August 10, 2006 – Lower-than-expected test capacity utilization rates and customer order pushouts have driven Credence Systems Corp., Milpitas, CA, to revise its fiscal 3Q06 guidance, and reduce its workforce by about 14% — and the company says more changes are on the way.

Fiscal 3Q06 revenues are now seen coming in at $108-$110 million, vs. $125-$128 million as earlier predicted, representing a 11%-13% decline sequentially and down 1%-3% from a year ago. The company also now expects to report a net loss in the current quarter, instead of a slight profit (not including $12-$14 million in charges). Credence posted a $14.2 million loss in fiscal 2Q06, and a $41.7 million loss in fiscal 3Q05.

Credence also said that it is reducing its workforce by approximately 14% “to better align our business model with market conditions.” The process is expected to be completed in 4Q, according to Credence president and CEO Dave Ranhoff, who indicated that there will be additional efforts to reduce operating expenses in upcoming quarters. Details will be announced during the company’s 3Q earnings call on Aug. 24.

In addition, Credence says it likely will take a material noncash charge to reduce the carrying amount of goodwill and intangible assets, which totaled approximately $511 million on its balance sheet, by approximately $300-$400 million. The company stated that normally it reviews goodwill during its fiscal 4Q, but decided to take action after seeing its share price decline during the past few weeks.

Investors hammered Credence’s stock on news of the revised guidance, sending share prices plummeting 24% by mid-day.

Credence has already been taking hits due to a slowdown in business. In May the company halted development of its next-generation Kalos flash memory test product, after losing business from Intel.

In a research note, Bill Ong, analyst with American Technology Research, lowered EPS estimates for 2006 and 2007, on both a weak revenue outlook and declining margins. “Cash burn is likely to occur over the next several quarters, with limited business and product drivers to stimulate intermediate-term growth,” he said. Still, he is maintaining his “Hold” rating on Credence, which “still remains a viable company with competitive SoC tester solutions — and when the industry recovers, [the company] will participate in the rebound.”