Electro Scientific Industries (ESIO) 8-K ESI Announces Third Quarter Fiscal 2011 Results

Exhibit 99.1

Brian Smith

ESI

503-672-5760

smithb@esi.com

ESI Announces Third Quarter Fiscal 2011 Results

Revenues Grow 72% Year Over Year and 13% Sequentially

PORTLAND, Ore. – January 27, 2011 –Electro Scientific Industries, Inc. (NASDAQ:ESIO), a leading supplier of innovative laser-based manufacturing solutions for the microtechnology industry, today announced results for its fiscal 2011 third quarter ended January 1, 2011. Financial measures are provided on both a GAAP and non-GAAP basis, which excludes the impact of purchase accounting, equity compensation and non-recurring items.

Revenue in the third quarter was $67.2 million, compared to $59.6 million in the second quarter of 2011 and $39.0 million in the same quarter one year ago. On a GAAP basis, net income was $2.4 million or $0.08 per diluted share, compared to net loss of $0.6 million or $0.02 per share in the prior quarter. On a non-GAAP basis, excluding the impact of purchase accounting, equity compensation and non-recurring items, third quarter net income was $5.9 million or $0.21 per diluted share, compared to $2.9 million or $0.10 per diluted share in the second quarter.

“The company had a strong growth quarter, with sequential improvement in virtually all operating metrics, including higher revenues, gross margin, net income and cash flow,” stated Nick Konidaris, president and CEO of ESI. Sales for the first three quarters of fiscal 2011 were $185.2 million, up 107% from the first three quarters of last fiscal year.

Orders for the third quarter were $77.9 million, compared to $70.2 million in the prior quarter and up from $61.2 million in the prior year’s third quarter. Konidaris continued, “Order growth reflected record performance in our Interconnect and Micromachining group. Strong demand for follow-on 5900 applications and record flex orders offset a sequential decline in our Semiconductor group.” In addition, during the quarter the company received first orders for the model 9900 wafer dicing system and the model 3800 LED test system.

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Third Quarter Fiscal 2011 Results

Revenue increased 13% sequentially, with strong shipments of semiconductor, interconnect and micromachining systems. Gross margin improved to 45%, compared to 44% last quarter and 38% in the last year quarter.

Operating expenses rose sequentially driven by a $1.3 million legal settlement charge and a $0.8 million restructuring charge related to the transition of additional manufacturing activity to Asia. Excluding non-recurring items, stock compensation and purchase accounting, non-GAAP operating expenses were $23.4 million. Non-GAAP operating income was $7.2 million, or 11% of sales, up 89% from the prior quarter.

Balance Sheet and Cash Flow

At quarter end, cash and investments totaled $177.3 million. Cash flow from operations was $8.4 million for the quarter and $21.3 million for the first three quarters of the fiscal year.

Q4 2011 Outlook

Based on current business conditions, ESI expects revenues for the fourth quarter of fiscal 2011 to be around $70 million. Non-GAAP earnings per share are expected to be $0.20 to $0.24 excluding the impact of purchase accounting, equity compensation and non-recurring items.

Konidaris concluded, “The combination of new products, good execution and healthy markets resulted in a strong quarter for ESI. Looking forward, we will continue to execute our strategy to expand our addressable market by introducing breakthrough solutions in the semiconductor, LED and advanced micromachining markets.”

The company will hold a conference call today at 5:00 p.m. EDT. The session will include a review of the financial results, operational performance and business outlook, and also a question and answer period.

The conference call can be accessed by calling 888-419-5570 (domestic participants) or 617-896-9871 (international participants). The conference ID number is 87196414. A live audio webcast can be accessed atwww.esi.com. Upon completion of the call, an audio replay will be accessible through February 6, 2010, at 888-286-8010 (domestic participants) or 617-801-6888 (international participants), passcode 26375991. The webcast will be available on ESI’s website for one year.

Discussion of Non-GAAP Financial Measures

In this press release, we have presented financial measures which have not been determined in accordance with generally accepted accounting principles (GAAP) and are therefore non-GAAP financial measures. Non-GAAP financial measures exclude the impact of purchase accounting, equity compensation, legal settlement, restructuring costs, and non-recurring items. We believe that this presentation of non-GAAP financial measures allows investors to better assess the company’s operating performance by comparing it to prior periods on a more consistent basis. We have included a reconciliation of various non-GAAP financial measures to those measures reported in accordance with GAAP. Because our calculation of non-GAAP financial measures may differ from similar measures used by other companies, investors should be careful when comparing our non-GAAP financial measures to those of other companies.

