Use these links to rapidly review the documentTABLE OF CONTENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

|(Mark One)                                                                                                                   |                                                                                         
|---------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                                                                            | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
OR                                                                              
|o                                                                                                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|FOR THE TRANSITION PERIOD
FROM                               TO         
                    
COMMISSION FILE NUMBER 0-28218

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AFFYMETRIX, INC.(Exact name of registrant as specified in its charter)

|DELAWARE(State or other jurisdiction of
incorporation or organization)                  |  | 77-0319159(IRS Employer Identification Number)                                            
|--------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------
|3420 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA(Address of principal executive offices) |  | 95051(Zip Code)                                                                           
|(408) 731-5000(Registrant's telephone number, including area code)                     
|Securities registered pursuant to Section 12(b) of the Act:                            
|Title of Each ClassCommon Stock, $0.01 par value
Preferred Stock Purchase Rights        |  | Name of Each Exchange on Which RegisteredThe Nasdaq Global Market
The Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act:None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one).

|Large accelerated filer ý                                            |  | Accelerated filer o        
|-------------------------------------------------------------------- |  | ---------------------------
|Non-accelerated filer o(Do not check if a smaller reporting company) |  | Smaller reporting company o

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of the registrant's common stock held by non-affiliates of the registrant at June 30, 2007, based on the closing
price of such stock on the Nasdaq Global Market on such date, was approximately $1,700 million. The number of shares of the registrant's Common Stock, $0.01 par value, outstanding on
February 20, 2008, was 69,330,154.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Proxy Statement to be filed in connection with the 2008 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Form 10-K where indicated.



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AFFYMETRIX, INC.

FORM 10-K
DECEMBER 31, 2007

TABLE OF CONTENTS



|Item No. |  |                                                                                                                |  | Page
|-------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|         |  | PART I                                                                                                         |  | 3   
|1.       |  | Business                                                                                                       |  | 3   
|1A.      |  | Risk Factors                                                                                                   |  | 21  
|1B.      |  | Unresolved Staff Comments                                                                                      |  | 33  
|2.       |  | Properties                                                                                                     |  | 33  
|3.       |  | Legal Proceedings                                                                                              |  | 33  
|4.       |  | Submission of Matters to a Vote of Security Holders                                                            |  | 33  
|         |  | PART II                                                                                                        |  | 34  
|5.       |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities |  | 34  
|6.       |  | Selected Financial Data                                                                                        |  | 36  
|7.       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                          |  | 37  
|7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  | 52  
|8.       |  | Financial Statements and Supplementary Data                                                                    |  | 54  
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                           |  | 100 
|9A.      |  | Controls and Procedures                                                                                        |  | 100 
|9B.      |  | Other Information                                                                                              |  | 101 
|         |  | PART III                                                                                                       |  | 102 
|10.      |  | Directors, Executive Officers and Corporate Governance                                                         |  | 102 
|11.      |  | Executive Compensation                                                                                         |  | 102 
|12.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                 |  | 102 
|13.      |  | Certain Relationships and Related Transactions, and Director Independence                                      |  | 102 
|14.      |  | Principal Accounting Fees and Services                                                                         |  | 102 
|         |  | PART IV                                                                                                        |  | 103 
|15.      |  | Exhibits and Financial Statement Schedules                                                                     |  | 103 
|         |  | Signatures                                                                                                     |  | 108 

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PART I

ITEM 1.    BUSINESS

Forward-Looking Statements

All statements in this Annual Report on Form 10-K that are not historical are "forward-looking statements" within the meaning of the federal
securities laws, including statements regarding our "expectations," "beliefs," "hopes," "intentions," "strategies" or the like. Such statements are based on our current expectations and are subject to
a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. We caution investors that there can be no assurance
that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited
to, the risk factors discussed in "Risk Factors" contained in Item 1A of this report and elsewhere in this report. We expressly disclaim any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any
such statements are based.

Narrative Description of Business

Overview

We are engaged in the development, manufacture, sale and service of consumables and systems for genetic analysis in the life sciences and clinical healthcare
markets and are recognized as a market leader in creating tools that are advancing our understanding of the molecular basis of life. The markets for our products currently include all aspects of
molecular biology research in the life sciences, including basic human disease research, genetic analysis, pharmaceutical drug discovery and development, pharmacogenomics (research relating to how a
person's genes affect the body's response to drug treatments), toxicogenomics (research relating to the measurement of gene expression as a predictor of toxicity) and molecular diagnostics. Our
integrated GeneChip® microarray platform includes: disposable DNA probe arrays (chips) consisting of nucleic acid sequences set out in an ordered, high density pattern, certain reagents
for use with the probe arrays, a scanner and other instruments used to process the probe arrays, and software to analyze and manage genomic or genetic information obtained from the probe arrays.
Related microarray technology also offered by us includes licenses for fabricating, scanning, collecting and analyzing results from complementary technologies.

Our
business strategy is to capitalize on our leadership position in the DNA microarray field by marketing our GeneChip® technologies to customers based on two central
applications: gene expression monitoring and DNA variation detection. Due to the novel, massively parallel approach to studying biological systems that GeneChip® technology enables,
numerous discoveries across many disciplines have already been made, as evidenced by the over 11,000 peer-reviewed publications that have cited GeneChip® technology. The
application of GeneChip® technologies for diagnosing and guiding treatment of disease is an emerging market opportunity that seeks to improve the effectiveness of health care by collecting
information about DNA variation and RNA expression in patients at various times from screening and diagnosis through prognosis and throughout therapeutic monitoring. We currently sell our products
directly to pharmaceutical, biotechnology, agrichemical, diagnostics and consumer products companies as well as academic research centers, government research laboratories, private foundation
laboratories and clinical reference laboratories in North America and Europe. We also sell our products through life science supply specialists acting as authorized distributors in Latin America,
India, the Middle East and Asia Pacific regions, including China.

In
March 1992, Affymetrix, Inc. was incorporated in California as a wholly-owned subsidiary of Affymax N.V. (Affymax) and we have continued our business and operations as
Affymetrix. We

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completed
our initial public offering in June 1996 and in September 1998 we reincorporated as a Delaware corporation. Our headquarters and principal research and development facilities are located in
Santa Clara, California, and we maintain facilities in West Sacramento, California (probe array manufacturing), Sunnyvale, California (administration and array research and development), Emeryville,
California (bioinformatics and software development), South San Francisco, California (manufacturing and research and development), Singapore (probe array manufacturing, administration, and sales),
China (representative office), and have sales offices in the United Kingdom, Singapore, and Japan.

Scientific Background and Technology



The genetic content of an organism is known as its "genome." All known genomes are composed of either deoxyribonucleic acid (DNA) or ribonucleic acid (RNA). The
instructions required for every living cell to develop its characteristic form and function are believed to be represented within discrete regions of the DNA or RNA known as genes. The instructions
contained within genes are embodied in the specific sequences of the four nucleotide basesadenine-A, cytosine-C, guanine-G and thymine-T
(uracil-U replaces T in RNA)that are the chemical building blocks of DNA and RNA. In protein coding genes, the sequence of these building blocks forms a code which
instructs the cell to build a protein, comprised of a string of amino acids, ordered in a way which matches the sequence code of the gene. These proteins are an example of a "hard copy" output of the
genetic code and contribute to the structure, biochemical functions and communication mechanisms of the cell in which they are formed.

The
DNA molecule possesses a chemical structure which consists of a combination of two DNA strands with hydrogen bonds between nucleotide bases on one strand to complementary nucleotide
bases on the other strand. Only certain pairs of the bases can form these complementary bonds: C pairs with G, and A pairs with T. Therefore, a single DNA strand containing bases in the sequence
CGTACGGAT can form a bond with a DNA strand containing bases in the sequence GCATGCCTA. Such paired DNA strands are said to be "complementary" and can form a double helix structure in a
process called "hybridization." Our GeneChip® technology uses the principle of hybridization to recognize the presence of specific gene sequences and to analyze genetic information.

Genes
are segments of DNA that serve as information packets of the genome. In general, a gene's functional information is made available to a cell through the process of transcription or
"gene expression," whereby the sequence is copied into an RNA molecule. Protein coding genes may span thousands to hundreds of thousands, or even millions, of nucleotide bases since the
non-coding regions of a gene (called "introns") and the coding regions of a gene (called "exons") are usually distributed within neighboring genomic sequences that are not translated into
proteins or used, or to the extent currently understood, as a functional part of the gene. The number of distinct protein coding genes in the human genome is estimated to be between 25,000 to 30,000.
The number of functional non-coding sequences is the focus of current research interest. Though currently unknown, the number of functional non-coding sequences is estimated to
be significantly larger than the number of protein coding genes in the human genome.

A
primary goal in life sciences research and modern molecular medicine is to unravel the complexities of the genome. This has generated a worldwide effort to identify and sequence the
genomes of many organisms. In the human genome, this effort includes more than three billion nucleotide pairs. In recent years, the effort led by the Human Genome Project and related academic,
government and industry research projects resulted in a first near complete draft of the human genome sequence. It is anticipated that many years of research will be required to gain a better
understanding of the complexities of the genome, and its characteristics in normal and diseased conditions. We believe that this will lead to a new healthcare paradigm where disease is understood at
the molecular level,

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allowing
patients to be diagnosed according to genetic information and then treated with drugs designed to work on specific molecular targets. Ultimately, in addition to diagnosis and treatment,
prevention and cure of disease might also be possible based on genetic information.

