net income.

The weakness in the global economy during 2008 and 2009 and the relatively modest recovery exhibited
during 2010 and 2011 may continue to negatively impact our financial performance.

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The recessionary conditions of 2008 and 2009 in the global economy and the slowdown in the semiconductor
industry impacted customer demand for our products and correspondingly, negatively impacted our financial performance. While the
global economy has seen a modest recovery during 2010 and 2011, there remains high unemployment in developed countries,
concerns regarding the availability of credit and uncertainty about a sustained economic recovery. We cannot ensure that any of the
recent economic improvements will be sustainable or sufficient to extend to our specific operations or markets.

Demand for semiconductor equipment depends on consumer spending. Continued economic uncertainty may
lead to a decrease in consumer spending and may cause certain of our customers to cancel or delay orders. In addition, if our
customers have difficulties in obtaining capital or financing, this could result in lower sales. Customers with liquidity issues could lead to
charges to our bad debt expense if we are unable to collect accounts receivables. These conditions could also affect our key suppliers,
which could affect their ability to supply parts to us, and result in delays of the completion of our systems and the shipment of these
systems to our customers.



Because of the economic downturn and the uncertainty of a full recovery, we may have to take further actions to
reduce costs, which could reduce our ability to invest in research and development at levels we believe are desirable. If we are unable
to effectively align our cost structure with prevailing market conditions, we will experience additional losses and additional reductions in
our cash and cash equivalents. If we are not able to suitably adapt to these economic conditions in a timely manner or at all, our
performance, cash flows, results of operations and ability to access capital could be materially and adversely impacted.

We must continually anticipate technology trends, improve our existing products and develop new products
in order to be competitive. The development of new or enhanced products involves significant risks, additional costs and delays in
revenue recognition. Technical and manufacturing difficulties experienced in the introduction of new products could be costly and could
adversely affect our customer relationships.

The markets in which our customers and we compete are characterized by rapidly changing technology,
evolving industry standards and continuous improvements in products and services. Consequently, our success depends upon our
ability to anticipate future technology trends and customer needs, to develop new systems and processes that meet industry standards
and customer requirements and that compete effectively on the basis of price and performance.

Our development of new products involves significant risk, since the products are very complex and the
development cycle is long and expensive. The success of any new system we develop and introduce is dependent on a number of
factors, including our ability to correctly predict customer requirements for new processes, to assess and select the potential
technologies for research and development and to timely complete new system designs that are acceptable to the market. We may
make substantial investments in new technologies before we can know whether they are technically or commercially feasible or
advantageous, and without any assurance that revenue from future products or product enhancements will be sufficient to recover the
associated development costs. Not all development activities result in commercially viable products. We may not be able to improve our
existing systems or develop new technologies or systems in a timely manner. We may exceed the budgeted cost of reaching our
research, development and engineering objectives, and planned product development schedules may require extension. Any delays or
additional development costs could have a material adverse effect on our business and results of operations.

Our products are complex, and we may experience technical or manufacturing inefficiencies, delays or
difficulties in the prototype introduction of new systems and enhancements, or in achieving volume production of new systems or
enhancements that meet customer requirements. Our inability, or the inability of our outsourced partners, to overcome such difficulties,
to meet the technical specifications of any new systems or enhancements or to manufacture and ship these systems or enhancements
in volume and in a timely manner would materially adversely affect our business and results of operations, as well as our customer
relationships.

Our revenue recognition policies require that during the initial evaluation phase of a new product, customer
acceptance needs to be obtained before we can recognize revenue on the product. Customer acceptances may not be completed in a
timely manner for a variety of reasons, whether or not related to the quality and performance of our products. Any delays in customer
acceptance may result in revenue recognition delays and have an adverse impact on our results of operations.

We may from time to time incur unanticipated costs to ensure the functionality and reliability of our products
early in their life cycles, and such costs can be substantial. If we encounter reliability or quality problems with our new products

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or enhancements, we could face a number of difficulties, including reduced orders, higher manufacturing costs, delays in collection of
accounts receivable and additional service and warranty expenses, all of which could materially adversely affect our business and
results of operations. The costs associated with our warranties may be significant, and in the event our projections and estimates of
these costs are inaccurate, our financial performance could be seriously harmed. In addition, if we experience product failures at an
unexpectedly high level, our reputation in the marketplace could be damaged, and our business would suffer.

