Miri Segal - Hayden IR Eitan Oppenhaim - President and Chief Executive Officer Dror David - Chief Financial Officer.

Edwin Mok - Needham & Company Patrick Ho - Stifel Nicolaus Josh Baribeau - Canaccord Graham Tanaka - Tanaka Capital Keith Maher - Singular Research Tom Diffely - D.A. Davidson.

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Nova Measuring Instruments Limited First Quarter 2014 Results Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions) I would now like to turn the call over to Miri Segal of Hayden IR. Please go ahead, ma’am..

Thank you, operator, and good day to everybody. I would like to welcome all of you to Nova Measuring Instruments first quarter 2014 financial results conference call and presentation. With us on the line today are Mr. Eitan Oppenhaim, President and CEO, and Mr. Dror David, CFO.

I’d like to draw your attention to the presentation that accompanies today’s call. The presentation can be accessed and downloaded from the link on Nova’s website at www.novameasuring.com in the Investor Relations section.

Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements and the Safe Harbor statement outlined in today’s earnings release also pertains to this call.

If you have not received a copy of the release, please review it in the Investor Relations or News section of the company’s website. Eitan will begin the call with a business update, followed by Dror with an overview of the financials. We will then open the call for the question-and-answer session. I will now hand over the call to Mr.

Eitan Oppenhaim, Nova’s President and CEO. Eitan, please go ahead..

Thank you, Miri. Hello everyone and thank you for joining our first quarter 2014 financial results conference. I will start today’s call by addressing our results and our performance highlights for the quarter.

I will then provide a brief commentary on industry trends as they relate to us and then I will provide the guidance for the second quarter of 2014. Following my commentary, Dror will review the quarterly financial results in detail. For those who are following the presentation, please proceed to Slide #3.

Following our growth initiatives along with operational efficiencies, we performed very well and had another strong quarter to kick off 2014. We posted record revenue for the first quarter reaching the high end of our quarterly revenue guidance due to strong demand for our Optical Metrology solutions during the quarter.

We posted quarterly revenue of $34.7 million, along with $6.9 million or $0.25 per diluted share in non-GAAP net income exceeding our profitability guidance. This quarter’s results are well within our long-term operating model.

We had a great start for the year with well-executed plan to initiate growth with our main product lines and within our leading customers.

The industry challenging transition continued to introduce more complicated metrology requirements which we believe will give us the opportunity to grow our advanced portfolio that is best certain to deal with this transition. Our customers recognize our value and during the quarter we saw more opportunities to increase our market share.

As a result, during the first quarter, we experienced growth in demand for both our integrated and standalone tools, where revenues from our standalone tools were at record high level.

With more than 25% of our orders to be delivered to the 1x technology node compared with 20% a quarter ago, we continue to be involved in several 10-nanometer evaluations with major customers, which is well in line with our strategy to partner with our customers early on with development stages in order to better exceed them in their initial development of new products of the high volume production later on.

Our initiatives to strengthen our position in the industry are clearly paying off as evidenced by Gartner’s most recent published figures. In 2013, we grew our share in the Optical Metrology segment by 5% securing us with the numbers key position in this segment.

We believe that this achievement demonstrates our value proposition on these progressive relationships with our customers. While we keep investing significant amount of resources in order to continue broadening our technical leadership and increasing our market share, we also demonstrated our solid operational efficiency with operating profit of 18%.

This allows us to increase our net income and accumulate significant amount of sales. Our cash reserves by the end of the quarter increased to $113 million. As part of our strategic plan and in order to optimize our shareholders’ value, we announced this quarter for the first time a share repurchase program of $12 million.

Although our customers are facing technology challenges to ramp up and improve yields in their most advanced FinFET and V-NAND nodes, we expect that technology transition to advanced nodes will continue intensively in 2014 and beyond.

Cost complexity and technical barriers associated with ramping up that complex node will continue to grow and invest the potential of optical metrology as the unique enabler for this transition. We are confident that Nova is well positioned to benefit from this. Let me now chime some light on our portfolio performance during the quarter.

We continued with recent deliveries in 20 nanometer production line with several foundry customers as well as incremental deliveries in 16 nanometer and 14 nanometer pilot and with production lines. We also continued to deliver digital to 28 nanometer production lines following strong market demand for these devices.

