10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________

FORM 10-Q

____________________________________________________________________________

(Mark One)

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

For the quarterly period ended September 30, 2012

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

(Address of Principal Executive Offices including Zip Code)

(510) 657-5900

(Registrant's Telephone Number, Including Area Code)

____________________________________________________________________________

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     YES  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	¨	Smaller reporting company	¨
				(Do not check if a 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

At November 2, 2012 there were 58,612,559 shares of common stock outstanding.

Note: PDF provided as a courtesy

MATTSON TECHNOLOGY, INC.

______________________________

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and October 2, 2011	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2012 and October 2, 2011	3
	Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and October 2, 2011	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Default Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures		39

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

MATTSON TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
Net sales	$	20,398		$	44,945		$	105,786		$	143,253
Cost of sales	12,664			29,429			67,863			100,872
Gross profit	7,734			15,516			37,923			42,381
Operating expenses:
Research, development and engineering	5,217			6,733			17,638			19,893
Selling, general and administrative	8,205			11,227			28,777			34,119
Restructuring charges	453			181			2,004			103
Total operating expenses	13,875			18,141			48,419			54,115
Loss from operations	(6,141		)	(2,625		)	(10,496		)	(11,734		)
Interest income (expense), net	36			24			106			61
Other income (expense), net	(45		)	548			60			(1,927		)
Loss before income taxes	(6,150		)	(2,053		)	(10,330		)	(13,600		)
Provision for (benefit from) income taxes	(116		)	236			169			176
Net loss	$	(6,034	)	$	(2,289	)	$	(10,499	)	$	(13,776	)
Net loss per share:
Basic and diluted	$	(0.10	)	$	(0.04	)	$	(0.18	)	$	(0.25	)
Shares used in computing net loss per share:
Basic and diluted	58,586			58,224			58,504			54,324

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MATTSON TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands)

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
Net loss	$	(6,034	)	$	(2,289	)	$	(10,499	)	$	(13,776	)
Other comprehensive income (loss)
Foreign currency translation adjustments	428			(1,233		)	343			1,454
Unrealized investment gain (loss)	8			(21		)	23			97
Other comprehensive income (loss)	436			(1,254		)	366			1,551
Comprehensive loss	$	(5,598	)	$	(3,543	)	$	(10,133	)	$	(12,225	)

 The accompanying notes are an integral part of these condensed consolidated financial statements.

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MATTSON TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except par value)

	September 30, 2012			December 31, 2011
ASSETS
Current assets
Cash and cash equivalents	$	23,117		$	31,073
Restricted cash	1,877			1,877
Accounts receivable, net of allowance for doubtful accounts of $543 as of September 30, 2012 and $684 as of December 31, 2011	11,446			25,278
Advance billings	824			5,071
Inventories	35,284			29,203
Prepaid expenses and other current assets	5,608			9,024
Total current assets	78,156			101,526
Property and equipment, net	7,633			10,552
Intangibles, net	563			750
Other assets	756			1,015
Total assets	$	87,108		$	113,843
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	10,805		$	16,785
Accrued compensation and benefits	5,434			5,781
Deferred revenue-current	5,278			12,117
Other current liabilities	7,006			10,666
Total current liabilities	28,523			45,349
Deferred revenues, non-current	3,279			3,158
Other long-term liabilities	3,898			5,191
Total liabilities	35,700			53,698
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, 2,000 shares authorized; none issued and outstanding	—			—
Common stock, par value $0.001, 120,000 shares authorized; 62,779 shares issued and 58,599 shares outstanding as of September 30, 2012; 62,547 shares issued and 58,366 shares outstanding as of December 31, 2011	63			63
Additional paid-in capital	651,506			650,110
Accumulated other comprehensive income	20,838			20,472
Treasury stock, 4,181 shares as of September 30, 2012 and December 31, 2011	(37,986		)	(37,986		)
Accumulated deficit	(583,013		)	(572,514		)
Total stockholders' equity	51,408			60,145
Total liabilities and stockholders' equity	$	87,108		$	113,843

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MATTSON TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Nine Months Ended
	September 30, 2012			October 2, 2011
Cash flows from operating activities:
Net loss	$	(10,499	)	$	(13,776	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	2,760			7,099
Stock-based compensation	1,128			1,875
Other non-cash items	34			(124		)
Changes in assets and liabilities:
Accounts receivable	14,029			9,407
Advance billings	4,247			407
Inventories	(4,345		)	(3,287		)
Prepaid expenses and other current assets	3,476			(310		)
Other assets	183			247
Accounts payable	(6,065		)	(4,536		)
Accrued liabilities	(4,137		)	4,540
Deferred revenue	(6,501		)	(239		)
Income taxes payable, non-current and other liabilities	(1,507		)	(565		)
Net cash provided by (used in) operating activities	(7,197		)	738
Cash flows from investing activities:
Maturities of available-for-sale investments	—			2,151
Decrease in restricted cash	—			1,996
Purchases of property and equipment	(1,249		)	(785		)
Proceeds from sales of property and equipment	—			842
Net cash provided by (used in) investing activities	(1,249		)	4,204
Cash flows from financing activities:
Proceeds from issuance of common stock, net	267			12,744
Net cash provided by financing activities	267			12,744
Effect of exchange rate changes on cash and cash equivalents	223			1,489
Net increase (decrease) in cash and cash equivalents	(7,956		)	19,175
Cash and cash equivalents, beginning of period	31,073			16,863
Cash and cash equivalents, end of period	$	23,117		$	36,038

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

MATTSON TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Mattson Technology, Inc. (referred to in this Quarterly Report on Form 10-Q as "Mattson," "we," "us," or "our") was incorporated in California in 1988 and reincorporated in Delaware in 1997. We design, manufacture, market and globally support semiconductor wafer processing equipment used in the fabrication of integrated circuits.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") 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 (which include normal recurring adjustments) considered necessary to present fairly each of the statement of financial position as of September 30, 2012, the results of operations for the three and nine months ended September 30, 2012 and October 2, 2011 and the statements of cash flows for the nine months ended September 30, 2012 and October 2, 2011, as applicable, have been made. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2011, which are included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2012.

The condensed consolidated financial statements include the accounts of Mattson Technology, Inc. and our wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated.

The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2012.

Fiscal Year

Our fiscal year ends on December 31. We close our first fiscal quarter on the Sunday closest to March 31. Our second and third fiscal quarters are each 13 weeks long and our fourth quarter closes on December 31.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. We evaluate our estimates on an ongoing basis, including those related to the useful lives and fair value of long-lived assets, estimates used to determine facility lease loss liabilities, measurement of warranty obligations, valuation allowances for deferred tax assets, the fair value of stock-based compensation, estimates for allowance for doubtful accounts, and valuation of excess and obsolete inventories. Our estimates and assumptions can be subjective and complex and consequently actual results could differ materially from those estimates.

Reclassifications

For presentation purposes, certain prior period amounts have been reclassified to conform to the reporting in the current period financial statements. We reclassified certain prior period costs, including approximately $1.2 million and $3.6 million for the three and nine months ended October 2, 2011, respectively, related to our spare parts business from selling, general and administrative expense to cost of sales, as they more appropriately reflect costs associated with revenue generating activities. These reclassifications do not affect our net income, cash flows or stockholders' equity.

Liquidity and Management Plans

As of September 30, 2012 we had cash, cash equivalents and restricted cash of $25.0 million and working capital of $49.6 million. We believe that our cash balances will be sufficient to fund our working and other capital requirements over the course of the next twelve months. Our operations require careful management of our cash and working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our net sales, gross profits and operating expenses, as well as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes it difficult to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of cash to fund

6

inventory purchases. In addition, any ineffectiveness in our cost reduction efforts may cause us to incur additional losses in the future and lower our cash balances. We may need additional funds to support our working capital requirements and operating expenses, or for other requirements. Historically, we have relied on a combination of fundraising from the sale and issuance of equity securities (such as our common stock offering in May 2011), and cash generated from product, service and royalty revenues to provide funding for our operations. In addition, our stock may be subject to eventual delisting from NASDAQ if we do not maintain a minimum $1.00 per share trading price. We will continue to review our expected cash requirements and take appropriate cost reduction measures to ensure that we have sufficient liquidity. However, though we will pursue these measures, we are largely dependent upon improvement in the semiconductor equipment industry specifically, and general continued improvement in the economy as a whole, to increase our sales in order to improve our profitability and cash position. We periodically review our liquidity position and may decide to raise additional funds, and may seek such funding from a combination of sources including issuance of equity or debt securities through public or private financings. These financing options may not be available on a timely basis, or on terms acceptable to us, and could be dilutive to our stockholders. If adequate funds are not available on acceptable terms, our ability to achieve our intended long-term business objectives could be limited.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-08, Intangibles-Goodwill and Other - Testing Goodwill for Impairment to simplify goodwill impairment testing by permitting an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. We adopted this accounting guidance on January 1, 2012, and this adoption did not have a material impact on our financial statements and disclosures.

In June 2011, the FASB issued ASU No. 2011-05, which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of stockholders' equity. Instead, we must report comprehensive income in either a single continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, the FASB issued additional guidance that defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. The deferral is temporary until the FASB reconsiders the operational concerns and needs of financial statement users. We adopted ASU No. 2011-05 on January 1, 2012, although the adoption of this update did not have an impact on our financial statements other than to change the manner in which comprehensive income is presented.

In May 2011, the FASB issued ASU No. 2011-04, an amendment to ASC ("Accounting Standards Codification") 820, Fair Value Measurements, providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. We adopted this amendment on January 1, 2012, the adoption of which did not have a material effect on our financial statement and disclosures.

There were no other recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 30, 2012, compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance or potential significance to us.

2. BALANCE SHEET DETAILS

We had restricted cash of $1.9 million as of September 30, 2012 and December 31, 2011, which is related to secured standby letters of credit provided to certain landlords and vendors. See Note 6. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements.

7

Components of inventories as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Inventories, net:
Purchased parts and raw materials	$	19,940	$	17,693
Work-in-process	5,035		7,266
Finished goods	10,309		4,244
	$	35,284	$	29,203

Amounts in the table are presented net of inventory valuation charges for excess and/or obsolete inventories. For the three months ended September 30, 2012 and October 2, 2011, we recorded net expense of approximately $0.1 million and a net benefit of $0.2 million, respectively. For the nine months ended September 30, 2012 and October 2, 2011, we recorded net benefits of approximately $1.2 million and $1.3 million, respectively.

Components of prepaid expenses and other current assets as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Prepaid expenses and other current assets:
Prepaid value-added tax	$	1,863	$	2,996
Retirement insurance - foreign employees	1,343		1,185
Other current assets	2,402		4,843
	$	5,608	$	9,024

Components of property and equipment as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012			December 31, 2011
Property and equipment, net:
Machinery and equipment	$	43,016		$	45,174
Furniture and fixtures	9,899			10,002
Leasehold improvements	17,689			17,759
	70,604			72,935
Less: accumulated depreciation	(62,971		)	(62,383		)
	$	7,633		$	10,552

Components of other current liabilities as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Other current liabilities:
Warranty	$	1,983	$	3,419
Value-added tax	900		2,073
Restructuring - short-term	1,385		1,230
Other	2,738		3,944
	$	7,006	$	10,666

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3.FAIR VALUE MEASUREMENT

We measure certain assets and liabilities at fair value, which 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 a liability. The authoritative guidance on fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2. Include other inputs that are directly or indirectly observable in the marketplace.

Level 3. Unobservable inputs that are supported by little or no market activities.

Our money market funds and investment instruments are classified within Level 1 of the fair value hierarchy, as these instruments are valued using quoted market prices. Specifically, we value our investments in money market securities, certificates of deposit and plan assets under our deferred compensation plan based on quoted market prices in active markets. As of September 30, 2012 and December 31, 2011, we had no assets or liabilities classified within Level 2 or Level 3 and there were no transfers of instruments between Level 1, Level 2 and Level 3 regarding fair value measurement.

Cash and cash equivalents, short-term investments and restricted cash are carried at fair value. Accounts receivable and accounts payable are valued at their carrying amounts, which approximate fair value due to their short-term nature.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are shown in the table below by their corresponding balance sheet caption and consisted of the following types of instruments as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012				December 31, 2011
	Fair Value Measurements at Reporting Date Using				Fair Value Measurements at Reporting Date Using
	(Level 1)		Total		(Level 1)		Total
Assets measured at fair value:
Cash equivalents:
Money market funds	$	13,039	$	13,039	$	13,039	$	13,039
Other assets:
Equity instruments	44		44		168		168
Total assets measured at fair value	$	13,083	$	13,083	$	13,207	$	13,207
Liabilities measured at fair value:
Other liabilities:
Other long-term liabilities	$	44	$	44	$	168	$	168
Total liabilities measured at fair value	$	44	$	44	$	168	$	168

Equity instruments in the preceding table represent plan assets under our deferred compensation plan, which offset corresponding deferred compensation plan liabilities as of the dates presented.

4. INTANGIBLE ASSETS

Identified intangible assets consisted of the following as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012			December 31, 2011
Intangibles, net:
Developed technology	$	1,250		$	1,250
Accumulated amortization	(687		)	(500		)
	$	563		$	750

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Amortization expense for intangibles was $0.1 million for each of the three months ended September 30, 2012 and October 2, 2011. Amortization expense for intangibles was $0.2 million for each of the nine months ended September 30, 2012 and October 2, 2011.

5. RESTRUCTURING CHARGES

In December 2011, we initiated a cost reduction plan ("2011 Restructuring Plan") as part of our broader cost reduction initiatives, which included consolidation of our manufacturing and research and development facilities, moving a portion of our outsourced spare parts logistics operations in-house, and workforce reductions.

We expect that our cost reduction initiatives including the 2011 Restructuring Plan will provide a reduction of over $20.0 million in annual operating expenses beginning in 2013.  We expect to incur a total of approximately $6.0 million to $7.0 million in restructuring charges under the 2011 Restructuring Plan. As of September 30, 2012, we have incurred $3.8 million in restructuring charges under the 2011 Restructuring Plan and expect to incur an additional $2.0 million to $3.0 million, of which the majority is expected to be incurred by the end of the first quarter of 2013.

In addition to our 2011 Restructuring Plan, we also expect to incur approximately $1.0 million in capital expenditures in the fourth quarter of 2012 to support product research development and prototype production of the Millios system into our German facility and consolidation of global manufacturing in the Fremont facility.

The beginning restructuring reserve balance includes $0.9 million of contract termination costs established prior to 2011, which related to future rent obligations associated with two vacated leased facilities net of sublease income. During the three months ended September 30, 2012, we expensed $0.5 million in employee severance and other expenses, paid $0.4 million of employee severance and other expenses, and paid $0.2 million of contract termination costs under the 2011 Restructuring Plan. During the nine months ended September 30, 2012 we recorded $2.0 million of employee severance and other expenses. We paid $1.9 million in employee severance and other expenses and paid $1.1 million in contract termination costs related to the 2011 restructuring plan. To date, we have recorded $3.8 million related to the 2011 Restructuring Plan.

The following table summarizes changes in the restructuring accrual for the three and nine months ended September 30, 2012 (in thousands):

	Three Months Ended September 30, 2012												Nine Months Ended September 30, 2012
	Employee Severance Costs			Contract Termination Costs			Other Costs			Total			Employee Severance Costs			Contract Termination Costs			Other Costs			Total
Beginning balance	$	150		$	1,707		$	—		$	1,857		$	82		$	2,661		$	—		$	2,743
Expensed	286			—			167			453			1,601			—			402			2,004
Payments	(206		)	(162		)	(167		)	(535		)	(1,500		)	(1,091		)	(402		)	(2,993		)
Reserve adjustments	6			—			—			6			59			(14		)	—			45
Foreign currency changes	(9		)	9			—			—			(15		)	(3		)	—			(18		)
Ending balance	$	227		$	1,554		$	—		$	1,781		$	227		$	1,554		$	—		$	1,781

As of September 30, 2012, $1.4 million of the restructuring accrual was classified as short-term and recorded within accrued liabilities in the Condensed Consolidated Balance Sheets, and the remaining $0.4 million of the restructuring accrual was classified as long-term and recorded within other liabilities in the Condensed Consolidated Balance Sheets.

6. COMMITMENTS AND CONTINGENCIES

Warranty

The warranty offered by us on our system sales is generally twelve months, except where previous customer agreements state 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. Our warranty obligations require us to repair or replace defective products or parts 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, we adjust our warranty accruals accordingly.

The following table summarizes changes in our product warranty accrual for the three and nine months ended September 30, 2012 and October 2, 2011 (in thousands):

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	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
Beginning balance	$	2,915		$	4,085		$	3,419		$	2,539
Warranties issued in the period	293			753			1,899			2,830
Costs to service warranties	(961		)	(881		)	(3,396		)	(2,491		)
Warranty accrual adjustments	(264		)	(251		)	61			828
Ending balance	$	1,983		$	3,706		$	1,983		$	3,706

Guarantees

In the ordinary course of business, our bank provides standby letters of credit or other guarantee instruments on our behalf to certain parties as required. The standby letters of credit are secured by certificates of deposit, which are classified as restricted cash in the accompanying Condensed Consolidated Balance Sheets. We have never recorded any liability in connection with these guarantee arrangements beyond what is required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under such guarantee arrangements. As of September 30, 2012, the maximum potential amount that we could be required to pay was $1.9 million, the total amount of outstanding standby letters of credit, which were secured by $1.9 million in money market collateral accounts. This amount was recorded as restricted cash as of September 30, 2012.

