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

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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 September 28, 2008

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 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 October 24, 2008: 49,525,532
Note:PDF provided as a courtesy
MATTSON TECHNOLOGY, INC.TABLE OF CONTENTS


PagePART I. FINANCIAL INFORMATIONItem 1.
Financial Statements (unaudited):Condensed Consolidated Balance Sheets — at September 28, 2008 and
December 31, 2007
3Condensed Consolidated Statements of Operations —
for the Three and Nine Months Ended September 28, 2008 and September 30, 2007
4Condensed Consolidated Statements of Cash Flows — for the
Nine Months Ended September 28, 2008 and September 30, 2007
5Notes to Condensed Consolidated Financial Statements
6Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
20Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
28Item 4.
Controls and Procedures
29PART II. OTHER INFORMATIONItem 1.
Legal Proceedings
29Item 1A.
Risk Factors
29Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
31Item 6.
Exhibits
32Signature
322PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value)September 28,

December 31,2008

2007ASSETSCurrent assets:Cash and cash equivalents

$            89,513

$          125,533Short-term investments

28,172

27,034Accounts receivable, net of allowance for doubtful accounts of

28,339

36,011$1,354 on September 28, 2008 and $1,463 on December 31, 2007Advance billings

3,129

2,576Inventories

56,262

51,073Inventories - delivered systems

956

—Prepaid expenses and other current assets

6,396

10,996Total current assets

212,767

253,223Property and equipment, net

31,416

28,600Goodwill

18,076

18,076Intangibles, net

6,696

7,080Other assets

10,669

10,791Total assets

$          279,624

$          317,770LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$            12,079

$            18,097Accrued liabilities

24,439

26,900Deferred revenue

5,448

7,207Total current liabilities

41,966

52,204Income taxes payable, noncurrent

14,242

14,147Other liabilities

5,713

6,136Total liabilities

61,921

72,487Commitments and contingencies (Note 6)Stockholders' equity:Preferred stock, 2,000 shares authorized; none issued and outstanding

—

—Common stock, par value $0.001, 120,000 authorized shares;53,706 shares issued and 49,525 shares outstanding in 2008;53,517 shares issued and 49,665 shares outstanding in 2007

54

54Additional paid-in capital

627,436

623,527Accumulated other comprehensive income

21,862

19,032Treasury stock, 4,181 shares in 2008 and 3,852 shares in 2007, at cost

(37,986)

(35,374)Accumulated deficit

(393,663)

(361,956)Total stockholders' equity

217,703

245,283Total liabilities and stockholders' equity

$          279,624

$          317,770The accompanying notes are an integral part of these condensed consolidated financial statements.3MATTSON TECHNOLOGY, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)Three Months Ended

Nine Months EndedSeptember 28,

September 30,

September 28,

September 30,2008

2007

2008

2007Net sales

$      30,041

$         58,480

$      120,486

$    214,965Cost of sales

22,371

32,800

73,537

116,422Gross profit

7,670

25,680

46,949

98,543Operating expenses:Research, development and engineering

10,397

8,099

27,458

26,103Selling, general and administrative

16,448

15,924

48,815

48,993Amortization of intangibles

128

128

384

383Restructuring charges

1,867

-

2,615

-Total operating expenses

28,840

24,151

79,272

75,479Income (loss) from operations

(21,170)

1,529

(32,323)

23,064Interest income

739

1,984

2,801

5,354Interest expense

(37)

(30)

(113)

(74)Other income (expense), net

(139)

(285)

(1,386)

1,014Income (loss) before income taxes

(20,607)

3,198

(31,021)

29,358Provision for (benefit from) income taxes

130

(374)

686

6,588Net income (loss)

$    (20,737)

$           3,572

$       (31,707)

$      22,770Net income (loss) per share:Basic

$        (0.42)

$             0.07

$           (0.64)

$          0.44Diluted

$        (0.42)

$             0.07

$           (0.64)

$          0.43Shares used in computing net income (loss) per share:Basic

49,481

51,397

49,421

52,163Diluted

49,481

52,430

49,421

53,194The accompanying notes are an integral part of these condensed consolidated financial statements.4MATTSON TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, in thousands)Nine Months EndedSeptember 28,

September 30,2008

2007Cash flows from operating activities:Net income (loss)

$           (31,707)

$            22,770Adjustments to reconcile net income (loss) to net cashprovided by (used in) operating activities:Allowance for doubtful accounts

103

(1,384)Amortization of intangibles

384

383Depreciation

6,352

4,743Inventory valuation charge

2,745

378Stock-based compensation

3,414

2,949Other non-cash items

51

195Changes in assets and liabilities:Accounts receivable

7,714

12,691Advance billings

(553)

6,532Inventories

(10,671)

2,843Inventories - delivered systems

(956)

1,879Prepaid expenses and other current assets

4,495

623Other assets

(155)

(263)Accounts payable

(6,262)

(530)Accrued liabilities

(2,236)

(6,627)Deferred revenue

(2,134)

(4,924)Income taxes payable, noncurrent and other liabilities

(42)

4,799Net cash provided by (used in) operating activities

(29,458)

47,057Cash flows from investing activities:Purchases of available-for-sale investments

(27,651)

(35,910)Sales and maturities of available-for-sale investments

26,450

42,638Purchases of property and equipment

(7,074)

(6,483)Sales of property and equipment

976

474Net cash provided by (used in) investing activities

(7,299)

719Cash flows from financing activities:Proceeds from stock plans, net of shares withheld
       for employee taxes

376

2,415Purchases of treasury stock

(2,613)

(20,000)Net cash used in financing activities

(2,237)

(17,585)Effect of exchange rate changes on cash and cash equivalents

2,974

3,268Net increase (decrease) in cash and cash equivalents

(36,020)

33,459Cash and cash equivalents, beginning of period

125,533

91,416Cash and cash equivalents, end of period

$            89,513

$          124,875The accompanying notes are an integral part of these condensed consolidated financial statements.5MATTSON TECHNOLOGY, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
                  SEPTEMBER 28, 2008  (unaudited)

Note 1.	Basis of PresentationBasis 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, Inc. (the Company or Mattson) for the year ended December 31, 2007,
which are included in the Company's Annual Report on Form 10-K.

The Company's current year will end December 31, 2008 and include 52 weeks. The Company closes its fiscal quarters on
the Sunday closest to March 31, June 30, and September 30, and on December 31.  The latest fiscal quarter ended on September 28, 2008.  The results of
operations for the three and nine months ended September 28, 2008 are not necessarily indicative of results that may be expected for future quarters or for
the entire year ending December 31, 2008.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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 at the
date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.

Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting
pronouncements during the nine months ended September 28, 2008, as compared to the recent accounting pronouncements described in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2007, that are of significance, or potential significance, to Mattson.

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 141R, Business Combinations. This standard establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill
acquired in a business combination. This standard also establishes disclosure requirements that will enable users to evaluate the nature and financial effects
of a business combination. SFAS No. 141R is effective for the Company for acquisitions made after December 31, 2008. The Company does not
anticipate that the adoption of this pronouncement will have a significant impact on its financial statements, however, the implementation of SFAS
No. 141R may have a material impact on financial statements for businesses acquired by the company post-adoption.

In the first quarter of 2008, the Company adopted SFAS No. 157, Fair Value Measurements for all financial assets
and financial liabilities and for all non-financial assets and non-financial liabilities recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and enhances fair value
measurement disclosure. The adoption of SFAS No. 157 did not have a significant impact on the Company's financial statements, and the resulting fair values6calculated under SFAS No. 157 after adoption were not significantly different than the fair values that would have been calculated under
previous guidance. See Note 3 for further details on fair value measurements.

In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement
No. 157. FSP No. 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal
2009. The Company is currently evaluating the impact that SFAS No. 157 will have on its consolidated financial statements when it is applied to non-
financial assets and non-financial liabilities that are not measured at fair value on a recurring basis beginning in the first quarter of 2009. The major categories
of non-financial assets and non-financial liabilities that are measured at fair value, for which the company has not yet applied the provisions of SFAS No. 157
are goodwill and intangible assets.

In the first quarter of 2008, the Company adopted SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, which permits entities to elect to measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. This election is irrevocable. The adoption of SFAS No. 159 did not have a significant impact on
the Company's financial statements. Currently, the Company has not expanded its eligible items subject to the fair value option under SFAS No. 159.

