Milpitas, California. October 30, 2008.

Nanometrics Reports Third Quarter 2008 Financial Results

Gross Margin Increases to 44%, SG&A Expenses Down 9%, $22 Million in Cash

Nanometrics Incorporated (Nasdaq: NANO), a leading supplier of advanced process control metrology equipment, today announced financial results for its third quarter ended September 27, 2008.

Revenues for the third quarter were $23.1 million, down 3% from $23.8 million for the second quarter of 2008 and down 40% from $38.6 million for the third quarter of 2007.

Total gross margin for the third quarter was 44.1%, up from 42.4% for the second quarter of 2008 and roughly flat compared to third quarter 2007 gross margin of 44.2%. Product gross margin was 50.0%, roughly flat compared to 50.5% for the second quarter of 2008 and 49.6% for the third quarter of 2007. Service gross margin was 30.0%, up from 13.8% for the second quarter of 2008 and 10.3% for the third quarter of 2007.

Total research and development, selling, general and administrative expenses were $13.6 million in the third quarter, down 6% from $14.6 million in the second quarter of 2008 and down 3% from $14.0 million in the third quarter of 2007.

Net loss for the third quarter was $60.5 million, or $3.25 per share. This compares to a net loss of $18.9 million, or $1.02 per share, for the second quarter of 2008 and net income of $2.0 million, or $0.11 per diluted share, for the third quarter of 2007.

Net loss for the third quarter includes an asset impairment charge of $55.3 million related to goodwill and intangible assets. Also included in the net loss for the third quarter are a restructuring charge of $0.7 million, stock-based compensation expense of $1.1 million, amortization of acquired intangible assets of $0.6 million and depreciation expense of $0.9 million.

“While macro-economic conditions continue to weaken and semiconductor capital spending has decelerated sharply, I’m pleased to announce that we demonstrated further improvements to our business model in the third quarter,” commented Tim Stultz, president and chief executive officer. “Revenues declined by 3% sequentially, yet we grew our gross margin and decreased our operating expenses, which brought us closer to our goal of $25 million revenue break-even on a cash basis. We added more than $12 million to our cash balance during the quarter, which reflects a minimal amount of cash losses from operations, improved working capital management and the completion of a $13.5 million real estate loan on our Milpitas headquarters. We also used more than $1.3 million of our cash for stock repurchases during the quarter. Our third quarter results are indicative of our commitment to aggressively seek ways to improve our operational and capital efficiencies. Today Nanometrics is well-equipped to face the current market challenges, with a breadth of competitive products, solid financial footing and an improved business model.”

Selected Revenue Segment Information

Revenues by Product
Automated Metrology:  27%           
Integrated Metrology:  31%            
Materials Characterization:  12%    
Service:  30%                                
                                                                      
Revenues by Region
United States:  34%                       
Japan:  30%                                   
South Korea:  13%
ROW:  23%

View Q3 2008 consolidated balance sheets and statement of operations [pdf]

Conference Call Details
A conference call to discuss the third quarter results will be held later today at 6:00 p.m. Eastern Daylight Time (3:00 p.m. PDT). To participate in the conference call, the dial-in numbers are 866-578-5788 for domestic callers and 617-213-8057 for international callers.  The passcode is 17755429.  A live and recorded webcast will be made available on the investor page of the Nanometrics website at www.nanometrics.com.

About Nanometrics
Nanometrics is a leader in the design, manufacture and marketing of high-performance process control metrology systems used in semiconductor manufacturing.  Nanometrics standalone and integrated metrology systems measure various thin film properties, critical dimensions, overlay control and optical, electrical and material properties, including the structural composition of silicon and compound semiconductor devices, during various steps of the manufacturing process. These systems enable semiconductor manufacturers to improve yields, increase productivity and lower their manufacturing costs. The company maintains its headquarters in Milpitas, California, with sales and service offices worldwide. Nanometrics is traded on the NASDAQ Global Market under the symbol NANO. Nanometrics’ website is http://www.nanometrics.com.

Forward Looking Statements
This press release contains forward-looking statements including, but not limited to, statements regarding Nanometrics’ expected results for its most recently completed fiscal quarter, which remain subject to adjustment in connection with the preparation of Nanometrics’ financial statements and periodic report on Form 10-Q for the quarter ended September 27, 2008. For additional information and considerations regarding the risks faced by Nanometrics, see its annual report on Form 10-K, as amended, for the year ended December 30, 2007 as filed with the Securities and Exchange Commission, as well as other periodic reports filed with the SEC from time to time. Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, Nanometrics cannot guarantee future results, levels of activity, performance or achievements. Nanometrics disclaims any obligation to update information contained in any forward-looking statement.

Contact
Investor Relations:
Claire McAdams
Headgate Partners LLC
530-265-9899 tel; 530-265-9699 fax
claire@headgatepartners.com

Company Contact:
Bruce Crawford, CFO
408-545-6000 tel; 408-232-5910 fax
bcrawford@nanometrics.com