Sales and orders were lower in the first quarter of 2009 compared with the first quarter of 2008 in all of the company’s primary end markets, reflecting the deterioration of worldwide macro-economic conditions over the past year.

Sales to customers in the Scientific Research, Aerospace and Defense/Security markets were the most resilient, falling only 1.4% compared with the prior year’s first quarter.

The decline in sales and orders occurred in the company’s Microelectronics market, with sales to customers in this market falling $18.9 million, or 50.8%, and orders falling $28.7 million, or 68.5%, in the first quarter of 2009 compared with the prior year quarter, reflecting the severe downturn in the semiconductor equipment industry. The decrease in sales to semiconductor equipment OEM customers was offset in part by an increase of around $2.5 million in sales to solar cell manufacturers, which are also included in the company’s Microelectronics market. Total sales to solar cell manufacturers in the first quarter of 2009 were $5.8 million. However, new orders from solar cell manufacturing customers declined to only $1.0 million in the first quarter of 2009, compared with over $15.0 million in the year-ago quarter. The company’s solar cell manufacturing customers have slowed their order activity dramatically, due mainly to difficulties in obtaining funding for new projects.

Newport also experienced a significant decline in sales to and orders from customers in its Industrial Manufacturing and Other markets, with sales and orders decreasing $5.1 million, or 26.2%, and $6.3 million, or 32.1%, respectively, compared with the prior year period.

GAAP Net Loss:

The net loss for the first quarter of 2009 included $2.1 million of expenses related to the cost reduction initiatives announced previously.

Non-GAAP Net Income (Loss)

On a non-GAAP basis, which excludes a number of expense items that management considers to be outside of the company’s core operating results, Newport would have reported a net loss in the first quarter of 2009 of $1.6 million, or $0.04 per share, compared with net income of $3.8 million, or $0.11 per diluted share, in the year-ago quarter.

A reconciliation between GAAP operating results and non-GAAP operating results is provided following the statements of operations included in this release.

Cost Reduction and Efficiency Improvement Initiatives:

In the first quarter of 2009, Newport launched an initiative to transfer the manufacturing of the products currently produced in its Ottawa, Canada facility to an outsource manufacturing partner in Asia. The transition will be completed by the end of 2009, at which time Newport will close its Ottawa site.

Newport continues to aggressively transition selected sourcing and manufacturing activities to its Wuxi, China facility. This initiative is progressing ahead of the company’s initial plan, as Newport has now transferred the manufacture and/or sourcing of over 1,000 products to this facility since its opening in December of 2007. In the first quarter of 2009, the Wuxi facility manufactured products with an external revenue value of around $3.2 million.

Newport has considerably completed many other outsourcing initiatives, including the transfer of back-end packaging processes for the majority of its diode laser products from Tucson, Arizona to an outsource manufacturing partner in Asia.

Worldwide headcount has been decreased to less than 1,700 employees. This represents around a 15% reduction from the peak of 2,008 employees in mid-2008.

Newport continues to focus on enhancing the capabilities of its enterprise-wide SAP platform, which it implemented from 2006 through 2008. This common platform will allow Newport to operate efficiently and better leverage its resources to support future revenue growth.

Newport has fully implemented the other cost reduction actions announced previously, including temporary salary reductions, deferral of merit increases, and periodic shutdowns of selected factories.

Commenting on the first quarter of 2009, Robert J. Phillippy, president and chief executive officer, stated, Our financial performance in the first quarter of 2009 demonstrates our ability to reduce our costs in response to challenging market conditions. By taking aggressive actions, we were able to reduce our first quarter operating loss compared with the fourth quarter of 2008, despite a $17.9 million reduction in sales. Our operating costs in the first quarter of 2009 were $4.4 million below the comparable period of 2008, despite the inclusion of $1.8 million of expenses related to cost reduction actions in the 2009 period. We expect that the actions we are taking will produce even greater cost reductions in the second quarter of 2009 compared with the prior year period. In fact, for the first half of 2009 we expect our operating costs to be more than $11 million below the level in the first half of 2008, despite the inclusion of around $3 million of expenses related to cost reduction actions that we expect to incur during the 2009 period. We expect to achieve these reductions while continuing to invest in next generation technologies and products, and while maintaining our ability to respond quickly to recovery in our end markets.

Phillippy concluded, We cannot control the extent or duration of the challenging macroeconomic conditions we are experiencing. Therefore, we are streamlining our business significantly during these uncertain times. Although we expect our revenue to continue to experience downward pressure in the second quarter of this year, we fully expect that the actions we are taking will enhance our competitiveness and provide us with meaningful profit leverage when market conditions improve.