In connection with our acquisition of Vortek Industries, Ltd. ("Vortek") in 2004, we became party to an agreement between Vortek and the Canadian Minister of Industries (the "Minister") relating to an investment in Vortek by Technology Partnerships Canada. Under the agreement, as amended, we, or Vortek (renamed Mattson Technology, Canada, Inc. ("MTC")) agreed to various terms, including (i) payment by us of a royalty to the Minister of 1.4 percent of net sales from certain Flash RTP products, up to a total of C$14.3 million (approximately $14.5 million based on the applicable exchange rate as of September 30, 2012), (ii) MTC through October 27, 2009 maintaining a specified average workforce of employees in Canada, making certain investments and complying with certain manufacturing, and (iii) certain other covenants concerning protection of intellectual property rights. Under the provisions of this agreement, if MTC is dissolved, files for bankruptcy or we, or MTC, do not materially satisfy the obligations pursuant to any material terms or conditions, the Minister could demand payment of liquidated damages in the amount of C$14.3 million less any royalties paid to the Minister. As of October 27, 2009, we were no longer subject to covenant (ii), as discussed above but are still subject to the remaining terms and conditions until the earlier of payment of royalty of C$14.3 million (approximately $14.5 million based on the applicable exchange rate as of September 30, 2012) or through December 31, 2020. The movement of our Canadian operations to Germany will not result in the dissolution of MTC.

We are a party to a variety of agreements, pursuant to which we may be obligated to indemnify other parties with respect to certain matters. Typically, these obligations arise in the context of contracts under which we may agree to hold other parties harmless against losses arising from a breach of representations or with respect to certain intellectual property, operations or tax-related matters. Our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have defenses to asserted claims and/or recourse against third parties for payments made. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these agreements have not had a material effect on our financial position, results of operations or cash flows. We believe if it were to incur a loss in any of these matters, such loss would not have a material effect on our financial position, results of operations or cash flows.

We indemnify our directors and certain employees as permitted by law, and have entered into indemnification agreements with our directors and certain senior officers. We have not recorded a liability associated with these indemnification agreements, as we historically have not incurred any material costs associated with such indemnification agreements. Costs associated with such indemnification agreements may be mitigated, in whole or only in part, by insurance coverage that we maintain.

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Government Agencies

As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the U.S. and other countries having jurisdiction over our operations. In the U.S. these laws include the International Traffic in Arms Regulations ("ITAR") administered by the State Department's Directorate of Defense Trade Controls, the Export Administration Regulations ("EAR") administered by the Bureau of Industry and Security ("BIS"), and trade sanctions against embargoed countries and destinations administered by the U.S. Department of Treasury, Office of Foreign Assets Control ("OFAC"). The EAR governs products, parts, technology and software which present military or weapons proliferation concerns, so-called "dual use" items, and ITAR governs military items listed on the United States Munitions List. 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.

As previously reported, in 2008 we self-disclosed to BIS certain inadvertent EAR violations. In April 2012, we entered into a settlement agreement with BIS that resolved in full all matters contained in our voluntary self-disclosure. Under the settlement, we agreed to a civil penalty of $850,000 of which we paid $250,000 in May 2012 with the remaining $600,000 suspended for a period of one year and will be waived provided that no violations occur during that period.

Litigation

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. The defense of claims or actions against us, even if without merit, could result in the expenditure of significant financial and managerial resources.

We record a legal liability when we believe it is both probable that a liability has been incurred, and the amount can be reasonably estimated. We monitor developments in our legal matters that could affect the estimate we have previously accrued. Significant judgment is required to determine both probability and the estimated amount.

7. EMPLOYEE STOCK PLANS

On May 10, 2012, our shareholders approved our 2012 Equity Incentive Plan (the "2012 Plan"), which amended and restated the 2005 Equity Incentive Plan to increase our common stock available for grant under the plan by 2.5 million shares.

Stock Options

Options to purchase common stock granted under the 2012 Plan generally have terms not exceeding seven years. Options to purchase stock under our equity incentive plans are generally granted at exercise prices that are at least 100 percent of the fair market value of our common stock on the date of grant. Generally, 25 percent of the options vest on the first anniversary of the vesting commencement date, and the remaining options vest 1/36 per month for the next 36 months thereafter.

The following table summarizes the stock option activity under all of our equity incentive plans for the nine months ended September 30, 2012:

	Number of Shares		Weighted- Average Exercise Price		Weighted Average Remaining Term	Aggregated Intrinsic Value
	(thousands)				(years)	(thousands)
Outstanding at December 31, 2011	6,489		$	4.37
Granted	1,385		$	2.61
Exercised	(165	)	$	1.06
Canceled or forfeited	(1,029	)	$	4.79
Outstanding at September 30, 2012	6,680		$	4.02	3.7	$	137
Vested and expected to vest at September 30, 2012	6,242		$	4.14	3.6	$	134
Exercisable at September 30, 2012	4,149		$	4.98	2.5	$	120

The aggregate intrinsic value represents the pre-tax differences between the exercise price of stock options and the quoted market price of our stock on September 30, 2012 and October 2, 2011, respectively, for all in-the-money options. There were

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approximately 0.6 million shares of common stock subject to in-the-money options that were exercisable as of September 30, 2012.

The following table provides information pertaining to our stock options for the nine months ended September 30, 2012 and October 2, 2011 (in thousands, except weighted-average fair values):

	Nine Months Ended
	September 30, 2012		October 2, 2011
Weighted-average fair value of options granted	$	1.67	$	1.46
Intrinsic value of options exercised	$	203	$	86
Cash received from options exercised	$	175	$	58

Restricted Stock Units

The 2012 Plan provides for grants of time-based and performance-based restricted stock units ("RSUs").

Time-Based Restricted Stock Units

Generally, 25 percent of the time-based RSUs vest on each anniversary of the vesting commencement date or date of grant. On occasion, we grant time-based RSUs for varying purposes with different vesting schedules. Time-based RSUs granted under the 2012 Plan are counted against the total number of shares of common stock available for grant under the plan at 1.75 shares of common stock for every one share of common stock subject thereto.

The associated stock-based compensation expense on time-based RSUs is determined based on the fair value of our common stock on the date of grant of the RSU and recognized over the vesting period.

Performance-Based Restricted Stock Units

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

As of December 31, 2011, we had 0.2 million performance-based RSUs outstanding. All of the performance-based RSUs expired during the first quarter of 2012. We did not record any compensation expense related to these performance-based RSUs during the three and nine months ended September 30, 2012 and October 2, 2011 since the performance targets were not expected to be met.

The following table summarizes RSU activity under all of our equity incentive plans for the nine months ended September 30, 2012:

	Number of Shares		Weighted Average Grant Date Fair Value
	(thousands)
Outstanding at December 31, 2011	246		$	3.50
Granted	30		0.88
Released	(15	)	$	5.68
Expired	(229	)	$	3.32
Outstanding at September 30, 2012	32		$	1.30

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8. STOCK-BASED COMPENSATION

We account for stock-based compensation in accordance with the applicable authoritative guidance, which requires the measurement of stock-based compensation on the date of grant based on the fair value of the award, and the recognition of the expense over the requisite service period for the employee. Compensation related to restricted stock units is the intrinsic value on the date of grant, which is the closing price of our common stock less the employee exercise price, if any. Compensation related to stock options is determined using a stock option valuation model.

Valuation Assumptions

We use the Black-Scholes valuation model to determine the fair value of stock options. The Black-Scholes model requires the input of highly subjective assumptions, which are summarized in the table below for the three and nine months ended September 30, 2012 and October 2, 2011:

	Three Months Ended		Nine Months Ended
	September 30, 2012	October 2, 2011	September 30, 2012	October 2, 2011
Expected dividend yield	—	—	—	—
Expected stock price volatility	81%	78%	81%	77%
Risk-free interest rate	0.7%	1.1%	0.8%	2.0%
Expected life of options in years	5	5	5	5

We estimate the expected life of options based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life of the option. Expected volatility is based on the historical volatility of our common stock; and the risk-free interest rate is the rate on a U.S. Treasury Bill, with a maturity approximating the expected life of the option. We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, the expected dividend yield is zero.

Our stock-based compensation for the three and nine months ended September 30, 2012 and October 2, 2011 was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011
Stock-based compensation by type of award:
Stock options	$	365	$	443	$	1,091	$	1,763
Restricted stock units	1		24		22		92
Employee stock purchase plan	5		5		15		20
	$	371	$	472	$	1,128	$	1,875
Stock-based compensation by category of expense:
Cost of sales	$	17	$	13	$	49	$	69
Research, development and engineering	68		62		215		303
Selling, general and administrative	286		397		864		1,503
	$	371	$	472	$	1,128	$	1,875

We did not capitalize any stock-based compensation as inventory in the three and nine months ended September 30, 2012 and October 2, 2011, as such amounts were immaterial. As of September 30, 2012, we had $2.8 million in unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock options which will be recognized over a weighted-average period of 2.7 years.

9. GEOGRAPHIC AND CUSTOMER CONCENTRATION INFORMATION

We have one operating segment in which we design, manufacture and market advanced fabrication equipment for the semiconductor manufacturing industry. The authoritative guidance on segment reporting and disclosure defines operating segment as a component of an enterprise for which separate financial information is available that is evaluated regularly by the

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chief operating decision maker in deciding how to allocate resources and in assessing performance. As our business is completely focused on one industry segment, the design, manufacture and marketing of advanced fabrication equipment to the semiconductor manufacturing industry, management believes that we have one reportable segment. Our net sales and profits are generated from the sales of systems and services in this one segment. For the purposes of evaluating our reportable segments, our Chief Executive Officer is the chief operating decision maker, as defined in the applicable authoritative guidance.

The following table summarizes net sales by geographic areas based on the installation locations of the systems and the location of services rendered (in thousands except percentages):

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
Net sales:
United States	$	2,034	10	$	4,959	11	$	14,279	13	$	7,782	5
Korea	3,234		16	15,507		35	46,290		44	59,028		41
Taiwan	5,972		29	8,243		18	18,002		17	31,575		22
Other Asia	7,972		39	10,235		23	18,192		17	31,078		22
Europe and others	1,186		6	6,001		13	9,023		9	13,790		10
	$	20,398	100	$	44,945	100	$	105,786	100	$	143,253	100

For the three months ended September 30, 2012, four customers accounted for 10 percent or more of our total net sales. Sales to these customer represented approximately 23 percent, 13 percent, 12 percent and 11 percent of our total net sales. For the nine months ended September 30, 2012, one customer accounted for 10 percent or more of our total net sales, representing approximately 48 percent of our total net sales.

In the three months ended October 2, 2011, three customers accounted 34 percent, 18 percent and 12 percent of our total net sales, respectively. In the nine months ended October 2, 2011, two customers accounted for10 percent or more of our total net sales, representing 38 percent and 10 percent of our total net sales , respectively.

At September 30, 2012, three customers accounted for 10 percent or more of our total net accounts receivable, representing approximately 34 percent, 18 percent and 18 percent of our total net accounts receivable, respectively. At December 31, 2011, three customers accounted for 10 percent or more of our net accounts receivable, representing approximately 48 percent, 15 percent and 13 percent of our total net accounts receivable, respectively.

Geographical information relating to our property and equipment, net, as of September 30, 2012 and December 31, 2011 was as follows (in thousands):

	September 30, 2012		December 31, 2011
Property and equipment, net:
United States	$	4,238	$	5,306
Germany	2,729		2,396
Canada	200		2,281
Others	466		569
	$	7,633	$	10,552

10. INCOME TAXES

On a quarterly basis, we record our income tax expense or benefit based on our year-to-date results and expected results for the remainder of the year.

We recorded an income tax benefit of $0.1 million and an income tax provision of $0.2 million for the three and nine months ended September 30, 2012, respectively. We recorded a $0.2 million income tax provision for each of the three and nine months ended October 2, 2011, respectively. The net tax provision for three and nine months ended September 30, 2012 and October 2, 2011 is the result of the mix of profits earned by us, in tax jurisdictions with a broad range of income tax rates. The $0.2 million tax provision for the nine months ended September 30, 2012 includes a $0.2 million tax benefit related to the

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release of uncertain tax benefits due to a lapse of the statute of limitations. The $0.2 million tax provision for the nine months ended October 2, 2011 includes a $0.4 million tax benefit related to the release of uncertain tax benefits due to a lapse of the statute of limitations.

11. NET LOSS PER SHARE

We present both basic and diluted net loss per share on the face of our condensed consolidated statements of operations in accordance with the authoritative guidance on earnings per share. Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Since we had net losses in the three and nine months ended September 30, 2012 and October 2, 2011, none of the stock options and restricted stock units were included in the computation of diluted shares for these periods, as inclusion of such shares would have been anti-dilutive.

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

	Three Months Ended		Nine Months Ended
	September 30, 2012	October 2, 2011	September 30, 2012	October 2, 2011
Weighted-average common shares outstanding - basic	58,586	58,224	58,504	54,324
Effect of diluted potential common shares from stock options and restricted stock units	—	—	—	—
Weighted-average common shares outstanding - diluted	58,586	58,224	58,504	54,324

All outstanding options to purchase our common stock and restricted stock units are potentially dilutive securities. As of September 30, 2012 and October 2, 2011, the combined total of options to purchase common stock and restricted stock units outstanding were 6.7 million and 7.2 million, respectively. However, since we had net losses for three and nine months ended September 30, 2012 and October 2, 2011, no potentially dilutive securities were included in the computation of diluted shares for those years as inclusion of such shares would have been anti-dilutive. Accordingly, basic and diluted net loss per share were the same in each period reported.

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ITEM 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, earnings, cash flow and cash position; growth of the industry and the size of our served available market; the timing of significant customer orders for our products; customer acceptance of delivered products and our ability to collect amounts due upon shipment and upon acceptance; end-user demand for semiconductors, including the growing mobile device industry; customer demand for semiconductor manufacturing equipment; our ability to timely manufacture, deliver and support ordered products; our ability to bring new products to market, to gain market share with such products and the overall mix of our products; customer rate of adoption of new technologies; risks inherent in the development of complex technology; the timing and competitiveness of new product releases by our competitors; margins; product development plans and levels of research, development and engineering activity; our ability to align our cost structure with market conditions, including outsourcing plans, operating expenses, and the expected effects, cost and timing of restructuring activities; tax expenses; excess inventory reserves, including the level of our vendor commitments compared to our requirements; economic conditions in general and in our industry; our dependence on international sales; the impact of any litigation or investigation on our operating results or financial position; any offering and sale of securities pursuant to our shelf registration statement or otherwise; volatility in our stock price and any delisting of our stock from NASDAQ for the failure to maintain a minimum bid price; and the sufficiency of our financial resources to support future operations and capital expenditures. Forward-looking statements typically are identified by use of terms such as "anticipates," "expects," "intends," "plans," "seeks," "estimates," "believes" and similar expressions, although some forward-looking statements are expressed differently. These statements are not guarantees of future performance and are subject to numerous risks, uncertainties and assumptions that are difficult to predict. Such risks and uncertainties include those set forth in Part II, Item 1A under "Risk Factors" and this Part I, Item 2 under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our actual results could differ materially from those anticipated by these forward-looking statements. The forward-looking statements in this report speak only as of the time they are made and do not necessarily reflect our outlook at any other point in time. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future event, or for any other reason. This discussion should be read in conjunction with the condensed consolidated financial statements and notes presented in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes in our last filed Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K").

Overview

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

Our business depends upon capital expenditures by manufacturers of semiconductor devices. The level of capital expenditures by these manufacturers depends upon the current and anticipated market demand for such devices. Since the demand for semiconductor devices is highly cyclical, the demand for wafer processing equipment is also highly cyclical. The semiconductor equipment industry is typically characterized by wide swings in operating results as the industry moves through its cycle. Demand is also becoming prone to seasonality due to the buying patterns of customers, which is dependent upon the consumer product industry.

We have made progress in our strategic initiatives and are strengthening our product positions.

•In the etch market, during 2012, our paradigmE system has been released for production at a leading semiconductor logic/foundry facility; selected by a major Asian complementary metal-oxide-semiconductor

("CMOS") image sensor foundry in a new growth market; shipped to a new memory customer; and placed into volume production at a major foundry customer.

•In the rapid thermal processing ("RTP") market, during 2012, our Helios XP system moved into production at a leading NAND manufacturer, and received the first follow-on order and shipment to a leading foundry customer. Also during 2012, we shipped the Millios system to two major foundry/logic semiconductor manufacturers, as well as a major logic customer.

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•Strip is our most prolific product line, and we have solid market share positions across the foundry/logic, DRAM and NAND markets. We have continued our strategy to gain both market share and sales ranking in strip systems.

We have experienced industry weakness during the second and third quarters of 2012 as our customers have reacted to the current global economic environment and their expectation of supply and demand for their products. We currently expect such weakness to continue at least through the end of 2012.

In December 2011, we initiated a cost reduction plan ("2011 Restructuring Plan") as part of our broader cost reduction initiatives. The first phase of our cost reduction initiatives and the 2011 Restructuring Plan included the consolidation of our Millios product research, development and prototype production from Vancouver, Canada to our facility in Dornstadt, Germany; moving a portion of our outsourced spare parts logistics operations in-house; workforce reductions; the elimination of certain contractors; and the renegotiation of certain contracts. In the first quarter of 2012, we initiated a second phase of our cost reduction initiative and the 2011 Restructuring Plan, which included; a reduction in force; lower levels of investments in customer evaluation systems; renegotiation of key contracts with outside service providers; cost saving to production material; additional reductions in outside contractors; and reduced spending in discretionary areas. We began implementation of the third phase of our cost reduction initiatives and the 2011 Restructuring Plan in the third quarter of 2012, which entailed a broader reduction in force; salary reductions through furlough programs and the consolidation of our global manufacturing operations to the corporate headquarters in Fremont, California.

We expect that our cost reduction initiatives including the 2011 Restructuring Plan will provide over $20 million reductions in annual operating expenses beginning in 2013.   As of September 30, 2012, we have incurred $3.8 million in restructuring charges under the 2011 Restructuring Plan and expect to incur an additional $2.0 million to $3.0 million, of which the majority is expected to be incurred by the end of first quarter of 2013.

In addition to our 2011 Restructuring Plan, we also expect to incur approximately $1.0 million in capital expenditures in the fourth quarter of 2012 to support product research, development and prototype production of the Millios system into our German facility and consolidation of global manufacturing in the Fremont facility.