While
scientists are learning more and more about the functions of genes and their variability, there is a great deal more to discover. We believe that the efforts of science to
understand the complexities of gene expression, the interaction of genes with our environment and the role of genes in disease and health will continue to provide growth opportunities for our existing
gene expression and DNA analysis products, and will continue to create new opportunities in clinical medicine. Toward this end we have partnered with the National Cancer Institute to assemble the
first complete map of the human transcriptome (a catalog of all of the RNA transcripts made by the genome). This ongoing effort has already led to the discovery of many novel protein coding and
non-protein coding sequences that we have started to include in some of our new products. This effort is also prompting continued development of our sample preparation, array,
instrumentation and data analysis technologies.



For the most part, each cell in a complex organism contains a complete copy of the genome. In a population of organisms, individuals vary from one another because
of differences in gene sequences which are inherited from each parent and sometimes through the introduction of sequence changes due to environmental damage or biological errors in processes like gene
replication. In some cases these variations, or polymorphisms, have little detectable effect on the biology of the organism, while in other cases they may result in an altered biological response to
the environment which could thereby lead to disease. By screening for these polymorphisms, researchers seek to identify those that might be implicated in specific diseases. Sometimes it is not a
single variation, but the combination of these sequence differences that leads to a diseased state. For this reason, researchers look at the patterns of these polymorphisms in a large number of
healthy and affected organisms in order to correlate specific gene polymorphisms with specific diseases.

Another
major mechanism by which the fate and function of cells is regulated is the timing and level of gene expression, which can reflect the interface between genes and the
environment. Although most cells contain an organism's full set of genes, each cell expresses only a fraction of this set of genes in different quantities and at different times. The expression
patterns of genes can be correlated with many human diseases such as cancer, as well as with the effectiveness of treatment in specific patient populations for which new therapies can be developed. By
identifying genes that are differentially expressed in particular diseases or patient populations, novel molecular targets and treatments may be identified and validated. In addition, gene expression
signatures may be identified that allow the selection of optimal treatment for a single individual.

In
order to understand the impact of genomics on health, disease and other aspects of the human condition, scientists must compare both the sequence variation and the gene expression
patterns of healthy and diseased individuals, tissues and cells. We believe that our GeneChip® platform not only enables scientists to attain ambitious goals, from identifying genetic
variations associated with disease to discovering new drug targets, but also simplifies, accelerates and reduces the cost of understanding this genetic information.



Our GeneChip® technology leverages semiconductor-based photolithographic fabrication techniques, which enables us to synthesize a large variety of
predetermined DNA sequences simultaneously in predetermined locations on a small glass chip called a "probe array." Photolithography is a technique which uses light to create exposure patterns on the
glass chip and direct chemical reactions. The process begins by coating the chip with light-sensitive chemical

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compounds
that prevent chemical coupling. These light-sensitive compounds are called "protecting groups." Lithographic masks, which consist of predetermined transparent patterns etched into a glass
plate that either block or transmit light, are used to selectively illuminate the glass surface of the chip. Only those areas exposed to light are deprotected, and thus activated for chemical coupling
through removal of the light-sensitive protecting groups. The entire surface is then flooded with a solution containing the first in a series of DNA building blocks (A, C, G or T). Coupling only
occurs in those regions that have been deprotected through illumination. The new DNA building block also bears a light-sensitive protecting group so that the cycle can be repeated.

This
process of exposure to light and subsequent chemical coupling can be repeated many times on the same chip in order to generate a complex array of DNA sequences of defined length.
The intricate illumination patterns allow us to build high-density arrays of many diverse DNA sequences in a small area. Unlike conventional synthesis techniques, which generally use a
linear process to create compounds, our synthesis technique is combinatorial, in that the number of different compounds synthesized grows exponentially with the number of cycles in the synthesis.
Currently available commercial arrays contain over 6.0 million unique sequences. Each unique sequence is 25
nucleotides in length and is represented millions of times within a specified area of the probe array. Just as in the semiconductor industry, we manufacture probe arrays in a wafer format. Each wafer
is approximately five inches square and can contain over 300 million unique probe sequences based on current technology. Whole wafers have been used by a related party of Affymetrix, Perlegen
Sciences, Inc., in its work to resequence multiple samples of the human genome. For our commercial array products, we can manufacture a large number of identical or different DNA probe arrays
on a glass wafer, which is then diced into individual chips. Given the large amount of unique sequences represented in our probe arrays, our technology enables the efficient analysis of a multitude of
DNA probes to analyze DNA or RNA sequences in a test sample.

In
the semiconductor industry, the principle that the number of transistors in a semiconductor chip doubles every 18 months based on feature shrink, or increased resolution, is
known as Moore's Law. Because we leverage photolithographic manufacturing processes adapted from the semiconductor industry, we have also been able to continually "shrink" the size of features, or
oligonucleotide probes of a given sequence, on our GeneChip® arrays. Our first commercial GeneChip® products, which we shipped in 1994, had a feature size of 100 microns and by
2005, we introduced our Human Exon Array product with a 5 micron feature size. We have thus been able to increase the amount of genetic information packaged onto our GeneChip® arrays by
nearly 400 times since the introduction of our first products.

Because
we manufacture our chips in wafer format, we can vary the number of chips manufactured per wafer. We can therefore manufacture thousands of chips per wafer with low information
content and lower cost of goods sold or decrease the number of chips per wafer and increase the information content. We expect that we will continue to benefit from this manufacturing leverage as our
technology development activities enable further feature shrink. We believe that our unique manufacturing process is a significant competitive advantage.

Products



Our products form an integral part of our GeneChip® system that is designed for use by pharmaceutical, biotechnology, agrichemical, diagnostics and
consumer products companies, as well as academic research centers, private and government research foundations and clinical reference laboratories. The GeneChip® system consists of several
integrated components: disposable probe arrays containing genetic information on a chip, reagents for extracting, amplifying and labeling target nucleic acids, a fluidics station for introducing the
test sample to the probe arrays, a hybridization oven for

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optimizing
the binding of samples to the probe arrays, a scanner to read the fluorescent image from the probe arrays, and software to analyze and manage the resulting genetic information. The function
of each single-stranded sequence on the GeneChip® probe array is to bind to its complementary single strand of DNA or RNA from a biological sample. Each unique sequence feature on the
GeneChip® probe array contains multiple copies of the same single strand of DNA. The nucleic acid (DNA or RNA) to be tested is isolated from a sample, such as blood or biopsy tissue,
amplified and fluorescently labeled by one of several standard biochemical methods. The test sample is then washed over the probe array, where the now labeled individual nucleic acid sequences that
represent the genetic content or expressed genes of the sample hybridize to their complementary sequences bound on the array. When scanned by a laser, which is part of the scanner instrument, the test
sample generates a fluorescent signal. The locations where a fluorescent signal is detected by an optical detection system on the scanner instrument correspond to sequences complementary to the test
sample. Sequence variation, or the quantification of specific sequences of nucleic acids in the sample, can be determined by detecting the relative strength of these signals since the sequence and
position of each complementary DNA probe on the probe array is known. The combination of a particular GeneChip® probe array, together with an optimized set of reagents and a user protocol
describing how to carry out the procedure, is referred to as an "assay."

We
currently market products for two principal applications: monitoring of gene or exon expression levels and investigation of genetic variation (DNA analysis including single nucleotide
polymorphism (SNP) genotype analysis and resequencing). Our GeneChip® expression monitoring arrays enable our customers to qualitatively and quantitatively measure gene or exon expression
levels in a number of frequently studied organisms. Our catalog GeneChip® expression arrays are available for the study of human, rat, mouse and a broad range of other mammalian and model
organisms. Human, mouse and rat exon analysis and gene analysis arrays are also available. Additionally, we market CustomExpress and, CustomSeq products, which enable our
customers to design their own custom GeneChip® expression arrays or sequence arrays for organisms of interest to them. Our GeneChip® DNA analysis arrays and variant detection
systems are available to enable researchers to perform high throughput polymorphism analysis and to carry out large scale resequencing (comparing the DNA sequence of multiple samples against a known
reference sequence, e.g. the published human genome sequence). With its unique, parallel analysis capability, GeneChip® technology enables our customers to perform accurate and
cost-effective genetic analysis, using minute amounts of sample DNA, in their own laboratories on a scale that was previously only possible in specialist high throughput centers.

In
addition, we believe that genetic analysis and testing products will be a core component in the area of clinical research and molecular diagnostic applications. We are developing our
GeneChip® system for clinical research and diagnostic analysis of both gene expression and DNA analysis. The GeneChip® System 3000Dx (GCS3000Dx) is the first microarray
instrumentation system for molecular diagnostic laboratories. The GCS3000Dx is 510(k) cleared and CE marked for in vitro diagnostic use in conjunction with the Roche Diagnostics AmpliChip CYP450 Test.
The AmpliChip CYP450 Test is the first microarray based diagnostic test and the first product to be released through the Powered by Affymetrix Program.