These leading customers are starting to develop their next technology node, we are also deeply enrolled in several 10 nanometer evaluation to be concluded in the next coming quarters. We are well positioned today with our advanced portfolio in the foundry segment.

Our T600 standalone OCD tool is adopted by all major foundries in all technology nodes below 28 nanometer. We can proudly say today with our cumulative experience in FinFET solution which involves advanced metrology measurement and verified specs is well recognized by our customers when they decide on their next generation tool set.

Following that quarter announcement with major – we delivered significant amount of silicon with 20 nanometer processor we can relay today with the systems are well expected for production and now recognize this part of our work.

We have demonstrated during the last six months that we have the second (indiscernible) technician method we smoothly ramp up the T600 standalone tool in the most advanced nodes and to become the tool of record in a short cycle time. Our i500 integrated metrology tools are likely exposed in both memory and foundry customers.

During the first quarter we saw incremental growth in tools deliveries to both flash DRAMs and foundry customers.

Since the recent technical transition with many process challenges of a much more complicated structures we see increasing demand to measure CDs and pin thickness closer to the process in order to identify wafer to wafer liabilities and as a result the demand for these tools is growing.

In addition to our growing position in foundry we are currently involved in several memory V-NAND evaluations.

Although our customers are investing intensively to commercialize their V-NAND structures we are still facing challenges in scaling the device with different complex issues are mainly around the position in the next quarter or two which also presents majority challenges but the legal security for us.

We are also in the final stages of our evaluation with our major leading memory customers for whose silicons we are processing with our V2600 systems. And we are in continuous evaluations with others. Beyond the hardware offering our revenue mix this quarter included also several software orders.

We received the first order of the hybrid metrology software solution during the period and also received additional orders from municipal customers for the fleet management solution. This stream of software orders is expected to continue throughout 2014.

Let me now turn to a brief commentary on the current market environment and our view for the remainder of 2014.

In general, while our visibility is limited beyond the near-term, we continue to see our customers investing intensively to keep improving their yields and device performance especially in the most challenging environment the industry ever faced with the transition to the 3D scaling.

Although there are still technical challenges in commercializing these devices, we are certain that this project will continue intensively over the course of 2014 and 2015.

Following extensive tool delivery in the last quarter and keep our customers need to digest capacity and improve yields, in the near-term, we expect some fluctuation with the investment in the next few quarters.

In the foundry space, investments are being led by our largest customer, along with increasing revenue and strong demand for 28-nanometer device, the customers continued ramping in 20-nanometer production line following extensive tool delivery in the last few quarters.

As there are still challenges in transitioning to this node (indiscernible) learning if necessary before moving to the next investment, which we believe can still take place in the second half from our experience with leading customers had the same investment in the previous technology node during the last two years.

Additionally, we are targeting stated by this customer its CapEx plan for 2014 stays firm. We still believe this announcement demonstrates the 2014 investment plan for this leading foundry to remain intact with the flexibility to invest either in 20-nanometer expansion or 16-nanometer ramp.

The main issue for us in the second half will be again as in 2013, the timing of receiving the orders and new time to deliver. That said, we learned over the last few quarters to adjust our operation to be efficient enough to deliver systems with short lead times to accommodate this customer’s requirements.

Beyond the leading foundry customer, we do see continued investment by other foundries in 28-nanometer as well as 20-nanometer and 14-nanometer. We still believe that, investments in 16-nanometer and 14-nanometer FinFET node is still past during the second half of 2014 and it all depends on our customers’ customers buying decision.

In the memory space, we are consistent with our previous messages, but we do see various capacity expansions and more conversion. In flash, we saw the incremental capacity additions in 2x and 1x planar gate with this revolving on suppliers, then you contribute their initial products for basic applications towards the end of 2014.

All the leading memory players have aggressive plans to introduce cost effective advanced V-NAND devices for more applications only during 2015, which we believe will be the starting point for significant V-NAND ramp up.

From technical point of view, we see increasing technical challenges in expanding vertically the V-NAND device, the uncertain amount of players, the main challenges of still the ability for this multi-layer start in high aspect ratio with volume this year.

Due to the increasing challenges that our customers are facing, some of them are still debating the transition for the vertical gate. So we are starting to see the efforts to introduce another scale of planar gate in 1x before moving to V-NAND.

Since V-NAND ramp up, it happened probably in 2015, which allow us to keep introducing new metrology products to better support memory customers. As for the DRAM, the combination of tight supply and the right pricing scheme for the mobile DRAM devices to keep driving investments for additional capacity conversion in 2014.