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets. FSP No. 142-
3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. This standard is intended to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset
under SFAS No. 141R and other Generally Accepted Accounting Principles (GAAP). FSP No.142-3 is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The measurement provisions of this standard will apply only to intangible assets of the Company acquired
after January 1, 2009.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162
supersedes the existing hierarchy contained in the U.S. auditing standards. The existing hierarchy was carried over to SFAS No. 162 essentially
unchanged. The Statement becomes effective 60 days following the Securities and Exchange Commission's approval of the Public Company Accounting
Oversight Board amendments to the auditing literature. The new hierarchy is not expected to change current accounting practice in any area.
Note 2.	Balance Sheet Details

September 28,

December 31,2008

2007(thousands)Cash and cash equivalents:Cash in bank

$        22,630

$          40,685Money market funds

48,919

55,939Commercial paper

17,964

28,909$        89,513

$        125,533Short-term investments:United States agency securities

$          3,544

$            4,451United States corporate bonds

24,628

22,583$        28,172

$          27,0347All short-term investments are marked to market with unrealized gains (losses) recorded under other comprehensive income.
See Note 14. The maturities of short-term investments as of September 28, 2008 and December 31, 2007 are shown below:

September 28,

December 31,2008

2007(thousands)Due within one year

$        26,632

$          14,419Due in one to two years

1,540

12,615$        28,172

$          27,034

September 28,

December 31,2008

2007(thousands)Inventories, net:Purchased parts and raw materials

$        31,288

$          27,727Work-in-process

10,680

10,934Finished goods

14,294

12,412$        56,262

$          51,073As of September 28, 2008 and December 31, 2007, the reserve for excess and obsolete inventories was $8.6 million and
$7.3 million, respectively.  The inventory reserves represented 13% of the gross inventory balances as of September 28, 2008 and December 31, 2007
respectively. During the three months ended September 28, 2008, the Company increased the inventory reserves for excess and obsolete inventory by $1.3
million, per the inventory valuation policy.

The Company's policy is to assess the valuation of all inventories, including manufacturing raw materials, work-in-process, finished
goods and spare parts, in each reporting period. Although the Company attempts to forecast future inventory demand, given the competitive pressures and
cyclical nature of the semiconductor industry, there may be significant unanticipated changes in demand or technological developments that could have a
significant impact on the value of the Company's inventories and reported operating results.

Excess and obsolete reserve adjustments inherently involve judgments as to assumptions about expected future demand and the
impact of market conditions on those assumptions. Although the Company believes that the assumptions it used in estimating excess and obsolete inventory
reserves are reasonable, significant changes in any one of the assumptions in the future could produce a significantly different result. There can be no
assurances that future events and changing market conditions will not result in significant increases in the Company's excess and obsolete inventory reserve
requirements.

September 28,

December 31,2008

2007(thousands)Property and equipment, net:Machinery and equipment

$        55,723

$          52,328Furniture and fixtures

11,918

11,842Leasehold improvements

18,422

14,75786,063

78,927Less: accumulated depreciation

(54,647)

(50,327)$        31,416

$          28,600Accrued liabilities:Warranty

$          5,419

$            9,174Accrued compensation and benefits

9,155

8,193Other

9,865

9,533$        24,439

$          26,9008Note 3.	Fair Value

SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions,
SFAS No. 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs
such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and
(Level 3) unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires
the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring
basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and equity instruments offsetting deferred
compensation.

The Company's cash equivalents and investment instruments are classified within Level 1 or Level 2 of the fair value
hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price
transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities,
money market securities and equity instruments offsetting deferred compensation, which are included in other assets in the condensed consolidated balance
sheets. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on other observable
inputs include investment-grade corporate bonds, mortgage-backed and asset-backed products, state, municipal and provincial obligations. Such instruments
are generally classified within Level 2 of the fair value hierarchy.
Assets Measured at Fair Value on a Recurring Basis
Assets 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 at September 28, 2008:

Fair Value Measurements atReporting Date UsingQuoted Prices

Significantin Active

OtherMarkets for

ObservableIdentical Assets

Inputs

Total(Level 1)

(Level 2)

Balance(thousands)Cash and cash equivalents:(1)Money market funds

$        48,919



$        48,919Commercial paper



17,964

17,964Short-term investments:United States agency securities

3,544



3,544United States corporate bonds



24,628

24,628Other assets:Equity instruments offsettingdeferred compensation liability

960



960Total assets measured at fair value

$        53,423

$        42,592

$        96,015(1) Excludes Cash in bank of $ 22.6 million, at September 28, 2008.Note 4.	Restructuring Charges

On September 10, 2008, the Company announced a Cost Alignment Plan (the "Plan") to reduce headcount and
optimize facilities worldwide. As a result of the Plan, the Company reduced its headcount by 63 positions, or about 11 percent of the Company's global
workforce. The Company expects to record restructuring-related charges in the range of $4.6 million to $5.1 million in connection with the Plan. These pre-tax
charges will be comprised of approximately $2.6 million for employee severance pay expenses and a range of $2.0 million to $2.5 million for9lease termination
and relocation costs. All of these costs will represent cash expenditures. During the three months ended September 28, 2008, the Company recorded $1.9
million as severance expenses in connection with the Cost Alignment Plan. It is expected that the headcount reduction and other cost alignment activities will
be completed by the end of the second quarter of 2009.

During the nine months ended September 28, 2008, the Company recorded $2.6 million as restructuring charges representing
severance expenses.  Restructuring charges represent costs related to the Plan announced on  September 10, 2008 and the 5% headcount restructuring
activity (the "Second Quarter Restructuring Activity") that was announced on June 26, 2008. During the second quarter restructuring activity, the
Company eliminated approximately 25 positions, or about 5% of its global workforce. During the three and nine months ended September 28, 2008, $0.7
million had been paid against this accrued restructuring reserve and there were adjustments of $0.1 million that decreased the reserve.  The Company
anticipates that all payments charged to this reserve will be completed by the second quarter of 2009.

Three Months Ended

Nine Months EndedSeptember 28,

September 28,2008

2008(thousands)

(thousands)Balance at beginning of period

$         702

$            -Restructuring and other charges

1,894

2,596Severance payments

(704)

(704)Reserve adjustments

(58)

(58)Balance at end of period

$      1,834

$      1,834Note 5. 	Guarantees

The warranty offered by the Company on its system sales is generally 12 months, except where previous
customer agreements stated otherwise, and excludes certain consumable maintenance items. A provision for the estimated cost of warranty, based on
historical costs, is recorded as cost of sales when the revenue is recognized. The Company's warranty obligations require it to repair or replace defective
products or parts, generally at a customer's site, during the warranty period at no cost to the customer. The actual system performance and/or field warranty
expense profiles may differ from historical experience, and in those cases, the Company adjusts its warranty accruals accordingly.

The following table summarizes changes in the product warranty accrual for the three and nine months ended September 28, 2008
and September 30, 2007:

Three Months Ended

Nine Months EndedSeptember 28,

September 30,

September 28,

September 30,2008

2007

2008

2007(thousands)

(thousands)Balance at beginning of period

$         6,162

$           13,550

$           9,174

$       15,113Accrual for warranties issued during the period

674

1,433

2,902

5,063Changes in liability related to pre-existing warranties

1,062

(1,595)

601

(218)Settlements made during the period

(2,479)

(2,473)

(7,258)

(9,043)Balance at end of period

$         5,419

$           10,915

$           5,419

$       10,915During the ordinary course of business, the Company's bank provides standby letters of credit or other performance guarantee
instruments on behalf of the Company to certain parties as required. The maximum potential amount that the Company could be required to pay is $1.6
million, representing standby letters of credit outstanding as of September 28, 2008. The Company has not recorded any liability in connection with these
guarantee arrangements beyond that 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 these guarantee
arrangements.

10The Company is a party to a variety of agreements, pursuant to which it may be obligated to indemnify the other party with
respect to certain matters. Typically, these obligations arise in the context of contracts under which the Company may agree to hold the other party 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 or results of operations. The Company believes if it were to incur a loss in any of these matters, such loss would not have a material effect on the
Company's financial position or results of operations.

Note 6.	Commitments and Contingencies

In 2005, the Company entered into a new lease agreement for its existing corporate headquarters building in Fremont, California.
The lease is for a period of 10 years, which commenced on May 31, 2007, and has an initial annual base rent cost of approximately $1.4 million, with annual
base rent increases of approximately 3.5%. The Company has one five-year option to extend the lease at market lease rates in effect on the expiration date.
Additionally, insurance, real property taxes and operating expenses are to be paid by the Company. The Company is responsible for an additional minimum
lease payment at the end of the lease term of approximately $1.5 million, subject to adjustment, which is being accounted for in accordance with SFAS
No. 13, Accounting for Leases, and will be accrued on a straight-line basis over the lease term. The Company has provided the landlord a letter
of credit for $1.5 million to secure this obligation. The letter of credit amount may be increased to reflect any adjustments made to a restoration cost obligation
provision included in the lease.

The Company was leasing two buildings previously used to house its manufacturing and administrative functions related to wet
surface preparation products in Exton, Pennsylvania. The Company ended the lease for the manufacturing building as of June 5, 2008. The Company
received approximately $0.2 million, net of legal fees, as part of the lease termination agreement. The lease for the administrative building will expire
March 31, 2019, with a current rental cost of approximately $0.9 million annually. The Company expects to make payments related to the
administrative building lease over the next eleven years, less any sublet amounts. The lease agreement for the administrative building allows for subleasing
the premises without the approval of the landlord. In January 2008, the administrative building was sublet for a period of approximately three years, until
December 2010, with an option for the subtenant to extend for an additional three years. In determining the facilities lease loss, various other
assumptions were made, including the time period over which the buildings will be vacant, expected sublease terms and expected sublease rates. Total
future expected lease payments of approximately $9.6 million were assumed in determining the facilities lease loss on the administrative building, offset by
the expected sub lease income.  As of September 28, 2008 and December 31, 2007, the Company had an accrual balance of $0.8 million and $1.0 million,
respectively, related to these leases. Adjustments to the accrual for the administrative building lease will be made in future periods, if necessary, as soon as
evidence of any adjustment can be reasonably estimated as future events and circumstances become known.