Our gross margin in the three and nine months ended September 30, 2012 improved compared to the same periods in 2011, despite significantly lower sales, largely as a result of our cost reduction initiatives. Our total operating expenses decreased $4.3 million and $5.7 million in the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011. To date, our combined efforts to reduce operating expenses and improve gross margin have lowered our cash flow break-even point to the mid-$30 million quarterly net sales level. We expect operating expenses to decline further through the end of 2012 as a result of continued focus on cost reduction activities. As of September 30, 2012, we had cash, cash equivalents and restricted cash of $25.0 million and working capital of $49.6 million. With our current cash and liquidity position, we believe we have sufficient resources to meet our working capital requirements for the next twelve months. We will continue to review our operations and take further cost reduction measures as necessary in order to minimize the cash used in operations and retain sufficient cash reserves for the next year, as described under "Restructuring Charges" below. However, though we will pursue these measures, we are largely dependent upon improvement in the semiconductor equipment industry specifically, and general continued improvement in the economy as a whole, to increase our net sales in order to improve our profitability and cash position. In addition, our stock may be subject to eventual delisting from NASDAQ if we do not maintain a minimum $1.00 per share trading price.

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

Critical Accounting Policies and Use of Estimates

Management's discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods.

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On an on-going basis, we evaluate our estimates and judgments, including those related to reserves for excess and obsolete inventory, warranty, bad debts, intangible assets, income taxes, restructuring costs, stock-based compensation, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. These form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There were no significant changes to our critical accounting policies during the nine months ended September 30, 2012. For information about critical accounting policies, see Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements, in our 2011 Form 10-K.

Results of Operations

A summary of our results of operations for three and nine months ended September 30, 2012 and October 2, 2011 are as follows (in thousands except for percentages):

	Three Months Ended
	September 30, 2012					October 2, 2011					Increase (Decrease)
	Amount			Percent		Amount			Percent		Amount			Percent
Net sales	$	20,398		100.0		$	44,945		100.0		$	(24,547	)	(54.6	)
Cost of sales	12,664			62.1		29,429			65.5		(16,765		)	(57.0	)
Gross profit	7,734			37.9		15,516			34.5		(7,782		)	(50.2	)
Operating expenses:
Research, development and engineering	5,217			25.6		6,733			15.0		(1,516		)	(22.5	)
Selling, general and administrative	8,205			40.2		11,227			25.0		(3,022		)	(26.9	)
Restructuring charges	453			2.2		181			0.4		272			n/m		(1)
Total operating expenses	13,875			68.0		18,141			40.4		(4,266		)	(23.5	)
Loss from operations	(6,141		)	(30.1	)	(2,625		)	(5.8	)	(3,516		)	133.9
Interest income (expense), net	36			0.2		24			0.1		12			n/m		(1)
Other income (expense), net	(45		)	(0.2	)	548			1.2		(593		)	n/m		(1)
Loss before income taxes	(6,150		)	(30.2	)	(2,053		)	(4.6	)	(4,097		)	199.6
Provision for (benefit from) income taxes	(116		)	(0.6	)	236			0.5		(352		)	n/m		(1)
Net loss	$	(6,034	)	(29.6	)	$	(2,289	)	(5.1	)	$	(3,745	)	163.6

⁽¹⁾Not meaningful.

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	Nine Months Ended
	September 30, 2012					October 2, 2011					Increase (Decrease)
	Amount			Percent		Amount			Percent		Amount			Percent
Net sales	$	105,786		100.0		$	143,253		100.0		$	(37,467	)	(26.2	)
Cost of sales	67,863			64.2		100,872			70.4		(33,009		)	(32.7	)
Gross profit	37,923			35.8		42,381			29.6		(4,458		)	(10.5	)
Operating expenses:
Research, development and engineering	17,638			16.7		19,893			13.9		(2,255		)	(11.3	)
Selling, general and administrative	28,777			27.2		34,119			23.8		(5,342		)	(15.7	)
Restructuring charges	2,004			1.9		103			0.1		1,901			n/m		(1)
Total operating expenses	48,419			45.8		54,115			37.8		(5,696		)	(10.5	)
Loss from operations	(10,496		)	(10.0	)	(11,734		)	(8.2	)	1,238			(10.6	)
Interest income (expense), net	106			0.1		61			—		45			n/m		(1)
Other income (expense), net	60			0.1		(1,927		)	(1.3	)	1,987			n/m		(1)
Loss before income taxes	(10,330		)	(9.8	)	(13,600		)	(9.5	)	3,270			(24.0	)
Provision for (benefit from) income taxes	169			0.2		176			0.1		(7		)	n/m		(1)
Net loss	$	(10,499	)	(10.0	)	$	(13,776	)	(9.6	)	$	3,277		(23.8	)

⁽¹⁾Not meaningful.

Net Sales

A summary of our net sales for three and nine months ended September 30, 2012 and October 2, 2011 are as follows (in thousands except for percentages):

	Three Months Ended									Nine Months Ended
	September 30,		October 2,		Increase (Decrease)					September 30,		October 2,		Increase (Decrease)
	2012		2011		Amount			Percent		2012		2011		Amount			Percent
Net sales:
United States	$	2,034	$	4,959	$	(2,925	)	(59.0	)	$	14,279	$	7,782	$	6,497		83.5
International:
Korea	3,234		15,507		(12,273		)	(79.1	)	46,290		59,028		(12,738		)	(21.6	)
Taiwan	5,972		8,243		(2,271		)	(27.6	)	18,002		31,575		(13,573		)	(43.0	)
Other Asia	7,972		10,235		(2,263		)	(22.1	)	18,192		31,078		(12,886		)	(41.5	)
Europe and others	1,186		6,001		(4,815		)	(80.2	)	9,023		13,790		(4,767		)	(34.6	)
	18,364		39,986		(21,622		)	(54.1	)	91,507		135,471		(43,964		)	(32.5	)
Total net sales	$	20,398	$	44,945	$	(24,547	)	(54.6	)	$	105,786	$	143,253	$	(37,467	)	(26.2	)

Net sales were $20.4 million for the three months ended September 30, 2012, a decrease of approximately $24.5 million compared to $44.9 million for the three months ended October 2, 2011 primarily driven by lower net sales into memory applications.

Net sales were $105.8 million for the nine months ended September 30, 2012, a decrease of approximately $37.5 million compared to $143.3 million for the nine months ended October 2, 2011. This decrease was primarily due to lower net sales into memory applications.

During the first nine months of 2012, sales to customers in Asia continued to account for a significant portion of our total net sales. For the three months ended September 30, 2012 and October 2, 2011, international sales comprised approximately 90 and 89 percent, respectively, of our total net sales. For the nine months ended September 30, 2012 and October 2, 2011,

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international sales accounted for approximately 87 percent and 95 percent, respectively, of our total net sales. We anticipate that international sales will continue to account for a significant portion of our net sales.

Cost of Sales and Gross Profit

A summary of our cost of sales and gross profit for three and nine months ended September 30, 2012 and October 2, 2011 are as follows (in thousands except for percentages):

	Three Months Ended											Nine Months Ended
	September 30,			October 2,			Increase (Decrease)					September 30,			October 2,			Increase (Decrease)
	2012			2011			Amount			Percent		2012			2011			Amount			Percent
Cost of sales	$	12,664		$	29,429		$	(16,765	)	(57.0	)	$	67,863		$	100,872		$	(33,009	)	(32.7	)
Gross profit	$	7,734		$	15,516		$	(7,782	)	(50.2	)	$	37,923		$	42,381		$	(4,458	)	(10.5	)
Gross margin	37.9		%	34.5		%						35.8		%	29.6		%

Our cost of sales consists of the costs associated with manufacturing our products, and includes the purchase of raw materials and related overhead, labor, warranty costs, charges for excess and obsolete inventory and costs incurred by our contract manufacturers in the production of our components, major sub-assemblies/modules and complete systems.

Gross margin improved from 34.5 percent in three months ended October 2, 2011 to 37.9 percent in the three months ended September 30, 2012. The increase in gross margin in the third quarter of 2012 as compared to the same period in 2011was largely related to cost reduction activities and a more favorable mix of sales, as well as the sale of an evaluation system for which the cost had previously been amortized in full.

Gross margin improved from 29.6 percent in the nine months ended October 2, 2011 to 35.8 percent in nine months ended September 30, 2012, primarily driven by cost reduction activities and a more favorable mix of sales, as well as the sale of an evaluation system for which the cost had previously been amortized in full.

Our gross margin has varied over the years and will continue to be affected by many factors, including competitive pressures, product mix, inventory reserves, economies of scale, material and other costs, overhead absorption levels and the timing of revenue recognition.

Operating Expenses

Our results for the three and nine month periods ending September 30, 2012 have benefited from the favorable impact of our cost reduction initiatives. Our total operating expenses decreased $4.3 million and $5.7 million in the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011. To date, our combined efforts to reduce operating expenses and improve gross margin have lowered our cash flow break-even point to the mid-$30 million quarterly net sales level. We expect operating expenses to decline further through the end of 2012 as a result of continued focus on cost reduction activities.

Research, Development and Engineering

A summary of our research, development and engineering expenses for the three months ended September 30, 2012 and October 2, 2011 are as follows (in thousands except for percentages):

	Three Months Ended										Nine Months Ended
	September 30,			October 2,			Increase (Decrease)				September 30,			October 2,			Increase (Decrease)
	2012			2011			Amount			Percent	2012			2011			Amount			Percent
Research, development and engineering	$	5,217		$	6,733		$	(1,516	)	(22.5)	$	17,638		$	19,893		$	(2,255	)	(11.3)
Percentage of net sales	25.6		%	15.0		%					16.7		%	13.9		%

Research, development and engineering expenses consist primarily of salaries and related costs of employees engaged in research, development and engineering activities, costs of product development and depreciation on equipment used in the course of research, development and engineering activities.

Research, development and engineering expenses decreased $1.5 million in the three months ended September 30, 2012 compared to the three months ended October 2, 2011 and decreased $2.3 million in the nine months ended September 30, 2012

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compared to the nine months ended October 2, 2011. These decreases were largely attributable to a reductions in employee related expenses, engineering materials, depreciation expense on lab tools, and certain facilities and information technology costs. The decreases in employee related expenses were primarily due to the cost reduction activities which have been on-going since the fourth quarter of 2011. The decrease in depreciation expense on lab tools was the result of several assets being fully depreciated as of the end of 2011. The decrease in engineering materials resulted from cost reduction activities during the three and nine months ended September 30, 2012 as compared to the same periods in 2011.

Selling, General and Administrative

A summary of our selling, general and administrative expenses for the three and nine months ended September 30, 2012 and October 2, 2011 are as follows:

	Three Months Ended										Nine Months Ended
	September 30,			October 2,			Increase (Decrease)				September 30,			October 2,			Increase (Decrease)
	2012			2011			Amount			Percent	2012			2011			Amount			Percent
Selling, general and administrative	$	8,205		$	11,227		$	(3,022	)	(26.9)	$	28,777		$	34,119		$	(5,342	)	(15.7)
Percentage of net sales	40.2		%	25.0		%					27.2		%	23.8		%

Selling, general and administrative expenses consist primarily of employee-related expenses, as well as legal and professional fees, insurance costs, amortization of evaluation systems and certain facilities and information technology costs.

Selling, general and administrative expenses were $8.2 million in the three months ended September 30, 2012, a decrease of $3.0 million compared to $11.2 million in the three months ended October 2, 2011. Selling, general and administrative expenses were $28.8 million in the nine months ended September 30, 2012 and October 2, 2011, a decrease of $5.3 million compared to $34.1 million in the nine months ended October 2, 2011.

The decrease in selling, general and administrative expenses was primarily attributable to a decrease in amortization and other costs associated with supporting our evaluation tools at customer sites, which was related, in part, to our ability to convert certain of these tools into sales during the past year; a decrease in depreciation expense related to fully depreciated assets; a decrease in employee related expenses and outside services costs and a decrease in facilities costs as a result of certain lease termination agreements entered into at the end of 2011. The decrease in employee-related expenses and outside services was largely due to cost reduction activities which have been on-going since the fourth quarter of 2011 as well as lower sales commissions resulting from lower net sales in 2012.

Restructuring Charges

In December 2011, we initiated a cost reduction plan ("2011 Restructuring Plan") as part of our broader cost reduction initiatives, which included consolidation of our manufacturing and research and development facilities, moving a portion of our outsourced spare parts logistics operations in-house, and workforce reductions.

We expect that our cost reduction initiatives including the 2011 Restructuring Plan will provide a reduction of over $20 million in annual operating expenses beginning in 2013.  We expect to incur a total of approximately $6.0 million to $7.0 million in restructuring charges under the 2011 Restructuring Plan.

During the three months and nine months ended September 30, 2012 , we expensed $0.5 million and $2.0 million in employee severance and other expenses, respectively. As of September 30, 2012, we incurred $3.8 million in restructuring charges under the 2011 Restructuring Plan and expect to incur an additional $2.0 million to $3.0 million, of which the majority is expected to be incurred by the end of the first quarter of 2013.

In addition to our 2011 Restructuring Plan, we also expect to incur approximately $1.0 million in capital expenditures in the fourth quarter of 2012 to support the Millios product research, development and prototype production consolidation into our German facility and consolidation of global manufacturing in the Fremont facility.

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Other Income (Expense), net

Other income (expense), net was a $45 thousand expense for the three months ended September 30, 2012, and primarily consisted of foreign exchange losses relating to inter-company balances denominated in foreign currencies.

Other income (expense), net was a $0.5 million income for three months ended October 2, 2011, which primarily consisted of foreign exchange gains related to Euro-denominated intercompany payables at our U.S. operations during the period when the U.S. dollar strengthened 9 percent against the Euro.

Other income (expense), net was a $0.1 million income in the nine months ended September 30, 2012 and primarily consisted of foreign exchange gain related to inter-company balances denominated in foreign currencies.

Other income (expense), net was a $1.9 million expense for the nine months ended October 2, 2011, which primarily consisted of foreign exchange losses related to Euro-denominated intercompany payables at our U.S. operations during the period when the U.S. dollar fluctuated against the Euro.

Provision for Income Taxes

On a quarterly basis, we record our income tax expense or benefit based on our year-to-date results and expected results remaining year-to-date operations.

We recorded an income tax benefit of $0.1 million and an income tax provision of $0.2 million for the three and nine months ended September 30, 2012, respectively. We recorded a $0.2 million income tax provision for each of the three and nine months ended October 2, 2011, respectively. The net tax provision for three and nine months ended September 30, 2012 and October 2, 2011 is the result of the mix of profits earned by us, in tax jurisdictions with a broad range of income tax rates. The $0.2 million tax provision for the nine months ended September 30, 2012 includes a $0.2 million tax benefit related to the release of uncertain tax benefits due to a lapse of the statute of limitations. The $0.2 million tax provision for the nine months ended October 2, 2011 includes a $0.4 million tax benefit related to the release of uncertain tax benefits due to a lapse of the statute of limitations.

Liquidity and Capital Resources

	Nine Months Ended
	September 30, 2012			October 2, 2011
Net cash provided by (used in) operating activities	$	(7,197	)	$	738
Net cash provided by (used in) investing activities	(1,249		)	4,204
Net cash provided by financing activities	267			12,744
Effect of exchange rate changes on cash and cash equivalents	223			1,489
Net increase (decrease) in cash and cash equivalents	$	(7,956	)	$	19,175

Our cash and cash equivalents and restricted cash were $25.0 million as of September 30, 2012, a decrease of approximately $8.0 million, compared to $33.0 million as of December 31, 2011. Working capital as of September 30, 2012 was $49.6 million, compared to $56.2 million as of December 31, 2011. Stockholders' equity as of September 30, 2012 was $51.4 million, compared to $60.1 million as of December 31, 2011.

Liquidity and Capital Resources Outlook

As of September 30, 2012, we had cash, cash equivalents and restricted cash of $25.0 million and working capital of $49.6 million. We believe that our cash balances will be sufficient to fund our working and other capital requirements over the course of the next twelve months. Our operations require careful management of our cash and working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our net sales, gross profits and operating expenses, as well as changes in our operating assets and liabilities. For example, our net sales for the nine months ended September 30, 2012 are down by 26 percent compared to the same period in 2011. The cyclicality of the semiconductor industry makes it difficult to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of cash to fund inventory purchases. In addition, the ineffectiveness of our cost reduction efforts may cause us to incur additional losses in the future and lower our cash balances. We may need additional funds to support our working capital requirements and operating expenses, or for other requirements. Historically, we have relied on a combination of fundraising from the sale and issuance of equity securities (such as our common stock offering in May 2011) and cash generated from

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product, service and royalty revenues to provide funding for our operations. In addition, our stock may be subject to eventual delisting from NASDAQ if we do not maintain a $1.00 per share trading price. We will continue to review our expected cash requirements and take appropriate cost reduction measures to ensure that we have sufficient liquidity. However, though we will pursue these measures, we are largely dependent upon improvement in the semiconductor equipment industry specifically, and general continued improvement in the economy as a whole, to increase our net sales in order to improve our profitability and cash position. We periodically review our liquidity position and may decide to raise additional funds, and may seek such funding from a combination of sources including, but not limited to, the issuance of equity or debt securities through public or private financings. These financing options may not be available on a timely basis, or on terms acceptable to us, and could be dilutive to our stockholders. If adequate funds are not available on acceptable terms, our ability to achieve our intended long-term business objectives could be limited.

Operating Activities

In the nine months ended September 30, 2012, net cash used in operations was $7.2 million, comprised primarily of $10.5 million in net loss, offset by non-cash charges of $3.9 million and $0.6 million of cash decreases reflected in the net change in assets and liabilities. Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of a $10.2 million decrease in accounts payable and accrued liabilities, a $6.5 million decrease in deferred revenue and a $4.3 million increase in inventory, partially offset by a $18.3 million decrease in accounts receivable and advance billings and a $3.5 million decrease in prepaid expenses and other current assets. The decrease in accounts receivable and advance billings reflects the decrease in net sales and business activities in the first nine months of 2012 compared to the same period 2011. Non-cash charges consisted primarily of $2.8 million of depreciation and amortization and $1.1 million of stock-based compensation.