In summary, we believe that the market for the end-user application remain solid. And the customers are committed to maintain investments effort and resources to continue introducing advanced 3D devices in the near future.

The challenges our customers are facing represents – sorry, do present some uncertainty as for the timing of continuous investment in the second half.

However, given the competitive scenarios in the FinFET space, the pressure on buying this vision, public companies are facing a long return on incremental growth for memory which we believe with our initial projection of WSP increase of around 10% in 2014 is still valid.

We support our optimism that Nova should be able to perform well in this environment.

Finally, with growing investments in advanced technology node the complex structure that has reduced increased complexity and new challenges, scaling and technology progress are connected with sales in order to improve the cost profile and deliver competitive advantage.

These fundamental elements create favorable market condition for metrology growth, where more process steps are needed. New novel materials are introduced and innovative structure and packaging solutions are incorporated.

We’re confident that Nova is well positioned to benefit fundamentally favorable – sorry from the metrology favorable environment with our advanced holistic portfolio combining hardware and software solutions with both our current generation and next generation product line. Now I’d like to share with you our guidance for the second quarter of 2014.

Revenues will be in the range of $32 million to $34.5 million, dilutive EPS on a GAAP basis will be at the range of $0.15 to $0.20 and on a non-GAAP basis EPS will be at the range of $0.16 to $0.22 per share. At this point I’d like to turn the call over to Dror who will review our financial results in detail..

Thanks, Eitan, and good day everyone. We move to Slide 8. Total revenues in the quarter were at record level of $34.7 million and be at the high end of our guidance driven by market share gain and higher spending from foundry.

It is important to note and practically all the incremental revenues over the previous quarter resulted from a major market share win with the latest T600 standalone product. The company announced this market share win at the end of 2013 and the implication of this business progress is now evident in the company’s revenues.

It is also important to note that the 12 months trailing revenues of the company is now $190 million and second quarter guidance implies another step function in 12 months trailing revenues towards the $125 million. Product bookings continue to be strong in foundries which represented approximately 80% of total bookings in the quarter.

Following some recovery in the memory segments bookings from memory increased from an average of 10% in calendar year 2013 with 1% in the first quarter of 2013. Geographically 75% of the bookings in the first quarter came from Asia-Pacific and the rest from the U.S. and Europe.

Product gross margins came in at 66% lower than expected mainly due to the fact that the incremental market share gain and related revenues carried lower gross margins at the initial penetration phase. Services gross margin increased to normalized levels of 30% following an increase in revenues from contracts in time and materials in the quarter.

All these elements put together resulted in blended gross margin of 51% in the first quarter of the year. It is important to note again that we expect to continue to fix fluctuations in quarterly blended gross margin mainly as a result of fluctuations in the product mix which now have higher portion of new products including software.

On an annual basis we expect to be within our target model of 52% to 55%. In the second quarter of 2014 we expect improvements in blended gross margins and our guidance for the second quarter assume blended gross margins of around 53%.

Operating expenses in the first quarter came in at $11.4 million lower than expected, as previously communicated, the main fluctuations in operating expenses related to the level of R&D expenditures in a specific order. In 2014 our R&D plans include intake of prototype related to the development of several new products.

The exact delivery timing of these product types can vary based on the projects timeline and launch time. As a result we will continue to see fluctuations in R&D expenditures quarter-over-quarter.

For the first quarter of the year we experienced higher than average income from the optical (indiscernible) which offsets the stable R&D (costs) in the quarter. In Thailand as expected we experienced a one-time step function in sales and marketing expenses reflecting the company’s extensive customer facing activities.

These activities are important in order to capitalize on the continued R&D investments and diversified product portfolio. For the second quarter of 2014, we expect total operating expenses to increase to around $12.7 million with possible fluctuations related mainly to R&D expense level. Operating margins in the quarter were 18%.

This profitability level clearly demonstrated the significant leverage built into the company’s business model which targets operating margins of 17% to 20%.

Tax expenses in the first quarter of 2014 decrease to $0.1 million and we started utilizing certain government incentive programs in Israel which provides the newer tax rate in the first two taxable years. GAAP net income in the quarter was $6.4 million or $0.23 per diluted share based on the share count of 27.9 million shares.