About ESI

ESI is a leading supplier of innovative laser-based manufacturing solutions for the microtechnology industry. Our systems enable precise structuring and testing of micron to submicron features in semiconductors, electronic devices, LEDs and other high-value components. We partner with our customers to make breakthrough technologies possible in the semiconductor, microelectronics and other emerging industries. Founded in 1944, ESI is headquartered in Portland, Ore, with global operations from the Pacific Northwest to the Pacific Rim. More information is available atwww.esi.com.

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Third Quarter Fiscal 2011 Results

Forward-Looking Statements

This press release includes forward-looking statements about the markets we serve, revenue, new products and markets, and earnings per share. These forward-looking statements are based on information available to us on the date of this release and we assume no obligation to update these forward-looking statements for any reason. Actual results may differ materially from those in the forward-looking statements. Risks and uncertainties that may affect the forward-looking statements include: the risk that anticipated growth opportunities may be smaller than anticipated or may not be realized; risks related to the relative strength and volatility of the electronics industry - which is dependent on many factors including component prices, global economic strength and political stability, and overall demand for electronic devices (such as capacitors, semiconductor memory devices and advanced electronic packages) used in wireless telecommunications equipment, computers and consumer and automotive electronics; the health of the financial markets and availability of credit for end customers and related effect on the global economy; the volatility associated with the semiconductor industry which includes the relative level of capacity and demand, and financial strength of the manufacturers; the risk that customer orders may be canceled or delayed; the ability of the company to respond promptly to customer requirements; the risk that the company may not be able to ship products on the schedule required by customers, whether as a result of production delays, supply delays, or otherwise; the ability of the company to develop, manufacture and successfully deliver new products and enhancements; the risk that customer acceptance of new or customized products may be delayed; the risk that large orders and related revenues may not be repeated; the company’s need to continue investing in research and development; the company’s ability to hire and retain key employees; the company’s ability to create and sustain intellectual property protection around its products; risks related to the integration of the PyroPhotonics business; foreign currency fluctuations; the company’s ability to utilize recorded deferred tax assets; taxes, interest or penalties resulting from tax audits; changes in tax laws or the interpretation of such tax laws; and future liquidity and valuation of auction rate securities.

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141 | www.esi.com

ESI Announces Third Quarter Fiscal 2011 Results

Electro Scientific Industries, Inc.

Third Quarter Fiscal 2011 Results

(In thousands, except per share data)

(Unaudited)

	Fiscal quarter ended									Three fiscal quarters ended
Operating Results:	Jan 1, 2011			Oct 2, 2010			Jan 2, 2010			Jan 1, 2011			Jan 2, 2010
Net sales	$	67,209		$	59,554		$	39,048		$	185,234		$	89,289
Cost of sales		37,182			33,553			24,231			107,733			59,085
Gross profit		30,027			26,001			14,817			77,501			30,204
Operating expenses:
Selling, service and administration		15,172			15,046			11,910			43,063			35,236
Research, development and engineering		10,210			10,217			8,793			30,638			23,689
Legal settlement costs		1,311			—			—			1,311			—
Restructuring costs		827			—			—			827			—
Merger termination proceeds, net		—			—			—			—			(4,516	)
Net operating expenses		27,520			25,263			20,703			75,839			54,409
Operating income (loss)		2,507			738			(5,886	)		1,662			(24,205	)
Non-operating (expense) income:
Interest and other (expense) income, net		(39	)		187			369			206			1,068
Total non-operating (expense) income		(39	)		187			369			206			1,068
Income (loss) before income taxes		2,468			925			(5,517	)		1,868			(23,137	)
Provision for (benefit from) income taxes		117			1,536			(3,104	)		(73	)		(9,074	)
Net income (loss)	$	2,351		$	(611	)	$	(2,413	)	$	1,941		$	(14,063	)
Net income (loss) per share - basic	$	0.08		$	(0.02	)	$	(0.09	)	$	0.07		$	(0.51	)
Net income (loss) per share - diluted	$	0.08		$	(0.02	)	$	(0.09	)	$	0.07		$	(0.51	)

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141

ESI Announces Third Quarter Fiscal 2011 Results

Electro Scientific Industries, Inc.