Net cash provided by operations of $0.7 million for the nine months ended October 2, 2011 consisted primarily of a net loss of $13.8 million offset by $8.9 million of non-cash charges and $5.7 million of cash flow increases reflected in the net change in assets and liabilities. Non-cash charges consisted primarily of $7.1 million of depreciation and amortization and $1.9 million of stock-based compensation. Cash flow increases resulting from the net change in assets and liabilities primarily consisted of a $9.4 million decrease in accounts receivable, partially offset by a $3.3 million increase in inventories for fourth quarter tool builds and a $0.6 million decrease in income taxes payable.

Cash provided by operations may fluctuate in future periods as a result of a number of factors, including fluctuations in our net sales and operating results, amount of revenue deferred, inventory purchases, collection of accounts receivable and timing of payments.

Investing Activities

In the nine months ended September 30, 2012, cash used in investing activities was $1.2 million, which represent our capital spending during the first nine months of 2012.

Net cash provided by investing activities of $4.2 million for the nine months ended October 2, 2011 consisted primarily of $2.2 million of proceeds from maturities of available-for-sale investments, a $2.0 million decrease in restricted cash balances used to secure standby letters of credit provided to certain landlords and vendors, and $0.8 million in proceeds from the sale of property and equipment, partially offset by $0.8 million of capital spending.

Financing Activities

Net cash provided by financing activities was $0.3 million for the nine months ended September 30, 2012, which consisted of proceeds from issuance of common stock under our employee stock plans.

Net cash provided by financing activities of $12.7 million for the nine months ended October 2, 2011 consisted primarily of $12.6 million of proceeds from our public offering on May 16, 2011 of 7,820,000 shares of our common stock at a price to the public of $1.80 per share of common stock. The $12.6 million of proceeds is net of underwriting discounts and offering expenses of $1.5 million. The net proceeds from this offering are being used for general corporate purposes, including working capital.

Off-Balance Sheet Arrangements

As of September 30, 2012, we did not have any significant "off-balance sheet" arrangements, as defined in Item 303 (a)(4)(ii) of Regulation S-K.

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Contractual Obligations

Under U.S. GAAP, certain obligations and commitments are not required to be included in our Condensed 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 2011 Annual Report on Form 10-K.

Recent Accounting Pronouncements

Information with respect to recent accounting pronouncements may be found in Note 1 Basis of Presentation and Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Interest Rate Risk

As of September 30, 2012, our portfolio consisted of $25.0 million in cash, cash equivalents and restricted cash. We did not have any short-term investments as of September 30, 2012. Our exposure to interest rate risk relates primarily to money market funds, which we may purchase at different points in time, and the potential losses arising from changes in those interest rates. Our investment objective is to achieve the maximum return compatible with capital preservation and our liquidity requirements. Our strategy is to invest our cash in a manner that preserves capital, maintains sufficient liquidity to meet our cash requirements, and maximizes yields consistent with approved credit risk. We place our investments with high credit quality issuers and, by policy, limit the amount of our credit exposure to any one issuer. Our portfolio, which consisted primarily of money market funds includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. We classify our cash equivalents and short-term investments in accordance with authoritative guidance on accounting for investments in debt and equity securities; consider investments in instruments purchased with an original maturity of 90 days or less to be cash equivalents; and classify our short-term investments as available-for-sale.

Our cash equivalents portfolios consist primarily of money market funds. Our equity instruments are reported at fair value with unrealized gains and losses, net of tax, included in accumulated other comprehensive income within stockholders' equity in the accompanying Condensed Consolidated Balance Sheets.

Based on the size of the investment portfolio as of September 30, 2012, an immediate increase or decrease in interest rates of 100 basis points would not have a material adverse effect on the fair value of our investment portfolio.

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 net sales and costs are translated using average exchange rates for the period. Gains or losses from translation of foreign operations are included as a component of accumulated other comprehensive income in the accompanying Condensed Consolidated Balance Sheets. Foreign currency transaction gains and losses are recognized in the accompanying Condensed Consolidated Statements of Operations as they are incurred. Because much of our net sales and capital spending are transacted in U.S. dollars, we are subject to fluctuations in foreign currency exchange rates that could have a material adverse effect on our overall financial position, results of operations or cash flows, depending on the strength of the U.S. dollar relative to the currencies of other countries in which we operate. Exchange rate fluctuations of greater than ten percent, primarily for the U.S. dollar relative to the Euro, Canadian dollar, Japanese Yen or South Korean won, could have a material impact on our financial statements. Additionally, foreign currency transaction gains and losses fluctuate depending upon the mix of foreign currency denominated assets and liabilities and whether the local currency of an entity strengthens or weakens during a period. As of September 30, 2012, our U.S. operations had approximately $7.4 million, net, in foreign denominated operating inter-company payables. It is estimated that a ten percent fluctuation in the U.S. dollar relative to these foreign currencies would lead to a profit of $0.7 million (U.S. dollar strengthening), or a loss of $0.7 million (U.S. dollar weakening) on the translation of these inter-company payables, which would be recorded as other income (expense), net in our consolidated statement of operations.

In the nine months ended September 30, 2012 and October 2, 2011, we recorded foreign currency exchange gain of $0.1 million and foreign currency loss of $1.3 million, respectively, in other income (expense), net in the accompanying Condensed Consolidated Statements of Operations.

We included $0.3 million and $1.5 million foreign currency translation adjustment gains in the accompanying Condensed Consolidated Statement of Comprehensive Loss for the nine months ended September 30, 2012 and October 2, 2011, respectively. The $0.3 million foreign exchange translation adjustment gain in the nine months ended September 30, 2012 was

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primarily due to the weakening of the U.S. dollar against the Canadian dollar and the South Korean Won, which favorably impacted the net assets used in our foreign operations and held in local currencies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of 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 period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of September 30, 2012 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

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, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of business, we are subject to claims and litigation, including claims that we infringe third party patents, trademarks and other intellectual property rights. Although we believe that it is unlikely that any current claims or actions will have a material adverse impact on our operating results or our financial position, given the uncertainty of litigation, we cannot be certain. Moreover, the defense of claims or actions against us, even if without merits, 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 any litigation in which we may become involved could subject us to significant liabilities to third parties, require us to grant licenses to or seek licenses from third parties and prevent us from manufacturing and selling our products. Any of these situations could have a material adverse effect on our business.

ITEM 1A. RISK FACTORS

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

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

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We have incurred operating losses and generated negative cash flows for the last four years. As of September 30, 2012, we had cash, cash equivalents and restricted cash of $25.0 million and working capital of $49.6 million. Our operations require careful management of our cash and working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our revenue, gross profits and operating expenses, as well as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes it difficult for us to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of our cash to fund inventory purchases. In addition, the ineffectiveness of our cost reduction efforts may cause us to incur additional losses in the future and lower our cash balances.

We may need additional funds to support our working capital requirements, and operating expenses, or for other requirements. Historically, we have relied on a combination of fundraising from the sale and issuance of equity securities (such as our common stock offering in May 2011) and cash generated from product, service and royalty revenues to provide funding for our operations. We will continue to review our expected cash requirements and take appropriate cost reduction measures to ensure that we have sufficient liquidity. However, though we will pursue these measures, we are largely dependent upon improvement in the semiconductor equipment industry specifically, and general continued improvement in the economy as a whole, to increase our sales in order to improve our profitability and cash position. We periodically review our liquidity position and may seek to raise additional funds from a combination of sources including issuance of equity or debt securities through public or private financings. In the event additional needs for cash arise, we may also seek to raise these funds externally through other means, such as the sale of assets. The availability of additional financing will depend on a variety of factors, including among others, market conditions, the general availability of credit, our credit ratings, and our ability to maintain our listing on NASDAQ. As a consequence, these financing options may not be available to us on a timely basis, or on terms acceptable to us, and could be dilutive to our stockholders.

Our current liquidity position may result in risks and uncertainties affecting our operations and financial position, including the following:

• we may be required to reduce planned expenditures or investments;

• we may be unable to compete in our newer or developing markets;

• we may not be able to obtain and maintain normal terms with suppliers;

• suppliers may require standby letters of credit before delivering goods and services, which will result in additional demands on our cash;

• customers may delay or discontinue entering into contracts with us; and

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

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

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

We derive most of our net sales from the sale of systems to a relatively small number of customers, which makes our relationship with each customer critical to our business. For example, in the nine months ended September 30, 2012 and the year ending December 31, 2011, our three largest customers accounted for approximately 64 percent, and 60 percent of our sales, respectively. We currently depend on one customer for a significant portion of our net sales, and the delay, significant reduction in, or loss of, orders from this customer would significantly reduce our revenue and adversely impact our operating results. See Item 1. Business-Customers of our 2011 Form 10-K for a detailed description of our customer concentration.

Because semiconductor manufacturers must make a substantial investment to install and integrate capital equipment into a semiconductor fabrication facility, these manufacturers will tend to choose semiconductor equipment manufacturers based on product compatibility and proven performance. Changes in forecasts or the timing of orders from customers could expose us to the risks of inventory shortages or excess inventory, such as the delay in orders for certain Suprema strip systems to a foundry that we experienced in the second quarter of 2012, and for which we do not anticipate shipment to occur until 2013. In addition, customer order cancellations, which are occurring more regularly over time in our business, could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. Any such changes, delays

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and cancellations in orders in turn could cause our operating results to fluctuate. If customer relationships are disrupted due to an inability to deliver sufficient products or for any other reason, it could have a significant negative impact on our business.

Although we maintain a backlog of customer orders with expected shipment dates within the next 12 months, customers may request delivery delays or cancellations, as they have been doing more regularly over time in our business, including in the second quarter of 2012 as described above. Customers in some regions place orders a few weeks before the shipment. As a result, our backlog may not be a reliable indication of future net sales. If shipments of orders in backlog are canceled or delayed, net sales could fall below our expectations and the expectations of market analysts and investors.

A large percentage of our sales are concentrated among customers in the memory market. As a result, a downturn or an upturn in memory spending could impact us more than it would impact competitors who are more diversified with logic and foundry customers.

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

We face stiff competition in the semiconductor equipment industry.

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

• system performance;

• cost of ownership;

• size of the installed base;

• breadth of product line;

• delivery speed; and

• customer support.

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

• broader product lines;

• greater experience with handling manufacturing cycles;

• substantially larger customer bases; and

• substantially greater customer support, financial, technical and marketing resources.

Growth in the semiconductor equipment industry is increasingly concentrated in the largest companies, resulting in increasing industry consolidation, such as the recently completed merger of Lam Research and Novellus Systems. Semiconductor companies are consolidating their vendor base and prefer to purchase from vendors with a strong, worldwide support infrastructure.

In addition, to expand our sales we must often displace the systems of our competitors or sell new systems to customers of our competitors. Our competitors may develop new or enhanced competitive products that offer price or performance features that are superior to our systems. Our competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion, sale and on-

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site customer support of their product lines. We may not be able to maintain or expand our sales if competition increases and we are unable to respond effectively.

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

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

The semiconductor industry has historically experienced periodic downturns due to general economic changes or due to capacity growth temporarily exceeding growth in demand for semiconductor devices. Our business depends, in significant part, upon capital expenditures by manufacturers of semiconductor devices, including manufacturers that open new or expand existing facilities. Periods of overcapacity and reductions in capital expenditures by our customers cause decreases in demand for our products. This could result in significant under-utilization in our factories. If existing customer fabrication facilities are not expanded and new facilities are not built, we may be unable to generate significant new orders and sales for our systems. During periods of declining demand for semiconductor manufacturing equipment, our customers typically reduce purchases, delay delivery of ordered products and/or cancel orders, resulting in reduced net sales and backlog, delays in revenue recognition and excess inventory for us. For example, we experienced a delay in the shipment of Suprema strip systems in the second quarter of 2012 as a result of softness in the industry that we expect to continue until 2013. As a result, we had a reduction in our net sales in the quarter and, consequently, lower results of operations and cash from operations. Increased price competition may also result as we compete for the smaller demand in the market, causing pressure on our gross margin and net income.

The weakness in the global economy may continue to negatively impact our financial performance.

The recessionary conditions of 2008 and 2009 in the global economy and the slowdown in the semiconductor industry impacted customer demand for our products and correspondingly, negatively impacted our financial performance. There remains high unemployment in developed countries, concerns regarding the availability of credit, uncertainty about a sustained economic recovery in the U.S. and fears of further economic deterioration in Europe, China, and the developing world, which in turn, may lead to a global downturn. Any of these factors could have a negative impact on our business, or our financial condition.

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

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

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

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

Our development of new products involves significant risk, since the products are very complex and the development cycle is long and expensive. The success of any new system we develop and introduce is dependent on a number of factors,

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

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

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

We may from time to time incur unanticipated costs to ensure the functionality and reliability of our products early in their life cycles, and such costs can be substantial. If we encounter reliability or quality problems with our new products or enhancements, we could face a number of difficulties, including reduced orders, higher manufacturing costs, delays in collection of accounts receivable and additional service and warranty expenses, all of which could materially adversely affect our business and results of operations. The costs associated with our warranties may be significant, and in the event our projections and estimates of these costs are inaccurate, our financial performance could be seriously harmed. In addition, if we experience product failures at an unexpectedly high level, our reputation in the marketplace could be damaged, and our business would suffer.

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

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

Our quarterly and annual revenue and operating results have varied significantly in the past and are likely to vary significantly in the future, which makes it very difficult for us to predict our future operating results. We incurred significant net losses between 2001 and 2003, yet were profitable for each of the years 2004 to 2007. Again, we incurred net losses between 2008 and 2012 to-date, due to declining demand as a result of the weakness in the semiconductor equipment market and the global economy. We may not achieve profitability in future years. We will need to generate significant sales to achieve profitability, and we may not be able to do so. A substantial percentage of our operating expenses are fixed in the short term and we may continue to be unable to adjust spending to compensate for shortfalls in net sales. As a result, we may continue to incur losses, which could cause the price of our common stock to decline further or remain at a low level for an extended period of time.

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

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International sales accounted for 94 percent of our net sales for the year ended December 31, 2011 and 87 percent of our net sales for the nine months ended September 30, 2012, respectively. We anticipate international sales will continue to account for the vast majority of our future net sales. Asia has been a particularly important region for our business, and we anticipate that it will continue to be important going forward. Our sales to customers located in Asia accounted for 84 percent of our net sales for the year ended December 31, 2011, and 78 percent of our net sales for the nine months ended September 30, 2012, respectively. Because of our continuing dependence upon international sales, we are subject to a number of risks associated with international business activities, including:

• burdensome governmental controls, laws, regulations, tariffs, duties, taxes, restrictions, embargoes or export license requirements;

• unexpected changes in laws or regulations prompted by economic stress, such as protectionism, and other attempts to rectify real or perceived international trade imbalances;

• exchange rate volatility;

• the need to comply with a wide variety of foreign and U.S. customs and export laws;

• political and economic instability;

• government-sponsored competition;

• differing labor regulations;

• reduced protection for, and increased misappropriation of, intellectual property;

• difficulties in accounts receivable collections;

• increased costs for product shipments and potential difficulties from shipment delays;

• difficulties in managing distributors, representatives, contract manufacturers and suppliers;

• difficulties in staffing and managing foreign subsidiary operations; and

• natural disasters, acts of war, terrorism, widespread illness or other catastrophes affecting foreign countries.

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

We are exposed to various risks relating to compliance with the regulatory environment, including export control laws and material contracts provisions, and non-compliance or non-performance with any of these items could result in adverse consequences and monetary fines or damages.

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

As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the U.S. and other countries having jurisdiction over our operations. In the U.S. these laws include the International Traffic in Arms Regulations (“ITAR”) administered by the State Department's Directorate of Defense Trade Controls, the Export Administration Regulations (“EAR”) administered by the Bureau of Industry and Security (“BIS”), and trade sanctions against embargoed countries and destinations administered by the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”). The EAR governs products, parts, technology and software which present military or weapons proliferation concerns, so-called “dual use” items, and ITAR governs military items listed on the United States Munitions List. Prior to

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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. 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. In 2008, we self-disclosed to BIS certain inadvertent EAR violations, and in April 2012, we entered into a settlement agreement with BIS that resolved in full all matters contained in our voluntary self-disclosure. Under the settlement, we agreed to a civil penalty of $850,000 of which we paid $250,000 in May 2012 and $600,000 is suspended for the next year and will be waived provided that no violations occur during that period.

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

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

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

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

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

The market price of our common stock has been highly volatile in the past, and our stock price may decline in the future. For example, for the nine months ended September 30, 2012, the closing price range for our common stock was between $0.82 and $3.19 per share. In addition, the closing price range for our common stock was between $0.76 and $0.96 for the month of October 2012. Our stock may be subject to eventual delisting from NASDAQ if we do not maintain a minimum $1.00 per share trading price, which would likely lead to less liquidity and more volatility.

The relatively low stock price makes us attractive to hedge funds and other short-term investors. This could result in substantial volatility of the stock price and cause fluctuations in trading volumes for our stock. Fluctuations in the trading price or liquidity of our common stock may harm the value of your investment in our common stock.

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

Our stock price has been below the five-year peak of $9.49 for several years, and if net sales do not return to the peak 2007 levels or we do not return to profitability in the near term, we could be an attractive target for acquisition or be impacted by mergers or acquisition by another company or consolidation in the industry. An acquisition or merger could be hostile or on terms unfavorable to us, and may result in substantial costs and potential disruption to our business.

Other factors that may have a significant impact on the market price and marketability of our securities include changes in securities analysts' recommendations, short selling, and halting or suspension of trading in, or delisting of, our common stock by NASDAQ.

We are subject to significant risks related to our operations.