Non-GAAP net income in the quarter was $6.9 million or $0.25 per diluted share, $0.02 higher than the upper range of the company’s first quarter guidance. Moving into balance sheet key metrics, accounts receivable significantly decreased in the quarter to $22 million despite the fact that revenues increased by 15% in the same quarter.

As we said in the December quarter conference call in the first quarter of 2014 we have included the collection of previously granted standard payment terms with major customers. As a result DSOs declined to 65 days. Looking forward we expect DSOs to remain at a healthy level of below 70 days.

Meanwhile inventories in the first quarter increased to $19 million and the company continues to align its supply chain to support the high level of business activities that we are experiencing.

The company continues to be very effective in managing inventories as evidenced in the inventory turns which were higher than three times the year in recent quarters. Capital investments were $0.6 million during the quarter and depreciation expenses were $0.9 million.

And we concluded these cash reserves which increased to a record level of $113 million following record free cash flow of $12 million in the first quarter of 2014.

We expect to continue to generate positive cash flow in the second quarter of the year (indiscernible) we announced a $12 million share repurchase program which we can start executing shortly following the conference call. With that I will move the call back to Eitan.

Eitan?.

Thank you, Dror. Before I open to the Q&A session, I would like to add that we are extremely pleased with our first quarter results and the progress we are making in achieving our key business goals that will allow us to keep growing in the next coming years. With that we will pleased to take your questions..

Thank you, sir. (Operator Instructions) Our first question comes from the line of Edwin Mok with Needham & Company. Please go ahead..

Hi. Thanks. Congratulations for a good quarter and decent guidance, so first I guess a question on the foundry front and you mentioned – by the way thanks for all the color that you provided and improved (indiscernible) helpful there.

So you mentioned that you see customer continued to actually spend for the foundry area, there is some timing issue related to investments for 16 nanometer or 14 nanometer but we are spending will continue, that’s good information.

Question actually is to the extent that customer decided to invest more in 20 nanometer and 16 nanometer, what impact it could have on your business, I understand from your previous commentary that 16 nanometer or 14 nanometer would have higher OCD intensity. Would that have an impact on your business? That’s my first question.

And second question I guess though I talk a little bit about your market share position beyond your first large customer and if you can provide any color on? That would be helpful..

Yes. So, thanks Edwin now. There are two questions. And I will talk about the first one regarding the metrology or the optical metrology intensity we are definitely seeing different intensity between memory and foundry and even in the memory surface, in addition to intensity between our operations hereon.

So, looking right now on the foundry space, because of the complexity of the FinFET devices and because of the complexity of the (indiscernible) design, we have seen more in the quality intensity in the foundry. And I said before the range can increase up to 20% and 25% in the advanced node for foundry.

If we are looking right now in memory, the intensity was less and roughly said before it’s around 1% in memory, where DRAM is a little bit more and flash is a little bit less. So this is the intensity and those numbers, when I am talking about those numbers, those are the transition between 20-nanometer through 14-nanometer and 16-nanometer.

So, leading to first question, regarding the market share as we have said in this during the last quarter actually, we started to get market share with our leading customer for the (indiscernible), which qualified us as I said in the comments we have to accept the system as the BKM for both 20-nanometer and 16-nanometer.

Actually what started is the 20-nanometer market share in these leading customers are actually becoming right now also 16-nanometer market share. And if you remember I am saying all the time that those movements from one technology node to another is so complex, so changing metrology vendors in between is very difficult to them.

So this is regarding the market share. There are other market shares that we are working on gaining I will not share it in this conference cal, so we cannot share..

Okay, great. That’s very helpful. With regard to the memory areas right, we have heard about the investment in V-NAND and I think you talk about TSC memory, right.

I am just curious I think for V-NAND we have heard quite a few people talking about your push out to 2015, right? And maybe some incrementally that’s in planar right, but just wondering how that could impact your business in the second half? And then regarding this TSC that you mentioned on the call is that just too in the developmental stage where you see that go into production in the second half this year, 2015, any timeframe you can provide on that?.

First of all, because in the remarks, the technical challenges are those customers that have been moving to the V-NAND, which most fleets they are on the edge into the position, because we need to build a very high aspect ratio designed with the multi-layers and multi-materials.

The major elements in edge devices obviously will be – of these devices becoming extremely difficult. And nevertheless even if you are being able to do 24 layers or 32 layers, keep moving to the next step of 60 or later on 100 in those layers, most of the applications on neither right now in the market is extremely difficult.