Together
with our collaborative partners, we are focusing on the development and commercialization of diagnostic products in cancer, osteoporosis, cardiovascular, inflammatory,
metabolic, infectious and other diseases, and believe that our GeneChip® assays will facilitate more efficient and effective disease detection, prognosis and treatment selection, leading
to overall improved patient management. To further our clinical research and molecular diagnostics strategy, we have established partnerships and customer relationships with leading academic
researchers, pharmaceutical and biotechnology companies, including Sysmex, F. Hoffmann-La Roche Ltd. ("Roche"), bioMérieux, Inc. ("bioMérieux"),
and Veridex, LLC, a Johnson & Johnson company ("Veridex").

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Through
Sysmex, we have expanded our diagnostics distribution capability into Japan and the Asian Pacific regions. We believe that the rapid growth of the clinical research and the diagnostic devices
markets holds the potential for GeneChip® technology applications ranging from basic research to clinical trials and, ultimately, diagnostic devices. As a result we are working with
leaders in molecular diagnostics to provide custom made GeneChip® probe arrays to their specifications. Our partners subsequently package the chips into kits, seek regulatory approval for
their diagnostic use, and sell them into the diagnostic markets using their sales channels. We are leveraging our partners' strengths in research, development, regulatory practices and distribution
while leveraging our strengths in array technology. These products are marketed as being Powered by Affymetrix.



Gene expression monitoring is a valuable tool for identifying correlations between genes, determining their biological functions and identifying patterns that
might be useful in classifying diseases. To monitor gene expression, we design and manufacture probe arrays with single-stranded DNA molecules that are complementary to sequences within genes or exons
of interest. By synthesizing specific probes for multiple genes or exons on a single probe array, we enable researchers to quickly, quantitatively and simultaneously monitor the expression of a large
number of genes or exons of interest. By monitoring the expression of such genes under different conditions and at different times, researchers can use the probe arrays to understand the dynamic
relationship between gene expression and biological activity. We believe such information will be an important tool in understanding gene function and for the development of new drugs and diagnostic
tools. Increasingly, clinical research is showing that gene
expression patterns in tissue samples, particularly those from cancerous tissues, can be used to characterize disease sub-types and hopefully to predict therapeutic responses and likely
outcomes.

The
range of GeneChip® Expression products is described below:



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As genes and regulatory regions in the human genome are mapped, identified, and sequenced, the value of understanding the variability of sequences among
individuals increases. Researchers seek to determine the normal sequence of the gene, which mutations or polymorphisms exist in a population, and whether these variations correlate with a disease or
other aspect of the human condition. Studies of the genetics of complex diseases have historically been challenging due to the high costs of sequencing or genotyping of large numbers of affected and
unaffected individuals. Genetic variation also impacts how individuals respond to therapeutics. The study of these effects is known as pharmacogenetics. This is part of the broader field of
pharmacogenomics, which seeks to understand how the overall composition and expression of the genome affects therapeutic response, drug efficacy and the incidence of adverse side effects to therapy.
We believe pharmacogenomics will become increasingly important both in clinical drug trials and patient care. By using our resequencing and genotyping technologies, we believe that our
GeneChip® probe arrays could significantly reduce the cost and time required for high-volume polymorphism analysis, which is currently performed through more labor-intensive
techniques.

We
have initiated product research and development efforts on several genetic analysis probe arrays and variant detection analysis systems and formed collaborations to accelerate the
development of our genotyping products. For additional information concerning these efforts and collaborations see the
sections of this Form 10-K entitled "Research and Development" and "Our Collaborative Partners." We currently market the following DNA analysis products:



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We offer a variety of sales programs for our gene expression monitoring and DNA analysis arrays, tailored to the needs of industrial, biotech and
academic/government customers.



We offer target labeling and control reagents for use with GeneChip® expression analysis and GeneChip® DNA analysis arrays.

For
our gene expression analysis, we offer the following reagents:3' In Vitro TranscriptionOne-Cycle Target
Labeling and Control Reagents, Two-Cycle Target Labeling and Control Reagents, HT One-Cycle Target Labeling and Controls Kit, for use with the GeneChip® Array
Station, and GeneChip® Hybridization, Wash, and Stain Kit; Blood RNA Concentration Kit and Globin-Reduction RNA Controls;Whole Transcript
AnalysisFor use with Exon and Tiling ArraysGeneChip® WT Sense Target Labeling and Control Reagents, GeneChip® WT cDNA
Synthesis and Amplification Kit, GeneChip® WT Terminal Labeling Kit, GeneChip® WT Double-Stranded cDNA Synthesis Kit, GeneChip® WT Amplified Double-Stranded cDNA
Synthesis Kit, GeneChip® WT Double-Stranded DNA Terminal Labeling Kit, and GeneChip® Hybridization, Wash, and Stain Kit;ProkaryoticFor use
with
Prokaryotic ArraysControl Oligo B2, 3nM, DNA Labeling Reagent, Poly-A RNA Control Kit, and GeneChip® Hybridization, Wash, and Stain Kit.

For
our DNA analysis, we offer the following reagents: Control Oligo F1, GeneChip® Application-Specific Fixed Assays, GeneChip® Custom SNP Kits and Resequencing
Assay Kit.



Our GeneChip® instruments provide a fully integrated system for conducting research using GeneChip® probe arrays. The instrument system
consists of four hardware devices, each providing for robust preparation and analysis of samples using GeneChip® arrays. The first device is a hybridization oven to control the timing and
temperature required for hybridization of the test sample to the probe array. The second device is a fluidics station that controls exposure of the probe array to solutions containing prepared sample
and labeled detection reagents across the probe array. The fluidics station can process four probe arrays simultaneously. The fluidics station protocols conclude with a reagent wash that leaves the
labeled, hybridized test sample bound to the probe array.

The
third device, a laser scanner, is used after completion of protocols on the fluidics and hybridization stations, at which time the cartridge containing the probe array is placed in
the scanner and read. The scanner consists of a laser, high-resolution optics, robotics to position and scan the probe array, a fluorescence detector and an interface to a computer
workstation. The labeled material that is bound to the hybridized test sample emits fluorescent signals when exposed to the light from the laser. The locations and intensities of the fluorescent
signals are recorded by the scanner and stored in the computer for analysis. The fourth device is an autoloader, which is a 48-array carousel that interfaces with the scanner to allow
walk-away automation of the scanning steps, while maintaining the loaded arrays at the optimum storage temperature.

The
individual components of our GeneChip® instrument system are described in more detail below.



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Our GeneChip® Command Console Software (AGCC) provides an intuitive set of tools for instrument control and data organization used in the processing
of GeneChip probe arrays. AGCC produces probe cell intensity data (.CEL file generation) enables sample and array registration, data organization, fluidics and scanning instrument control as well as
automatic and manual image gridding. Besides these core features, AGCC's flexible platform enables customized, automated, and integrated workflows with a variety of laboratory information management
systems.

Customers
may choose operating or other software products provided by third party vendors that have been developed through our OpenSystems program, which includes the
provision of a Software Developer's Kit to interested commercial and academic parties. Through this program we intend to stimulate a wide range of independent groups to develop tools for use with our
platform, further enhancing our customers' capability to generate unique biological insights from the high quality data provided by the GeneChip® platform.

Finally,
our NetAffx Analysis Center (www.affymetrix.com/analysis/) is our exclusive online informatics resource for our customers and provides streamlined, open access to
design information and biological annotations associated with our GeneChip® arrays. It was created to assist genomic researchers with the design and analysis of DNA array based
experiments. NetAffx offers researchers a searchable catalog of Affymetrix GeneChip® probe array content, a range of publicly available and Affymetrix generated databases, and
links to important third party resources.



In December 2007, we launched a second generation update to the GeneChip® System 3000Dx platform. The GCS3000 Dx version 2 is configured especially
for the molecular diagnostic market. In December 2004, the GCS3000Dx was also cleared by the United States Food and Drug Administration (FDA) as an IVD to be used in conjunction with the Roche
Diagnostics AmpliChip CYP450 Test. The AmpliChip CYP450 Test also received CE certification and FDA clearance in 2004 making it the first Powered by Affymetrix
IVD test. This test, which utilizes an Affymetrix microarray produced specifically for Roche Diagnostics, analyzes a patient's Cytochrome P450 2D6 and 2C19 genotypes to look for variations that can
influence drug metabolism. The GCS3000Dx will support all Powered by Affymetrix molecular diagnostic tests. The system includes the GCS3000Dx Scanner with Autoloader Dx, FS450Dx Fluidics
Station, and Workstation with GCOS Dx software. A data transfer server module is also available for use with select research use only assays on the system.

We
believe that our GeneChip® technology can be effectively applied to complex molecular diagnostic testing. We have formed collaborations and intend to further partner with,
or license technology to, established diagnostic and medical device companies to develop, obtain regulatory approval for, and commercialize probe arrays and instrumentation. We anticipate broader use
of probe arrays as components of diagnostic products and clinical research applications. We believe that to support large central laboratories, additional instrumentation and automation will need to
be developed to allow for handling the large volume testing of the clinical diagnostic setting. To further our molecular diagnostics strategy, we have established a number of collaborations with
leading academic researchers, diagnostic companies, pharmaceutical and biotechnology companies, including Beckman Coulter, bioMérieux, Inc., Roche, and Veridex (a
Johnson & Johnson company).