Significant fluctuations in our operating results are difficult to predict due to our lengthy sales cycle, and our
results may fall short of anticipated levels, which could cause our stock price to decline.

Sales of our systems depend upon the decision of a prospective customer to increase or replace
manufacturing capacity, typically involving a significant capital commitment. Accordingly, the decision to purchase our systems requires
time-consuming internal procedures associated with the evaluation, testing, implementation and introduction of new technologies into
our customers' manufacturing facilities. Even after the customer determines that our systems meet their qualification criteria, we may
experience delays finalizing system sales while the customer obtains approval for the purchase, constructs new facilities or expands its
existing facilities. Consequently, the time between our first contact with a customer regarding a specific potential purchase and the
customer's placing its first order may last from nine to twelve months or longer. We may incur significant sales and marketing expenses
during this evaluation period. In addition, the length of this period makes it difficult to accurately forecast future sales. Also, any
unexpected delays in orders could impact our revenue and operating results. If sales forecasted from a specific customer are not
realized, we may experience an unplanned shortfall in revenues, and our quarterly and annual revenue and operating results may
fluctuate significantly from period to period.

Our quarterly and annual revenue and operating results have varied significantly in the past and are likely to
vary significantly in the future, which makes it difficult for us to predict our future operating results. We incurred significant net losses
between 2001 and 2003, yet were profitable for each of the years 2004 to 2007.  Again, we incurred net losses for the years ended
December 31, 2008, 2009 and 2010, of $92.2 million, $67.0 million and $33.4 million, respectively, due to declining demand as a result
of the weakness in the semiconductor equipment market and the global economic crisis. In the quarter ended July 3, 2011 we also
incurred a net loss of $5.2 million.  We may not achieve profitability in future years. We will need to generate significant sales to achieve
profitability, and we may not be able to do so. A substantial percentage of our operating expenses are fixed in the short term and we
may continue to be unable to adjust spending to compensate for shortfalls in revenues. As a result, we may continue to incur losses,
which could cause the price of our common stock to decline further or remain at a low level for an extended period of time.

We are highly dependent on international sales, and face significant international business risks.

International sales accounted for 95 percent, 92 percent and 91 percent of our net sales in the years ended
December 31, 2010, 2009 and 2008, respectively. We anticipate international sales will continue to account for the vast majority of our
future net sales. Asia has been a particularly important region for our business, and we anticipate that it will continue to be important
going forward. Our sales to customers located in China, Japan, South Korea, Taiwan and other Asian countries accounted for 90
percent, 82 percent, and 81 percent of our net sales in the years ended December 31, 2010, 2009 and 2008, respectively. Because of
our continuing dependence upon international sales, we are subject to a number of risks associated with international business
activities, including:





































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Many of the challenges noted above are applicable in China, which is a developing market for the
semiconductor equipment industry and therefore an area of potential significant growth for our business. The required export licenses to
supply any of our export controlled products to Chinese customers may be denied by U.S. export control authorities, and as the
business volume between China and the rest of the world grows, there is inherent risk, based on the complex relationships between
China, Taiwan, Japan, South Korea and the United States, that political and diplomatic influences might lead to trade disruptions which
would adversely affect our business with China and/or Taiwan and perhaps the entire Asian region. A significant trade disruption in
these areas could have a material adverse impact on our future revenue and profits.

In addition, we are subject to a number of risks specific to doing business and selling our products in South
Korea, including among other things, substantial competition from local sources, our ability to obtain or retain the requisite legal permits
to continue to sell or continue operations in the country and political instability due to tension and any conflict among North Korea,
South Korea and the United States.  In the event that we become subject to any of these risks, our business and results of operations
could be materially adversely affected.

Our sales to date have been denominated primarily in U.S. dollars; however future sales to Asian customers
may be denominated in the customer's local currency. Our sales in foreign currencies are subject to risks of currency fluctuation. For
U.S. dollar sales in foreign countries, our products may become less price competitive when the local currency is declining in value
compared to the dollar. This could cause us to lose sales or force us to lower our prices, which would reduce our gross margins.

