Veeco Reports 2001 Third Quarter and Nine Month Results

WOODBURY, N.Y., Veeco Instruments Inc. (NASDAQ: VECO - news) today announced its financial results for the third quarter and nine months ended September 30, 2001.

These results reflect Veeco s acquisitions of ThermoMicroscopes and Applied Epi, which were completed on July 16th and September 17th respectively, using the purchase method of accounting. Despite a difficult business environment, Veeco continues to report significant growth in sales and earnings for both the third quarter and the nine month periods compared to last year.

Third Quarter Results

Veeco s sales for the third quarter of 2001 were $116.0 million, a 43% increase over the $81.1 million reported in the third quarter of 2000, and up 2% sequentially. Veeco s Process Equipment sales were $65.9 million compared with $38.8 million in the third quarter of last year. Third quarter Metrology sales were $48.4 million compared to sales of $39.8 million in the third quarter of 2000. Third quarter sales increased in each of Veeco s markets and were distributed as follows: 33% data storage, 21% optical/wireless, 21% semiconductor and 25% research.

Operating income (excluding an $8.2 million in-process R&D write-off related to the acquisitions) was $12.3 million in the third quarter of 2001, an increase of 414% over third quarter 2000 operating income of $2.4 million. Third quarter 2001 net income was $1.8 million ($0.07 per diluted share) compared to $3.2 million ($0.12 per diluted share) in the third quarter of last year. Pro-forma diluted earnings per share for the third quarter of 2001 was $0.32 (using a 35% tax rate and excluding the in-process R&D write-off) compared with $0.07 (using a 35% tax rate) in the third quarter of 2000.

Bookings for the third quarter of 2001 were $62.6 million, a 65% decrease from the $179.9 million in the third quarter of 2000, and down 23% sequentially from the second quarter of 2001. Bookings declined in all of the Company s markets with the exception of research. Veeco s Process Equipment bookings were $30.4 million, a decrease from the $125.4 million in the third quarter of 2000. Veeco s third quarter Metrology bookings were $31.1 million compared to $52.1 million in the third quarter of 2000. Veeco s third quarter book-to-bill ratio was 0.54. Veeco s bookings by market were 37% data storage, 13% optical/wireless, 13% semiconductor and 37% research.

Nine Month Results

Veeco s sales for the 2001 nine month period were a record $356.7 million, up 32% from the year 2000 nine months of $270.3 million Process Equipment nine month sales were a record $219.4 million compared to $151.7 million in the nine months of 2000. Nine month 2001 Metrology sales were a record $132.3 million compared to $110.5 million in the nine months of 2000. Nine month sales included significant increases in Veeco s atomic force microscope (AFM) business, up 64%, and Ion Tech ion beam deposition, up 132%, while sales of interferometers decreased 36%.

In the nine months of 2001, Veeco s operating income (excluding an $8.2 million in- process R&D write-off and $1.0 million of restructuring charges) was a record $47.0 million compared to $21.9 million (excluding merger and reorganization expenses) in the nine months of 2000. Net income for the 2001 nine month period was $24.7 million ($0.97 per diluted share) versus a net loss of $23.3 million last year (($0.99) per share). Included in the 2000 net loss was the cumulative effect charge for the change in accounting principle of $18.4 million ($0.78 per share, net of tax) associated with the adoption of SAB 101 effective January 1, 2000. Pro-forma diluted earnings per share for the 2001 nine month period was $1.24 (using a 35% tax rate and excluding in-process R&D write-off and restructuring charge) compared to $0.59 (using a 35% tax rate and excluding merger and restructure expenses and cumulative effect of accounting charge) for the prior year.

Veeco s nine month 2001 bookings were $256.9 million, a 39% decrease from the $423.6 million booked in the nine months of 2000. Process Equipment nine month bookings were $143.4 million, compared to $269.6 million reported in the prior year nine month period. Metrology nine month bookings were $108.5 million compared to $145.7 million last year. Veeco s nine-month book-to-bill ratio was 0.72.