We
have also entered into non-exclusive collaborative development and associated supply agreement with a number of other smaller companies in focused areas of cancer and
certain other diseases.

For
additional information concerning our collaborations, see the section of this Form 10-K entitled "Our Collaborative Partners."

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Our Collaborative Partners

Our collaboration strategy is to establish the GeneChip® system as the platform of choice for analyzing complex genetic information, to expand the
applications of our technology and to acquire access to complementary technologies and resources.

One
of our goals is to provide our life science research customers with complete workflow solutions. To that end we collaborate with a number of reagent and instrumentation companies to
develop and supply certain components of the user work flow. These companies include the Ambion Division of Applied Biosystems, Caliper Life Sciences, and CapitalBio Corporation, Invitrogen
Corporation, PreAnalutiX GmbH, and Qiagen GmbH.

We
have developed and implemented our Powered by Affymetrix (PbA) program to address specific diagnostics applications of our technology. Through this program we enable PbA partners to
develop custom product solutions based upon our arrays, instrumentation and software. These partners identify, develop, seek regulatory approval for and commercialize these specific tests. Current PbA
partners include bioMerieux, Inc., F. Hoffman-La Roche Ltd., Veridex, LLC., and Sysmex Corporation.

We
also collaborate with certain academic, government, and commercial research groups to develop and validate new applications of our technologies. These include the Broad Institute of
Harvard and the Massachusetts Institute of Technology, the National Genome Research Institute, and Perlegen Sciences.

Marketing and Distribution

The markets for our products include all aspects of molecular biology research in the life sciences, including basic human disease research, clinical research,
pharmaceutical drug discovery and development, including pharmacogenomics and toxicogenomics and agricultural research, amongst others. Our customers include pharmaceutical, biotechnology,
agrichemical, diagnostics, industrial and
consumer products companies, as well as academic research centers, laboratories in government agencies, private research foundations and clinical and industrial reference laboratories. The following
factors, among others, influence the size and development of our markets:



In
North America and major European markets, our GeneChip® products are marketed principally through our own sales and distribution organizations. We own or lease sales and
service offices in the United States, Europe, Japan and Singapore. In markets outside of North America and Europe, we sell our GeneChip® products principally through third party
distributors, primarily in Mexico, India, the

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Middle
East and Asia Pacific, including China. These distributors are life science supply specialists within their own countries and operate as our sole distributors within a defined country or other
geographic area.

For
molecular diagnostic and industrial applications market opportunities, we supply our partners with arrays and instruments, which they incorporate into diagnostic products and for
which they take on the primary commercialization responsibilities.

Manufacturing and Raw Materials

We manufacture our GeneChip® probe arrays, GCS 3000 scanner, fluidics stations, instrument control software and certain reagents in-house
and contract with third-party suppliers to manufacture our hybridization oven, GCAS and HT Scanner and certain reagents for our GeneChip® system. Additionally, through our
GeneChip-compatible application program, a number of third-party software suppliers develop, market and sell genomic data analysis software that interfaces with data files generated by
our GeneChip® system.

Our
probe array manufacturing process involves wafer preparation, probe synthesis, dicing of synthesized wafers into chips, assembly of chips and quality control. We have developed
software programs that extensively automate the design of photolithographic masks used in probe array manufacturing and that control the probe array manufacturing lines. Glass wafers are prepared for
synthesis through the application of chemical coatings. GeneChip® probe arrays are synthesized on the wafers using our proprietary, combinatorial photolithographic process. The completed
wafers can then be diced to yield individual probe arrays, which are assembled and packaged for shipment.

We
are currently manufacturing GeneChip® probe arrays for sale to customers as well as for internal and collaborative purposes. Probe arrays are manufactured at our dedicated
manufacturing facility located in West Sacramento, California and in our new manufacturing facility in Singapore. We also maintain a manufacturing process engineering and development facility in Santa
Clara, California. Our instruments are manufactured in our West Sacramento, California facility. We have in the past, and may in the future, adjust our capacity based on business requirements which
may include the rationalization of our facilities, including the abandonment of long-lived manufacturing
assets and additional charges related to a reduction in capacity. For example, in February 2008, we implemented a restructuring plan in order to optimize our production capacity and cost structure to
enable us to increase our future gross margins. We intend to move, by the end of 2008, the majority of our probe array manufacturing from our West Sacramento, California facility to our Singapore
facility.

Our
United States commercial instrument and array manufacturing facility complies with Good Manufacturing Practices as a subset of the Quality System Regulation (21 CFR 820). In 2006, we
added capacity to our West Sacramento facility and brought on line and qualified a dedicated GeneChip® probe array manufacturing facility located in Singapore. This facility is fully
operational.

We
perform quality tests on selected probe arrays from each wafer and selected probes on such probe arrays. We largely rely on in-process and internal quality control
procedures, including controls on the manufacturing process and sample testing, to verify the correct completion of the manufacturing process. In addition, we and our customers rely on the accuracy of
genetic sequence information contained in the public databases upon which our products are based. Our probe array manufacturing process is designed to allow us to meet our performance specifications
before arrays are shipped. We have a customer inquiry and complaint process in place and we rely on this process to identify and resolve product performance issues that may arise from time to time.

We
perform quality tests on in-house and third party reagents at our Santa Clara facility to verify performance of reagent components and assembled reagent kits. We have
qualified second source vendors for labeling reagents and oligonucleotides. We perform manufacturing and quality control

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testing
on certain of our reagents at our South San Francisco facility. We also perform services to run certain of our assays on customer samples at our South San Francisco facility.

Key
parts of the GeneChip® product line, such as hybridization ovens, are available from single sources. We take such steps as we believe are appropriate to ensure that
supplies from these vendors are not materially delayed or interrupted, since any such delays or interruptions could in turn delay our ability to deliver these products to our customers. Likewise,
certain raw materials or components used in the synthesis of probe arrays or the assembly of instrumentation are currently available only from a single source or limited sources. We take such steps as
we believe are appropriate to ensure that materials and components from these vendors are not materially delayed or interrupted, since any such delays or interruptions could in turn delay our ability
to produce probe arrays or other components for our GeneChip® system in a timely fashion, in sufficient quantities or under acceptable terms. Alternative sources of supply may be time
consuming and expensive to qualify. In addition, we are dependent on our vendors to provide components of appropriate quality and reliability, and to meet applicable regulatory requirements.
Accordingly, we also take what we believe are appropriate measures to prevent the delay or interruption of supplies from these vendors and to ensure the appropriate quality for our customers.

Research and Development

We believe a substantial investment in research and development is essential to a long-term sustainable competitive advantage and critical to
expansion into high-value markets such as toxicogenomics, pharmacogenomics, and molecular diagnostic and applied testing applications. Our research and development effort is divided into
the major areas of basic research, product research and development, and manufacturing process development. Our research and development expenses for the years ended December 31, 2007, 2006 and
2005 were $72.7 million, $86.3 million and $77.4 million, respectively.



Basic research efforts are carried out through our Affymetrix Research Laboratories to further advance our GeneChip® platform, develop new concepts
that can be rapidly productized, and create innovations that will influence our business model in the future. Our initial focus is on basic technology research including high throughput systems, high
resolution chip fabrication and detection, genotyping, and gene expression and analysis of the human transcriptome and of other model organism genomes. We are focusing our genotyping research efforts
on the development of new assays principally designed to perform whole genome analysis at various resolutions. We believe that products based on this research will ultimately help researchers
understand the molecular biology of genomes, to develop more effective therapeutics and help identify the diagnostic markers and tests useful in molecular diagnostic applications.



Our product research and development efforts are focused primarily on expanding the applications of the GeneChip® technology, including development of
new probe array products, improving the overall performance of GeneChip® assays, increasing the information capacity per probe array and simplifying highly complex assays. Our research and
development efforts are intended to continue to develop new products based on information from the human and other model organism genomes as well as new genotyping and DNA analysis products. In
addition, we intend to continue developing custom product lines for both expression and DNA analysis so that customers can analyze gene expression or DNA variability for any organism. We plan
continued software and instrumentation development efforts to enhance the performance and level of automation of our entire GeneChip® system solution.

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We are conducting research aimed at enhancing the manufacturing process currently employed in the production of our GeneChip® probe arrays. This
process, which leverages semiconductor photolithographic fabrication techniques, is combinatorial in that the number of different compounds synthesized grows exponentially with the number of cycles in
the synthesis. The objective of this research is to allow us to produce arrays with higher information density in the same unit area, similar to advances achieved in the semiconductor industry, which
has produced silicon chip capacity closely following Moore's Law. Moore's Law is the observation that the number of transistors per square inch on a silicon chip had doubled every 18 months
since the silicon chip was invented. To date, we have also been able to achieve rapid advances in genetic information content, reducing commercial product feature size from 100 microns in 1994 to 5
microns in 2005 with the introduction of our Human Exon Array product. We are continuing research aimed at using smaller feature technology in commercial products and implementing novel,
cost-effective packaging approaches for the small array formats including packaging these into the standard industry microtiter plate format.