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

From time to time, we may outsource product manufacturing to third-party service providers. Outsourcing has a number of risks and reduces our control over the performance of the outsourced functions. Significant performance problems by these third-party service providers could result in cost overruns, delayed deliveries, shortages, quality issues or other problems that could result in significant customer dissatisfaction and could materially and adversely affect our business, financial condition and results of operations. If for any reason one or more of these third-party service providers becomes unable or unwilling to continue to provide services of acceptable quality, at acceptable costs and in a timely manner, our ability to deliver our products to our customers could be severely impaired.

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

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

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

The manufacture of some of these components is an extremely complex process and requires long lead times. If we are unable to obtain adequate and timely deliveries of our required components, we may have to seek alternative sources of supply or manufacture such components internally. This could delay our ability to manufacture or ship our systems in a timely manner, causing us to lose sales, incur additional costs, delay new product introductions and harm our reputation. Historically, we have not experienced any significant delays in manufacturing due to an inability to obtain components, and we are not currently aware of any specific problems regarding the availability of components that might significantly delay the manufacturing of our systems in the future. Any inability to obtain adequate deliveries, or any other circumstance that would require us to seek alternative sources of supply or to manufacture such components internally, could delay our ability to ship our systems and could have a material adverse effect on us.

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

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

Our gross margins for sales of products that we manufacture in Germany may fluctuate due to changes in the value of the Euro.

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

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

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

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

We purchase insurance to help mitigate the economic impact of certain insurable risks; however, certain other risks are uninsurable or are insurable only at significant cost or cannot be mitigated with insurance. An earthquake could significantly disrupt our principal manufacturing operations in Fremont, California, an area highly susceptible to earthquakes. It could also significantly delay our research and development efforts on new products, a significant portion of which is conducted in California. We self-insure earthquake risks because we believe this is a prudent financial decision based on the high cost and limited coverage available in the earthquake insurance market. If a major earthquake occurs, we could suffer a major financial loss and face significant disruption in our business.

If we are unable to protect our intellectual property, we may lose valuable assets and experience reduced market share. Efforts to protect our intellectual property may be costly to resolve, require costly litigation and could divert management attention. We also agree to indemnify customers for certain claims, and such obligations are more likely to increase during downturns.

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

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

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

In the normal course of business, we indemnify customers with respect to certain matters, for example if our tool infringes the intellectual property rights of any third party or if we breach any promise in our contract with the customer. During downturns in general or industry specific economic conditions, our customers may feel they have greater leverage in negotiating with us and require that the extent and scope of our obligation to indemnify them be expanded. In the future, our financial performance could be materially adversely affected if we expend significant amounts in defending or settling any claims raised under customer indemnification provisions.

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

We are subject to a variety of federal, state, local and foreign laws, rules, and regulations relating to environmental protection and workplace safety. These laws, rules and regulations govern the use, storage, discharge and disposal of hazardous

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

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

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

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

• difficulty of assimilating the operations, products and personnel of the acquired businesses and possible impairments caused by this;

• potential disruption of our ongoing business;

• unanticipated costs associated with the acquisition;

• inability of management to manage the financial and strategic position of acquired or developed products, services and technologies;

• inability to maintain uniform standards, controls, policies and procedures; and

• impairment of relationships with employees and customers that may occur as a result of integration of the acquired business.

To the extent that shares of our stock or other rights to purchase stock are issued in connection with any future acquisitions, dilution to our existing stockholders will result, and our earnings per share may suffer. We may be required to incur debt to pay for any future acquisitions, which could subject us to restrictive covenants and other leverage concerns. Any future acquisitions may not generate additional revenue or provide any benefit to our business, and we may not achieve a satisfactory return on our investment in any acquired businesses.

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

Our current transfer of operations and periodic restructuring plans may not produce anticipated benefits and may lead to charges that will adversely affect our results of operations.

We are currently undertaking a transfer of our Milios operations from Canada to our Germany facility. This transfer plan may not be achieved in a timely and efficient manner, and may not fully realize the anticipated cost savings and synergies for a variety of reasons. Some of the risk related to this transfer include failure to obtain expected cost savings due to cost overruns in connection with the move or after operations commence; failure to merge our Canadian operations into our existing German operations; and employment and other law, rules, regulations or other limitations in foreign jurisdictions that could have an impact on timing, amounts or costs of achieving expected synergies.

We also initiated a plan in the third quarter of 2012 to consolidate of our global manufacturing operations including the transfer of manufacturing operations from our Germany facility to our corporate headquarters in Fremont California. This transfer plan may not be achieved in a timely and efficient manner, and may not fully realize the anticipated cost savings and

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synergies for a variety of reasons. Some of the risk related to this transfer include failure to obtain expected cost savings due to cost overruns in connection with the move or after operations commence; failure to consolidate our German manufacturing operations into our existing Fremont manufacturing operations; and employment and other law, rules, regulations or other limitations in foreign jurisdictions that could have an impact on timing, amounts or costs of achieving expected synergies.

In addition, we have from time to time enacted, and are currently implementing, restructuring and other cost reduction plans designed to reduce our manufacturing overhead and our operating expenses. These restructuring efforts resulted or may result in significant restructuring charges that have adversely affected, and may continue to adversely affect, our results of operations for the periods in which such charges occur. Additionally, actual costs related to such restructuring plans have in the past, and may in the future, exceed the amounts that we previously estimated, leading to additional charges as actual costs are incurred. We expect to incur significant restructuring charges through the remainder of 2012, both in connection with our transfer of the Canadian operations and current restructuring.

Changes in tax rates or tax liabilities could affect results.

We are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly tax rates could be affected by numerous factors, including changes in the applicable tax laws, composition of earnings in countries with differing tax rates or our valuation and utilization of deferred tax assets and liabilities. In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our results of operations.

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

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. The resulting assessment may lead to a material decline in our market valuation and projected net sales, causing a decrease in the anticipated future cash flows attributable to these assets relative to the cash flow expectations when the assets were acquired. In the event that we determine in a future period that impairment of our intangible assets exists for any reason, we would record additional impairment charges in the period such determination is made, which would adversely impact our financial position and results of operations.

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

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

• our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;

• our board of directors is staggered into three classes, only one of which is elected at each annual meeting;

• stockholder action by written consent is prohibited;

• nominations for election to our board of directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice requirements;

• certain provisions in our bylaws and certificate of incorporation such as notice to stockholders, the ability to call a stockholder meeting, advance notice requirements and action of stockholders by written consent may only be amended with the approval of stockholders holding 66 2/3 percent of our outstanding voting stock;

• the ability of our stockholders to call special meetings of stockholders is prohibited; and

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• subject to certain exceptions requiring stockholder approval, our board of directors is expressly authorized to make, alter or repeal our bylaws.

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. Exhibits

Exhibit Number	Description
3.1 (2)	Amended and Restated Certificate of Incorporation of the Company.
3.2 (3)	Amended and Restated Bylaws of the Company.
10.1 (4) (c)	2012 Equity Incentive Plan
31.1 (1)	Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).	PDF
31.2 (1)	Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).	PDF
32.1 (1)	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.	PDF
32.2 (1)	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.	PDF
101.INS (5)	XBRL Instance Document
101.SCH (5)	XBRL Taxonomy Extension Schema Document
101.CAL (5)	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF (5)	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB (5)	XBRL Taxonomy Extension Label Linkbase Document
101.PRE (5)	XBRL Taxonomy Extension Presentation Linkbase Document

_________________

(c) Management contract or compensatory plan or arrangement.

(1) Filed herewith.

(2) Incorporated by reference from the Company's Current Report on Form 8-K/A filed on January 30, 2001.

(3) Incorporated by reference from the Company's Current Report on Form 8-K filed on December 22, 2010.

(4) Incorporated by reference from the Company's Registration Statement on Form S-8 filed on September 6, 2012.

(5) XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

38

SIGNATURES

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

MATTSON TECHNOLOGY, INC.

(Registrant)

Date: November 8, 2012

By: /s/ DAVID DUTTON

David Dutton

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 8, 2012

By: /s/ J. MICHAEL DODSON

J. Michael Dodson

Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary

(Principal Financial Officer)

Date: November 8, 2012

By: /s/ TYLER PURVIS

Tyler Purvis

Chief Accounting Officer and Corporate Controller

(Principal Accounting Officer)

39

EX-31.1

EXHIBIT 31.1

MATTSON TECHNOLOGY, INC.
SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION

I, David Dutton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mattson Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2012	/s/ DAVID DUTTON
	David Dutton President and Chief Executive Officer

EX-32.1

EXHIBIT 31.2

MATTSON TECHNOLOGY, INC.
SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION

I, J. Michael Dodson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mattson Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2012	/s/ J. MICHAEL DODSON
	J. Michael Dodson Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this Quarterly Report of Mattson Technology, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), David Dutton, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Date: November 8, 2012	/s/ DAVID DUTTON
	David Dutton President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this Quarterly Report of Mattson Technology, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), J. Michael Dodson, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Date: November 8, 2012	/s/ J. MICHAEL DODSON
	J. Michael Dodson Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary

XML

COMMITMENTS AND CONTINGENCIES - Guarantees (Details)	Sep. 30, 2012 USD ($)	Dec. 31, 2011 USD ($)	Sep. 30, 2012 Financial Standby Letter of Credit USD ($)	Sep. 30, 2012 Vortek Industries	Sep. 30, 2012 Vortek Industries Royalty Agreements USD ($)	Sep. 30, 2012 Vortek Industries Royalty Agreements CAD
Guarantor Obligations [Line Items]
Total amount of outstanding standby letters of credit			$ 1,900,000
Money market collateral accounts	1,877,000	1,877,000
Royalty guarantees payments, percentage of net sales from certain Flash RTP products				1.40%
Potential cash payment to Canadian Minister of Industries from certain Flash RTP products in connection with acquisition of Vortek Industries, Ltd.					$ 14,500,000	14,300,000

XML

GEOGRAPHIC AND CUSTOMER CONCENTRATION INFORMATION - Net Sales by Geographic Area (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, amount	$ 20,398	$ 44,945	$ 105,786	$ 143,253
Geographic Concentration Risk | Net Sales
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, percentage	100.00%	100.00%	100.00%	100.00%
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, amount	2,034	4,959	14,279	7,782
United States | Geographic Concentration Risk | Net Sales
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, percentage	10.00%	11.00%	13.00%	5.00%
Korea
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, amount	3,234	15,507	46,290	59,028
Korea | Geographic Concentration Risk | Net Sales
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, percentage	16.00%	35.00%	44.00%	41.00%
Taiwan
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, amount	5,972	8,243	18,002	31,575
Taiwan | Geographic Concentration Risk | Net Sales
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, percentage	29.00%	18.00%	17.00%	22.00%
Other Asia
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, amount	7,972	10,235	18,192	31,078
Other Asia | Geographic Concentration Risk | Net Sales
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, percentage	39.00%	23.00%	17.00%	22.00%
Europe and others
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, amount	$ 1,186	$ 6,001	$ 9,023	$ 13,790
Europe and others | Geographic Concentration Risk | Net Sales
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales, percentage	6.00%	13.00%	9.00%	10.00%

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STOCK-BASED COMPENSATION - Stock-based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 371,000	$ 472,000	$ 1,128,000	$ 1,875,000
Cost of Sales
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	17,000	13,000	49,000	69,000
Research, Development and Engineering
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	68,000	62,000	215,000	303,000
Selling, General and Administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	286,000	397,000	864,000	1,503,000
Stock Options
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	365,000	443,000	1,091,000	1,763,000
Unrecognized stock-based compensation, related to stock options	2,800,000		2,800,000
Weighted average recognition period for stock-based compensation			2 years 8 months 12 days
Restricted Stock Units
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	1,000	24,000	22,000	92,000
Employee Stock Purchase Plan
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 5,000	$ 5,000	$ 15,000	$ 20,000

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BALANCE SHEET DETAILS - Components of Other Current Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Balance Sheet Related Disclosures [Abstract]
Warranty	$ 1,983	$ 3,419
Value-added tax	900	2,073
Restructuring	1,385	1,230
Other	2,738	3,944
Other current liabilities	$ 7,006	$ 10,666

XML

STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Valuation Assumptions to Determine the Fair Value of Stock Options

The Black-Scholes model requires the input of highly subjective assumptions, which are summarized in the table below for the three and nine months ended September 30, 2012 and October 2, 2011:

	Three Months Ended		Nine Months Ended
	September 30, 2012	October 2, 2011	September 30, 2012	October 2, 2011
Expected dividend yield	—	—	—	—
Expected stock price volatility	81%	78%	81%	77%
Risk-free interest rate	0.7%	1.1%	0.8%	2.0%
Expected life of options in years	5	5	5	5

Schedule of Stock-Based Compensation by Type of Award and Category of Expense

Our stock-based compensation for the three and nine months ended September 30, 2012 and October 2, 2011 was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011
Stock-based compensation by type of award:
Stock options	$	365	$	443	$	1,091	$	1,763
Restricted stock units	1		24		22		92
Employee stock purchase plan	5		5		15		20
	$	371	$	472	$	1,128	$	1,875
Stock-based compensation by category of expense:
Cost of sales	$	17	$	13	$	49	$	69
Research, development and engineering	68		62		215		303
Selling, general and administrative	286		397		864		1,503
	$	371	$	472	$	1,128	$	1,875

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INCOME TAXES (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Income Tax Disclosure [Abstract]
Provision for (benefit from) income taxes	$ (116,000)	$ 236,000	$ 169,000	$ 176,000
Tax benefit related to the release of uncertain tax benefits due to a lapse of the statute of limitations			$ 200,000	$ 400,000

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EMPLOYEE STOCK PLANS - Stock Option Activity (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Number of Shares
Outstanding at December 31, 2011 (in shares)	6,489
Granted (in shares)	1,385
Exercised (in shares)	(165)
Canceled or forfeited (in shares)	(1,029)
Outstanding at September 30, 2012 (in shares)	6,680
Vested and expected to vest at September 30, 2012 (in shares)	6,242
Exercisable at September 30, 2012 (in shares)	4,149
Weighted-Average Exercise Price
Weighted-Average Exercise Price, Outstanding at December 31, 2012 (in usd per share)	$ 4.37
Weighted Average Exercise Price, Granted (in usd per share)	$ 2.61
Weighted Average Exercise Price, Exercised (in usd per share)	$ 1.06
Weighted Average Exercise Price, Canceled or forfeited (in usd per share)	$ 4.79
Weighted-Average Exercise Price, Outstanding at September 30, 2012 (in usd per share)	$ 4.02
Weighted Average Exercise Price, Vested and expected to vest at September 30, 2012 (in usd per share)	$ 4.14
Weighted Average Exercise Price, Exercisable at September 30, 2012 (in usd per share)	$ 4.98
Weighted Average Remaining Term
Weighted Average Remaining Term, Outstanding at September 30, 2012	3 years 8 months 12 days
Weighted Average Remaining Term, Vested and expected to vest at September 30, 2012	3 years 7 months 6 days
Weighted Average Remaining Term, Exercisable at September 30, 2012	2 years 6 months
Aggregate Intrinsic Value
Aggregate Intrinsic Value, Outstanding at September 30, 2012	$ 137
Aggregate Intrinsic Value, Vested and expected to vest at September 30, 2012	134
Aggregate Intrinsic Value, Exercisable at September 30, 2012	$ 120

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RESTRUCTURING CHARGES - Restructuring Accrual (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Restructuring Reserve [Roll Forward]
Restructuring Reserve - Beginning Balance	$ 1,857		$ 2,743
Restructuring charges	453	181	2,004	103
Payments	(535)		(2,993)
Reserve adjustments	6		45
Foreign currency changes	0		(18)
Restructuring Reserve - Ending Balance	1,781		1,781
Employee Severance Costs
Restructuring Reserve [Roll Forward]
Restructuring Reserve - Beginning Balance	150		82
Restructuring charges	286		1,601
Payments	(206)		(1,500)
Reserve adjustments	6		59
Foreign currency changes	(9)		(15)
Restructuring Reserve - Ending Balance	227		227
Contract Termination Costs
Restructuring Reserve [Roll Forward]
Restructuring Reserve - Beginning Balance	1,707		2,661
Restructuring charges	0		0
Payments	(162)		(1,091)
Reserve adjustments	0		(14)
Foreign currency changes	9		(3)
Restructuring Reserve - Ending Balance	1,554		1,554
Other Costs
Restructuring Reserve [Roll Forward]
Restructuring Reserve - Beginning Balance	0		0
Restructuring charges	167		402
Payments	(167)		(402)
Reserve adjustments	0		0
Foreign currency changes	0		0
Restructuring Reserve - Ending Balance	$ 0		$ 0

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GEOGRAPHIC AND CUSTOMER CONCENTRATION INFORMATION - Narrative (Details)	9 Months Ended	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended	3 Months Ended		9 Months Ended	3 Months Ended		9 Months Ended	3 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended			12 Months Ended
	Sep. 30, 2012 segment	Sep. 30, 2012 Customer Concentration Risk Net Sales	Oct. 02, 2011 Customer Concentration Risk Net Sales customer	Sep. 30, 2012 Customer Concentration Risk Net Sales customer	Oct. 02, 2011 Customer Concentration Risk Net Sales customer	Sep. 30, 2012 Customer Concentration Risk Net Sales Net Sales, Major Customer A	Oct. 02, 2011 Customer Concentration Risk Net Sales Net Sales, Major Customer A	Sep. 30, 2012 Customer Concentration Risk Net Sales Net Sales, Major Customer A	Sep. 30, 2012 Customer Concentration Risk Net Sales Net Sales, Major Customer B	Oct. 02, 2011 Customer Concentration Risk Net Sales Net Sales, Major Customer B	Oct. 02, 2011 Customer Concentration Risk Net Sales Net Sales, Major Customer B	Sep. 30, 2012 Customer Concentration Risk Net Sales Net Sales, Major Customer C	Oct. 02, 2011 Customer Concentration Risk Net Sales Net Sales, Major Customer C	Oct. 02, 2011 Customer Concentration Risk Net Sales Net Sales, Major Customer C	Sep. 30, 2012 Customer Concentration Risk Net Sales Net Sales, Major Customer J	Sep. 30, 2012 Customer Concentration Risk Net Accounts Receivable customer	Dec. 31, 2011 Customer Concentration Risk Net Accounts Receivable customer	Sep. 30, 2012 Customer Concentration Risk Net Accounts Receivable Net Accounts Receivable, Major Customer D	Sep. 30, 2012 Customer Concentration Risk Net Accounts Receivable Net Accounts Receivable, Major Customer E	Sep. 30, 2012 Customer Concentration Risk Net Accounts Receivable Net Accounts Receivable, Major Customer F	Dec. 31, 2011 Customer Concentration Risk Net Accounts Receivable Net Accounts Receivable, Major Customer G	Dec. 31, 2011 Customer Concentration Risk Net Accounts Receivable Net Accounts Receivable, Major Customer H	Dec. 31, 2011 Customer Concentration Risk Net Accounts Receivable Net Accounts Receivable, Major Customer I
Geographic and Customer Concentration Information [Abstract]
Number of operating segment	1
Concentration Risk [Line Items]
Number of significant customers		4	3	1	2											3	3
Percentage of net sales						23.00%	18.00%	48.00%	13.00%	34.00%	38.00%	12.00%	12.00%	10.00%	11.00%
Percentage of net accounts receivable																		34.00%	18.00%	18.00%	48.00%	15.00%	13.00%

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FAIR VALUE

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value

FAIR VALUE MEASUREMENT

We measure certain assets and liabilities at fair value, which 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 a liability. The authoritative guidance on fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2. Include other inputs that are directly or indirectly observable in the marketplace.