Management Review of Results

Edward H. Braun, Veeco s Chairman, President and Chief Executive Officer commented, ``Despite a weak business environment, Veeco continues to deliver year-over-year sales and earnings growth; sales increased 43% and operating profit improved over 400% from the prior year third quarter. Our market and product diversification will allow 2001 to be a year of significant revenue and earnings growth for the Company. However, third quarter bookings of $63 million were below our prior expectations, reflecting continued weak business conditions impacting worldwide information age markets. During the third quarter, customer cancellations represented 26% of our opening backlog. Our current backlog represents five months sales. As a result of the deteriorating business environment, we are taking cost reduction steps including an additional 15% staff reduction, plant consolidations, selective work-week reductions and reduced management salaries. We are taking these aggressive measures to maintain Veeco s continued profitability throughout this downturn.

Mr. Braun continued, ``Commenting on our individual markets, the semiconductor industry overall appears to be at a bottom. Semiconductor customers continued to purchase automated AFMs for 0.10 micron feature size, 300mm wafers, CMP and advanced etch applications. Our purchase of ThermoMicroscopes during the third quarter further expands our research AFM business. The data storage industry continues to invest in the development of advanced 50 to 100Gb/in2 thin film magnetic heads requiring the purchase of our advanced 10-target, ultra-high vacuum cluster deposition systems. In optical telecommunications we have broadened our product line to include molecular beam epitaxy (MBE) process equipment for fabrication of active wireless devices. With Applied Epi s MBE capabilities, we are well positioned to play a leading role in the future integration of III-V compound semiconductor and silicon device development. Despite a weak market, selected enabling technology buys have allowed Veeco to outperform during this downturn, evidenced by our nine-month book-to-bill ratio of 0.72, higher than the industry average.

Veeco s Fourth Quarter Guidance

Veeco currently estimates that fourth quarter sales will be in the range of $95 - $100 million, with cash earnings per share (using a tax rate of 35% and excluding amortization expenses and non-recurring charges) between $0.05 and $0.10. Veeco currently forecasts that fourth quarter bookings will be greater than $70 million. Veeco expects to record a restructuring charge in the fourth quarter of approximately $15-20 million. Fourth quarter guidance excludes amortization and any one-time charges discussed herein.

Veeco s acquisition of Applied Epi was reported under purchase accounting rules. As a result of new purchase accounting guidance, deferred revenue (SAB 101) and related gross profit not recognized by Applied Epi prior to the acquisition will be treated as an adjustment to the opening balance sheet. As a result, approximately $4 million of Applied Epi s sales and $0.05 earnings per share will not be reported in Veeco s fourth quarter results.

Investor Conference Call/ Webcast

Veeco is hosting an investor conference call this morning, Friday, October 26th at 9 am ET to review the Company s financials and operations for the third quarter of 2001. Interested parties may listen to the call live by calling 800-289-0730 or through an audio webcast at http://www.veeco.com (click on Investor Information), where this call will be archived for future reference. A telephonic playback of the conference call will also be available starting this afternoon at 888-203-1112 (confirmation number 573386).

About Veeco

Veeco Instruments Inc. is a worldwide leader in process equipment and metrology tools for the optical telecommunications/wireless, data storage, semiconductor and research markets. Manufacturing and engineering facilities are located in New York, California, Colorado, Arizona and Minnesota. Global sales and service offices are located throughout the United States, Europe, Japan and Asia Pacific. Additional information on Veeco can be found at http://www.veeco.com.

To the extent that this news release discusses expectations about market conditions or about market acceptance and future sales of Veeco s products, or otherwise makes statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These factors include the cyclical nature of the telecommunications/wireless, data storage, semiconductor and research markets, risks associated with the acceptance of new products by individual customers and by the marketplace, and other factors discussed in the Business Description and Management s Discussion and Analysis sections of Veeco s Report on Form 10-K and Annual Report to Shareholders.

Contact:

Veeco Instruments Financial:
Debra Wasser, 516/677-0200, x1472
Trade: Fran Brennen, 516/677-0200 x1222 Veeco Instruments Financial:
Debra Wasser, 516/677-0200, x1472
Trade: Fran Brennen, 516/677-0200 x1222
Web site: http://www.veeco.com