Because of competition for qualified personnel, we may not be able to recruit or retain necessary personnel,
which could impede development or sales of our products.

Our growth will depend on our ability to attract and retain qualified, experienced employees. Our ability to
attract employees may be harmed by our recent financial losses, which has impacted our available cash and our ability to provide
performance-based annual cash incentives.  Also, part of our total compensation program includes share-based compensation. Share-
based compensation is an important tool in attracting and retaining employees in our industry. If the market price of our common shares
declines or remains low, it may adversely affect our ability to attract or retain employees.

During periods of growth in the semiconductor industry, there is substantial competition for experienced
engineering, technical, financial, sales and marketing personnel in our industry. In particular, we must attract and retain highly skilled
design and process engineers. If we are unable to retain existing key personnel, or attract and retain additional qualified personnel, we
may from time to time experience inadequate levels of staffing to develop and market our products and perform services for our
customers. As a result, our growth could be limited, we could fail to meet our delivery commitments or we could experience
deterioration in service levels or decreases in customer satisfaction.

The price of our common stock has fluctuated in the past and may continue to fluctuate significantly in the
future, which may lead to losses by investors, securities litigation, or hostile or otherwise unfavorable takeover offers.

The market price of our common stock has been highly volatile in the past, and our stock price may decline in
the future. For example, for the 18 months ended July 3, 2011, the price range for our common stock was $1.52 to $5.52 per share.

The relatively low stock price makes us attractive to hedge funds and other short-term investors. This could
result in substantial volatility of the stock price and cause fluctuations in trading volumes for our stock. In addition, in recent years the
stock market in general, and the market for shares of high technology stocks in particular, have experienced extreme price fluctuations.
These fluctuations have frequently been unrelated to the operating performance of the affected companies. In the past, securities class
action litigation has often been instituted against a company following periods of volatility in its stock price. This type of litigation, if filed
against us, could result in substantial costs and divert our management's attention and resources.

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Our stock price has been below the five-year peak of $11.76 for several years, and if revenue does not return to
the peak 2007 levels or we do not return to profitability in the near term, we could be an attractive target for acquisition or be impacted
by mergers or acquisition by another company or consolidation in the industry. An acquisition or merger could be hostile or on terms
unfavorable to us, and may result in substantial costs and potential disruption to our business.

We are subject to significant risks related to our manufacturing operations.

We are outsourcing manufacturing and logistics activities to third-party service providers, which
decrease our control over the performance of these functions and quality of our products.

We have outsourced core product manufacturing and spare parts
logistics functions to third-party service providers, and may outsource more of those functions in the future. While we expect to achieve
operational flexibility and cost savings as a result of this, outsourcing has a number of risks and reduces our control over the
performance of the outsourced functions. We may continue to outsource more of our products, and there could be a risk of additional
production delays during the transition period as we move such production to our service providers, which could result in delayed
revenue recognition. Significant performance problems by these third-party service providers could result in cost overruns, delayed
deliveries, shortages, quality issues or other problems that could result in significant customer dissatisfaction and could materially and
adversely affect our business, financial condition and results of operations.

If for any reason one or more of these third-party service providers becomes unable or unwilling to continue to
provide services of acceptable quality, at acceptable costs and in a timely manner, our ability to deliver our products or spare parts to
our customers could be severely impaired. Where we have not qualified a second vendor to manufacture a certain product, we would
quickly need to identify and qualify substitute service providers or increase our internal capacity, which could be expensive and
time-consuming, and could result in unforeseen operational problems and late deliveries to our customers. Substitute service providers
might not be available, or, if available, might be unwilling or unable to offer services on acceptable terms.

Under certain of our agreements with third-party outsourced providers, we are required to purchase minimum
levels of production from such providers and may be liable to purchase inventory of assemblies and modules that exceed customer
demand for such products. Conversely, if customer demand for our products increases, we may be unable to secure sufficient
additional capacity from our current service providers on commercially reasonable terms, if at all. Our requirements are expected to
represent a small portion of the total capacities of our third-party service providers, and they may preferentially allocate capacity to
other customers, or face part shortages even during periods of high demand for our products. In addition, such manufacturers could
suffer financial difficulties or disruptions in their operations due to causes beyond our control.