Level 3. Unobservable inputs that are supported by little or no market activities.

Our money market funds and investment instruments are classified within Level 1 of the fair value hierarchy, as these instruments are valued using quoted market prices. Specifically, we value our investments in money market securities, certificates of deposit and plan assets under our deferred compensation plan based on quoted market prices in active markets. As of September 30, 2012 and December 31, 2011, we had no assets or liabilities classified within Level 2 or Level 3 and there were no transfers of instruments between Level 1, Level 2 and Level 3 regarding fair value measurement.

Cash and cash equivalents, short-term investments and restricted cash are carried at fair value. Accounts receivable and accounts payable are valued at their carrying amounts, which approximate fair value due to their short-term nature.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are shown in the table below by their corresponding balance sheet caption and consisted of the following types of instruments as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012				December 31, 2011
	Fair Value Measurements at Reporting Date Using				Fair Value Measurements at Reporting Date Using
	(Level 1)		Total		(Level 1)		Total
Assets measured at fair value:
Cash equivalents:
Money market funds	$	13,039	$	13,039	$	13,039	$	13,039
Other assets:
Equity instruments	44		44		168		168
Total assets measured at fair value	$	13,083	$	13,083	$	13,207	$	13,207
Liabilities measured at fair value:
Other liabilities:
Other long-term liabilities	$	44	$	44	$	168	$	168
Total liabilities measured at fair value	$	44	$	44	$	168	$	168

Equity instruments in the preceding table represent plan assets under our deferred compensation plan, which offset corresponding deferred compensation plan liabilities as of the dates presented.

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EMPLOYEE STOCK PLANS - Stock Option Information (Details) (USD $) In Thousands, except Share data in Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average fair value of options granted (in usd per share)	$ 1.67	$ 1.46
Intrinsic value of options exercised	$ 203	$ 86
Cash received from options exercised	$ 175	$ 58
In-the-money options exercisable (in shares)	0.6

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BALANCE SHEET DETAILS - Narrative (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011	Dec. 31, 2011
Balance Sheet Related Disclosures [Abstract]
Restricted Cash	$ 1,877,000		$ 1,877,000		$ 1,877,000
Net benefits from inventory reserve	$ (100,000)	$ 200,000	$ 1,200,000	$ 1,300,000

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - Narrative (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended	9 Months Ended
	Oct. 02, 2011	Oct. 02, 2011	Sep. 30, 2012
Accounting Policies [Abstract]
NASDAQ Delist Stock Price, Minimum			$ 1.00
Reclassification adjustment related to spare parts business from selling, general and administrative expense to cost of sales	$ 1.2	$ 3.6
Cash, cash equivalents and restricted cash			25.0
Working capital			$ 49.6

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EMPLOYEE STOCK PLANS - Restricted Stock Units - (Details) (USD $)	3 Months Ended			9 Months Ended
	Sep. 30, 2012	Apr. 01, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 371,000		$ 472,000	$ 1,128,000	$ 1,875,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Time-based RSUs vesting percentage on each anniversary of the vesting commencement date				25.00%
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	1,000		24,000	22,000	92,000
Number of Shares
Outstanding at December 31, 2011		246,000		246,000
Granted (in shares)				30,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value				$ 0.88
Released (in shares)				(15,000)
Expired (in shares)				(229,000)
Outstanding at July 1, 2012	32,000			32,000
Weighted Average Grant Date Fair Value
Weighted Average Grant Date Fair Value, Outstanding at December 31, 2011 (in usd per share)		3.50		$ 3.50
Weighted Average Grant Date Fair Value, Released (in usd per share)				$ 5.68
Weighted Average Grant Date Fair Value, Expired (in usd per share)				$ 3.32
Weighted Average Grant Date Fair Value, Outstanding at July 1, 2012 (in usd per share)	$ 1.30			$ 1.30
Time-based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Common stock equivalent shares				1.75
Performance-based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 0		$ 0	$ 0	$ 0
Number of Shares
Outstanding at December 31, 2011		200,000		200,000
Expired (in shares)		(200,000)

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BALANCE SHEET DETAILS - Components of Inventories (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Balance Sheet Related Disclosures [Abstract]
Purchased parts and raw materials	$ 19,940	$ 17,693
Work-in-process	5,035	7,266
Finished goods	10,309	4,244
Inventories, net	$ 35,284	$ 29,203

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BALANCE SHEET DETAILS - Components of Prepaid Expense and Other Current Assets (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Balance Sheet Related Disclosures [Abstract]
Prepaid value-added tax	$ 1,863	$ 2,996
Prepaid Retirement Insurance - Foreign Employees	1,343	1,185
Other current assets	2,402	4,843
Prepaid expenses and other current assets	$ 5,608	$ 9,024

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BALANCE SHEET DETAILS

9 Months Ended

Sep. 30, 2012

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Details

BALANCE SHEET DETAILS

We had restricted cash of $1.9 million as of September 30, 2012 and December 31, 2011, which is related to secured standby letters of credit provided to certain landlords and vendors. See Note 6. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements.

Components of inventories as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Inventories, net:
Purchased parts and raw materials	$	19,940	$	17,693
Work-in-process	5,035		7,266
Finished goods	10,309		4,244
	$	35,284	$	29,203

Amounts in the table are presented net of inventory valuation charges for excess and/or obsolete inventories. For the three months ended September 30, 2012 and October 2, 2011, we recorded net expense of approximately $0.1 million and a net benefit of $0.2 million, respectively. For the nine months ended September 30, 2012 and October 2, 2011, we recorded net benefits of approximately $1.2 million and $1.3 million, respectively.

Components of prepaid expenses and other current assets as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Prepaid expenses and other current assets:
Prepaid value-added tax	$	1,863	$	2,996
Retirement insurance - foreign employees	1,343		1,185
Other current assets	2,402		4,843
	$	5,608	$	9,024

Components of property and equipment as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012			December 31, 2011
Property and equipment, net:
Machinery and equipment	$	43,016		$	45,174
Furniture and fixtures	9,899			10,002
Leasehold improvements	17,689			17,759
	70,604			72,935
Less: accumulated depreciation	(62,971		)	(62,383		)
	$	7,633		$	10,552

Components of other current liabilities as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Other current liabilities:
Warranty	$	1,983	$	3,419
Value-added tax	900		2,073
Restructuring - short-term	1,385		1,230
Other	2,738		3,944
	$	7,006	$	10,666

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BALANCE SHEET DETAILS - Components of Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Property, and equipment, gross	$ 70,604	$ 72,935
Less: accumulated depreciation	(62,971)	(62,383)
Property and equipment, net	7,633	10,552
Machinery and Equipment
Property, Plant and Equipment [Line Items]
Property, and equipment, gross	43,016	45,174
Furniture and Fixtures
Property, Plant and Equipment [Line Items]
Property, and equipment, gross	9,899	10,002
Leasehold Improvements
Property, Plant and Equipment [Line Items]
Property, and equipment, gross	$ 17,689	$ 17,759

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COMMITMENTS AND CONTINGENCIES - Government Agencies (Details) (Regulatory Violations, USD $)	1 Months Ended
	May 31, 2012	Apr. 30, 2012
Regulatory Violations
Loss Contingencies [Line Items]
Settlement agreement with BIS		$ 850,000
Payment for violation	250,000
Remaining violation contingency	$ 600,000

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Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Net sales	$ 20,398	$ 44,945	$ 105,786	$ 143,253
Cost of sales	12,664	29,429	67,863	100,872
Gross profit	7,734	15,516	37,923	42,381
Operating expenses:
Research, development and engineering	5,217	6,733	17,638	19,893
Selling, general and administrative	8,205	11,227	28,777	34,119
Restructuring charges	453	181	2,004	103
Total operating expenses	13,875	18,141	48,419	54,115
Loss from operations	(6,141)	(2,625)	(10,496)	(11,734)
Interest income (expense), net	36	24	106	61
Other income (expense), net	(45)	548	60	(1,927)
Loss before income taxes	(6,150)	(2,053)	(10,330)	(13,600)
Provision for (benefit from) income taxes	(116)	236	169	176
Net loss	$ (6,034)	$ (2,289)	$ (10,499)	$ (13,776)
Net loss per share:
Basic and diluted (in usd per share)	$ (0.10)	$ (0.04)	$ (0.18)	$ (0.25)
Shares used in computing net loss per share:
Basic and Diluted (in shares)	58,586	58,224	58,504	54,324

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STOCK-BASED COMPENSATION - Valuation Assumptions (Details) (Stock Options)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Stock Options
Black-Scholes Valuation Assumptions
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Expected stock price volatility	81.00%	78.00%	81.00%	77.00%
Risk-free interest rate	0.70%	1.10%	0.80%	2.00%
Expected life of options in years	5 years	5 years	5 years	5 years

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011
Cash flows from operating activities:
Net loss	$ (10,499)	$ (13,776)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	2,760	7,099
Stock-based compensation	1,128	1,875
Other non-cash items	34	(124)
Changes in assets and liabilities:
Accounts receivable	14,029	9,407
Advance billings	(4,247)	(407)
Inventories	(4,345)	(3,287)
Prepaid expenses and other current assets	3,476	(310)
Other assets	183	247
Accounts payable	(6,065)	(4,536)
Accrued liabilities	(4,137)	4,540
Deferred revenue	(6,501)	(239)
Income taxes payable, non-current and other liabilities	(1,507)	(565)
Net cash provided by (used in) operating activities	(7,197)	738
Cash flows from investing activities:
Maturities of available-for-sale investments	0	2,151
Decrease in restricted cash	0	1,996
Purchases of property and equipment	(1,249)	(785)
Proceeds from Sale of Property, Plant, and Equipment	0	842
Net cash provided by (used in) investing activities	(1,249)	4,204
Cash flows from financing activities:
Proceeds from stock plans, net	267	12,744
Net cash provided by financing activities	267	12,744
Effect of exchange rate changes on cash and cash equivalents	223	1,489
Net increase (decrease) in cash and cash equivalents	(7,956)	19,175
Cash and cash equivalents, beginning of period	31,073	16,863
Cash and cash equivalents, end of period	$ 23,117	$ 36,038

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INTANGIBLE ASSETS - Identified Intangible Assets (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Intangibles, net	$ 563,000		$ 563,000		$ 750,000
Amortization expense	60,000	60,000	190,000	190,000
Developed Technology Rights
Finite-Lived Intangible Assets [Line Items]
Developed technology	1,250,000		1,250,000		1,250,000
Accumulated amortization	$ (687,000)		$ (687,000)		$ (500,000)

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RESTRUCTURING CHARGES (Tables)

9 Months Ended

Sep. 30, 2012

Restructuring Charges [Abstract]

Summary of Changes in Restructuring Accrual

	Three Months Ended September 30, 2012												Nine Months Ended September 30, 2012
	Employee Severance Costs			Contract Termination Costs			Other Costs			Total			Employee Severance Costs			Contract Termination Costs			Other Costs			Total
Beginning balance	$	150		$	1,707		$	—		$	1,857		$	82		$	2,661		$	—		$	2,743
Expensed	286			—			167			453			1,601			—			402			2,004
Payments	(206		)	(162		)	(167		)	(535		)	(1,500		)	(1,091		)	(402		)	(2,993		)
Reserve adjustments	6			—			—			6			59			(14		)	—			45
Foreign currency changes	(9		)	9			—			—			(15		)	(3		)	—			(18		)
Ending balance	$	227		$	1,554		$	—		$	1,781		$	227		$	1,554		$	—		$	1,781

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RESTRUCTURING CHARGES - 2011 Restructuring Plan (Details) (USD $)	3 Months Ended			9 Months Ended		10 Months Ended	12 Months Ended					3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended					9 Months Ended		3 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Dec. 31, 2013	Jul. 01, 2012	Dec. 31, 2011	Sep. 30, 2012 Accrued liabilities, current	Sep. 30, 2012 Other liabilities, non current	Sep. 30, 2012 Employee Severance and Other Costs	Sep. 30, 2012 Employee Severance and Other Costs	Sep. 30, 2012 Contract Termination [Member]	Sep. 30, 2012 Contract Termination [Member]	Jul. 01, 2012 Contract Termination [Member]	Dec. 31, 2011 Contract Termination [Member]	Nov. 30, 2011 Contract Termination, Related to Future Rent Obligations	Dec. 31, 2010 Contract Termination, Related to Future Rent Obligations facility	Sep. 30, 2012 2011 Restructuring Plan, First Three Phases Minimum	Sep. 30, 2012 2011 Restructuring Plan, First Three Phases Maximum	Dec. 31, 2012 2011 Restructuring Plan, Remaining Phases Minimum	Dec. 31, 2012 2011 Restructuring Plan, Remaining Phases Maximum
Restructuring Cost and Reserve [Line Items]
Expected Annual Cost Savings							$ 20,000,000
Estimated restructuring costs																				6,000,000	7,000,000	2,000,000	3,000,000
Payments to Acquire Property, Plant, and Equipment	1,000,000			1,249,000	785,000
Contract termination costs established prior to 2011		1,781,000		1,781,000		1,781,000		1,857,000	2,743,000					1,554,000	1,554,000	1,707,000	2,661,000	900,000
Number of vacated leased facilities related to restructuring																			2
Restructuring charges		453,000	181,000	2,004,000	103,000									0	0
Payments		(535,000)		(2,993,000)								(400,000)	(1,900,000)	(162,000)	(1,091,000)
Restructuring cost recorded to date						3,800,000
Restructuring reserve, current		1,385,000		1,385,000		1,385,000			1,230,000	1,400,000
Restructuring reserve, noncurrent											$ 400,000

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EMPLOYEE STOCK PLANS (Tables)

9 Months Ended

Sep. 30, 2012

Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]

Schedule of Stock Option Activity

The following table summarizes the stock option activity under all of our equity incentive plans for the nine months ended September 30, 2012:

	Number of Shares		Weighted- Average Exercise Price		Weighted Average Remaining Term	Aggregated Intrinsic Value
	(thousands)				(years)	(thousands)
Outstanding at December 31, 2011	6,489		$	4.37
Granted	1,385		$	2.61
Exercised	(165	)	$	1.06
Canceled or forfeited	(1,029	)	$	4.79
Outstanding at September 30, 2012	6,680		$	4.02	3.7	$	137
Vested and expected to vest at September 30, 2012	6,242		$	4.14	3.6	$	134
Exercisable at September 30, 2012	4,149		$	4.98	2.5	$	120

The aggregate intrinsic value represents the pre-tax differences between the exercise price of stock options and the quoted market price of our stock on September 30, 2012 and October 2, 2011, respectively, for all in-the-money options. There were approximately 0.6 million shares of common stock subject to in-the-money options that were exercisable as of September 30, 2012.

The following table provides information pertaining to our stock options for the nine months ended September 30, 2012 and October 2, 2011 (in thousands, except weighted-average fair values):

	Nine Months Ended
	September 30, 2012		October 2, 2011
Weighted-average fair value of options granted	$	1.67	$	1.46
Intrinsic value of options exercised	$	203	$	86
Cash received from options exercised	$	175	$	58

Re

Schedule of Restricted Stock Units

The following table summarizes RSU activity under all of our equity incentive plans for the nine months ended September 30, 2012:

	Number of Shares		Weighted Average Grant Date Fair Value
	(thousands)
Outstanding at December 31, 2011	246		$	3.50
Granted	30		0.88
Released	(15	)	$	5.68
Expired	(229	)	$	3.32
Outstanding at September 30, 2012	32		$	1.30

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Mattson Technology, Inc. (referred to in this Quarterly Report on Form 10-Q as "Mattson," "we," "us," or "our") was incorporated in California in 1988 and reincorporated in Delaware in 1997. We design, manufacture, market and globally support semiconductor wafer processing equipment used in the fabrication of integrated circuits.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") 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 (which include normal recurring adjustments) considered necessary to present fairly each of the statement of financial position as of September 30, 2012, the results of operations for the three and nine months ended September 30, 2012 and October 2, 2011 and the statements of cash flows for the nine months ended September 30, 2012 and October 2, 2011, as applicable, have been made. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2011, which are included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2012.

The condensed consolidated financial statements include the accounts of Mattson Technology, Inc. and our wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated.

The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2012.