In connection with the acquisition of Vortek Industries, Ltd. (Vortek) in 2004, the Company became party to an agreement
between Vortek and the Canadian Minister of Industry (the Minister) relating to an investment in Vortek by Technology Partnerships Canada. Under that
agreement, as amended, the Company or Vortek (renamed Mattson Technology, Canada, Inc or "MTC") agreed to various covenants, including
(a) payment by the Company of a royalty to the Minister of 1.4% of future revenues from Flash RTP products, up to a total of CAD 14,269,290
(approximately $13.8 million at September 28, 2008), and (b) MTC maintaining a specified average workforce of employees in Canada through
October 27, 2009. If the Company, or MTC, does not satisfy its obligations, the Minister may demand payment of liquidated damages in the amount of
CAD 14,269,290 less any royalties paid by MTC or the Company to the Minister.

In 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. Moreover,
the defense11of claims or actions against the Company, even if not meritorious, could result in the expenditure of significant financial and managerial
resources.

From time to time, the Company is party to legal proceedings and claims, either asserted or unasserted, which arise in the
ordinary course of business. While the outcome of these matters is not presently determinable and cannot be predicted with certainty, management does not
believe that the outcome of any of these matters or any of the above mentioned legal claims will have a material adverse effect on the Company's financial
position, results of operations or cash flows.
Note 7.	Common Stock Repurchase Program

In March 2007, the Company's Board of Directors authorized the repurchase of up to $20 million of the Company's shares of
common stock through open-market purchases or private transactions. In October 2007, the Company's Board of Directors authorized the repurchase of up
to an additional $30 million of the Company's shares of common stock. As of September 28, 2008, a total of 3.8 million shares had been repurchased under
this program at a weighted-average purchase price of $9.20. For the three months ended September 28, 2008, there were no repurchases of the Company's
shares of common stock.  During the nine months ended September 28, 2008 a total of 329,000 shares were repurchased, at a weighted average price of
$7.95. As of September 28, 2008, the Company had $15.0 million available for future repurchases of the Company's common stock under these
authorizations.


Note 8.	Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with the provisions of SFAS No. 123R, Share-Based
Payment. SFAS No. 123R establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation
cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the requisite service period for the employee.

The effects of recording stock-based compensation for the three and nine months ended September 28, 2008 and September 30, 2007 were as
follows:

Three Months Ended

Nine Months EndedSeptember 28,

September 30,

September 28,

September 30,2008

2007

2008

2007(thousands)

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


$            802

$          824

$       2,737

$       2,459Restricted stock units


224

139

619

452Employee stock purchase plan


17

14

58

38Total stock-based compensation

1,043

977

3,414

2,949Tax effect on stock-based compensation


—

—

—

—Effect on net income (loss)

$         1,043

$          977

$       3,414

$       2,949Stock-based compensation by category of expense:Cost of sales


$              36

$            35

$            92

$          100Research, development and engineering


145

126

383

361Selling, general and administrative


862

816

2,939

2,488Effect on net income (loss)

$         1,043

$          977

$       3,414

$       2,94912The Company has not capitalized any stock-based compensation as inventory or deferred system
profit at September 28, 2008 and December 31, 2007 as such amounts were inconsequential. Compensation expense for the nine months ended September
28, 2008 included an additional $350,000 related to a stock option modification that
occurred in 2006. Since the error is not material to prior periods and is not
considered material to the current period, an adjustment was made to increase selling, general and administrative expense and additional paid-in capital for
this amount in the first quarter of 2008.
Valuation AssumptionsThe Company estimates the fair value of stock options using a Black-Scholes valuation model, consistent with the provisions
of SFAS No. 123R. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model and the
straight-line attribution approach with the following weighted-average assumptions:

Three Months Ended

Nine Months EndedSeptember 28,

September 30,

September 28,

September 30,2008

2007

2008

2007Expected dividend yield

—

—

—

—Expected stock price volatility

53%

67%

55%

74%Risk-free interest rate

3.1%

4.5%

2.9%

4.7%Expected life of options

5 years

5 years

5 years

5 yearsOption-pricing models require the input of highly subjective assumptions, including the option's
expected life and the price volatility of the underlying stock. The expected life of each option was determined by analyzing historical exercise and post-vest
forfeiture patterns. The risk-free interest rate was determined using the rates for United States Treasury notes for similar terms. The expected stock price
volatility assumption was determined using the historical volatility of the Company's common stock.
Stock OptionsAs of September 28, 2008, the unrecorded deferred stock-based compensation balance related to stock options was $5.7 million
after estimated forfeitures and will be recognized over an estimated weighted-average amortization period of 2.75 years. As of December 31, 2007, the
Company had an unrecorded deferred stock-based compensation balance related to stock options of $7.4 million after estimated forfeitures.  SFAS No. 123R
requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates. In the
three months ended September 28, 2008 and September 30, 2007, the Company's Board of Directors approved the grant of approximately 260,000 and
57,000 stock options, respectively, with an estimated total grant-date fair value of $0.5 million and $0.3 million, respectively, after estimated forfeitures. In the
nine months ended September 28, 2008 and September 30, 2007, the Company's Board of Directors approved the grant of approximately 1,007,000 and
846,000 stock options, respectively, with an estimated total grant-date fair value of $2.4 million and $4.3 million, respectively, after estimated forfeitures.
Restricted Stock UnitsAs of September 28, 2008, the unrecorded deferred stock-based compensation balance related to non-vested restricted stock
units with time-based vesting was $2.2 million after estimated forfeitures and will be recognized over an estimated weighted-average amortization period of
2.72 years. As of December 31, 2007, the Company had an unrecorded deferred stock-based compensation balance related to non-vested restricted stock
units with time-based vesting of $1.5 million after estimated forfeitures.  During the three months ended September 28, 2008 and September 30, 2007, the
Company's Board of Directors approved the grant of approximately 96,000 and 2,000 restricted stock units with time-based vesting, respectively, with an
estimated total grant-date fair value of $0.4 million and  $21,000 respectively, after estimated forfeitures.  During the nine months ended September 28, 2008
and September 30, 2007, the Company's Board of Directors approved the grant of approximately 232,000 and 96,000 restricted stock units with time-based
vesting, respectively, with an estimated total grant-date fair value of $1.1 million and  $0.8 million, respectively, after estimated forfeitures. The grant-date fair
value of these restricted stock units was based on the closing market price of the Company's common stock on the date of award.

13Performance-Based Restricted Stock Units


During the nine months ended September 28, 2008, the Company's Board of Directors approved the grant of 683,000
performance-based restricted stock units to certain executives, officers and senior-level management. During the nine months ended September 28, 2008,
150,000 of these restricted stock units were cancelled, leaving 533,000 units outstanding at September 28, 2008. These restricted stock units vest in four
equal tranches upon the achievement of four sequentially increasing revenue performance targets. Vesting is also contingent upon certain operating profit
margin and stock price thresholds being met. If any of the conditions have not been met by the close of the Company's 2011 fiscal year, then the
corresponding units will be forfeited. In accordance with SFAS No. 123R, the stock price threshold condition was incorporated into the measurement of fair
value on the grant date.

As of September 28, 2008, the Company has determined that the first two revenue targets and the operating profit margin target
are probable of being achieved, while the final two revenue targets are not probable of being achieved because they require significant growth in revenue and
market share. Accordingly, the Company is recognizing the compensation cost associated with the first two tranches over the longer of the derived service
period of the stock price target and the estimated service period of the performance targets. For the final two tranches, if and when the Company determines
that the related targets are probable of being achieved, the Company will begin recognizing compensation cost in the period that such assessment is made in
accordance with SFAS No. 123R.

The fair value of the 683,000 performance-based restricted stock units with market conditions was determined using a Monte Carlo
valuation methodology with the following weighted-average assumptions: volatility of the Company's common stock of 50 percent; dividend yield of 0 percent,
and risk-free interest rate of 2.3 percent. The fair value of the performance-related component of the performance shares was equivalent to the grant-date fair
value of the Company's common stock.

