During the quarter we made good progress on several of our strategic initiatives, including the introduction and initial acceptance of multiple 300 millimeter ZETA^® Spray Cleaning Systems configured with our ViPR™ "ashless" photoresist strip technology; the addition of new names to the growing list of customers using one or more of our flagship products; the receipt of follow-on orders from several leading semiconductor manufacturers; and the qualification of an initial MAGELLAN^® Immersion Cleaning System at another major U.S.-based semiconductor manufacturer, which resulted in a follow-on multi-unit order early in the fourth quarter of fiscal '06.

We have been very pleased with our financial performance this quarter. Details were reported in our conference call June 20 and are available. I’ll summarize briefly by saying that net orders, sales, and backlog are all up significantly.

Regarding the industry, it appears that semiconductor manufacturers have, for the most part, avoided the inventory build up that occurred during the summer and fall of 2005. In addition, many device manufacturers, particularly Flash and DRAM, are incrementally adding capacity to meet an expected increase in demand. Several industry analysts are forecasting that device manufacturers will increase their second half of calendar 2006 spending over the first half, as their factory utilization rates remain high and demand for leading-edge devices continues to increase.

Recently SIA, a leading industry research organization, updated its growth forecast for the semiconductor industry in calendar 2006 to 9.8%, from a previous estimate of 7.9%. Also, they are now predicting 2007 growth of 11%, and 2008 growth of 12% for semiconductor devices. If these growth rates occur, it bodes well for the semiconductor equipment manufacturers.

During the quarter, we introduced our new ViPR™ technology on our ZETA G3 Spray Cleaning System. This new technology eliminates the need for ashing on most implanted photoresist stripping steps. By eliminated approximately 80% of the front-end-of-line ashing steps, device manufacturers now have another mechanism for reducing surface damage, material loss, manufacture cycle time, and capital investment. The introduction of the Generation 3, or G3, platform for post-ash cleaning processes has resulted in a 30% increase in throughput, compared to our prior G2 platform used for the same applications.

We partnered with a key Asian customer to develop this technology and shipped initial ZETA systems configured with the ViPR technology capability early in the third quarter. Several of these systems were accepted during the quarter, and we anticipate follow-on orders from this and other customers in the fourth quarter. We expect that the ViPR technology will be adopted for 65- and 45-nanometer manufacturing.

In the third quarter, we gained acceptance from a new U.S.-based semiconductor manufacturer for a MAGELLAN System that shipped in the second quarter of 2006. The customer qualified the MAGELLAN System for several surface conditioning applications, leading to a multiple unit order early in the fourth quarter. We anticipate follow-on orders for our MAGELLAN System from this and other customers in the fourth quarter, as they recognize the etch uniformity, particle removal efficiency, and reduction in defects that this product offers.

During the quarter, we continued to make good progress qualifying the process capabilities of our fourth flagship product. An initial beta single-wafer wet cleaning system is scheduled to ship later this month after a successful source inspection. The product is targeted for advance single-wafer cleaning applications in both the front-end- and back-end-of-line semiconductor process flow. The introduction of this product allows us to address the fastest-growing surface conditioning market segment, and will give device manufacturers the ability to have nearly all of their surface conditioning process steps addressed by FSI.

During the quarter, we held our Knowledge Services™ Seminar Series in five U.S. regions. Our customers had an opportunity to learn about surface conditioning productivity and performance drivers for 65-nanometer and beyond at these seminars. In the past years, we utilized SEMICON West to communicate the benefits of our technology and to gain insight into our customers' future surface conditioning requirements. This year, after a very successful seminar series in Asia and Europe, we decided to roll the knowledge services seminar series out in the U.S. as an alternative to maintaining a booth at the SEMICON West trade show.

With now two quarters of sequential improvement in order, shipment, and revenue levels, and a growing total backlog and deferred revenue, I think we're heading in the right direction. The investments we made in our three flagship products and the more aggressive demo and evaluation system placement initiatives over the past few years are starting to yield the anticipated results. Our challenge over the coming year is to improve our gross margin rates, while controlling our operating costs.