893162--1/17/2008--CREDENCE_SYSTEMS

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{customer, product, revenue}

{product, market, service}

{property, intellectual, protect}

{regulation, change, law}

{debt, indebtedness, cash}

{tax, income, asset}

{operation, international, foreign}

{acquisition, growth, future}

{system, service, information}

{cost, regulation, environmental}

{operation, natural, condition}

{personnel, key, retain}

{provision, law, control}

{control, financial, internal}

{stock, price, operating}

{financial, litigation, operation}

{cost, operation, labor}

{condition, economic, financial}

Our operating results have fluctuated significantly which has adversely affected and may continue to adversely affect our stock price. We have a limited backlog and obtain most of our net sales from products that typically range in price from $80,000 to $3.0 million and generally ship products generating most of our net sales near the end of each quarter, which can result in fluctuations of quarterly results. If our restructuring activities are unsuccessful, our business could be harmed. Some of our net sales are generated from a small number of key customers and the loss of a key customer or material reductions in capital spending by a key customer could substantially reduce our revenues and be perceived as a loss of momentum in our business. Increased reliance on outsourced manufacturing and logistics may affect our business. Compliance with current and future environmental regulations may be costly which could impact our future earnings. The semiconductor industry is cyclical. Implementation or changes to our enterprise resource planning system and other related systems may affect our business. Changes to financial accounting standards may affect our reported results of operations. We may continue to experience delays in development, introduction, production in volume, and recognition of revenue from sales of our products. Competition in the ATE market requires rapid technological enhancements and new products and services. We are continuing to invest significant resources in the expansion of our product lines and there is no certainty that our net sales will increase or remain at historical levels or that new products will contribute to revenue growth. The ATE industry is intensely competitive which can adversely affect our ability to maintain or increase our net sales and revenues growth. We may not be able to deliver custom hardware options to satisfy specific customer needs in a timely manner. We rely on Spirox Corporation and customers in Taiwan and China for a significant portion of our revenues and the termination of this distribution relationship would materially adversely affect our business. We have substantial indebtedness and if we need additional financing, it could be difficult to obtain. Changes in the accounting treatment of our 3.5% Convertible Senior Subordinated Notes could decrease our net income and earnings per share amounts. We require a significant amount of cash, and our ability to generate cash may be affected by factors beyond our control. We may repatriate cash from our foreign subsidiaries, which could result in additional income taxes that could negatively impact our results of operations and financial position. In addition, if foreign countries' currency policies limit our ability to repatriate the needed funds, our business and results of operations could be adversely impacted. Our long and variable sales cycle depends upon factors outside of our control and could cause us to expend significant time and resources prior to earning associated revenues. There are limitations on our ability to find the supplies and services necessary to run our business. Our international business exposes us to additional risks. We operate in a volatile industry indicators of goodwill and other long-lived assets impairment under SFAS 142 and SFAS 144 may be present from time-to-time. Future acquisitions may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention. Our executive officers and certain key personnel are critical to our business. If the protection of our proprietary rights is inadequate, our business could be harmed. Our business may be harmed if we are found to infringe proprietary rights of others. We may be materially adversely affected by legal proceedings. Recently enacted and proposed changes in securities laws and regulations have increased our costs. We are subject to the internal control evaluation and attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Terrorist attacks, terrorist threats, geopolitical instability and government responses thereto, may negatively impact all aspects of our operations, revenues, costs and stock price. We are subject to anti-takeover provisions that could delay or prevent an acquisition of our company.

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893162--1/17/2008--CREDENCE_SYSTEMS_CORP