Fiscal Year

Our fiscal year ends on December 31. We close our first fiscal quarter on the Sunday closest to March 31. Our second and third fiscal quarters are each 13 weeks long and our fourth quarter closes on December 31.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. We evaluate our estimates on an ongoing basis, including those related to the useful lives and fair value of long-lived assets, estimates used to determine facility lease loss liabilities, measurement of warranty obligations, valuation allowances for deferred tax assets, the fair value of stock-based compensation, estimates for allowance for doubtful accounts, and valuation of excess and obsolete inventories. Our estimates and assumptions can be subjective and complex and consequently actual results could differ materially from those estimates.

Reclassifications

For presentation purposes, certain prior period amounts have been reclassified to conform to the reporting in the current period financial statements. We reclassified certain prior period costs, including approximately $1.2 million and $3.6 million for the three and nine months ended October 2, 2011, respectively, related to our spare parts business from selling, general and administrative expense to cost of sales, as they more appropriately reflect costs associated with revenue generating activities. These reclassifications do not affect our net income, cash flows or stockholders' equity.

Liquidity and Management Plans

As of September 30, 2012 we had cash, cash equivalents and restricted cash of $25.0 million and working capital of $49.6 million. We believe that our cash balances will be sufficient to fund our working and other capital requirements over the course of the next twelve months. Our operations require careful management of our cash and working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our net sales, gross profits and operating expenses, as well as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes it difficult to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of cash to fund inventory purchases. In addition, any ineffectiveness in our cost reduction efforts may cause us to incur additional losses in the future and lower our cash balances. We may need additional funds to support our working capital requirements and operating expenses, or for other requirements. Historically, we have relied on a combination of fundraising from the sale and issuance of equity securities (such as our common stock offering in May 2011), and cash generated from product, service and royalty revenues to provide funding for our operations. In addition, our stock may be subject to eventual delisting from NASDAQ if we do not maintain a minimum $1.00 per share trading price. We will continue to review our expected cash requirements and take appropriate cost reduction measures to ensure that we have sufficient liquidity. However, though we will pursue these measures, we are largely dependent upon improvement in the semiconductor equipment industry specifically, and general continued improvement in the economy as a whole, to increase our sales in order to improve our profitability and cash position. We periodically review our liquidity position and may decide to raise additional funds, and may seek such funding from a combination of sources including issuance of equity or debt securities through public or private financings. These financing options may not be available on a timely basis, or on terms acceptable to us, and could be dilutive to our stockholders. If adequate funds are not available on acceptable terms, our ability to achieve our intended long-term business objectives could be limited.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-08, Intangibles-Goodwill and Other - Testing Goodwill for Impairment to simplify goodwill impairment testing by permitting an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. We adopted this accounting guidance on January 1, 2012, and this adoption did not have a material impact on our financial statements and disclosures.

In June 2011, the FASB issued ASU No. 2011-05, which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of stockholders' equity. Instead, we must report comprehensive income in either a single continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, the FASB issued additional guidance that defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. The deferral is temporary until the FASB reconsiders the operational concerns and needs of financial statement users. We adopted ASU No. 2011-05 on January 1, 2012, although the adoption of this update did not have an impact on our financial statements other than to change the manner in which comprehensive income is presented.

In May 2011, the FASB issued ASU No. 2011-04, an amendment to ASC ("Accounting Standards Codification") 820, Fair Value Measurements, providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. We adopted this amendment on January 1, 2012, the adoption of which did not have a material effect on our financial statement and disclosures.

There were no other recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 30, 2012, compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance or potential significance to us.

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Condensed Consolidated Statements of Comprehensive Loss (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Net loss	$ (6,034)	$ (2,289)	$ (10,499)	$ (13,776)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	428	(1,233)	343	1,454
Unrealized investment gain	8	(21)	23	97
Other comprehensive income (loss)	436	(1,254)	366	1,551
Comprehensive loss	$ (5,598)	$ (3,543)	$ (10,133)	$ (12,225)

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NET LOSS PER SHARE

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Net Loss Per Share

NET LOSS PER SHARE

We present both basic and diluted net loss per share on the face of our condensed consolidated statements of operations in accordance with the authoritative guidance on earnings per share. Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Since we had net losses in the three and nine months ended September 30, 2012 and October 2, 2011, none of the stock options and restricted stock units were included in the computation of diluted shares for these periods, as inclusion of such shares would have been anti-dilutive.

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

	Three Months Ended		Nine Months Ended
	September 30, 2012	October 2, 2011	September 30, 2012	October 2, 2011
Weighted-average common shares outstanding - basic	58,586	58,224	58,504	54,324
Effect of diluted potential common shares from stock options and restricted stock units	—	—	—	—
Weighted-average common shares outstanding - diluted	58,586	58,224	58,504	54,324

All outstanding options to purchase our common stock and restricted stock units are potentially dilutive securities. As of September 30, 2012 and October 2, 2011, the combined total of options to purchase common stock and restricted stock units outstanding were 6.7 million and 7.2 million, respectively. However, since we had net losses for three and nine months ended September 30, 2012 and October 2, 2011, no potentially dilutive securities were included in the computation of diluted shares for those years as inclusion of such shares would have been anti-dilutive. Accordingly, basic and diluted net loss per share were the same in each period reported.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 02, 2012
Entity Information [Line Items]
Entity Registrant Name	MATTSON TECHNOLOGY INC
Entity Central Index Key	0000928421
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		58,612,559
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

XML

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") 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 (which include normal recurring adjustments) considered necessary to present fairly each of the statement of financial position as of September 30, 2012, the results of operations for the three and nine months ended September 30, 2012 and October 2, 2011 and the statements of cash flows for the nine months ended September 30, 2012 and October 2, 2011, as applicable, have been made. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2011, which are included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2012.

The condensed consolidated financial statements include the accounts of Mattson Technology, Inc. and our wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated.

The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2012.

Fiscal Year

Fiscal Year

Our fiscal year ends on December 31. We close our first fiscal quarter on the Sunday closest to March 31. Our second and third fiscal quarters are each 13 weeks long and our fourth quarter closes on December 31.

Use of Estimates

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. We evaluate our estimates on an ongoing basis, including those related to the useful lives and fair value of long-lived assets, estimates used to determine facility lease loss liabilities, measurement of warranty obligations, valuation allowances for deferred tax assets, the fair value of stock-based compensation, estimates for allowance for doubtful accounts, and valuation of excess and obsolete inventories. Our estimates and assumptions can be subjective and complex and consequently actual results could differ materially from those estimates.

Reclassifications

Reclassifications

For presentation purposes, certain prior period amounts have been reclassified to conform to the reporting in the current period financial statements. We reclassified certain prior period costs, including approximately $1.2 million and $3.6 million for the three and nine months ended October 2, 2011, respectively, related to our spare parts business from selling, general and administrative expense to cost of sales, as they more appropriately reflect costs associated with revenue generating activities. These reclassifications do not affect our net income, cash flows or stockholders' equity.

Liquidity and Management Plans

Our operations require careful management of our cash and working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our net sales, gross profits and operating expenses, as well as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes it difficult to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of cash to fund inventory purchases. In addition, any ineffectiveness in our cost reduction efforts may cause us to incur additional losses in the future and lower our cash balances. We may need additional funds to support our working capital requirements and operating expenses, or for other requirements. Historically, we have relied on a combination of fundraising from the sale and issuance of equity securities (such as our common stock offering in May 2011), and cash generated from product, service and royalty revenues to provide funding for our operations. In addition, our stock may be subject to eventual delisting from NASDAQ if we do not maintain a minimum $1.00 per share trading price. We will continue to review our expected cash requirements and take appropriate cost reduction measures to ensure that we have sufficient liquidity. However, though we will pursue these measures, we are largely dependent upon improvement in the semiconductor equipment industry specifically, and general continued improvement in the economy as a whole, to increase our sales in order to improve our profitability and cash position. We periodically review our liquidity position and may decide to raise additional funds, and may seek such funding from a combination of sources including issuance of equity or debt securities through public or private financings. These financing options may not be available on a timely basis, or on terms acceptable to us, and could be dilutive to our stockholders. If adequate funds are not available on acceptable terms, our ability to achieve our intended long-term business objectives could be limited.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-08, Intangibles-Goodwill and Other - Testing Goodwill for Impairment to simplify goodwill impairment testing by permitting an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. We adopted this accounting guidance on January 1, 2012, and this adoption did not have a material impact on our financial statements and disclosures.

In June 2011, the FASB issued ASU No. 2011-05, which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of stockholders' equity. Instead, we must report comprehensive income in either a single continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, the FASB issued additional guidance that defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. The deferral is temporary until the FASB reconsiders the operational concerns and needs of financial statement users. We adopted ASU No. 2011-05 on January 1, 2012, although the adoption of this update did not have an impact on our financial statements other than to change the manner in which comprehensive income is presented.

In May 2011, the FASB issued ASU No. 2011-04, an amendment to ASC ("Accounting Standards Codification") 820, Fair Value Measurements, providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. We adopted this amendment on January 1, 2012, the adoption of which did not have a material effect on our financial statement and disclosures.

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 23,117	$ 31,073
Restricted Cash	1,877	1,877
Accounts receivable, net of allowance for doubtful accounts of $619 as of September 30, 2012 and $684 as of December 31, 2011	11,446	25,278
Advance billings	824	5,071
Inventories	35,284	29,203
Prepaid expenses and other current assets	5,608	9,024
Total current assets	78,156	101,526
Property and equipment, net	7,633	10,552
Intangibles, net	563	750
Other assets	756	1,015
Total assets	87,108	113,843
Current liabilities:
Accounts payable	10,805	16,785
Accrued compensation and benefits	5,434	5,781
Deferred revenue-current	5,278	12,117
Other current liabilities	7,006	10,666
Total current liabilities	28,523	45,349
Deferred revenues, non-current	3,279	3,158
Other long-term liabilities	3,898	5,191
Total liabilities	35,700	53,698
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, 2,000 shares authorized; none issued and outstanding	0	0
Common stock, par value $0.001, 120,000 shares authorized; 62,744 shares issued and 58,654 shares outstanding as of September 30, 2012; 62,547 shares issued and 58,366 shares outstanding as of December 31, 2011	63	63
Additional paid-in capital	651,506	650,110
Accumulated other comprehensive income	20,838	20,472
Treasury stock, 4,181 shares as of September, 2012 and December 31, 2011	(37,986)	(37,986)
Accumulated deficit	(583,013)	(572,514)
Total stockholders' equity	51,408	60,145
Total liabilities and stockholders' equity	$ 87,108	$ 113,843

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Warranty

The warranty offered by us on our system sales is generally twelve months, except where previous customer agreements state 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. Our warranty obligations require us to repair or replace defective products or parts 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, we adjust our warranty accruals accordingly.

The following table summarizes changes in our product warranty accrual for the three and nine months ended September 30, 2012 and October 2, 2011 (in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
Beginning balance	$	2,915		$	4,085		$	3,419		$	2,539
Warranties issued in the period	293			753			1,899			2,830
Costs to service warranties	(961		)	(881		)	(3,396		)	(2,491		)
Warranty accrual adjustments	(264		)	(251		)	61			828
Ending balance	$	1,983		$	3,706		$	1,983		$	3,706

Guarantees

In the ordinary course of business, our bank provides standby letters of credit or other guarantee instruments on our behalf to certain parties as required. The standby letters of credit are secured by certificates of deposit, which are classified as restricted cash in the accompanying Condensed Consolidated Balance Sheets. We have never recorded any liability in connection with these guarantee arrangements beyond what is required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under such guarantee arrangements. As of September 30, 2012, the maximum potential amount that we could be required to pay was $1.9 million, the total amount of outstanding standby letters of credit, which were secured by $1.9 million in money market collateral accounts. This amount was recorded as restricted cash as of September 30, 2012.

In connection with our acquisition of Vortek Industries, Ltd. ("Vortek") in 2004, we became party to an agreement between Vortek and the Canadian Minister of Industries (the "Minister") relating to an investment in Vortek by Technology Partnerships Canada. Under the agreement, as amended, we, or Vortek (renamed Mattson Technology, Canada, Inc. ("MTC")) agreed to various terms, including (i) payment by us of a royalty to the Minister of 1.4 percent of net sales from certain Flash RTP products, up to a total of C$14.3 million (approximately $14.5 million based on the applicable exchange rate as of September 30, 2012), (ii) MTC through October 27, 2009 maintaining a specified average workforce of employees in Canada, making certain investments and complying with certain manufacturing, and (iii) certain other covenants concerning protection of intellectual property rights. Under the provisions of this agreement, if MTC is dissolved, files for bankruptcy or we, or MTC, do not materially satisfy the obligations pursuant to any material terms or conditions, the Minister could demand payment of liquidated damages in the amount of C$14.3 million less any royalties paid to the Minister. As of October 27, 2009, we were no longer subject to covenant (ii), as discussed above but are still subject to the remaining terms and conditions until the earlier of payment of royalty of C$14.3 million (approximately $14.5 million based on the applicable exchange rate as of September 30, 2012) or through December 31, 2020. The movement of our Canadian operations to Germany will not result in the dissolution of MTC.

We are a party to a variety of agreements, pursuant to which we may be obligated to indemnify other parties with respect to certain matters. Typically, these obligations arise in the context of contracts under which we may agree to hold other parties harmless against losses arising from a breach of representations or with respect to certain intellectual property, operations or tax-related matters. Our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have defenses to asserted claims and/or recourse against third parties for payments made. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these agreements have not had a material effect on our financial position, results of operations or cash flows. We believe if it were to incur a loss in any of these matters, such loss would not have a material effect on our financial position, results of operations or cash flows.

We indemnify our directors and certain employees as permitted by law, and have entered into indemnification agreements with our directors and certain senior officers. We have not recorded a liability associated with these indemnification agreements, as we historically have not incurred any material costs associated with such indemnification agreements. Costs associated with such indemnification agreements may be mitigated, in whole or only in part, by insurance coverage that we maintain.

Government Agencies

As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the U.S. and other countries having jurisdiction over our operations. In the U.S. these laws include the International Traffic in Arms Regulations ("ITAR") administered by the State Department's Directorate of Defense Trade Controls, the Export Administration Regulations ("EAR") administered by the Bureau of Industry and Security ("BIS"), and trade sanctions against embargoed countries and destinations administered by the U.S. Department of Treasury, Office of Foreign Assets Control ("OFAC"). The EAR governs products, parts, technology and software which present military or weapons proliferation concerns, so-called "dual use" items, and ITAR governs military items listed on the United States Munitions List. 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.

As previously reported, in 2008 we self-disclosed to BIS certain inadvertent EAR violations. In April 2012, we entered into a settlement agreement with BIS that resolved in full all matters contained in our voluntary self-disclosure. Under the settlement, we agreed to a civil penalty of $850,000 of which we paid $250,000 in May 2012 with the remaining $600,000 suspended for a period of one year and will be waived provided that no violations occur during that period.

Litigation

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. The defense of claims or actions against us, even if without merit, could result in the expenditure of significant financial and managerial resources.

We record a legal liability when we believe it is both probable that a liability has been incurred, and the amount can be reasonably estimated. We monitor developments in our legal matters that could affect the estimate we have previously accrued. Significant judgment is required to determine both probability and the estimated amount.

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RESTRUCTURING CHARGES

9 Months Ended

Sep. 30, 2012

Restructuring Charges [Abstract]

Restructuring Charges

RESTRUCTURING CHARGES

In December 2011, we initiated a cost reduction plan ("2011 Restructuring Plan") as part of our broader cost reduction initiatives, which included consolidation of our manufacturing and research and development facilities, moving a portion of our outsourced spare parts logistics operations in-house, and workforce reductions.

We expect that our cost reduction initiatives including the 2011 Restructuring Plan will provide a reduction of over $20.0 million in annual operating expenses beginning in 2013.  We expect to incur a total of approximately $6.0 million to $7.0 million in restructuring charges under the 2011 Restructuring Plan. As of September 30, 2012, we have incurred $3.8 million in restructuring charges under the 2011 Restructuring Plan and expect to incur an additional $2.0 million to $3.0 million, of which the majority is expected to be incurred by the end of the first quarter of 2013.

In addition to our 2011 Restructuring Plan, we also expect to incur approximately $1.0 million in capital expenditures in the fourth quarter of 2012 to support product research development and prototype production of the Millios system into our German facility and consolidation of global manufacturing in the Fremont facility.

The beginning restructuring reserve balance includes $0.9 million of contract termination costs established prior to 2011, which related to future rent obligations associated with two vacated leased facilities net of sublease income. During the three months ended September 30, 2012, we expensed $0.5 million in employee severance and other expenses, paid $0.4 million of employee severance and other expenses, and paid $0.2 million of contract termination costs under the 2011 Restructuring Plan. During the nine months ended September 30, 2012 we recorded $2.0 million of employee severance and other expenses. We paid $1.9 million in employee severance and other expenses and paid $1.1 million in contract termination costs related to the 2011 restructuring plan. To date, we have recorded $3.8 million related to the 2011 Restructuring Plan.

The following table summarizes changes in the restructuring accrual for the three and nine months ended September 30, 2012 (in thousands):

	Three Months Ended September 30, 2012												Nine Months Ended September 30, 2012
	Employee Severance Costs			Contract Termination Costs			Other Costs			Total			Employee Severance Costs			Contract Termination Costs			Other Costs			Total
Beginning balance	$	150		$	1,707		$	—		$	1,857		$	82		$	2,661		$	—		$	2,743
Expensed	286			—			167			453			1,601			—			402			2,004
Payments	(206		)	(162		)	(167		)	(535		)	(1,500		)	(1,091		)	(402		)	(2,993		)
Reserve adjustments	6			—			—			6			59			(14		)	—			45
Foreign currency changes	(9		)	9			—			—			(15		)	(3		)	—			(18		)
Ending balance	$	227		$	1,554		$	—		$	1,781		$	227		$	1,554		$	—		$	1,781

As of September 30, 2012, $1.4 million of the restructuring accrual was classified as short-term and recorded within accrued liabilities in the Condensed Consolidated Balance Sheets, and the remaining $0.4 million of the restructuring accrual was classified as long-term and recorded within other liabilities in the Condensed Consolidated Balance Sheets.