We depend upon a limited number of suppliers for some components and subassemblies, and supply
shortages or the loss of these suppliers could result in increased cost or delays in the manufacture and sale of our products.

We rely, to a substantial extent, on outside vendors to provide
many of the components and subassemblies of our systems. We obtain some of these components and subassemblies from a sole
source or a limited group of suppliers. We generally acquire these components on a purchase order basis and not under long-term
supply contracts. Because of our anticipated reliance on outside vendors generally, and on a sole or a limited group of suppliers in
particular, we may be unable to obtain an adequate supply of required components. When demand for semiconductor equipment is
strong, our suppliers may have difficulty providing components on a timely basis.

In addition, during periods of shortages of components, we may have reduced control over pricing and timely
delivery of components. We often quote prices to our customers and accept customer orders for our products prior to purchasing
components and subassemblies from our suppliers. If our suppliers increase the cost of components or subassemblies, we may not
have alternative sources of supply and may no longer be able to increase the cost of the system being evaluated by our customers to
cover all or part of the increased cost of components.

The manufacture of some of these components is an extremely complex process and requires long lead times.
If we are unable to obtain adequate and timely deliveries of our required components, we may have to seek alternative sources of
supply or manufacture such components internally. This could delay our ability to manufacture or ship our systems in a timely manner,
causing us to lose sales, incur additional costs, delay new product introductions and harm our reputation. Historically, we have not
experienced any significant delays in manufacturing due to an inability to obtain

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components, and we are not currently aware of any
specific problems regarding the availability of components that might significantly delay the manufacturing of our systems in the future,
however, certain suppliers may be affected by the consequences of the natural disaster that has affected Japan and we are unable to
predict the impact, if any, this will have on our business. Any inability to obtain adequate deliveries, or any other circumstance that
would require us to seek alternative sources of supply or to manufacture such components internally, could delay our ability to ship our
systems and could have a material adverse effect on us.

Our gross margins may be impacted if we do not effectively manage our inventory and associated
inventory reserves.

We need to manage our inventory of component parts, work-in-process and finished goods effectively to meet
customer delivery demands at an acceptable risk and cost. For both the inventories that support manufacture of our products and our
spare parts inventories, if the anticipated customer demand does not materialize in a timely manner, we will incur increased carrying
costs and some inventory could become excess or obsolete, resulting in write-offs, which would adversely affect our cash position and
results of operations. In the past, we have recorded inventory valuation charges for excess and obsolete inventory of $0.8 million in
2010, $14.2 million in 2009, and $7.1 million in 2008. The sale of this inventory during periods of increasing revenue could temporarily
impact our gross margins favorably due to the adjusted carrying value of this inventory, and could result in future unpredictability in our
gross margin estimates.

Our gross margins for sales of products that we manufacture in Germany and/or South Korea may
fluctuate due to changes in the value of the Euro and South Korean won.

We develop and manufacture a significant portion of our products in Germany, where our costs for labor and
materials are primarily denominated in Euros, and anticipate increased manufacturing activities in South Korea in 2011, where our
costs for labor are primarily denominated in won. Future increases in the strength of the Euro or won, if any, could increase our
development costs, our costs to manufacture systems, and our costs to purchase spare parts for products from our suppliers, which
would make it more difficult for us to compete and could adversely affect our results of operations.

We manufacture many of our products at two primary manufacturing facilities and are thus subject to risk
of disruption.

Although we outsource the manufacturing for certain of our products to third parties, we continue to
produce our latest generation products at our two principal manufacturing plants in Fremont, California and Dornstadt, Germany.  We
have limited ability to interchangeably produce our products at either facility, and in the event of a disruption of operations at one facility,
our other facility would not be able to make up the capacity loss. Our operations are subject to disruption for a variety of reasons,
including, but not limited to, natural disasters, including earthquakes in California, work stoppages, operational facility constraints and
terrorism. Such disruption could cause delays in shipments of products to our customers, result in cancellation of orders or loss of
customers and seriously harm our business.