And therefore, we were consistent with our message along the last few quarters that we delivered all customers we introduced their initial devices this year, but we are still that the ramp will start somewhere in 2015, by the way part of them would start ramp only in the second half of 2015.

We have four players each one of them, we are doing something differently.

We do see the part in one of the study in the Korean customers, but having the (indiscernible) in China, but if we are looking on that, there are two things, one it will allow us to introduce more products into those memory customers and will give us more time to gain market share over there.

We have still been on the evaluation that we are currently conducting in a very unique technology way. And I think that we will be able to leave those in the next two or three quarters.

Secondly, now that you can see from this quarter, only 20% of our revenue is exposed from the memory, but for us there would be questions of the upside and the continued growth in the second half with foundry. And over there we’re pretty optimistic about the ability to spin the new investments in the FinFET in the next two quarters.

So and I remind you also headwinds that every year we see the same phenomena that the living customer has to have some few months in the (disc) capacity but then you renew it immediately and we believe that we can do the same thing in 2014..

Great. Question for Dror on the gross margin I hear you about the new product or ramping a new customer. But I felt you guys have some software sales this quarter or shouldn’t that have a benefit in gross margin? And as I look at your Q2 guidance of 53%, that actually implied thus stable product gross margin.

Am I correct on that?.

Well first of all regarding the software so we did announce software orders and that keeping and coming in. However in terms of revenues actually the first two quarters include this small portion of these software revenues, we now included some but a small portion and we would see more probably towards the third quarter in revenues.

As Eitan mentioned the bookings are coming, but the timing to revenue phase, revenue we expect (11) times. In terms of the gross margin in product for the next quarter we do expect improvement there, this quarter it was around 56% next quarter we expect it to be closer or within the target model of product gross margin which is 58% to 60%..

Great, fair, valuable. And lastly and I’ll go away, on the operating expense you’re guiding Op based on this increased R&D expenses.

Is that the one-time pickup because of some project timing or is it – is this $12.7 million level, how we should think about OpEx going forward?.

Yes. So this quarter was right I would say a special in terms of the level of operating expenses, we do not expect them to be at that level looking forward. So I would say that a level of between $12.5 million and $13 million is more or less the level that we should see looking forward as stated few quarters ago..

Great. That’s all I have. Thanks..

Thank you. And our next question is from Patrick Ho with Stifel Nicolaus. Please go ahead..

Thank you very much. Eitan, maybe first in terms of some of the commentary you made about the 16 and 14-nanometer FinFET transitioned.

From your discussions with customers as they begin to a transition to this, do you see maybe the delays or kind of maybe not push-outs but just the timing of it? Is it the yield challenges that they continue to experience or is it market demand that’s kind of holding it up at this point?.

I think first we get – I think I’ll open the – with your permission the answer is growth is zero and I’ll talk a little bit about the foundry in the second half is that and how I see that.

I think at first why I’m a little bit optimistic on the foundry is first because we’re in a very tight corporation with the customers and we see the amount of effort that are invested in order to improve the qualification of the FinFET devices and I think that most of the technical challenges as I see that we overcome and right now in my mind it’s a new vision, okay.

So still there are technical elements that they need to store, it’s not easy, it’s a very complicated device, but I think that at the end of the day I see more new vision. Now having – saying that we know we have two customers that are doing 16 and 14 and the picture is different in each one of them.

Second thing is if I’m looking right now on the end user application market or the mobile market is still solid. So I think that saying – that the demand for these devices is still in the market. I think also the competition between the foundry supplier is becoming really fierce.

Actually in the second half of the year we will be able to see who is going to be the second FinFET provider and after this statement all of the foundries are running.

And the 14 is the published decision, I think that the published decision is a major element here and I think as we keep on sales the big published companies switching all those three vendors to continue and rent their 14 and 16-nanometer.

And if you are looking right now on the foundry segment what happened in the last few quarters actually we have the leading foundry which actually doesn’t have only extensive, it has also 28 nanometer that we have some premium because we are holding 80% of the market is going to (indiscernible) and we will say they will probably we will be the biggest one.

So in my mind the decision of the NP200 is not only technical, this is one. Second, this customer is not looking always the only on the other foundries, but he is looking also on this IDM, which is becoming his competitor. And this guy (indiscernible) FinFET for the last two year so he is really – we need really to come and speak as soon as possible.