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Summary of Product Warranty Accrual

The following table summarizes changes in our product warranty accrual for the three and nine months ended September 30, 2012 and October 2, 2011 (in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
Beginning balance	$	2,915		$	4,085		$	3,419		$	2,539
Warranties issued in the period	293			753			1,899			2,830
Costs to service warranties	(961		)	(881		)	(3,396		)	(2,491		)
Warranty accrual adjustments	(264		)	(251		)	61			828
Ending balance	$	1,983		$	3,706		$	1,983		$	3,706

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BALANCE SHEET DETAILS (Tables)

9 Months Ended

Sep. 30, 2012

Balance Sheet Related Disclosures [Abstract]

Components of Inventories

Components of inventories as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Inventories, net:
Purchased parts and raw materials	$	19,940	$	17,693
Work-in-process	5,035		7,266
Finished goods	10,309		4,244
	$	35,284	$	29,203

Components of Prepaid Expense and Other Current Assets

Components of prepaid expenses and other current assets as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Prepaid expenses and other current assets:
Prepaid value-added tax	$	1,863	$	2,996
Retirement insurance - foreign employees	1,343		1,185
Other current assets	2,402		4,843
	$	5,608	$	9,024

Components of Property and Equipment

Components of property and equipment as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012			December 31, 2011
Property and equipment, net:
Machinery and equipment	$	43,016		$	45,174
Furniture and fixtures	9,899			10,002
Leasehold improvements	17,689			17,759
	70,604			72,935
Less: accumulated depreciation	(62,971		)	(62,383		)
	$	7,633		$	10,552

Components of Other Current Liabilities

Components of other current liabilities as of September 30, 2012 and December 31, 2011 are shown below (in thousands):

	September 30, 2012		December 31, 2011
Other current liabilities:
Warranty	$	1,983	$	3,419
Value-added tax	900		2,073
Restructuring - short-term	1,385		1,230
Other	2,738		3,944
	$	7,006	$	10,666

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GEOGRAPHIC AND CUSTOMER CONCENTRATION INFORMATION

9 Months Ended

Sep. 30, 2012

Geographic and Customer Concentration Information [Abstract]

Geographic and Customer Concentration Information

GEOGRAPHIC AND CUSTOMER CONCENTRATION INFORMATION

We have one operating segment in which we design, manufacture and market advanced fabrication equipment for the semiconductor manufacturing industry. The authoritative guidance on segment reporting and disclosure defines operating segment as a component of an enterprise for 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. As our business is completely focused on one industry segment, the design, manufacture and marketing of advanced fabrication equipment to the semiconductor manufacturing industry, management believes that we have one reportable segment. Our net sales and profits are generated from the sales of systems and services in this one segment. For the purposes of evaluating our reportable segments, our Chief Executive Officer is the chief operating decision maker, as defined in the applicable authoritative guidance.

The following table summarizes net sales by geographic areas based on the installation locations of the systems and the location of services rendered (in thousands except percentages):

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
Net sales:
United States	$	2,034	10	$	4,959	11	$	14,279	13	$	7,782	5
Korea	3,234		16	15,507		35	46,290		44	59,028		41
Taiwan	5,972		29	8,243		18	18,002		17	31,575		22
Other Asia	7,972		39	10,235		23	18,192		17	31,078		22
Europe and others	1,186		6	6,001		13	9,023		9	13,790		10
	$	20,398	100	$	44,945	100	$	105,786	100	$	143,253	100

For the three months ended September 30, 2012, four customers accounted for 10 percent or more of our total net sales. Sales to these customer represented approximately 23 percent, 13 percent, 12 percent and 11 percent of our total net sales. For the nine months ended September 30, 2012, one customer accounted for 10 percent or more of our total net sales, representing approximately 48 percent of our total net sales.

In the three months ended October 2, 2011, three customers accounted 34 percent, 18 percent and 12 percent of our total net sales, respectively. In the nine months ended October 2, 2011, two customers accounted for10 percent or more of our total net sales, representing 38 percent and 10 percent of our total net sales , respectively.

At September 30, 2012, three customers accounted for 10 percent or more of our total net accounts receivable, representing approximately 34 percent, 18 percent and 18 percent of our total net accounts receivable, respectively. At December 31, 2011, three customers accounted for 10 percent or more of our net accounts receivable, representing approximately 48 percent, 15 percent and 13 percent of our total net accounts receivable, respectively.

Geographical information relating to our property and equipment, net, as of September 30, 2012 and December 31, 2011 was as follows (in thousands):

	September 30, 2012		December 31, 2011
Property and equipment, net:
United States	$	4,238	$	5,306
Germany	2,729		2,396
Canada	200		2,281
Others	466		569
	$	7,633	$	10,552

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EMPLOYEE STOCK PLANS

9 Months Ended

Sep. 30, 2012

Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]

Employee Stock Plans

EMPLOYEE STOCK PLANS

On May 10, 2012, our shareholders approved our 2012 Equity Incentive Plan (the "2012 Plan"), which amended and restated the 2005 Equity Incentive Plan to increase our common stock available for grant under the plan by 2.5 million shares.

Stock Options

Options to purchase common stock granted under the 2012 Plan generally have terms not exceeding seven years. Options to purchase stock under our equity incentive plans are generally granted at exercise prices that are at least 100 percent of the fair market value of our common stock on the date of grant. Generally, 25 percent of the options vest on the first anniversary of the vesting commencement date, and the remaining options vest 1/36 per month for the next 36 months thereafter.

The following table summarizes the stock option activity under all of our equity incentive plans for the nine months ended September 30, 2012:

	Number of Shares		Weighted- Average Exercise Price		Weighted Average Remaining Term	Aggregated Intrinsic Value
	(thousands)				(years)	(thousands)
Outstanding at December 31, 2011	6,489		$	4.37
Granted	1,385		$	2.61
Exercised	(165	)	$	1.06
Canceled or forfeited	(1,029	)	$	4.79
Outstanding at September 30, 2012	6,680		$	4.02	3.7	$	137
Vested and expected to vest at September 30, 2012	6,242		$	4.14	3.6	$	134
Exercisable at September 30, 2012	4,149		$	4.98	2.5	$	120

The aggregate intrinsic value represents the pre-tax differences between the exercise price of stock options and the quoted market price of our stock on September 30, 2012 and October 2, 2011, respectively, for all in-the-money options. There were approximately 0.6 million shares of common stock subject to in-the-money options that were exercisable as of September 30, 2012.

The following table provides information pertaining to our stock options for the nine months ended September 30, 2012 and October 2, 2011 (in thousands, except weighted-average fair values):

	Nine Months Ended
	September 30, 2012		October 2, 2011
Weighted-average fair value of options granted	$	1.67	$	1.46
Intrinsic value of options exercised	$	203	$	86
Cash received from options exercised	$	175	$	58

Restricted Stock Units

The 2012 Plan provides for grants of time-based and performance-based restricted stock units ("RSUs").

Time-Based Restricted Stock Units

Generally, 25 percent of the time-based RSUs vest on each anniversary of the vesting commencement date or date of grant. On occasion, we grant time-based RSUs for varying purposes with different vesting schedules. Time-based RSUs granted under the 2012 Plan are counted against the total number of shares of common stock available for grant under the plan at 1.75 shares of common stock for every one share of common stock subject thereto.

The associated stock-based compensation expense on time-based RSUs is determined based on the fair value of our common stock on the date of grant of the RSU and recognized over the vesting period.

Performance-Based Restricted Stock Units

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

As of December 31, 2011, we had 0.2 million performance-based RSUs outstanding. All of the performance-based RSUs expired during the first quarter of 2012. We did not record any compensation expense related to these performance-based RSUs during the three and nine months ended September 30, 2012 and October 2, 2011 since the performance targets were not expected to be met.

The following table summarizes RSU activity under all of our equity incentive plans for the nine months ended September 30, 2012:

	Number of Shares		Weighted Average Grant Date Fair Value
	(thousands)
Outstanding at December 31, 2011	246		$	3.50
Granted	30		0.88
Released	(15	)	$	5.68
Expired	(229	)	$	3.32
Outstanding at September 30, 2012	32		$	1.30

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

We account for stock-based compensation in accordance with the applicable authoritative guidance, which requires the measurement of stock-based compensation on the date of grant based on the fair value of the award, and the recognition of the expense over the requisite service period for the employee. Compensation related to restricted stock units is the intrinsic value on the date of grant, which is the closing price of our common stock less the employee exercise price, if any. Compensation related to stock options is determined using a stock option valuation model.

Valuation Assumptions

We use the Black-Scholes valuation model to determine the fair value of stock options. The Black-Scholes model requires the input of highly subjective assumptions, which are summarized in the table below for the three and nine months ended September 30, 2012 and October 2, 2011:

	Three Months Ended		Nine Months Ended
	September 30, 2012	October 2, 2011	September 30, 2012	October 2, 2011
Expected dividend yield	—	—	—	—
Expected stock price volatility	81%	78%	81%	77%
Risk-free interest rate	0.7%	1.1%	0.8%	2.0%
Expected life of options in years	5	5	5	5

We estimate the expected life of options based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life of the option. Expected volatility is based on the historical volatility of our common stock; and the risk-free interest rate is the rate on a U.S. Treasury Bill, with a maturity approximating the expected life of the option. We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, the expected dividend yield is zero.

Our stock-based compensation for the three and nine months ended September 30, 2012 and October 2, 2011 was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011
Stock-based compensation by type of award:
Stock options	$	365	$	443	$	1,091	$	1,763
Restricted stock units	1		24		22		92
Employee stock purchase plan	5		5		15		20
	$	371	$	472	$	1,128	$	1,875
Stock-based compensation by category of expense:
Cost of sales	$	17	$	13	$	49	$	69
Research, development and engineering	68		62		215		303
Selling, general and administrative	286		397		864		1,503
	$	371	$	472	$	1,128	$	1,875

We did not capitalize any stock-based compensation as inventory in the three and nine months ended September 30, 2012 and October 2, 2011, as such amounts were immaterial. As of September 30, 2012, we had $2.8 million in unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock options which will be recognized over a weighted-average period of 2.7 years.

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INCOME TAXES

9 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

On a quarterly basis, we record our income tax expense or benefit based on our year-to-date results and expected results for the remainder of the year.

We recorded an income tax benefit of $0.1 million and an income tax provision of $0.2 million for the three and nine months ended September 30, 2012, respectively. We recorded a $0.2 million income tax provision for each of the three and nine months ended October 2, 2011, respectively. The net tax provision for three and nine months ended September 30, 2012 and October 2, 2011 is the result of the mix of profits earned by us, in tax jurisdictions with a broad range of income tax rates. The $0.2 million tax provision for the nine months ended September 30, 2012 includes a $0.2 million tax benefit related to the release of uncertain tax benefits due to a lapse of the statute of limitations. The $0.2 million tax provision for the nine months ended October 2, 2011 includes a $0.4 million tax benefit related to the release of uncertain tax benefits due to a lapse of the statute of limitations.

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FAIR VALUE - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) (Fair Value, Measurements, Recurring, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Inputs, Level 1
Assets measured at fair value:
Other assets - Equity instruments	$ 44	$ 168
Total assets measured at fair value	13,083	13,207
Liabilities measured at fair value:
Other liabilities - Deferred compensation	44	168
Total liabilities measured at fair value	44	168
Fair Value, Inputs, Level 1 | Money Market Funds
Assets measured at fair value:
Cash equivalents - Money market funds	13,039	13,039
Fair Value Disclosure, Total
Assets measured at fair value:
Other assets - Equity instruments	44	168
Total assets measured at fair value	13,083	13,207
Liabilities measured at fair value:
Other liabilities - Deferred compensation	44	168
Total liabilities measured at fair value	44	168
Fair Value Disclosure, Total | Money Market Funds
Assets measured at fair value:
Cash equivalents - Money market funds	$ 13,039	$ 13,039

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NET LOSS PER SHARE (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Weighted Average Number of Shares Outstanding Reconciliation
Weighted-average common shares outstanding - basic	58,586,000	58,224,000	58,504,000	54,324,000
Weighted-average common shares outstanding - diluted	58,586,000	58,224,000	58,504,000	54,324,000
Stock Options and Restricted Stock Units
Schedule of Earnings Per Share [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments, Outstanding, Number	6,700,000	7,200,000	6,700,000	7,200,000
Weighted Average Number of Shares Outstanding Reconciliation
Anti-dilutive shares			6,700,000	7,200,000
Stock Options and Restricted Stock Units
Weighted Average Number of Shares Outstanding Reconciliation
Effect of diluted potential common shares from stock options and restricted stock units	0	0	0	0

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INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2012

Intangible Assets, Net (Excluding Goodwill) [Abstract]

Identified Intangible Assets

Identified intangible assets consisted of the following as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012			December 31, 2011
Intangibles, net:
Developed technology	$	1,250		$	1,250
Accumulated amortization	(687		)	(500		)
	$	563		$	750

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GEOGRAPHIC AND CUSTOMER CONCENTRATION INFORMATION (Tables)

9 Months Ended

Sep. 30, 2012

Geographic and Customer Concentration Information [Abstract]

Summary of Net Sales by Geographic Area

The following table summarizes net sales by geographic areas based on the installation locations of the systems and the location of services rendered (in thousands except percentages):

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
Net sales:
United States	$	2,034	10	$	4,959	11	$	14,279	13	$	7,782	5
Korea	3,234		16	15,507		35	46,290		44	59,028		41
Taiwan	5,972		29	8,243		18	18,002		17	31,575		22
Other Asia	7,972		39	10,235		23	18,192		17	31,078		22
Europe and others	1,186		6	6,001		13	9,023		9	13,790		10
	$	20,398	100	$	44,945	100	$	105,786	100	$	143,253	100

Summary of Geographic Information Relating to Property and Equipment

Geographical information relating to our property and equipment, net, as of September 30, 2012 and December 31, 2011 was as follows (in thousands):

	September 30, 2012		December 31, 2011
Property and equipment, net:
United States	$	4,238	$	5,306
Germany	2,729		2,396
Canada	200		2,281
Others	466		569
	$	7,633	$	10,552

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GEOGRAPHIC AND CUSTOMER CONCENTRATION INFORMATION - Property and Equipment by Geographic Area (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net	$ 7,633	$ 10,552
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net	4,238	5,306
Germany
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net	2,729	2,396
Canada
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net	200	2,281
Others
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net	$ 466	$ 569

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EMPLOYEE STOCK PLANS - Equity Incentive Plan (Details) In Millions, unless otherwise specified	9 Months Ended	1 Months Ended	9 Months Ended
	Sep. 30, 2012	May 31, 2012 2012 Equity Incentive Plan	Sep. 30, 2012 2012 Equity Incentive Plan Stock Options	Sep. 30, 2012 2012 Equity Incentive Plan Stock Options Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares of additional common stock approved		2.5
Award terms				7 years
Exercise price, as a percent of fair market value of common stock on grant date			100.00%
Options Vested on the First Anniversary, Vesting Percentage	25.00%		25.00%
Award Ratable Vesting Percentage			2.78%
Award Ratable Vesting Period			36 months

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Accounts receivable allowance for doubtful accounts	$ 543	$ 684
Stockholders' equity:
Preferred stock, shares authorized	2,000	2,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value per share	$ 0.001	$ 0.001
Common stock, shares authorized	120,000	120,000
Common stock, shares issued	62,779	62,547
Common stock, shares outstanding	58,599	58,366
Treasury stock, shares	4,181	4,181

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INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2012

Intangible Assets, Net (Excluding Goodwill) [Abstract]

Intangible Assets

INTANGIBLE ASSETS

Identified intangible assets consisted of the following as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012			December 31, 2011
Intangibles, net:
Developed technology	$	1,250		$	1,250
Accumulated amortization	(687		)	(500		)
	$	563		$	750

Amortization expense for intangibles was $0.1 million for each of the three months ended September 30, 2012 and October 2, 2011. Amortization expense for intangibles was $0.2 million for each of the nine months ended September 30, 2012 and October 2, 2011.

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NET LOSS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Summary of Incremental Shares of Common Stock from Potentially Dilutive Securities

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

	Three Months Ended		Nine Months Ended
	September 30, 2012	October 2, 2011	September 30, 2012	October 2, 2011
Weighted-average common shares outstanding - basic	58,586	58,224	58,504	54,324
Effect of diluted potential common shares from stock options and restricted stock units	—	—	—	—
Weighted-average common shares outstanding - diluted	58,586	58,224	58,504	54,324

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COMMITMENTS AND CONTINGENCIES - Summary of Product Warranty Accrual (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Commitments and Contingencies Disclosure [Abstract]
Length of Product Warranty			12 months
Movement in Product Warranty, Increase (Decrease) [Roll Forward]
Beginning balance	$ 2,915	$ 4,085	$ 3,419	$ 2,539
Warranties Issued in the period	293	753	1,899	2,830
Costs to service warranties	(961)	(881)	(3,396)	(2,491)
Warranty accrual adjustments	(264)	(251)	61	828
Ending balance	$ 1,983	$ 3,706	$ 1,983	$ 3,706

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are shown in the table below by their corresponding balance sheet caption and consisted of the following types of instruments as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012				December 31, 2011
	Fair Value Measurements at Reporting Date Using				Fair Value Measurements at Reporting Date Using
	(Level 1)		Total		(Level 1)		Total
Assets measured at fair value:
Cash equivalents:
Money market funds	$	13,039	$	13,039	$	13,039	$	13,039
Other assets:
Equity instruments	44		44		168		168
Total assets measured at fair value	$	13,083	$	13,083	$	13,207	$	13,207
Liabilities measured at fair value:
Other liabilities:
Other long-term liabilities	$	44	$	44	$	168	$	168
Total liabilities measured at fair value	$	44	$	44	$	168	$	168