The following table summarizes the combined activity under all of the Company's equity incentive plans for the indicated periods,
including 10,000 shares outstanding under the Company's CFM Technologies, Inc. plans as of September 28, 2008:

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, 2007

3,288

6,118

$          9.39

172

$        10.69Stock options:Granted


(1,007)

1,007

5.49

-

-Exercised


-

(65)

2.80

-

-Cancelled or forfeited


627

(627)

8.91

-

-Restricted stock units:Granted


(1,600)

-

-

915

2.62
(1)Released


35

-

-

(56)

9.65Cancelled or forfeited


366

-

-

(209)

4.37
(1)Balances at September 28, 2008

1,709

6,433

$          8.89

821

$          3.56____________

(1)
The weighted-average grant date fair value for restricted stock units granted in the nine months ended September 28, 2008
excludes 342,000 shares with a weighted average grant date fair value of $3.26 related to the final two tranches of performance-based restricted stock units,
as the Company's management has determined that achievement of the performance conditions related to these two tranches is not deemed probable as of
September 28, 2008. The weighted-average grant date fair value for restricted stock units canceled in the nine months ended September 28, 2008 excludes
75,000 shares with a weighted average grant date fair value of $3.32 which also related to the final two tranches of performance-based restricted stock
units.14Restricted stock units granted through 2007 generally vest 1/4 of the units
granted on the first anniversary of the date of grant, and 1/16 of the initial units granted per quarter thereafter. Beginning in 2008, restricted stock units with
time-based vesting generally vest 1/4 of the units granted on each anniversary of the date of grant. 2005 Plan awards of restricted stock units are counted
against the total number of shares of common stock available for grant under the plan at 1.75 shares for every one share subject thereto. The value of the
restricted stock units was based on the closing market price of the Company's common stock on the date of award.

Supplemental disclosure information about the Company's stock options and restricted stock units with time-based vesting is as
follows (in thousands, except weighted-average values):

Three Months Ended

Nine Months EndedSeptember 28,

September 30,

September 28,

September 30,2008

2007

2008

2007Stock options:

(thousands, except weighted-average fair values)Weighted-average grant date fair value

$            2.28

$            6.09

$            2.73

$            5.75Intrinsic value of options exercised

$             107

$          1,307

$             165

$          2,317Cash received from options exercised

$             125

$          1,007

$             181

$          2,233Restricted stock units with time based vesting:Weighted-average grant date fair value

$            5.18

$            9.93

$            5.53

$            9.10Supplemental disclosure information about the Company's stock options outstanding as of September 28, 2008 is as
follows:

Weighted-Weighted-

AverageAverage

Remaining

AggregateExercise

Contractual

IntrinsicShares

Price

Life

Value(thousands)



(in years)

(thousands)Options exercisable at September 28, 2008

4,650

$            9.44

3.7

$          1,170Options expected to vest at September 28, 2008

1,783

$            7.46

5.9

$             119Options outstanding at September 28, 2008

6,433

$            8.89

4.3

$          1,289The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company's closing stock
price of $4.99 as of September 28, 2008, which would have been received by the option holders had all option holders exercised their options as of that date.
The total number of shares of common stock subject to in-the-money options which were exercisable as of September 28, 2008 was 0.5 million. The
Company settles employee stock option exercises with newly issued common shares.


Note 9.	Reportable Segments

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for
reporting information about operating segments, geographic areas and major customers in financial statements. Operating segments are defined as
components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Chief Executive Officer of the Company is the Company's chief decision maker. As the
Company's business is completely focused on one industry segment, the design, manufacturing and marketing of advanced fabrication equipment for the
semiconductor manufacturing industry, management believes that the Company has one reportable segment. The Company's revenues and profits are
generated through the sales of products and services for this one segment.


15The following shows net sales by geographic areas based on the installation locations of the systems and the location of services
rendered:

Three Months Ended

Nine Months EndedSeptember 28, 2008

September 30, 2007

September 28, 2008

September 30, 2007(thousands)

%

(thousands)

%

(thousands)

%

(thousands)

%United States

$      2,484

8

$     4,567

8

$   11,022

9

$    14,281

7Taiwan

2,791

9

14,975

26

31,008

26

56,227

26Korea

7,161

24

6,284

11

18,061

15

43,391

20Japan

6,254

21

7,746

13

30,211

26

41,880

19Other Asia

8,313

28

12,394

21

21,220

17

29,263

14Europe and others

3,038

10

12,514

21

8,964

7

29,923

14$    30,041

100

$   58,480

100

$ 120,486

100

$  214,965

100In the three months ended September 28, 2008, three customers accounted for 20%, 18% and 13% of net sales, respectively. In
the three months ended September 30, 2007, four customers accounted for 18%, 14%, 12% and 11% of net sales, respectively.   In the nine months ended
September 28, 2008, two customers accounted for 19% and 10% of net sales, respectively. In the nine months ended September 30, 2007, four customers
accounted for 18%, 11%, 11% and 10% of net sales, respectively.   As of September 28, 2008, three customers accounted for 17%, 16% and 12% of net
accounts receivable. As of December 31, 2007, three customers accounted for 28%, 12% and 10% of net accounts receivable.

Geographical information relating to the Company's property and equipment, net, as of September 28, 2008 and December 31,
2007 is as follows:

September 28, 2008

December 31, 2007(thousands)

%

(thousands)

%United States

$       18,967

60

$       15,118

53Germany

10,978

35

11,122

39Canada

1,118

4

2,050

7Others

353

1

310

1$       31,416

100

$       28,600

100Note 10.	DNS Patent Infringement Suit Settlement

On June 24, 2002, the Company entered into a settlement agreement and a license agreement with Dainippon
Screen Manufacturing Co., Ltd. (DNS), under which DNS agreed to make payments to the Company totaling between $75 million (minimum) and
$105 million (maximum), relating to past damages, partial reimbursement of attorney fees and costs, and license fees.

In May 2008, DNS paid the Company the last royalty payment under the license agreement of $6.4 million for royalties due
through January 15, 2008. Royalty payments received by the Company are recorded as royalty revenue and recognized as net sales in the period they are
reported to the Company by DNS, which is generally in the second quarter of each year.

As of September 28, 2008, DNS has made payments aggregating $95.1 million under the terms of the settlement and license
agreements. The Company recognized $6.4 million and $8.6 million of royalty revenue for the nine months ended September 28, 2008 and September 30,
2007, respectively.

16Note 11.	Derivative Instruments and Hedging Activities

The Company has utilized foreign currency forward exchange contracts to hedge against future movements in foreign exchange
rates that affect certain existing and forecasted foreign currency denominated sales and purchase transactions. The Company does not use derivative
financial instruments for speculative or trading purposes. With respect to forward foreign currency exchange contracts, the Company did not have any
hedging activities for the three and nine months ended September 28, 2008. The Company recorded a gain of $0.2 million in other income (expense), net for
the nine months ended September 30, 2007. As of September 28, 2008, the Company had no outstanding forward foreign exchange contracts.
Note 12.	Income Taxes

The provision for income taxes for the nine months ended September 28, 2008 primarily consisted of a $1.1 million
provision for foreign taxes, which was partially reduced by discrete items resulting in a foreign tax benefit of $0.4 million. The Company recorded no Federal
or states tax provision for the nine months ended September 28, 2008. The provision for income taxes in the nine months ended September 30, 2007
included a normalized provision of $3.4 million for Federal and state income taxes and a $0.9 million provision for foreign taxes. During the nine months
ended September 30, 2007, the Company recorded $3.8 million in income tax expense related to a ruling on the applicability of tax law in one of its foreign
locations. The Company reduced its current tax liability by $1.3 million through the utilization of certain acquired tax assets, largely consisting of net operating
loss carryforwards resulting from the acquisition of STEAG in 2001. The Federal and state tax provision for the nine months ended September 30, 2007,
however, does not reflect a benefit for the utilization of these net operating losses, as it was used to reduce the goodwill originally recorded in the acquisition.

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 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.  During the three months ended September 28, 2008 the Company recorded a tax provision of $0.1
million, compared to a net tax benefit of $0.4 million during the three months ended September 30, 2007.

At December 31, 2007, the Company had $29.6 million of unrecognized tax benefits. Of this total, $11.9 million represents the
amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. For the nine months ended
September 28, 2008, there have been no material changes to the amount of unrecognized tax benefits.  Included in the balance of unrecognized tax benefits
at September 28, 2008 is $2.1 million related to tax positions and estimated interest and penalties for which it is reasonably possible that the statute of
limitations will expire in various jurisdictions 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. At December 31, 2007, the Company had $1.1 million
accrued for estimated interest and $0.1 million accrued for estimated penalties. For the nine months ended September 28, 2008, recorded income tax
expense included estimated interest of $0.3 million.

The Company and its subsidiaries are subject to United States Federal income tax as well as income taxes in Germany and
various other 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 2002. The Company's German income tax returns are currently under examination for the tax years 2001 to 2004. The final outcome of this
examination is not yet known. Management does not anticipate any adjustments, which would result in material changes to the Company's financial position,
results of operations, or cash flows.


Note 13.	Net Income Per Share

Net income per share is calculated in accordance with SFAS No. 128, Earnings Per Share, which requires dual
presentation of basic and diluted net income per share on the face of the income statement. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is
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.