We self-insure certain risks including earthquake risk. If one or more of the uninsured events occurs, we
could suffer major financial losses.

We purchase insurance to help mitigate the economic impact of certain insurable risks; however, certain
other risks are uninsurable or are insurable only at significant cost or cannot be mitigated with insurance. An earthquake could
significantly disrupt our principal manufacturing operations in Fremont, California, an area highly susceptible to earthquakes. It could
also significantly delay our research and development efforts on new products, a significant portion of which is conducted in California.
While we take steps intended to minimize the damage that would be caused by an earthquake, there is no certainty that our efforts will
prove successful in the event of an earthquake. We self-insure earthquake risks because we believe this is a prudent financial decision
based on the high cost and limited coverage available in the earthquake insurance market. If a major earthquake occurs, we could
suffer a major financial loss and face significant disruption in our business.

We are exposed to various risks relating to compliance with the regulatory environment in the countries in
which we operate. We are subject to export control laws and noncompliance could result in fines, adverse publicity and restrictions on
our ability to export our products. We are exposed to several material contracts, non-performance of which could result in liquidated
damages.

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We are subject to various risks related to (1) disagreements and disputes between national and regional
regulatory agencies related to international trade; (2) new, inconsistent and conflicting rules by regulatory agencies in the countries in
which we operate; and (3) interpretation and application of different laws and regulations. If we are found by a court or regulatory
agency to not be in compliance with the laws and regulations, our business, financial condition and results of operations could be
adversely affected.

As an exporter, we must comply with various laws and regulations relating to the export of products and
technology from the U.S. and other countries having jurisdiction over our operations. In the U.S. these laws include the International
Traffic in Arms Regulations ("ITAR"), the Export Administration Regulations ("EAR") administered by the Bureau
of Industry and Security ("BIS"), and trade sanctions against embargoed countries and destinations administered by the
U.S. Department of Treasury, Office of Foreign Assets Control ("OFAC"). These laws govern products, parts, technology
and software which present military or weapons proliferation concerns, so-called "dual use" items. Prior to shipping certain
items, we must obtain an export license or verify that license exemptions are available.  In addition, we must comply with certain
requirements related to documentation, record keeping, plant visits and hiring of foreign nationals. In 2008, we self-disclosed to BIS
certain inadvertent EAR violations and this matter is pending with BIS.  Any failures to comply with these laws and regulations could
result in fines, adverse publicity and restrictions on our ability to export our products, and repeat failures could carry more significant
penalties.

We are a party to several governmental and private-party contracts that provide for liquidated damages in the
event that we fail to comply with the covenants or requirements under any of these contracts.  These liquidated damage payments
could be significant and we could incur significant legal fees if we were to renegotiate these contracts.  Any such damage amounts or
legal expenses may adversely impact our financial condition or results of operations.

If we are unable to protect our intellectual property, we may lose valuable assets and experience reduced
market share. Efforts to protect our intellectual property may be costly to resolve, require additional costly litigation and could divert
management attention. Our obligation to indemnify customers increases during a downturn.

We rely on a combination of patents, copyrights, trademark and trade secret laws, non-disclosure
agreements, and other intellectual property protection methods to protect our proprietary technology. Despite our efforts to protect our
intellectual property, we may from time to time be subject to claims of infringement of other parties' patents or other proprietary rights. If
this occurs, we may not be able to prevent the use of such technology. Our means of protecting our proprietary rights may not be
adequate and our patents may not be sufficiently broad to protect our technology. Any patents owned by us could be challenged,
invalidated or circumvented and any rights granted under any patent may not provide adequate protection to us.

Furthermore, we may not have sufficient resources to protect our rights. As we outsource more of our activities,
we are less able to protect our intellectual property ourselves, and rely more on our service providers to do so. Our service providers
may not always be able to assure that their employees or former employees do not use our intellectual property for their own account to
compete with us.  Our competitors may independently develop similar technology, or design around patents that may be issued to us.
In addition, the laws of some foreign countries may not protect our proprietary rights to as great an extent as do the laws of the United
States and it may be more difficult to monitor the use of our products in such foreign countries. As a result of these threats to our
proprietary technology, we may have to resort to costly litigation to enforce our intellectual property rights.