And so this is regarding the first group, the second group is reflected in the third foundry is just that if you are looking to their announcement they have together four product lines to ramping FinFET live, so we have one in Korea, one in the U.S., one which is they are doing together in (indiscernible) and one which will be done by the other foundries.

So you spoke what that kind of investment.

One of them this past – in the second half and then with everything right now in order to be in the market before the first one because with the business decision that they have do in FinFET decided that we are always talking about the leading foundry but we do see increasing the capacity both in 28 nanometer and 20 nanometer not only by the leading foundries.

And the third one which is older foundry, which is still investing in 28 nanometer. So if I am looking right now firm like this one, I do believe that from the four we are looking right now in the market (indiscernible) into the year this will be – for me it will sensible to say that we can see upside in FinFET in the next eight months.

And I do believe exactly like referenced in 2013 the vendors will have to shorten their lead times and they will have to adjust to short lead times in order to do some win in FinFET somewhere of course at the end of the year, but this is my view..

Great that’s really helpful on the color there.

Maybe if you go to the memory side for a second you mentioned that based on your most recent analysis that you see DRAM having a little more capital intensity for OCD metrology as you move to 20 nanometers, I guess a two part question what’s driving that increased capital intensity is it the user double patterning and what applications are you seeing I guess wins for you guys in terms of that transition in DRAM?.

So as you know the challenges in V-NAND and DRAM are different these days and in DRAM expected to coming from the multi-patterning, the double and quadruple-patterning that we started to seeing in various technical transitions and most of the applications are along the gate.

Okay, once we are going to advanced product value most of the challenges are coming from gate area and we see more and more applications in this area..

Great. Thank you very much..

Thank you. And our next question is from the line Josh Baribeau with Canaccord. Please go ahead..

Hi. Thanks.

Back to foundry obviously you are seeing yield issues as people are trying to migrate to next node, in your opinion are these opportunities for maybe more share, asked maybe different – asked a different way are the yield issues something that maybe OCD concerned or are they in other areas where you are not – where you don’t play?.

It’s a very good question Josh and I am happy that you asked that one. I am extremely - the issue, if we are looking right now on the metrology density and those development side and what’s on the pilot lines if they are doing FinFET, we actually see more metrology intensity than we saw before.

The majority of that is because when we are going through those the multi-patterning we saw that as well as building such a 3D FinFET device actually we moved for measuring something like 6 to 8 parameters before with something like more than 20 parameters right now in order to stabilize the device.

Definitely which is why I said in my commentary but those challenges actually introduces a lot of complicated measurements..

Great.

And then the increase in the memory bookings is this – and I may have missed this, is this more spending by your existing large memory customer or is this more penetration at multiple new customers?.

So, during 2013, we announced that we have new memory customers, but it will take time to ramp in this customer. So most of the incremental growth which we believe is still to come from existing customers and most of this by the way comes from internet and metrology, because we are very strong in the memory segment..

Got it.

And then this segues to my next question, could you talk about the mix between integrated and the standalone in the quarter and maybe how you see that projecting our throughout the rest of the year?.

No. In general, we do not disclose the proportion because of the competitive reasons, but what I can say and Eitan mentioned it in his prepared remarks that during the first half of 2014, standalone revenues are at record levels. And they are very close to become 50% of our revenues..

I just wanted to mention, it’s Eitan, I just want to mention something that I stated very clearly in my prepared remarks that we will see also revenue in the integrated metrology and we see growth in integrated metrology overall, because we have challenges in the integrated for edge and integrated for growth.

And therefore, customer wants to see more of our ability between wafers, before it’s going to the next topic. And many customers right now are starting to measure optical dimension measurement in the integrated itself. So, the demand for those tools, are really increasing..

Great, thank you. I will pass it on..

Thank you. And our next question is from the line of Graham Tanaka with Tanaka Capital. Please go ahead..

Hi, congratulations guys.

Just to help us out a little bit on the intensity metrology tool intensity for the different levels, the 28-nanometer, 20-nanometer, 16-nanometer, 14-nanometer and 10-nanometers, is there a way to – is there a rule of thumb or is some way you can help us get a feel for the potential market growth as you go to smaller geometry? Thanks..