17The following table summarizes the incremental shares of common stock from these potentially dilutive securities, calculated
using the treasury stock method:

Three Months Ended

Nine Months EndedSeptember 28,

September 30,

September 28,

September 30,2008

2007

2008

2007(thousands)

(thousands)Weighted average shares outstanding - Basic

49,481

51,397

49,421

52,163Diluted potential common shares from stockoptions and restricted stock units

-

1,033

-

1,031Weighted average shares outstanding - Diluted

49,481

52,430

49,421

53,194There were no stock options or unvested restricted stock units factored into the computation of diluted shares in 2008 since the
Company has incurred a net loss in the three and nine months ended September 28, 2008. Total stock options outstanding of 3.7 million for the three and
nine months ended September 30, 2007, were excluded from the computations in 2007, as their inclusion would be antidilutive.


Note 14.	Other Comprehensive Income (Loss)

The balance of accumulated comprehensive income (loss) is as follows:

September 28,

December 31,2008

2007(thousands)Cumulative translation adjustments

$             21,987

$             18,825Unrealized investment gain (loss)

(125)

207$             21,862

$             19,032The following are the components of comprehensive income (loss):

Three Months Ended

Nine Months EndedSeptember 28,

September 30,

September 28,

September 30,2008

2007

2008

2007(thousands)

(thousands)Net income (loss)

$           (20,737)

$               3,572

$   (31,707)

$    22,770Cumulative translation adjustments

(1,531)

2,564

3,162

4,161Unrealized investment gain (loss)

(226)

112

(332)

121Comprehensive income (loss)

$           (22,494)

$               6,248

$   (28,877)

$    27,052Note 15.  Goodwill and Intangible Assets

The Company reviews its goodwill and intangible assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be recoverable, and also reviews goodwill annually in accordance with SFAS No. 142, Goodwill
and Other Intangibles. The values assigned to goodwill and intangible assets are usually based on estimates and judgments regarding expectations for
the success and life cycle of products and technologies acquired. A severe decline in expectations, given the competitive pressures and cyclical nature of the
semiconductor industry, could result in significant impairment charges, which could have a material adverse effect on the Company's business, financial
condition and results of operations.

18One indicator of potential goodwill impairment is whether the Company's fair value, as measured by its market capitalization, has
remained below its net book value for a significant period of time. During the third quarter of 2008, the lowest closing price for the Company's shares of
common stock was $4.22, as reported by the Nasdaq Global Select Market, which corresponds to a market capitalization of $209 million. The average closing
price for the three months ended September 28, 2008 was $4.96, which corresponds to a market capitalization of $246 million, compared to the Company's
net book value of $218 million on September 28, 2008. Based on the Company's review of the events that occurred during the third quarter of 2008, the
Company has determined that there were no events or changes in circumstances that would have triggered an impairment review. The Company will conduct
an annual review of goodwill, in accordance with FAS 142, Goodwill and Other Intangibles in the fourth quarter of 2008. Whether the Company's
market capitalization triggers an impairment charge in any future period will depend on the underlying reasons for the decline in stock price, the significance
of the decline, and the length of time the stock price has been depressed.

The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment and estimates
regarding future cash flows and forecasts. The Company's cash flow forecasts are based on assumptions that are consistent with the plans and estimates the
Company is using to manage the underlying business. Changes in judgment on these assumptions and estimates could result in a goodwill impairment
charge in the future.

The value assigned to intangible assets is based on estimates and judgments regarding expectations such as the success and
lifecycle of products and technology acquired. If the actual product acceptance differs significantly from the estimates, the Company may be required to
record an impairment charge to write down the asset to its realizable value.





19Item 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, customer
demand, market share, competitiveness, margins, product development plans and levels of research and development (R&D activity), outsourcing plans
and operating expenses, tax expenses, the expected effects, cost and timing of restructurings and consolidation of operations and facilities, economic
conditions in general and in our industry, 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 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
events, or for any other reason.
Documents to Review In Connection With Management's Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with the Condensed Consolidated Financial
Statements and Notes presented in this 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, 2007 (our 2007 Form 10-K).
Overview

Mattson Technology, Inc. (the Company or Mattson) is a leading supplier of semiconductor wafer processing equipment used in
the fabrication of integrated circuits (ICs or chips). Mattson produces dry strip equipment, etch equipment and rapid thermal processing (RTP) equipment for
the wafer chip fabrication industry. Our manufacturing equipment utilizes innovative technology to deliver advanced processing capabilities and high
productivity for the front-end-of-line and back-end-of-line fabrication of current and next-generation ICs. Our tools, technologies and expertise are enablers in
the semiconductor industry's transition to larger 300-millimeter wafers, sub-65 nanometer design rules and the use of new materials, such as copper, low
capacitance dielectrics and barrier metals.

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 cyclicality and uncertainties regarding overall market conditions continue to
present significant challenges to us and impair our ability to forecast near-term revenue. Given that many of our costs are fixed in the short-term, our ability to
quickly modify our operations in response to changes in market conditions is limited. Part of our strategy is to outsource selected non-critical functions in
manufacturing, spare parts logistics, subsystem design and other areas to third parties specializing in these areas. This allows us to concentrate our
resources on our core technologies in strip, etch and RTP, reduce our cost structure and achieve greater flexibility to expand and contract manufacturing
capacity as market conditions require.

Going forward, 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 and 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 and (d) maintain a cost structure that will enable us to
operate effectively and profitably throughout changing industry cycles.


20Results of Operations

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

Three Months EndedSeptember 28, 2008

September 30, 2007

Increase (Decrease)(thousands)

%

(thousands)

%

(thousands)

%Net sales

$   30,041

100.0

$       58,480

100.0

$   (28,439)

(48.6)Cost of sales

22,371

74.5

32,800

56.1

(10,429)

(31.8)Gross profit

7,670

25.5

25,680

43.9

(18,010)

(70.1)Operating expenses:Research, development and engineering

10,397

34.6

8,099

13.8

2,298

28.4Selling, general and administrative

16,448

54.8

15,924

27.2

524

3.3Amortization of intangibles

128

0.4

128

0.2

-

n/m (1)Restructuring charges

1,867

6.2

-

-

1,867

n/m (1)Total operating expenses

28,840

96.0

24,151

41.3

4,689

19.4Income (loss) from operations

(21,170)

(70.5)

1,529

2.6

(22,699)

n/m (1)Interest income

739

2.5

1,984

3.4

(1,245)

(62.8)Interest expense

(37)

(0.1)

(30)

(0.1)

(7)

23.3Other income (expense), net

(139)

(0.5)

(285)

(0.5)

146

(51.2)Income (loss) before income taxes

(20,607)

(68.6)

3,198

5.5

(23,805)

n/m (1)Provision for (benefit from) income taxes

130

0.4

(374)

(0.6)

504

n/m (1)Net income (loss)

$ (20,737)

(69.0)

$         3,572

6.1

$   (24,309)

n/m (1)

Nine Months EndedSeptember 28, 2008

September 30, 2007

Increase (Decrease)(thousands)

%

(thousands)

%

(thousands)

%Net sales

$ 120,486

100.0

$     214,965

100.0

$   (94,479)

(44.0)Cost of sales

73,537

61.0

116,422

54.2

(42,885)

(36.8)Gross profit

46,949

39.0

98,543

45.8

(51,594)

(52.4)Operating expenses:Research, development and engineering

27,458

22.8

26,103

12.1

1,355

5.2Selling, general and administrative

48,815

40.5

48,993

22.8

(178)

(0.4)Amortization of intangibles

384

0.3

383

0.2

1

0.3Restructuring charges

2,615

2.2

-

-

2,615

n/m (1)Total operating expenses

79,272

65.8

75,479

35.1

3,793

5.0Income (loss) from operations

(32,323)

(26.8)

23,064

10.7

(55,387)

n/m (1)Interest income

2,801

2.3

5,354

2.5

(2,553)

(47.7)Interest expense

(113)

(0.1)

(74)

-

(39)

52.7Other income (expense), net

(1,386)

(1.2)

1,014

0.5

(2,400)

n/m (1)Income (loss) before income taxes

(31,021)

(25.7)

29,358

13.7

(60,379)

n/m (1)Provision for income taxes

686

0.6

6,588

3.1

(5,902)

(89.6)Net income (loss)

$ (31,707)

(26.3)

$       22,770

10.6

$   (54,477)

n/m (1)______________________


(1)   Not meaningful


21Net Sales and Deferred RevenueNet Sales of  $30.0 million for the three months ended September 28, 2008 (third quarter of 2008) were down $28.4 million, or
49%, from the same period in 2007.  Net sales for the third quarter of 2008 decreased primarily due to a $24.7 million decline in systems sales, a $2.8 million
decline in net deferral revenue and a $0.9 million decline in spares and service sales. The shortfall in systems revenue is primarily due to the weakness in the
overall wafer fabrication equipment market exacerbated by the credit crisis in the global economy. Customers are delaying their capital investments due to
the oversupply conditions compounded by uncertainties in the market. International sales, predominantly to customers based in Europe and Asia, including
China, Japan, Korea, Singapore and Taiwan, accounted for 92% of net sales in the third quarter of 2008, unchanged from the third quarter of 2007. We
anticipate that international sales will continue to account for a significant portion of our net sales.