Intellectual Property

We rely on a combination of patent, copyright, and trade secret laws, know-how and licensing opportunities to establish and protect our proprietary
technologies and products. Our success depends in part on our ability to obtain patent protection for our products and processes, to preserve our copyrights and trade secrets, to operate without
infringing the proprietary rights of third parties and to acquire licenses related to enabling technology or products used with our GeneChip® technology.

We
are pursuing a patent strategy designed to facilitate our research and development program and the commercialization of our current and future products. While no one patent is
considered essential to our success, we aggressively seek to protect our patent rights as our patent portfolio as a whole is material to the success of the business.

There
are a significant number of United States and foreign patents and patent applications in our areas of interest, and we believe that there will continue to be significant litigation
in the industry regarding patent and other intellectual property rights. Others have filed, and in the future are likely to file, patent applications that are similar or identical to ours or those of
our licensors. It may be
necessary for us to enter into litigation to defend against or assert claims of infringement, to enforce patents issued to us, to protect trade secrets or know-how owned by us or to
determine the scope and validity of the proprietary rights of others. To determine the priority of inventions, it may be necessary for us to participate in interference proceedings declared by the
United States Patent and Trademark Office. Litigation or interference proceedings could result in substantial costs to and distraction from our core business and our efforts in respect to such
proceedings may not be successful. For further information, see Item 3. Legal Proceedings.

We
also rely upon copyright and trade secrets to protect our confidential and proprietary information. We seek to protect our proprietary technology and processes by confidentiality
agreements with our employees and certain consultants and contractors. These agreements may be breached, we may not have adequate remedies for any breach and our trade secrets may otherwise become
known or be independently discovered by competitors. To the extent that our employees or our consultants or contractors use intellectual property owned by others in their work for us, disputes may
also arise as to the rights in related or resulting know-how and inventions.

We
are party to various option, supply and license agreements with third parties which grant us rights to use certain aspects of our technologies. We take such measures as we believe are
appropriate to maintain rights to such technology under these agreements. In addition, our academic collaborators have certain rights to publish data and information in which we have rights. There is
considerable pressure on academic institutions to publish discoveries in the genetics and genomics fields. We take

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such
steps as we believe are appropriate to ensure that such publication will not adversely affect our ability to obtain patent protection for information in which we may have a commercial interest.

Competition

Competition in gene expression monitoring, DNA analysis and molecular diagnostics is intense and is expected to increase. Further, the technologies for monitoring
gene expression, discovering and analyzing polymorphisms associated with significant diseases, and approaches for commercializing those discoveries are new and rapidly evolving. Currently, our
principal competition comes from existing technologies and other DNA array technologies that are used to perform many of the same functions for which we market our GeneChip® systems.

In
the gene expression monitoring and DNA analysis fields, existing competitive technologies include gel-based sequencing using instruments provided by companies such as
Applied Biosystems, Inc. (an Applera company), and Beckman Coulter, Inc.. Other companies developing or marketing potentially competitive DNA array technology include: Agilent
Technologies, Inc., Applied Biosystems, Inc., BD Biosciences, Clontech, CombiMatrix Corporation, Digital Gene Technologies, Inc., Illumina, Inc., Invitrogen Corporation
(formerly Xeotron, Inc.), Molecular Devices, Inc. (formerly Axon
Instruments, Inc.), Nanogen, Inc., Sequenom, Inc., Solexa, Inc. (formerly Lynx Therapeutics, Inc.), and Visible Genetics, Inc.. For example, companies such as
Agilent Technologies, Inc., Applied Biosystems, Inc., and Illumina, Inc. have products for DNA analysis which are directly competitive with our GeneChip® Mapping Array
products. In order to compete against existing and emerging technologies, we will need to be successful in demonstrating to customers that the GeneChip® system provides a competitive
advantage.

The
market for molecular diagnostic products derived from gene discovery is currently limited and highly competitive, with several large corporations already having significant market
share. Established diagnostic companies could compete with us by developing new products. Companies such as Beckman Coulter, Becton Dickinson, bioMérieux, Johnson & Johnson, and
Roche have the strategic commitment to diagnostics, the financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product
development, regulatory expertise, manufacturing capabilities and the distribution channels to deliver products to customers. Established diagnostic companies also have an installed base of
instruments in several markets, including clinical and reference laboratories, which are not compatible with the GeneChip® system and could slow acceptance of our products. In addition,
these companies have formed alliances with genomics companies which provide them access to genetic information that may be incorporated into their diagnostic tests.

Future
competition in existing and potential markets will likely come from existing competitors as well as other companies seeking to develop new technologies for sequencing and
analyzing genetic information, such as Applied Biosystems, Helicos, Illumina,, Pacific Biosystems and a number of smaller private companies. In addition, pharmaceutical and biotechnology companies
have significant needs for genomic information and may choose to develop or acquire competing technologies to meet these needs. We have significantly expanded our network of approved service providers
in America, Japan, Europe, and China. While these companies expand the reach of Affymetrix technology and make its analytical power available to a wider base of users they may act as a substitute for
outright purchase of instruments and arrays by those end users. In the molecular diagnostic field, competition will likely come from established diagnostic companies, companies developing and
marketing DNA probe tests for genetic and other diseases, and other companies conducting research on new technologies to ascertain and analyze genetic information. In addition, we have several other
third party licensees that could offer products that compete with our product offerings.

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Government Regulation

Regulation by governmental authorities in the United States and other countries will likely be a significant factor in the manufacturing, labeling, distribution
and marketing of certain products and services that may be developed by us or our collaborative partners. In particular, diagnostic products
we are developing with our collaborative partners may require regulatory approval by governmental agencies when distributed outside of the research environment.

Commercially
available diagnostic tests are regulated as medical devices and are generally subject to rigorous testing and other approval procedures by the United States Food and Drug
Administration (FDA). The FDA's Quality System Regulations also apply in connection with our manufacture of arrays and systems as components for use in diagnostic products developed by our partners.
Obtaining these clearances or approvals and the compliance with these regulations require the expenditure of substantial resources over a significant period of time, and there can be no assurance that
any clearances or approvals will be granted on a timely basis, if at all. Once granted, a clearance or approval may place substantial restrictions on how the device is marketed or labeled or to whom
it may be sold. In addition, various federal and state statutes and regulations govern or influence the manufacturing, safety, storage of our products and components of our products and our record
keeping.

Medical
device laws and regulations, including those covering in vitro diagnostic products, are also in effect in the European Union, and many of the countries in which we may do
business outside the United States. These range from comprehensive device approval requirements for some or all of our medical device products to requests for product data or
self-certifications. We may not be able to obtain regulatory approvals in such countries or may incur significant costs in obtaining or maintaining our non-US regulatory
approvals. In addition, the export by us of certain of our products which have not yet been cleared for domestic commercial distribution may be subject to FDA or other export restrictions.

Our
diagnostic clinical laboratory will be subject to extensive federal and state regulation including the requirements of the Clinical Laboratory Improvement Act of 1988 (CLIA). CLIA is
intended to ensure the quality and reliability of clinical laboratories in the United States by requiring all laboratories to meet specified standards in the areas of personnel qualification,
administration, participation in proficiency testing, patient test management, quality control, quality assurance and inspections. There can be no assurance that regulations under and future
administrative interpretations of CLIA will not have an adverse impact on the potential market for our diagnostic clinical laboratory.

Reimbursement

The design of our products and the potential market for their use may be directly or indirectly affected by U.S. and other government regulations governing
reimbursement for clinical testing services. The availability of third-party reimbursement for our products and services may be limited or uncertain, particularly with respect to genetic tests and
other clinical applications products.

Third-party
payers may deny reimbursement if they determine that a prescribed health care product or service has not received appropriate FDA or other governmental regulatory clearances,
is not used in
accordance with cost-effective treatment methods as determined by the payer, or is deemed by the third-party payer to be experimental, unnecessary or inappropriate. Furthermore, third-
party payers are increasingly challenging the prices charged for health care products and services.

Currently,
sales of our products and services are not subject to third-party reimbursement. However, we are currently developing diagnostic and therapeutic products with our
collaborative partners which may be subject to reimbursement issues. The ability of our collaborators to commercialize such products may depend, in part, on the extent to which reimbursement for the
cost of

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these
products will be available under U.S. and foreign regulations governing reimbursement for clinical testing services by government authorities, private health insurers and other organizations. In
addition, we are establishing a diagnostic clinical laboratory which will provide subcontract services to primary clinical laboratories.

In
the United States, third-party payer price resistance, the trend towards managed health care and legislative proposals to reform health care or reduce government insurance programs
could reduce prices for health care products and services, adversely affect the profits of our customers and collaborative partners and reduce our future royalties and product sales.

Environmental Matters

We are dedicated to compliance and protection of the environment and individuals. Our operations require the use of hazardous materials (including biological
materials) which subject us to a variety of federal, state and local environmental and safety laws and regulations. We believe we are in material compliance with current and applicable laws and
regulations. However, some of the regulations under the current regulatory structure allow for "strict liability," holding a party potentially liable without regard to fault or negligence. We could be
held liable for damages and fines as a result of our, or others', business operations should contamination of the environment or individual exposure to hazardous substances occur. We cannot predict
how changes in these laws or development of new regulations will affect our business operations or the cost of compliance.