Third Quarter Fiscal 2011 Results

(Amounts in thousands)

(Unaudited)

Financial Position As Of:	Jan 1, 2011		Oct 2, 2010		Apr 03, 2010
Assets
Current assets:
Cash and cash equivalents	$	47,061	$	40,420	$	39,335
Restricted cash		10,769		10,769		10,824
Short-term investments		104,949		118,628		116,140
Total cash, restricted cash and investments		162,779		169,817		166,299
Trade receivables, net		44,630		46,388		38,061
Inventories		70,180		73,064		72,090
Shipped systems pending acceptance		4,744		6,285		4,106
Deferred income taxes, net		7,931		7,499		7,232
Other current assets		8,593		8,350		8,677
Total current assets		298,857		311,403		296,465
Non-current assets:
Auction rate securities		6,211		5,215		5,021
Non-current investments		14,550		—		—
Property, plant and equipment, net		38,840		39,575		40,590
Non-current deferred income taxes, net		34,062		32,909		31,079
Goodwill		4,014		4,014		—
Acquired intangible assets, net		10,446		10,895		8,255
Other assets		14,050		13,340		13,008
Total assets	$	421,030	$	417,351	$	394,418
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	16,057	$	20,440	$	14,607
Accrued liabilities		27,949		22,683		14,937
Deferred revenue		12,513		16,373		13,193
Total current liabilities		56,519		59,496		42,737
Non-current income taxes payable		9,706		9,260		9,019
Shareholders’ equity:
Preferred and common stock		150,433		147,785		142,369
Retained earnings		201,427		199,076		199,486
Accumulated other comprehensive income		2,945		1,734		807
Total shareholders’ equity		354,805		348,595		342,662
Total liabilities and shareholders’ equity	$	421,030	$	417,351	$	394,418
End of period shares outstanding		28,184		28,072		27,665

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141

ESI Announces Third Quarter Fiscal 2011 Results

Electro Scientific Industries, Inc.

Analysis of Third Quarter Fiscal 2011 Results

(Dollars and shares in thousands)

(Unaudited)

	Fiscal quarter ended									Three fiscal quarters ended
	Jan 1, 2011			Oct 2, 2010			Jan 2, 2010			Jan 1, 2011			Jan 2, 2010
Sales detail:
Semiconductor Group	$	29,674		$	13,160		$	9,906		$	61,891		$	22,880
Components Group		7,755			13,304			10,344			39,862			21,592
Interconnect Micromachining Group		29,780			33,090			18,798			83,481			44,817
Total	$	67,209		$	59,554		$	39,048		$	185,234		$	89,289
Gross margin %		45	%		44	%		38	%		42	%		34	%
Selling, service and administration expense %		23	%		25	%		31	%		23	%		39	%
Research, development and engineering expense %		15	%		17	%		23	%		17	%		27	%
Operating income (loss) %		4	%		1	%		(15	%)		1	%		(27	%)
Effective tax rate %		5	%		166	%		56	%		(4	%)		39	%
Average shares outstanding - basic		28,132			28,010			27,517			27,978			27,394
Average shares outstanding - diluted		28,667			28,010			27,517			28,458			27,394
End of period employees		638			627			573			638			573

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141

ESI Announces Third Quarter Fiscal 2011 Results

Electro Scientific Industries, Inc.

Third Quarter Fiscal 2011 Results

(In thousands, except per share data)

(Unaudited)

Reconciliation of GAAP to Non-GAAP Financial Measures:

