Our service group continued to deliver robust performance during the quarter with gross margins of 37% despite a decline in revenues of a few percentage points. System upgrades continued to gain traction as many of our customers are looking for means to extend the lifetime of their fleet of tools, while they invest in new tools where they must.

Now let me turn to overall market trends as we see them. As mentioned in today’s press release, macroeconomic concerns are weighing on our customer spending patterns. As a result and like many in our industry, we continue to evidence a reduction in bookings during the third quarter. Capacity utilization in foundries has fallen to around 70% and inventories have remained higher than previously anticipated. DRAM continues to suffer from margin degradation and overall DRAM demand is low due to slower growth in PC sales this year. NAND Flash demand remains healthy, but at the same time, several fab expansion projects have been delayed. The transition to the below 3x nanometer technology node offers our customers an opportunity to increase average selling prices and improve on their cost structure as well as improve their technology position with their end customers. This is especially the case in the foundry segment where the pressure is mounting to extract market share away from the market leader.

At the same time, it is very difficult for many of the players to meet the yield requirements, given the relatively short development cycles they have gone through. In this state of affairs, the relative spend on process control equipment as a function of overall wafer fab equipment spending must go up. The move to such design rules implies significant changes to process methodologies and materials being used in the process and stabilizing the process with such significant changes in a short amount of time becomes very challenging. It is therefore not surprising that we expect over 70% of our revenues this year to come from that 3x nanometer technology node and below and that much of that spend is directed to the edging and CMP stuffs where many of the process challenges have come from.

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