On occasion we receive notification from customers who believe that we are required to indemnify them or
we have other financial obligations to them because of claims of intellectual property infringement made against them by third parties.
Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets, even if the claims are
without merit, could be very expensive to defend and could divert the attention of our management. Adverse determinations in any
litigation could subject us to significant liabilities to third parties, require us to seek costly licenses from third parties and prevent us from
manufacturing and selling our products. Royalty or license agreements, if required, may not be available on terms acceptable to us, or
at all. Any of these situations could have a material adverse effect on our business and operating results in one or more countries.

Our commercial relationships with customers become more risky when market conditions give each customer
greater leverage in negotiating with us. In the normal course of business, we indemnify customers with respect to certain matters, for
example if our tool infringes the intellectual property rights of any third party or if we breach any promise in our contract with the
customer. During downturns in general or industry specific economic conditions,

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our customers may require that the extent and scope
of our obligation to indemnify them be expanded. In the future, we may be compelled to enter into or accrue for settlements under such
indemnification provisions. We may be compelled in the future to enter into or accrue for settlements of alleged indemnification
obligations. Our financial performance could be materially adversely affected if we expend significant amounts in defending or settling
any purported claims.

Our failure to comply with environmental or safety regulations could result in substantial liability.

We are subject to a variety of federal, state, local and foreign laws, rules, and regulations relating to
environmental protection and workplace safety. These laws, rules and regulations govern the use, storage, discharge and disposal of
hazardous chemicals during manufacturing, research and development and sales demonstrations, as well as governmental standards
for workplace safety. If we fail to comply with present or future regulations, especially in our manufacturing facilities in the United States,
Germany, Canada and South Korea, we could be subject to substantial liability for cleanup efforts, personal injury, fines or suspension
or cessation of our operations. We may be subject to liability if our acquired companies have past violations. Restrictions on our ability
to expand or continue to operate our present locations could be imposed upon us, we could be required to acquire costly remediation
equipment or incur other significant expenses.

Any future business acquisitions or divestitures may disrupt our business, diminish stockholder value or
distract management attention.

As part of our ongoing business strategy, we may consider acquisitions of, or significant investments in,
businesses that offer products, services and technologies complementary to our own. Such acquisitions could materially adversely
affect our operating results and/or the price of our common stock. Acquisitions also entail numerous risks, including:

























To the extent that shares of our stock or other rights to purchase stock are issued in connection with any future
acquisitions, dilution to our existing stockholders will result, and our earnings per share may suffer. Any future acquisitions may not
generate additional revenue or provide any benefit to our business, and we may not achieve a satisfactory return on our investment in
any acquired businesses.

We may also seek to divest of certain assets or businesses from time to time, especially if we need additional
liquidity or capital resources. When we make a decision to sell assets or a business, we may encounter difficulty completing the
transaction as a result of a range of possible factors such as new or changed demands from the buyer. These circumstances may
cause us to incur additional time or expense or to accept less favorable terms, which may adversely affect the overall benefits of the
transaction.

Acquisitions, divestitures, and other transactions are inherently risky, and we cannot provide any assurance that
our previous or future transactions will be successful. The inability to effectively manage the risks associated with these transactions
could materially and adversely affect our business, financial condition or results of operations.

Changes in tax rates or tax liabilities could affect results.

We are subject to taxation in the United States and various other countries. Significant judgment is required to
determine and estimate worldwide tax liabilities. Our future annual and quarterly tax rates could be affected by numerous factors,
including changes in the applicable tax laws, composition of earnings in countries with differing tax rates or our valuation and utilization
of deferred tax assets and liabilities. In addition, we are subject to regular examination of our income tax returns by the Internal
Revenue Service and other tax authorities. We regularly assess

38

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the likelihood of favorable or unfavorable outcomes resulting from
these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are
reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our
historical income tax provisions and accruals, which could materially and adversely affect our results of operations.

We may be required to record additional impairment charges that will adversely impact our results of
operations.