Employees

As of February 20, 2008, we had 1,141 full-time employees. The employee group includes chemists, engineers, computer scientists, mathematicians
and molecular biologists with experience in the diagnostic products, medical products, semiconductor, computer software and electronics industries. None of our employees are represented by a
collective bargaining agreement, nor have we experienced
work stoppages. We believe that we maintain good relationships with our employees. Our success depends in large part on our ability to attract and retain skilled and experienced employees.

Seasonality

Customer demand for probe arrays and instrumentation systems is typically highest in the fourth quarter of the calendar year as customers spend unused budget
allocations before the end of the financial year.

Backlog

Because most customer orders are shipped in the quarter in which they are received, we believe that backlog at quarter end is typically not a material indicator
of future sales. In addition, backlog may not result in sales because of cancellation of orders or other factors. On a few occasions we have experienced, and made public announcements about,
short-term increases in backlog as a result of factors such as new product introductions or supply constraints.

Financial Information About Industry Segments

We operate in one business segment, for the development, manufacture, and commercialization of systems for genetic analysis in the life sciences and diagnostic
industry. Our operations are treated as one segment as we only report operating information on a total enterprise level to our chief operating decision-maker. Further, resource allocations are also
made at the enterprise level by our chief operating decision-maker.

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Financial Information About Geographic Areas

Our product and product related revenue from customers outside of the United States for fiscal years 2007, 2006 and 2005 was $173.4 million,
$168.0 million and $176.7 million, or approximately 51%, 52% and 51%, respectively, of our consolidated product and product related revenue. A summary of revenues from external customers
attributed to each of our geographic areas for the fiscal years ended December 31, 2007, 2006 and 2005, is included in Note 16 of our Consolidated Financial Statements included in this
report.

Available Information

Our internet address iswww.affymetrix.com. Information included in our website is not part of this
Form 10-K. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In addition, copies of our
annual reports are available free of charge upon written request. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. The address of that site ishttp://www.sec.gov.

ITEM 1A.    RISK FACTORS

In evaluating our business, you should carefully consider the following risks, as well as the other information contained in this annual report on
Form 10-K. If any of the following risks actually occurs, our business could be harmed.

We may not maintain profitability.

We incurred losses each year from our inception through the year ended December 31, 2002 and also for the year ended December 31, 2006. As a result,
we had an accumulated deficit of approximately $108.5 million at December 31, 2007. We expect to continue experiencing fluctuations in our operating results and cannot assure sustained
profitability.

Our
ability to generate significant revenues and maintain profitability is dependent in large part on our ability to expand our customer base, increase sales of our current products to
existing customers, manage our expense growth, and enter into additional supply, license and collaborative arrangements as well as on our ability and that of our collaborative partners to successfully
manufacture and commercialize products incorporating our technologies in new applications and in new markets. If our revenues grow more slowly than we anticipate, or if our operating expenses increase
more than we expect or cannot be reduced in the event of lower revenues, our business will be materially and adversely affected.

Our quarterly results have historically fluctuated significantly and may continue to fluctuate unpredictably and any failure to meet financial expectations may disappoint
securities analysts or investors and result in a decline in our stock price.

Our revenues and operating results may fluctuate significantly due in part to factors that are beyond our control and which we cannot predict. The timing of our
customers' orders may fluctuate from quarter to quarter. However, we have historically experienced customer ordering patterns for GeneChip® instrumentation and GeneChip® arrays
where the majority of the shipments occur in the last month of the quarter. These ordering patterns may limit management's ability to accurately forecast our future revenues or product mix.
Additionally, license revenue may also be unpredictable and may fluctuate due to the timing of payments of non-recurring licensing fees. Because our expenses are largely fixed in the short
to medium term, any material shortfall in revenues will materially reduce

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our
profitability and may cause us to experience losses. In particular, our revenue growth and profitability depend on sales of our GeneChip® products. Factors that could cause sales for
these products to fluctuate include:



Some
additional factors that could cause our operating results to fluctuate include:



We
cannot forecast with any certainty the impact of these and other factors on our sales and operating results in any future period. Results of operations in any period, therefore,
should not be considered indicative of the results to be expected for any future period. Because of this difficulty in predicting future performance, our operating results may fall below the
expectations of securities analysts or investors in some future quarter or quarters. Our failure in the past to meet these expectations has adversely affected the market price of our common stock and
may continue to do so.

We may experience fluctuations in demand for our products or make improvements in our technological capabilities that may impact our manufacturing capacity requirements.

If demand for our products is reduced or if we implement technologies that increase the density or yields of our wafers, our manufacturing capacity could be
under-utilized, and we may be required to record an impairment on our long-lived assets including facilities and equipment, which would increase our expenses. In addition, factory planning
decisions may shorten the useful lives of long-lived assets including facilities and equipment, and cause us to accelerate depreciation. These changes in demand for our products, and
changes in our customers' product needs, could have a variety of negative effects on our competitive position and our financial results, and, in certain cases, may reduce our revenue, increase our
costs, lower our gross margin percentage or require us to recognize impairments of our assets. In addition, if demand for our products is reduced or we fail to accurately forecast demand, we could be
required to write down inventory, which would have a negative impact on our gross margin.

For
example, we have in the past, and may in the future, adjust our capacity based on business requirements, which may include the rationalization of our facilities, including the
abandonment of long-lived manufacturing assets and additional charges related to a reduction in capacity In February 2008, we implemented a restructuring plan in order to optimize our
production capacity and cost structure to enable us to increase our future gross margins. We intend to move, by the end of 2008, the majority of our probe array manufacturing from our West Sacramento,
California facility to our Singapore facility.

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We may lose customers or experience lost sales if we are unable to manufacture or experience delays in the manufacture of our products, or if we are unable to ensure their
proper performance and quality.

We produce our GeneChip® products in an innovative and complicated manufacturing process which has the potential for significant variability in
manufacturing yields. We have encountered and may in the future encounter difficulties in manufacturing our products and, due to the complexity of our products and our manufacturing process, we may
experience delays in the manufacture of our products or fail to ensure their proper performance or quality.

We
developed a new probe array manufacturing facility in Singapore. Manufacturing and product quality issues may arise at the new Singapore facility as we increase production rates and
launch new products. In addition, we base our manufacturing capabilities on our forecasted product mix for the quarter. If the actual product mix varies significantly from our forecast, we may not be
able to fill some orders during that quarter, which could adversely impact our financial results. Difficulties in meeting customer, collaborator and internal demand could also cause us to lose
customers or require us to delay new product introductions, which could in turn result in reduced demand for our products.

We
rely on internal quality control procedures to verify our manufacturing processes. Due to the complexity of our products and manufacturing process, however, it is possible that probe
arrays that do not meet all of our performance specifications may not be identified before they are shipped. If our products do not consistently meet our customers' performance expectations, demand
for our products will decline. In addition, we do not maintain any backup manufacturing capabilities for the production of our GeneChip® instruments. Any interruption in our ability to
continue operations at our existing manufacturing facilities could delay our ability to develop or sell our products, which could result in lost revenue and seriously harm our business, financial
condition and results of operations.

We may not be able to deliver acceptable products to our customers due to the rapidly evolving nature of genetic sequence information upon which our products are based.

The genetic sequence information upon which we rely to develop and manufacture our products is contained in a variety of public databases throughout the world.
These databases are rapidly expanding
and evolving. In addition, the accuracy of such databases and resulting genetic research is dependent on various scientific interpretations and it is not expected that global genetic research efforts
will result in standardized genetic sequence databases for particular genomes in the near future.

Although
we have implemented ongoing internal quality control efforts to help ensure the quality and accuracy of our products, the fundamental nature of our products requires us to rely
on genetic sequence databases and scientific interpretations which are continuously evolving. As a result, these variables may cause us to develop and manufacture products that incorporate sequence
errors or ambiguities. The magnitude and importance of these errors depends on multiple and complex factors that would be considered in determining the appropriate actions required to remedy any
inaccuracies. Our inability to timely deliver acceptable products as a result of these factors would likely adversely affect our relationship with customers, and could have a material adverse effect
on our business, financial condition and results of operations.

We face risks associated with technological obsolescence and emergence of standardized systems for genetic analysis.

The RNA/DNA probe array field is undergoing rapid technological changes. New technologies, techniques or products could emerge which might allow the packaging and
analysis of genomic information at densities similar to or higher than our microarray technology. Other companies may begin to offer products that are directly competitive with, or are technologically
superior, to our products. There can be no guarantee that we will be able to maintain our technological advantages over

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emerging
technologies in the future. Over time, we will need to respond to technological innovation in a rapidly changing industry. In addition, although we believe that we are recognized as a market
leader in creating systems for genetic analysis in the life sciences, standardization of tools and systems for genetic research is still ongoing and there can be no assurance that our products will
emerge as the standard for genetic research. The emergence of competing technologies and systems as market standards for genetic research may result in our products becoming uncompetitive and could
cause our business to suffer.