Net Sales of $120.5 million for the nine months ended September 28, 2008, were down $94.5 million or 44% from the same
period in 2007. The decrease in net sales was primarily due to an $88.3 million decline in systems sales, a $4.3 million decline in net deferral revenue and a
$2.2 million decline in DNS royalty revenue, partially offset by a $0.3 million increase in spares and service sales. During the beginning of the downturn the
weakness was limited to the memory market, but recently, the weakness has extended to the foundry segment of the wafer fabrication equipment market.
Approximately 65% of our systems revenue is from the memory market.  No further royalty payments are expected from the patent infringement lawsuit
settlement with Dainippon Steel (DNS). International sales, predominantly to customers based in Europe and Asia, including China, Japan, Korea, Singapore
and Taiwan, accounted for 91% of net sales in the nine months ended September 28, 2008, compared to 93% for the same period in 2007.

Deferred revenue at September 28, 2008 decreased to $5.4 million from $7.2 million at December 31, 2007, primarily due
to a $2.2 million net decrease in deferred revenue for system shipments in accordance with our revenue recognition policy and a $0.4 million net increase in
deferred revenue for service contracts.
Gross Profit and Gross Profit MarginIn the third quarter of 2008, gross profit of $7.7 million, decreased by $18.0 million when compared to the third quarter of 2007.
The main reasons for the decline were $10.8 million of lower systems revenue, $2.8 million of lower net deferral revenue, $2.7 million of unfavorable
manufacturing cost variances due to lower production levels, $2.0 million in additional warranty reserve adjustments and $0.4 million in lower spares revenue.
These unfavorable impacts were partially offset by $0.7 million in favorable installation spending as a result of lower system shipments. The low systems
revenue levels caused by the weak memory market increased under absorption in the factories. Low forecasted revenue volumes resulted in higher inventory
reserves per our financial policies. The additional warranty reserves are reflective of higher warranty labor rates and represent higher field support spending
against a diminishing warranty base.

Gross profit margin in the third quarter of 2008 decreased by 18.4 percentage points compared to the third quarter of 2007. 8.4
percentage points of this decrease was due to unfavorable manufacturing cost variances due to lower production levels, 5.2 percentage points was from
higher warranty reserves and 4.8 percentage points was from the net deferral of revenue.  Tool margins remained relatively flat in the quarter when compared
to the same period in 2007.

Gross profit of $46.9 million in the nine months ended September 28, 2008 decreased by $51.6 million compared to the same
period in 2007, due to $41.8 million on systems sales, $4.3 million on the net deferral of revenue in accordance with our revenue recognition policy, $4.0
million on unfavorable manufacturing cost variances due to lower production levels, $2.2 million from lower DNS royalty revenue and $2.1 million on higher
manufacturing direct costs primarily inventory reserves. These unfavorable impacts were partially offset by $1.5 million higher margins on spares sales, and
$1.3 million in favorable warranty reserve adjustments, As stated above, the weakness in the overall wafer fab equipment market resulted in lower revenue
levels and the corresponding under absorption of fixed manufacturing overhead costs in our factories. We have taken additional inventory reserves due to
lower forecasted revenue volumes. We announced a Cost Alignment Plan in September 2008 that will eliminate a significant percentage of our manufacturing
positions in an effort to reduce the manufacturing costs in subsequent quarters and outsource some of the manufacturing operations in Germany. The second
quarter headcount restructuring activity resulted in a reduction of approximately five percent of our headcount, in primarily office support organizations.

22Gross profit margin in the nine months ended September 28, 2008 decreased by 6.8 percentage points compared to the same
period of 2007. The decrease in gross profit margin was primarily due to 4.1 percentage points from unfavorable manufacturing cost variances due to lower
production levels, 2.5 percentage points from manufacturing direct costs mainly from additional inventory reserves, and 1.7 percentage points from the net
deferral of revenue, partially offset by a favorable product mix impact of 1.5 percentage points.

Due to intense competition, we continue to face pricing pressures that can affect our gross profit margin. Our gross profit margin
has varied over the years and will continue to be affected by many factors, including competitive pressures, product mix, economies of scale, material and
other costs, overhead absorption levels and revenue recognition requirements.
Research, Development and EngineeringResearch, development and engineering (RD&E)
expenses increased by $2.3 million for the third quarter of 2008 compared to the same period of 2007, primarily due to $1.0 million higher material spending
on new product development activities for Etch, $0.8 million depreciation on new lab tools, $0.2 million higher salary expenses due to additional headcount
related to the ramp up of new products, and $0.3 million in outside consulting and other services.

RD&E expenses increased by $1.4 million for the nine months ended September 28, 2008 compared to the same period of
2007, primarily due to $1.6 million in higher depreciation on lab tools, $0.7 million higher salaries relating to new hires for our new product initiatives, $0.5
million lower research and development credits from a research partner, partially offset by lower material expenses of $1.1 million as our millisecond anneal
product transitioned into later stages of product development, and lower bonuses of $0.3 million.

Selling, General and Administrative

Selling, General and Administrative (SG&A) expenses for the third quarter of 2008 increased by $0.5 million when compared
to the same period in 2007, primarily due to $0.9 million in higher amortization and installation expenses related to the evaluation tools at customer sites, $0.3
million higher bad debt reserve provisions, $0.3 million higher building occupancy expenses, partially offset by $0.5 million in lower salaries and bonuses and
$0.5 million lower spending on outside services. As evidenced by the reduction in salaries and outside services, we have been curtailing our discretionary
spending and reducing headcount in sales and office support organizations as we continue to spend on our new product development efforts and placing
more evaluation tools in the field.

SG&A expenses for the nine months ended September 28, 2008 decreased by $0.2 million when compared to the same
period in 2007. SG&A expenses in the first quarter of 2007 included a $1.6 million benefit which related to the release of amounts previously accrued as
we completed all remaining obligations under a foreign government-funded capital development project. SG&A expenses other than this benefit
decreased by $1.8 million for the nine months ended September 28, 2008 compared to the same period of 2007, primarily as the result of $2.2 million in
bonus compensation, $1.3 million lower spending on outside services, partially offset by $0.6 million additional spending on evaluation tools placed in the
field, $0.8 million in higher building occupancy expenses and $0.3 million in additional travel expenses.

Restructuring Expenses

During the three months ended September 28, 2008, we announced a Cost Alignment Plan (the "Plan") to
reduce headcount and optimize our worldwide facilities. This was in addition to the second quarter restructuring activity announced in June 2008. As a result
of the Plan, we will reduce our headcount by 63 positions, or about 11 percent of the Company's global workforce. More than 50% of the headcount reduction
was in the manufacturing groups as we execute our strategy to outsource our manufacturing operations in Germany. On September 10, 2008, we began
providing notices to those employees whose employment would be affected by the Plan.  We expect to record restructuring-related charges in the range of
$4.6 million to $5.1 million in connection with the Plan.  These pre-tax charges will be comprised of approximately $2.6 million in employee severance pay
expenses and a range of $2.0 million to $2.5 million in lease termination and relocation costs that will represent cash expenditures. Restructuring expenses
for the three months ended September 28, 2008, were $1.9 million representing severance expenses. The remaining restructuring charges will be recognized
in the subsequent quarters per the requirements of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. It is expected that the headcount

23

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reduction and other cost alignment activities will be completed by the end of the second quarter of 2009. The expected annualized savings are
expected to be approximately $6 million from this Plan.

During the nine months ended September 28, 2008, restructuring charges were $2.6 million representing severance expenses,
consisting of $1.9 million for the Cost Alignment Plan announced in September and $0.7 million for the second quarter restructuring activity announced in
June. As part of the second quarter restructuring activity announced in June, the Company eliminated approximately 25 positions, or about 5% of its global
workforce. The purpose of this workforce reduction was to reduce the cost structure in selected areas while allowing the company to continue critical
investments in new products and strategic initiatives. During the three and nine months ended September 28, 2008, $0.7 million had been paid against this
restructuring reserve. The estimated annual savings from both the restructuring activities are expected to be approximately $8 million. A percentage of the
savings will be re-invested in our new product development activities and the remainder will help us reduce our cash loss from operations.

Interest and Other Income (Expense), Net

Interest income decreased by $1.2 million in the third quarter of 2008 compared with the same period of 2007, primarily due to
lower average interest yields earned in 2008. Our average interest yield was 2.4 percentage points when compared to 4.8 percentage points during the same
period in 2007.

Other expense, net of $0.1 million for the third quarter of 2008 included realized foreign currency exchange gains of $0.2 million,
offset by $0.3 million expense resulting from the liquidation of an entity. Other expense, net of $0.3 million for the third quarter of 2007 included realized
foreign currency exchange losses of $0.4 million, partially offset by miscellaneous other income of $0.1 million.



Interest income decreased by $2.6 million for the nine months ended September 28, 2008 compared with the same period of
2007, primarily due to the lowering of the interest rates by the Federal Reserve. The average interest rate yields were 2.8 percentage points compared to 4.8
percentage points in 2007.

