May 30, 2006 – Credence Systems Corp. said it will discontinue development of its Kalos 2 flash memory test systems following a decision from “a major IDM” to decrease capital spending, although it will continue to support current users of the product. The company said it had enjoyed increased demand for higher-margin consumer mixed-signal and wireless products to meet its revenue guidance in its second quarter, but results were dragged down by Kalos 2 inventories. “By placing more resources on our digital and mixed-signal business the Company can accelerate development programs more effectively to compete in the emerging consumer-mobile market,” stated John Batty, Credence CFO.

Revenues and bookings slowed vs. competitive peers Teradyne and LTX, noted Bill Ong, American Technology Research analyst, in a note to clients, and Credence’s SoC business appears to be losing share. But “the larger setback is a customer’s cancellation of the flash tester program, which is subsequently leading CMOS to shut down its memory tester business,” he stated, as he reduced yearly earnings estimates and downgraded his outlook on the stock. “We believe this setback impacts the long-term growth direction for the company and limits the growth potential for the firm.”

Credence said it will take an estimated charge of $12-$14 million associated with a shift of resources away from the memory product development, which will include employee severance and contract terminations, as well as inventory writeoffs. The company projects 3Q06 net sales will be slightly higher than 2Q, at about $125-$129 million, with a loss per share reduced from $0.14 to a range of $0.09-$0.11.