Our success depends on the continual development of new products and our ability to manage the transition from our older products to new products.

We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing, and many of our current and potential competitors have
significantly greater financial, technical, marketing and other resources than we do. In addition, many current and potential competitors have greater name recognition, more extensive customer bases
and access to proprietary genetic content. The
continued success of our GeneChip® products will depend on our ability to produce products with smaller feature sizes, our ability to dice the wafer, and create greater information
capacity at our current or lower costs. The successful development, manufacture and introduction of our new products is a complicated process and depends on our ability to manufacture enough products
in sufficient quantity and at acceptable cost in order to meet customer demand. If we fail to keep pace with emerging technologies or are unable to develop, manufacture and introduce new products,
including the development of new assay protocols and training our customers, we will become less competitive, our pricing and margins will decline and our business will suffer.

Our
failure to successfully manage the transition between our older products and our new products may adversely affect our financial results. As we introduce new or enhanced products, we
must successfully manage the transition from older products to minimize disruption in customers' ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies
of new products to meet customer demands. When we introduce new or enhanced products, we face numerous risks relating to product transitions, including the inability to accurately forecast demand and
difficulties in managing different sales and support requirements due to the type or complexity of the new products.

We may not realize the expected benefits of our initiatives to reduce costs across our operations.

We are pursuing and may continue to pursue a number of initiatives to reduce costs across our operations. These initiatives include workforce reductions in
certain areas and the rationalization of our facilities. In 2006, we announced our plan to consolidate our Bedford, Massachusetts based instrumentation manufacturing and development facility with our
manufacturing facility in West Sacramento, California. Implementation of the workforce severance and relocation elements of the Bedford facility closure continued through fiscal 2007. In 2007, we
implemented workforce reductions in certain areas in Santa Clara, California. We anticipate that we will incur some level of restructuring charges through the end of 2008 as we continue to implement
these initiatives.

We
may not realize the expected benefits of our current and future initiatives to reduce costs. As a result of these initiatives, we expect to incur restructuring or other charges and we
may experience disruptions in our operations, a loss of key personnel and difficulties in delivering products in a timely manner.

Future acquisitions may disrupt our business and distract our management.

We have engaged in acquisitions, including our acquisition of USB Corporation in 2008 and ParAllele BioScience, Inc. in 2005. We will continue to evaluate
future acquisitions of businesses,

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services
or technologies that we believe to be of strategic importance. Future acquisitions could involve our use of a material portion of our existing cash balance and could limit other potential
uses of our cash. If we incur indebtedness in connection with our acquisitions, we may significantly increase our interest expense, leverage and debt service requirements.

We
may not be able to successfully integrate an acquired business into our existing business or an acquired product into our existing product offerings in a timely and
non-disruptive manner, or at all, and we could fail to commercialize an acquired technology. Furthermore, an acquisition may not produce the revenues, cost savings, earnings or business
synergies that we anticipate. Our due diligence process could fail to identify problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including
issues with the associated intellectual property, product quality or accounting practices. Other challenges could include unanticipated incompatibility of corporate and administrative infrastructures,
an inability to retain key employees, including key scientists, the diversion of management's attention from ongoing business concerns, and the potential adverse reaction of customers or other
business partners to an acquisition or resulting changes to the combined company's product and services offerings. Pre-existing liabilities that we assume in connection with an acquisition
could be materially larger than we anticipate. We may face litigation or other claims in connection with an acquisition, or we may inherit claims or litigation risk as a result of an acquisition. If a
past or future acquisition fails to meet our expectations, we may need to recognize a goodwill impairment charge. The final valuation of purchased assets and liabilities could impact our future
operating results, including our gross margins. The occurrence of any of the foregoing events or circumstances could have a material adverse effect on our business, financial condition and results of
operations.

To
the extent we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders would be diluted.

If we do not attract and retain key employees, our business could be impaired.

To be successful, we must attract and retain qualified scientific, engineering, manufacturing, sales, and management personnel. To expand our research, product
development and sales efforts we need additional people skilled in areas such as bioinformatics, organic chemistry, information services, regulatory affairs, manufacturing, sales, marketing and
technical support. Competition for these people is intense. We will not be able to expand our business if we are unable to hire, train and retain a
sufficient number of qualified employees. There can be no assurance that we will be successful in hiring or retaining qualified personnel and our failure to do so could have a material adverse impact
on our business, financial condition and results of operations.

We
also rely on our scientific advisors and consultants to assist us in formulating our research, development and commercialization strategy. All of these individuals are engaged by
other employers and have commitments to other entities that may limit their availability to us. A scientific advisor's other obligations may prevent him or her from assisting us in developing our
technical and business strategies.

We expect to face increasing competition.

The markets for our products are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition, new
product introductions and strong price competition. We expect to face increased competition in the future as existing companies develop new or improved products and as new companies enter the market
with new technologies.

For
example, companies such as Agilent Technologies, Applied Biosystems and Illumina have products for genetic analysis which are directly competitive with our GeneChip®
products. In addition,

25

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pharmaceutical
and biotechnology companies have significant needs for genomic information and may choose to develop or acquire competing technologies to meet these needs.

In
the molecular diagnostics field, competition will likely come from established diagnostic companies, companies developing and marketing DNA probe tests for genetic and other diseases
and other companies conducting research on new technologies to ascertain and analyze genetic information. Further, in the event that we develop new technology and products that compete with existing
technology and products of well established companies, there can be no guarantee that the marketplace will readily adopt any such new technology and products that we may introduce in the future.

The
market for molecular diagnostics products is currently limited and highly competitive, with several large companies already having significant market share. Companies such as Beckman
Coulter, Becton Dickinson, bioMérieux, Celera Diagnostics, Johnson & Johnson and Roche Diagnostics have made strategic commitments to diagnostics, have financial and other
resources to invest in new technologies, and have substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities and
the distribution channels to deliver products to customers. Established diagnostic companies also have an installed base of instruments in
several markets, including clinical and reference laboratories, which are not compatible with the GeneChip® system and could deter acceptance of our products. In addition, these companies
have formed alliances with genomics companies which provide them access to genetic information that may be incorporated into their diagnostic tests.

Changes in accounting pronouncements may impact our future financial position and results of operations.

There have been new accounting pronouncements that may have an impact on our future financial position and results of operations. For instance, in July 2006, the
FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109("FIN 48"). Under FIN 48 a company recognizes the benefit from a tax position only if it is more-likely-than-not that the position would be sustained
upon audit based solely on the technical merits of the tax position. FIN 48 clarifies how a company measures the income tax benefits from the tax positions that are recognized, provides
guidance as to the timing of the derecognition of previously recognized tax benefits and describes the methods for classifying and disclosing the liabilities within the financial statements for any
unrecognized tax benefits. FIN 48 also addresses when a company should record interest and penalties related to tax positions and how the interest and penalties may be classified within the
income statement and presented in the balance sheet. We adopted FIN 48 effective January 1, 2007. See Note 15 to the Condensed Consolidated Financial Statements in Item 8
of Part II for further details.

Our effective tax rate may vary significantly.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions. Significant estimates and judgments are
required in determining our worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of our tax liability may
be uncertain as a result.

Certain
jurisdictions have lower tax rates, and the amount of earnings in these jurisdictions may fluctuate. If we do not have profitable operations in these jurisdictions, our tax rate
could be adversely impacted. Changes in tax laws and regulatory requirements in the countries in which we operate could have a material impact on our tax provision. To the extent that we are unable to
continue to reinvest a substantial portion of our profits in our foreign operations, we may be subject to additional effective income tax rate increases in the future. Tax authorities may challenge
the allocation of profits between

26

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our
subsidiaries and we may not prevail in any such challenge. If we were not to prevail, we could be subject to higher tax rates or double tax.

We
rely on our ability to project future taxable income to assess the likelihood that our net deferred tax asset will be realized. To the extent we believe that realization is not more
likely than not, we establish a valuation allowance. Significant estimates are required in determining any valuation allowance to be recorded against our net deferred tax assets. Changes in the amount
of valuation allowance required may adversely impact our financial results of operations.

Other
factors that could affect our effective tax rate include levels of overall income, research and development spending and nondeductible expenses such as stock based compensation.

Our business depends on research and development spending levels for pharmaceutical and biotechnology companies and academic and governmental research institutions.

We expect that our revenues in the foreseeable future will be derived primarily from products and services provided to a relatively small number of pharmaceutical
and biotechnology companies and academic, governmental and other research institutions. Our success will depend upon their demand for and use of our products and services. Our operating results may
fluctuate substantially due to reductions and delays in research and development expenditures by these customers. For example, reductions in capital expenditures by these customers may result in lower
than expected instrumentation sales and similarly, reductions in operating expenditures by these customers could result in lower than expected GeneChip® array and reagent sales. These
reductions and delays may result from factors that are not within our control, such as:



Our success in penetrating emerging market opportunities in molecular diagnostics depends on the efforts of our partners and the ability of our GeneChip®
technologies to be used in clinical applications for diagnosing and enabling informed disease management options in the treatment of disease.