	Fiscal quarter ended									Three fiscal quarters ended
	Jan 1, 2011			Oct 2, 2010			Jan 2, 2010			Jan 1, 2011			Jan 2, 2010
Gross profit per GAAP	$	30,027		$	26,001		$	14,817		$	77,501		$	30,204
Add back:
Purchase accounting included in cost of sales		289			289			288			867			866
Equity compensation included in cost of sales		252			294			252			828			817
Total non-GAAP adjustments to gross profit		541			583			540			1,695			1,683
Non-GAAP gross profit	$	30,568		$	26,584		$	15,357		$	79,196		$	31,887
Non-GAAP gross margin		45.5	%		44.6	%		39.3	%		42.8	%		35.7	%
Operating expenses per GAAP	$	27,520		$	25,263		$	20,703		$	75,839		$	54,409
Less:
Purchase accounting included in operating expenses:
Selling, service and administration		135			139			190			463			831
Research, development and engineering		36			36			36			108			98
Subtotal - purchase accounting included in operating expenses		171			175			226			571			929
Equity compensation included in operating expenses:
Selling, service and administration		1,414			1,638			1,030			5,276			4,268
Research, development and engineering		420			399			370			1,196			1,021
Subtotal - equity compensation included in operating expenses		1,834			2,037			1,400			6,472			5,289
Acquisition costs (settlement proceeds) included in operating expenses:
Selling, service and administration		17			280			—			(592	)		—
Subtotal - acquisition costs (settlement proceeds) included in operating expenses		17			280			—			(592	)		—
Other non-recurring items included in operating expenses:
Legal settlement costs		1,311			—			—			1,311			—
Restructuring costs		827			—			—			827			—
Merger termination proceeds, net		—			—			—			—			(4,516	)
Subtotal - other non-recurring items included in operating expenses		2,138			—			—			2,138			(4,516	)
Total non-GAAP adjustments to operating expenses		4,160			2,492			1,626			8,589			1,702
Non-GAAP operating expenses	$	23,360		$	22,771		$	19,077		$	67,250		$	52,707
Operating income (loss) per GAAP	$	2,507		$	738		$	(5,886	)	$	1,662		$	(24,205	)
Non-GAAP adjustments to gross profit		541			583			540			1,695			1,683
Non-GAAP adjustments to operating expenses		4,160			2,492			1,626			8,589			1,702
Non-GAAP operating income (loss)	$	7,208		$	3,813		$	(3,720	)	$	11,946		$	(20,820	)
Non-operating (expense) income, net per GAAP	$	(39	)	$	187		$	369		$	206		$	1,068
Non-GAAP non-operating (expense) income	$	(39	)	$	187		$	369		$	206		$	1,068
Net income (loss) per GAAP	$	2,351		$	(611	)	$	(2,413	)	$	1,941		$	(14,063	)
Non-GAAP adjustments to gross profit		541			583			540			1,695			1,683
Non-GAAP adjustments to operating expenses		4,160			2,492			1,626			8,589			1,702
Income tax effect of non-GAAP adjustments		(1,148	)		394			(641	)		(2,695	)		(264	)
Non-GAAP net income (loss)	$	5,904		$	2,858		$	(888	)	$	9,530		$	(10,942	)
Basic Non-GAAP net income (loss) per share	$	0.21		$	0.10		$	(0.03	)	$	0.34		$	(0.40	)
Diluted Non-GAAP net income (loss) per share	$	0.21		$	0.10		$	(0.03	)	$	0.33		$	(0.40	)

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141

ESI Announces Third Quarter Fiscal 2011 Results

Electro Scientific Industries, Inc.

Third Quarter Fiscal 2011 Results

(Amounts in thousands)

(Unaudited)

Consolidated Condensed Statements of Cash Flows:

	Fiscal quarter ended									Three fiscal quarters ended
	Jan 1, 2011			Oct 2, 2010			Jan 2, 2010			Jan 1, 2011			Jan 2, 2010
Net income (loss)	$	2,351		$	(611	)	$	(2,413	)	$	1,941		$	(14,063	)
Non-cash adjustments and changes in operating activities		6,007			(1,266	)		3,337			19,309			12,898
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		8,358			(1,877	)		924			21,250			(1,165	)
NET CASH USED IN INVESTING ACTIVITIES		(2,335	)		(12,920	)		(33,964	)		(15,453	)		(101,158	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		562			150			433			781			317
Effect of exchange rate changes on cash		56			842			(42	)		1,148			1,110
NET CHANGE IN CASH AND CASH EQUIVALENTS		6,641			(13,805	)		(32,649	)		7,726			(100,896	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		40,420			54,225			85,291			39,335			153,538
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	47,061		$	40,420		$	52,642		$	47,061		$	52,642

13900 NW Science Park Drive | Portland, Oregon 97229 | 503.641.4141