The semiconductor capital equipment industry is driven by the needs of semiconductor device manufacturers either to add manufacturing capacity or to invest in advanced manufacturing capabilities that utilize technological innovations. Many widely used products, including computers, mobile phones, televisions, audio systems and automobiles, use semiconductor devices. Advances in semiconductor design and manufacturing are enabling the increased sophistication of these consumer and industrial products.

According to a July 2004 report published by Gartner Dataquest, an independent semiconductor research firm, the size of the semiconductor capital equipment market in 2003 was $22.8 billion. Gartner forecasts revenue of $41.1 billion in 2006, representing a 21.7% compound annual growth rate from 2003 to 2006. The Company’s products serve the wet cleaning segment of the semiconductor capital equipment market. Gartner estimates that in 2003 the total addressable market for wet cleaning equipment was $966 million, and it forecasts this market will grow to $1.7 billion in 2006, representing a 20.5% compound annual growth rate from 2003 to 2006.

Advances in process technology are driving dramatic increases in the capital cost of making semiconductor devices. As a result, manufacturers are increasingly sensitive to their return on investment in new equipment, causing them to focus more closely on how their equipment purchases impact device yield and on-going costs of operation. Because cleaning is an integral and frequently repeated part of the manufacturing process, it is a principal area of focus for many semiconductor device manufacturers seeking to enhance their return on investment.

GAMA is an automated batch-immersion system used to clean, etch and strip a wide variety of materials used in the integrated circuit manufacturing process. GAMA consists of an interconnected series of chemical and rinse process modules, each programmed to apply specific chemicals and, when appropriate, megasonic energy to the wafer surface in order to remove particles and other contaminants, etch deposited layers or strip photoresist from the wafer. Proprietary software controls the concentration and temperature of the chemicals used in each module as well as the robotic arm that moves the wafer batch trays from module to module.

V3 is a small batch-immersion system used for cleaning integrated circuits and other electronic substrates. V3 provides a solution for specialty, low-volume processing where a large-scale system is not required and where lower price and smaller footprint are relatively more important to the customer.

ClearIQ is a tool specifically designed to clean binary, phase-shift and extreme ultra-violet, or EUV, photomasks. ClearIQ utilizes a batch-immersion technology to clean binary/phase-shift masks and a dry-cleaning technology to clean EUV masks. ClearIQ uses a non-contact approach to remove particles from the photomask while maintaining the photomask’s required performance characteristics, thereby extending the life span of the photomask.

Goldfinger is a non-contact, single-wafer cleaning system utilizing patented megasonics technology and proprietary drying technology to provide integrated circuit cleaning at device geometries of 130nm and below. As device geometries become smaller, it becomes more difficult for traditional batch cleaning methods to remove particles from the narrow, deep trenches, called vias, that form the circuitry patterns on the wafer. Goldfinger’s megasonics technology is designed to penetrate and clean these recessed vias.

Cost of revenue increased by $12.6 million, or 107%, to $24.3 million for the first six months of 2004 from $11.7 million for the first six months of 2003.

Selling, general and administrative expense increased by $1.2 million, or 23%, to $6.5 million for the first six months of 2004 from $5.3 million for the first six months of 2003.

Research and development expense decreased by $0.3 million, or 9%, to $3.0 million for the first six months of 2004 from $3.4 million for the first six months of 2003.

Other expense, net was $0.7 million for the first six months of 2004, compared with $0.2 million for the first six months of 2003.