Other expense, net of $1.4 million for the nine months ended September 28, 2008, included realized foreign currency exchange
losses of $0.7 million primarily due to the weakening dollar during the earlier quarters, $0.3 million expense resulting from the liquidation of  an entity and
miscellaneous other expense of $0.4 million. Other income, net of $1.0 million for the same period in 2007, included foreign currency gains of $0.2 million on
a forward foreign exchange contract settled in 2007, realized foreign currency exchange gains of $0.1 million, certain payments and legal settlements related
to two previous lines of business of $1.1 million and miscellaneous other expenses of $0.4 million.

Provision for Income Taxes

The provision for income taxes for the nine months ended September 28, 2008 of $0.7 million primarily consisted of a $1.1 million
provision for foreign taxes, which was partially reduced by a discrete item resulting in a foreign tax benefit of $0.4 million. We recorded no Federal or states
tax provision for the first, second and third quarters of 2008 primarily due to projected losses incurred in the United States.

The provision for income taxes in the nine months ended September 30, 2007 of $6.6 million included a normalized provision of
$3.4 million for Federal and state income taxes, and a $0.9 million provision for foreign taxes. During the nine months ended September 30, 2007, we
recorded $3.8 million in income tax expense related to a ruling on the applicability of tax law in one of our foreign locations. We reduced our current tax
liability by $1.3 million through the utilization of certain acquired tax assets, largely consisting of net operating loss carryforwards resulting from the acquisition
of STEAG in 2001. The Federal and state tax provision for the nine months ended September 30, 2007, however, does not reflect a benefit for the utilization
of these net operating losses, as it was used to reduce the goodwill originally recorded in the acquisition.

On a quarterly basis, we evaluate our expected income tax expense or benefit based on our year to date operations, and record
an adjustment in the current quarter. The net tax provision 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.  During the three months ended September 28, 2008 the Company recorded a tax provision of $0.1 million, compared
to a net tax benefit of $0.4 million during the three months ended September 30, 2007.

24

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Our valuation allowance at September 28, 2008 is primarily attributable to Federal and state deferred tax assets, as well as
certain foreign deferred tax assets. We believe that sufficient uncertainty exists with regard to the realizability of these tax assets such that a valuation
allowance is necessary. Factors considered in providing a valuation allowance include the lack of a significant history of consistent profits and the lack of
carry-back capacity to realize these assets. Based on the absence of objective evidence, we are unable to assert that it is more likely than not that we will
generate sufficient taxable income to realize these remaining net deferred tax assets.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our 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 management 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, management evaluates its 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
judgment 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 2007 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:

- Inventories and Inventory Valuation
- Goodwill and Other Intangible Assets
- Impairment of Long-Lived Assets
- Warranty
- Stock-based Compensation
- Income Taxes
- Revenue Recognition

There have been no material changes from the methodology applied by management for critical accounting estimates previously
disclosed in our 2007 Form 10-K.

Liquidity and Capital Resources

Our cash, cash equivalents and short-term investments were $117.7 million at September 28, 2008, a decrease of
$34.9 million from $152.6 million at December 31, 2007. We believe that these balances, including interest to be earned thereon, net of
anticipated cash flows from operating activities will be sufficient to fund our working and other capital requirements over the course of the next twelve months.
In the normal course of business, we evaluate the merits of acquiring technology or businesses, or establishing strategic relationships with or investing in
these businesses. We may use available cash, cash equivalents and marketable security investments to fund such activities in the future. In the event
additional needs for cash arise, we may raise additional funds from a combination of sources, including the potential issuance of debt or equity
securities.

Credit Arrangements

In June 2007, we renewed our $10 million revolving line of credit with a bank, which may be increased to $20
million at our option. The revolving line of credit now expires in June 2009 and has an annual commitment fee of $25,000.  We have the ability to utilize the
revolving line of credit provided we are in compliance with all covenants as stated per the terms and conditions of the revolving line of credit. As of September
28, 2008 we were in compliance with all covenants and we had no borrowing under this credit line.

25

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Cash Flows from Operating Activities

Net cash used in operations during the nine months ended September 28, 2008 was $29.5 million, primarily due to a
$31.7 million net loss, a $7.9 million increase in net inventories, an $8.5 million decrease in accrued liabilities and accounts payable, and a $2.1 million
increase in deferred revenue which were partially offset by a $7.2 million decrease in accounts receivable net of advanced billings, $6.4 million in
depreciation, a $4.5 million decrease in prepaid expenses and other current assets, and $3.4 million in stock compensation expenses.  The increase in
inventory was primarily for new product inventory, evaluation inventory shipped to customers and increases in spares inventory for customer satisfaction
purposes. Approximately 18% of our inventory balances relate to evaluation tools already placed in the field in customer fabrication plants.  Another 24% of
inventory balances relate to new products that are currently being built for shipment to the field. Spares inventory represents 25% of our inventory balances.
The decrease in accounts payable and accounts receivable is indicative of our declining revenue volumes. The decrease in accrued liabilities by $2.2 million
was primarily due to a decrease in our value added tax liabilities of $2.4 million due to refunds received and decrease in warranty reserves of $3.8 million as a
result of lower revenue volumes partially offset by additional tax liabilities and $1.8 million in additional restructuring reserves. The increases in deferred
revenue were due to an increase in systems shipped during the quarter where revenue was deferred in accordance with our revenue recognition policies. The
decrease in prepaid expenses of $4.5 million was primarily due to decreases in our prepaid value added tax balances as we received tax refunds.

Net cash provided by operations during the nine months ended September 30, 2007 was $47.1 million, primarily due to net
income of $22.8 million, decreases in accounts receivable and advanced billings of $19.2 million, decreases in inventories and inventories - delivered
systems of $4.7 million, a $4.8 million increase in other liabilities, depreciation of $4.7 million and stock-based compensation of $2.9 million, partially offset by
a $6.6 million decrease in accrued liabilities, a $4.9 million decrease in deferred revenue and a reduction in allowance for doubtful accounts of $1.4 million.

We expect that cash provided 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, collection of accounts receivable and timing of payments.  It is anticipated that
market conditions may continue to weaken in the next few quarters but we anticipate that our efforts to reduce costs through our Cost Alignment Plan and
headcount restructuring activity implemented in the previous quarters and our ongoing cost control initiatives will reduce our cash loss from operations.

Cash Flows from Investing Activities

Net cash used in investing activities during the nine months ended September 28, 2008 was $7.3 million, due to
purchases of $27.7 million of available-for-sale investments and capital spending of $7.1 million, partially offset by proceeds of $26.5 million from sales and
maturities of available-for-sale investments and $1.0 million from sales of property and equipment.  Capital spending is primarily incurred to manufacture and
facilitize lab tools as part of our new product development initiatives.

Net cash provided by investing activities during the nine months ended September 30, 2007 was $0.7 million, due to
proceeds of $42.6 million from sales and maturities of available-for-sale investments and proceeds of $0.5 million from sales of property and equipment,
partially offset by purchases of available-for-sale investments of $35.9 million and capital spending of $6.5 million.

Cash Flows from Financing Activities

Net cash used in financing activities during the nine months ended September 28, 2008 was $2.2 million, attributable to
purchases of treasury stock of $2.6 million as part of our common stock repurchase program, which was partially offset by net proceeds of $0.4 million from
stock plans.

Net cash used in financing activities during the nine months ended September 30, 2007 was $17.6 million, attributable to
purchases of treasury stock of $20.0 million, which was partially offset by net proceeds of $2.4 million from stock plans.

26

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During the nine months ended September 28, 2008, the net effect of the exchange rate on cash and cash equivalents, primarily
on cash balances maintained in Euro was $3.0 million compared with $3.3 million during the nine months ended September 30, 2007.

Off-Balance-Sheet Arrangements

As of September 28, 2008, 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 2007 Form 10-K.

Recent Accounting Pronouncements and Accounting Changes

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting
pronouncements during the three months ended September 28, 2008, as compared to the recent accounting pronouncements described in our 2007
Form 10-K, that are of significance, or potential significance, to us.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations. This standard establishes
principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed,
any non-controlling interest in the acquiree and the goodwill acquired in a business combination. This standard also establishes disclosure requirements that
will enable users to evaluate the nature and financial effects of a business combination. SFAS No. 141R is effective for acquisitions made after
December 31, 2008. We do not anticipate that the adoption of this pronouncement will have a significant impact on our financial statements, however, the
implementation of SFAS No. 141R may have a material impact on our financial statements for businesses we acquire post-adoption.

In the first quarter of 2008, we adopted SFAS No. 157, Fair Value Measurements for all financial assets and
financial liabilities and for all non-financial assets and non-financial liabilities recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement
disclosure. The adoption of SFAS No. 157 did not have a significant impact on our consolidated financial statements, and the resulting fair values
calculated under SFAS No. 157 after adoption were not significantly different than the fair values that would have been calculated under previous
guidance. See Note 3 to the accompanying condensed consolidated financial statements for further details on our fair value measurements.