We review our goodwill and intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amounts of these assets may not be recoverable, and also review goodwill balances annually. For example,
during the year ended December 31, 2008, we recorded impairment charges of $18.1 million and $6.6 million related to the write-off of
goodwill and certain intangible assets, respectively.  The write-offs were triggered by the significant decline in our revenue and cash
flows. The resulting assessment indicated a material decline in our market valuation and projected revenues, causing a decrease in the
anticipated future cash flows attributable to these assets relative to the cash flow expectations when the assets were acquired. In the
event that we determine in a future period that impairment of our intangible assets exists for any reason, we would record additional
impairment charges in the period such determination is made, which would adversely impact our financial position and results of
operations.

Our restated certificate of incorporation and restated bylaws, our stockholder rights plan and Delaware law
contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of
our common stock.

Our restated certificate of incorporation, our restated bylaws, our stockholder rights plan and Delaware law
contain provisions that might enable our management to discourage, delay or prevent a change in control. In addition, these provisions
could limit the price that investors would be willing to pay in the future for shares of our common stock. Pursuant to such
provisions:





























In addition, the provisions in our stockholder rights plan could make it more difficult for a potential acquiror to
consummate an acquisition of our company. We are also subject to Section 203 of the Delaware General Corporation Law, which
provides, subject to enumerated exceptions, that if a person acquires 15 percent or more of our outstanding voting stock, the person is
an "interested stockholder" and may not engage in any "business combination" with us for a period of three
years from the time the person acquired 15 percent or more of our outstanding voting stock.

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Item 6.  	Exhibits

|Exhibit
                                  Number | Description                                                                                                                      
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------
|3.1(1)                                           | Amended and Restated Certificate of Incorporation of the Company.                                                                
|3.2(2)                                           | Amended and Restated Bylaws of the Company.                                                                                      
|10.1(3)                                          | Severance and Executive Change of Control Agreement for David Dutton, President and Chief Executive Officer.                     
|10.2(3)                                          | Executive Change of Control Agreement for Andy Moring, Chief Financial Officer, Secretary and Executive Vice President — Finance.
|31.1                                             | Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
    PDF                                  
|31.2                                             | Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
    PDF                                  
|32.1                                             | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
    PDF                                             
|32.2                                             | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
    PDF                                             
|101.INS(4) *                                     | XBRL Instance Document                                                                                                           
|101.SCH(4) *                                     | XBRL Taxonomy Extension Schema Document                                                                                          
|101.CAL(4) *                                     | XBRL Taxonomy Extension Calculation Linkbase Document                                                                            
|101.DEF(4) *                                     | XBRL Taxonomy Extension Definition Linkbase Document                                                                             
|101.LAB(4) *                                     | XBRL Taxonomy Extension Label Linkbase Document                                                                                  
|101.PRE(4) *                                     | XBRL Taxonomy Extension Presentation Linkbase Document                                                                           

_________________

|*   | XBRL Interactive Data File will be filed by amendment to this Form 10-Q within 30 days of the filing date of this
Form 10-Q, as permitted by Rule 405(a)(2)(ii) of Regulation S-T.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference from the Company's Current Report on Form 8-K/A filed on January 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | Incorporated by reference from the Company's Current Report on Form 8-K filed on December 22, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | Incorporated by reference from the Company's Current Report on Form 8-K filed on June 1, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(4) | The financial information contained in these XBRL documents is unaudited and these are not the official
publicly filed financial statements of Mattson Technology. The purpose of submitting these XBRL documents is to test the related format
and technology, and, as a result, investors should continue to rely on the official filed version of the furnished documents and not rely
on this information in making investment decisions. In accordance with Rule 402 of Regulation S-T, the information in these exhibits
shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any
registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be
expressly set forth by specific reference in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.

| |                                     
| | ------------------------------------
| | MATTSON TECHNOLOGY, INC.(Registrant)

Dated: August 5, 2011

| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | By: /s/ DAVID DUTTON
               David DuttonPresident and Chief Executive Officer
                  (Principal Executive Officer)

Dated: August 5, 2011

| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | By: /s/ ANDY MORINGAndy MoringChief Financial Officer and Executive Vice President — Finance 
                  (Principal Financial and Accounting Officer)

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