Yes. So, actually what we are talking about is probably be in our presentation is we have a slideshow there. And we are saying that when moving from 28-nanometer to 20-nanometer is actually scaling. When we scale even we have challenges for the metrology intensity growth at around 15%, I am talking right now about foundry.

Then if we are going to – going to talk about memory, we can do it at less, but in foundry from 28-nanometer to 20-nanometer, we see something like 15%, once we are growing from 20-nanometer to 16-nanometer later on to 10-nanometer (indiscernible) devices the intensity can go up to 25%..

Are they similar?.

Again, no, memory is not similar at all. If you are looking right now on the memory devices – if you are looking right now on the tool as should be a gate, in the planar gate moving to the 3D gate to the vertical V-NAND, which we increased of maximum between 10% to 15%. We plan this and the challenges are totally different.

In the vertical NAND, the challenges is actually to control the Etch process, over Etch, under Etch things like that and planar is the deformity of the layers, which can be controlled with the metrology, in electrical metrology and we also think that actually we need to control their old profile of the FinFET will need to undercut, this will be material deviation in the structure itself.

Second is becoming a major issue in the FinFET devices. So therefore metrology is much higher. So foundry is much higher..

Perfect.

People have been talking about the yield difficulties and I am just wondering how difficult it is you are seeing with the foundry yields? I mean where are they now versus what it should be? And what kind of is there a way for us to understand what the return on investment or how attractive it is to employ more metrology?.

I believe taking what I said before we should expect in the advanced nodes of FinFET we will see between 20% to 25% more metrology and actually we see that.

Now every quarter that goes by we have more system over there and can understand exactly what’s going on in those technology or in 20 nanometer we know exactly how much the capacity of metrology increased.

For 16 nanometer, we are starting to see or 14 nanometer we are starting to see the increase and actually we see incremental increase once they move to the FinFET devices..

I am just wondering in terms from the customers point of view how do they look at the spend, the cost of introducing your tools versus not doing it or is it really a function if they are going to do there is question whether you use your tools or somebody else’s to improve these yeilds? Thanks..

I think if you look right now you know there all kinds of directions that maybe a memory customer can take balancing between stabilized profits with the amount of process control they made because they have less products.

I think that in the foundry space both questions are not even validate questions (indiscernible) of any metrology activity they need more, they buy more their tax rate meets both the states with actually increasing both for integrated and standalone.

And one other thing that we see more and more the optical metrology with difference in (indiscernible), we can really – the only enabler that will make this FinFET devices come into production.

We cannot do it otherwise because we start to go into a 3D dimension, we start to go to all kinds of different materials and they are only tools that can combine all those measurements and help those customers can go to – certainly with metrology..

The other thing I was curious about is you referred to the 5% gain in market share last year is that correct?.

Yes, correct..

Okay, I just was curious if you can be maybe a little more specific how you gained the share given in terms of number of customers because some penetration I just – how should we understand how you are gaining the share and what your goals are for this year and next year on market share growth? Thanks..

Well, so the major market shares that we have coming from our leading customers we announced this in the last few quarters.

Now our leading customer we are in the (indiscernible) metrology and going for 2014 we increased the market share going through other focus steps, doing other application and nicely taking market share from other competitors this was rather the big end at this point.

And those market shares are significantly because we are talking about significant demand for processors. Despite that we actually went into other customers that even new for example integrated metrology is a focus actually four of them and if you look right now on those customers right now all of them are using integrated metrology.

Actually if you are right now on the integrated metrology and the standalone tools we increased market share in both. We know we can start doing in the market without integrated metrology market share is more than 80% and its keep on increasing. So it’s coming from a variety of customers, majority coming from our leading foundry customers..

Great and so it sounds like you got further penetration or process that’s at existing customer, I am just wondering how many new customers you have been able to gain traction with say during the last 12 months and then where do you go with the next 12 months? Thanks.

Number of customers…?.

Okay. So we are looking right now two quarters ago we announced this we have new memory customers, so we believe we added a new memory customer to our installed base. This customer is working with us, is cooperating with us and I am sure that the next few investment cycles we see (indiscernible) continue as well, this is one.

Second, we are as I have said in my prepared remarks we are doing an extensive evaluation right now for agreement, an agreement with memory and as you know those customers are raising to have the license that we spoke there technical challenges and here is the issue for them to.