In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement
No. 157. FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal
2009. We are currently evaluating the impact that SFAS No. 157 will have on our consolidated financial statements when it is applied to non-financial
assets and non-financial liabilities that are not measured at fair value on a recurring basis beginning in the first quarter of 2009. The major categories of
non-financial assets and non-financial liabilities that are measured at fair value, for which the company has not yet applied the provisions of SFAS No. 157 are
goodwill and intangible assets.

In the first quarter of 2008, we adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, which permits entities to elect to measure many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. This election is irrevocable. The adoption of SFAS No. 159 did not have a significant impact on our
financial statements. Currently, we have not expanded our eligible items subject to the fair value option under SFAS No. 159.

27

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In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets.
FSP No. 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. This standard is intended to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset
under SFAS No. 141R and other Generally Accepted Accounting Principles (GAAP). FSP No. 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008. The measurement provisions of this standard will apply only to intangible assets acquired after
January 1,2009.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS
No. 162 supersedes the existing hierarchy contained in the U.S. auditing standards. The existing hierarchy was carried over to SFAS No. 162
essentially unchanged. The Statement becomes effective 60 days following the Securities and Exchange Commission's approval of the Public Company
Accounting Oversight Board amendments to the auditing literature. The new hierarchy is not expected to change current accounting practice in any area.

Item 3.   	Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to financial market risks, including changes in foreign currency exchange rates and interest rates. Historically,
much of our revenues and capital spending has been transacted in U.S. dollars.

Our exposure to market risk for changes in interest rates relates to our investment portfolio. We do not currently use derivative
financial instruments in our investment portfolio, or hedge for these interest rate exposures. We place our investments with high credit quality issuers and, by
policy, limit the amount of credit exposure to any one issuer. The portfolio includes only marketable securities with active secondary or resale markets to
ensure portfolio liquidity. By policy, we limit our exposure related to longer-term investments.

Our interest rate risk relates primarily to our investment portfolio, which consisted of $89.5 million in cash equivalents and $28.2
million in short-term marketable securities as of September 28, 2008. An immediate sharp increase in interest rates could have a material adverse affect on
the fair value of our investment portfolio. Conversely, an immediate sharp decline in interest rates could seriously harm interest earnings of our investment
portfolio. For example, due to the sharp reduction in average interest rates in the United States in the first nine months of 2008 compared to the same period
of 2007, our average yield on our investment portfolio declined by approximately 2.0 percent in the first nine months of 2008, which primarily caused a $2.6
million reduction in interest income. All of our investments are in corporate bonds, US backed government securities and money market funds.

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 consolidated income statements 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 materially adversely affect 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. The U.S. dollar when compared to other currencies primarily the Euro and the Canadian
dollar have strengthened by about 3 percent in the third quarter of 2008, resulting in realized foreign currency exchange gains of $0.2 million, when compared
to losses of $0.4 million for the same period in 2007.  Other expense, net for the nine months ended September 28, 2008 included realized foreign currency
exchange losses of $0.7 million, which was primarily due to the effect of a weaker U.S. dollar on transactions with our foreign operations, compared to
realized foreign currency exchange gains of $0.3 million for same period of 2007.

Cumulative translation adjustments included in comprehensive income for the nine months ended September 28, 2008 were $3.2
million primarily due to the weakening of the U.S. dollar in the first quarter of 2008, which favorably impacted the net assets used in our foreign operations
and held in local currencies, resulting in an increase in

28

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cumulative translation adjustments to $22.0 million at September 28, 2008, compared to $18.8 million at December 31, 2007.

We did not have any hedging activities for the nine months ended September 28, 2008. During January 2007, we settled one
forward foreign exchange contract outstanding as of December 31, 2006 for the purchase in total of US$23.7 million in exchange for 2.8 billion
Japanese Yen (weighted average contract rate of 118 Yen to US$1.00) upon maturity and realized a total foreign exchange gain of $0.6 million, which
was recorded in the first quarter of 2007 under other income, net. There were no forward foreign exchange contracts outstanding as of September 28,
2008.

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 Securities and Exchange Commission'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
final 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 third quarter of 2008 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.

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 of this. 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

Other Items in this Quarterly Report on Form 10-Q describe risks and uncertainties associated with our business,
including risks and uncertainties that could cause actual results to differ materially from the results

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expressed or implied by forward-looking statements
contained in this Quarterly Report and in other statements we make publicly.  A more complete description of a number of primary risk factors associated with
our business, and which could cause our results to differ materially from the results expressed or implied by our forward-looking statements contained in this
Quarterly Report on Form 10-Q or elsewhere, is set forth in our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on
February 25, 2008. In addition to the risk factors described in the 10-K, the following additional or revised risk factors apply.

We May Record Impairment Charges Which Would Adversely Impact Our Results of Operations

We review our goodwill, intangible assets and long-lived 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 annually in accordance with SFAS No.
142, Goodwill and Other Intangibles.  During the year ended December 31, 2006, we recorded an impairment charge of $2.6 million to write down the
remaining net book value of the Radiant technology acquired from Vortek Industries Ltd. in October of 2004.

One potential indicator of goodwill impairment is whether the Company's fair value, as measured by its market capitalization, has
remained below its net book value for a significant period of time. The average closing price for the three months ended September 28, 2008 was $4.96,
which corresponds to a market capitalization of  $246 million, when compared to the net book value of $218 million as of September 28, 2008. Whether the
Company's market capitalization triggers an impairment charge will depend on the underlying reasons for the decline in stock price, the significance of the
decline, and the length of time the stock price has been depressed. The Company reviews goodwill annually in accordance with SFAS No. 142,
Goodwill and Other Intangiblesand this reviewwill happen in the fourth quarter of 2008.

In the event that we determine in a future period that an impairment exists for any reason, we would record an impairment charge
in the period such determination is made, which would adversely impact our financial position and results of operations.

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 reduced capital expenditures,
decreased demand for our products and increased price competition.

The semiconductor industry is highly cyclical and has historically experienced periodic downturns, whether as the result of
general economic changes or 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. If existing fabrication facilities are not
expanded and new facilities are not built, demand for our systems may not develop or increase, and we may be unable to generate significant new orders for
our systems. If we are unable to develop new orders for our systems, we will not achieve anticipated net sales levels. 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. Increased price competition may result, causing pressure on our gross
margin and net income.

The semiconductor equipment industry is currently in a severe downturn.  In the current downturn and any future downturns, if we
are unable to effectively align our cost structure with prevailing market conditions, we could experience losses and reductions in our cash balances, may be
required to undertake additional cost-cutting measures and may be unable to continue to invest in research, development and engineering at the levels we
believe are necessary to maintain our competitive position in our core businesses. Our failure to make these investments could seriously harm our long-term
business prospects.  In addition, certain cost-cutting measures could cause operational disruptions, which could negatively impact our financial
performance.

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We are subject to export control laws and noncompliance could result in fines, adverse publicity, and restrictions on our ability to export our products.

As an exporter, we must comply with various laws and regulations relating to the export of products and technology, which
could have military applications, so-called "dual use" items.  Under these laws and regulations, including the Export Administration Regulations
administered by the Bureau of Industry and Security ("BIS"), 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.  We have recently self-disclosed to BIS certain inadvertent violations. 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.

Item 2.  	Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

In March 2007, our Board of Directors approved a common stock repurchase plan (Repurchase Plan) that authorized the repurchase
of up to $20.0 million of our outstanding shares of common stock through open-market purchases or private transactions pursuant to a plan in
conformity with Rule 10(b)5-1. As of December 31, 2007, we have completed all repurchases under this initial authorization, at a weighted-average cost of
$9.97 per share.

In October 2007, our Board of Directors expanded our Repurchase Plan, authorizing the repurchase of up to an additional $30
million of the Company's shares of common stock through open-market purchases or private transactions. The size and timing of future repurchases will
depend on the Company's share price. As of September 28, 2008, a total of 3.8 million shares have been repurchased against the original and expanded
Repurchase Plan, at a weighted-average purchase price of $9.20.

For the three months ended September 2008, there were no repurchases of the Company's shares of common stock.  During the nine
months ended September 30, 2008 a total of 328,000 shares were repurchased, at a weighted average price of $7.95. The Company has the authorization to
repurchase up to an additional $15 million of the Company's shares of common stock under the Repurchase Plan.

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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)                                           | Third Amended and Restated Bylaws of the Company.                                              
|10.1                                             | Change of Control Agreement between the Company and the CEO
    PDF                            
|10.2                                             | Change of Control Agreement between the Company and the CFO
    PDF                            
|10.3                                             | Change of Control Agreement between the Company and other Senior Executives
    PDF            
|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           

_________________

(1)  Incorporated by reference from Mattson Technology, Inc. Current Report on Form 8-K filed on January 30, 2001.
                   (2)  Incorporated by reference from Mattson Technology, Inc. Quarterly Report on Form 10-Q filed on August 14, 2002.

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 thereunto duly authorized.

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

Dated: October 31, 2008

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

Dated: October 31, 2008

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

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