So we are in a V-NAND evaluation and it will take few – I hope this will take few months and we will be able to demonstrate – to penetrate in side. And beside that we are continuing with our PSV products. The PSV product was late to the market and we are competing with the incumbent provider and we have evaluation going over there.

Actually, we had this pretty wide in 2013 mainly market share in the PSV as well. Lastly, we would continue working with our leading customers, because there are currently securities that grow even with our leading customers..

Thank you very much. Congratulations..

Thank you very much..

Thank you. And our next question is from the line of Keith Maher with Singular Research. Please go ahead..

Well, I was wondering if you could talk about just the opportunity size for the software business.

And also within software, how do you price it? And is it a traditional license maintenance model or is it a subscription type model?.

Okay. Well, Keith, let me respond to that one. There are two questions. I will start first from the software production. One of the strategies that we announced something like one year ago just we would like to diversify a product keeping the software side.

We definitely said this we are not going to a different area, we just –we think has been our core technology, which is basically around the ability to convert spectrum into measurement and try to have those products, sorry those engines, those products to other applications. And what we need actually is to maintain this into three areas.

One area is what we call is management. This management has the ability to go to wherever we have, just because which can be 100 to them. And with very good run software tools, we will be able to do from the fleet and create additional measurement from additional operations by comparing the environment as we move through, which is the first product.

The second product is roughly announced as we got some orders, sorry, is the hybrid metrology, which we came the unique way that we are being able to take measurement from other tools that are not optical metrology and combined it for a better measurement, which can be the system, it can be x-ray, it can be NBIR, it can be either software we have been working on.

So it the second – this is the second area. The third area is to apply our software product as modeling engine on other expense, optical sensor that exist in the semiconductor. This is the three areas.

I can proudly say that we are holding right now orders for high-grades and fleet management, a significant amount of clients and it will continue coming in the next two quarters. Regarding the business model, the business model is exactly as other software business models. There is an entry point. There is a client price.

And later on, there is very good price on that..

Okay, yes, thanks. That was helpful..

Thank you. And our next question is from the line of Tom Diffely with D.A. Davidson. Please go ahead..

Yes, good afternoon.

So I appreciate the color you gave earlier about the OCD opportunity on a per node basis, I am curious if you can give us some insights as to what the split is or the ratio between integrated and standalone as we move to 28-nanometer to 20-nanometer and then over to the FinFET node?.

So when I talked about 25%, 20%, 25% growth, it’s actually in the remote segment. This is what we experienced. In the standalone, we probably have that we need more to make it a more complicated application and more complicated measurement, which build the process before edge, after edge, before (indiscernible). So the increase is over there as well.

In the integrated, because those we integrated are news to measure, measure (indiscernible). So taking that, currently the customers would like to have more sophisticated measurement over the integrated. So therefore we see more OCD application coming into the integrated which had to deal with that.

Having said that, which means that more integrated, because they needed more – connected to more process and they are integrated more over those two. So I can’t tell you this 25% is exactly in each one of them, but it’s roughly close to those numbers..

Okay.

When you look at your opportunities over the next couple of nodes, do you think you ultimately get more growth from integrated or from the standalone side?.

I think we get from both, but if I am looking right now on the market sharing gain that I have, I think the most growing part will be standalone..

Okay. And I apologize my connection is not great here.

So I got the earnings guidance, but I didn’t get the revenue guidance for the second quarter?.

$32 million to $34.5 million..

Okay.

And did I hear you correctly you said that you are comfortable with the 10% revenue growth for the full year?.

No, we said the wafer (indiscernible) is around 10%..

Okay, alright. Thank you very much..

Thank you..

Thank you. And our final question is from the line of Keith Maher. Please go ahead..

Yes, one quick question just on the – your stock repurchase plan, just I was wondering what the timing of that when you guys might actually start buying shares or if you started already?.

Yes. As I mentioned in the prepared remarks, I mean, that’s really we can’t relate specific buying shares or timing, but the share repurchase program was announced during the blackout period for us as a company. And this blackout period is concluding tomorrow, so we can start executing the plan right after that..

Okay, thanks..

Thank you. And I am showing no further questions. I will turn the call back to Eitan Oppenhaim for closing comments..

Thank you, operator. I would like to thank everybody for joining the call today. We appreciate your interest and your questions and we hope to see you soon in our next quarterly call. Thank you and have a good day..

Ladies and gentlemen, this concludes our call for today. Thank you for your participation. You may now disconnect..