The clinical applications of GeneChip® technologies for diagnosing and enabling informed disease management options in the treatment of disease is an
emerging market opportunity in molecular diagnostics that seeks to improve the effectiveness of health care by collecting information about DNA variation and RNA expression in patients at various
times from diagnosis through prognosis and on to the end of therapy. However, there can be no assurances that molecular diagnostic markets will develop as quickly as we expect or reach what we believe
is their full potential. Although we believe that there will be clinical applications of our GeneChip® technologies that will be utilized for diagnosing and enabling informed disease
management options in the treatment of disease, there can be no certainty of the technical or commercial success our technologies will achieve in such markets.

The
molecular diagnostics market is relatively new for us and presents us with new risks and uncertainties. Our success in this area depends to a large extent on our collaborative
relationships and the ability of our collaborative partners to successfully market and sell products using our GeneChip® technologies. As a result, we are also dependent on the ability of
our collaborative partners to achieve regulatory approval for such products in the United States and in overseas markets. Although Roche

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received
FDA approval of the first diagnostic genotyping test for use with our GeneChip® System 3000Dx in late 2004, there can be no assurance that other products using our
GeneChip® technologies will achieve needed approvals.

Our planned upgrade to our information systems could disrupt our internal operations, which could harm our revenues and increase our expenses.

We are in the process of upgrading our enterprise resource accounting information system. We plan to integrate a substantial portion of our business and finance
activities into the upgraded system during the first quarter of fiscal year 2008. Due to the size and complexity of our business, the conversion process will be very challenging. Any disruptions and
problems that occur during the system conversion could adversely impact our ability to conduct our business, including taking customer orders,
manufacturing and shipping our products, billing and collecting customer receivables and reporting our operating results. Even if we do succeed, the implementation may be more costly than we
anticipated.

We may not successfully obtain or retain regulatory approval of any diagnostic or other product or service that we or our collaborative partners develop.

The FDA must approve certain in-vitro diagnostic products before they can be marketed in the U.S. Certain in-vitro diagnostic products
must also be approved by the regulatory agencies of foreign governments or jurisdictions before the product can be sold outside the U.S. Commercialization of our and our collaborative partners'
in-vitro diagnostic products outside of the research environment that may depend upon successful completion of clinical trials. Clinical development is a long, expensive and uncertain
process and we do not know whether we, or any of our collaborative partners, will be permitted to undertake clinical trials of any potential in-vitro diagnostic products. It may take us or
our collaborative partners many years to complete any such testing, and failure can occur at any stage. Delays or rejections of potential products may be encountered based on changes in regulatory
policy for product approval during the period of product development and regulatory agency review. Moreover, if and when our projects reach clinical trials, we or our collaborative partners may decide
to discontinue development of any or all of these projects at any time for commercial, scientific or other reasons. Any of the foregoing matters could have a material adverse effect on our business,
financial condition and results of operations.

Even
where a product is exempted from FDA clearance or approval, the FDA may impose restrictions as to the types of customers to which we can market and sell our products. Such
restrictions may materially and adversely affect our business, financial condition and results of operations.

Medical
device laws and regulations are also in effect in many countries, ranging from comprehensive device approval requirements to requests for product data or certifications. The
number and scope of these requirements are increasing. We may not be able to obtain regulatory approvals in such countries or may incur significant costs in obtaining or maintaining our foreign
regulatory approvals. In addition, the export by us of certain of our products which have not yet been cleared for domestic commercial distribution may be subject to FDA or other export restrictions.

Our
diagnostic clinical laboratory is subject to extensive federal and state regulation including the requirements of the Clinical Laboratory Improvement Act of 1988 (CLIA). CLIA is
intended to ensure the quality and reliability of clinical laboratories in the United States by requiring all laboratories to meet specified standards in the areas of personnel qualification,
administration, participation in proficiency testing, patient test management, quality control, quality assurance and inspections. There can be no assurance that regulations under and future
administrative interpretations of CLIA will not have an adverse impact on the potential market for our diagnostic clinical laboratory.

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Healthcare reform and restrictions on reimbursements may limit our returns on molecular diagnostic products that we may develop with our collaborators.

We are currently developing diagnostic and therapeutic products with our collaborators. The ability of our collaborators to commercialize such products may
depend, in part, on the extent to which reimbursement for the cost of these products will be available under U.S. and foreign regulations that govern reimbursement for clinical testing services by
government authorities, private health insurers and other organizations. In the U.S., third-party payer price resistance, the trend towards managed health care and legislative proposals to reform
health care or reduce government insurance programs could reduce prices for health care products and services, adversely affect the profits of our customers and collaborative partners and reduce our
future royalties.

We depend on a limited number of suppliers and we will be unable to manufacture our products if shipments from these suppliers are delayed or interrupted.

We depend on our vendors to provide components of our products in required volumes, at appropriate quality and reliability levels, and in compliance with
regulatory requirements. Key parts of the GeneChip® product line are currently available only from a single source or limited sources. In addition, components of our manufacturing
equipment and certain raw materials used in the synthesis of probe arrays are available from limited sources. If supplies from these vendors were delayed or interrupted for any reason, we would not be
able to get manufacturing equipment, produce probe arrays, or sell scanners or other components for our GeneChip® products in a timely fashion or in sufficient quantities or under
acceptable terms. Furthermore, our business is dependent on our ability to forecast the needs for components and products in the GeneChip® product line and our suppliers' ability to
deliver such components and products in time to meet critical manufacturing and product release schedules. Our business could be adversely affected, for example, if suppliers fail to meet product
release schedules, if we experience supply constraints, if we fail to negotiate favorable pricing or if we experience any other interruption or delay in the supply chain which interferes with our
ability to manufacture our products or manage our inventory levels.

Our success will require that we establish a strong intellectual property position and that we can defend ourselves against intellectual property claims from others.

Maintaining a strong patent position is critical to our business. Litigation on these matters has been prevalent in our industry and we expect that this will
continue. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and the extent of future protection is highly uncertain, so we cannot assure you
that the patent rights that we have or may obtain will be valuable. Others have filed, and in the future are likely to file, patent applications that are similar or identical to ours or those of our
licensors. To determine the priority of inventions, we will have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial
costs in legal fees and could substantially affect the scope of our patent protection. We cannot assure you that any such patent applications will not have priority over our patent applications. Also,
our intellectual property may be subject to significant administrative and litigation proceedings such as opposition proceedings against our patents in Europe, Japan and other jurisdictions. Because
of the size and breadth of our patent portfolio we may or may not choose to pursue litigation or interferences against those that have infringed on our patents, or used them without authorization, due
to the associated expense and time commitment of monitoring these activities.

If
we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations. Legal actions to
enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the
invalidation of our patents or a

29

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finding
that they are unenforceable. In addition, we have incurred and may in future periods incur substantial costs in litigation to defend against patent suits brought by third parties. For example,
we currently are engaged in litigation regarding intellectual property rights with Enzo Life Sciences, Inc. For additional information concerning intellectual property litigation and
administrative proceedings, see Note 12 to the Condensed Consolidated Financial Statements in Item 8 of Part II, Legal Proceedings of this Form 10-K.

In
addition to patent protection, we also rely upon copyright and trade secret protection for our confidential and proprietary information. There can be no assurance, however, that such
measures will provide adequate protection for our copyrights, trade secrets or other proprietary information. In addition, there can be no assurance that trade secrets and other proprietary
information will not be disclosed, or that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to or disclose our trade
secrets and other proprietary information. There can also be no assurance that we will be able to effectively protect our copyrights, trade secrets or other proprietary information. If we cannot
obtain, maintain or enforce intellectual property rights, our competitors may be able to offer probe array systems similar to our GeneChip® technology.

Our
success also depends in part on us neither infringing patents or other proprietary rights of third parties nor breaching any licenses that may relate to our technologies and
products. We are aware of third-party patents that may relate to our technology, including reagents used in probe array synthesis and in probe array assays, probe array scanners, synthesis techniques,
polynucleotide amplification techniques, assays, and probe arrays. We routinely receive notices claiming infringement from third parties as well as invitations to take licenses under third party
patents. There can be no assurance that we will not infringe on these patents or other patents or proprietary rights or that we would be able to obtain a license to such patents or proprietary rights
on commercially acceptable terms, if at all.

If we are unable to maintain our relationships with collaborative partners, we may have difficulty developing and selling our products and services.

We believe that our success in penetrating our target markets depends in part on our ability to develop and maintain collaborative relationships with key
companies as well as with key academic researchers. Relying on our collaborative relationships is risky to our future success because:



30

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The size and structure of our current sales, marketing and technical support organizations may limit our ability to sell our products.

Although we have invested significant resources to expand our direct sales force and our technical and support staff, we may not be able to establish a
sufficiently sized global sales, marketing or technical support organization to sell, market or support our products globally. To assist our sales and support activities, we have entered into
distribution agreements through certain distributors, principally in markets outside of North America and Europe. These and other third parties on whom we rely for sales, marketing and technical
support in these geographic areas may decide to develop and sell competitive products or otherwise become our competitors, which could harm our business.

Due to the international nature of our business, political or economic changes or other factors could harm our business.

A significant amount of our revenue is currently generated from sales outside the United States. Though such transactions are denominated in both U.S. dollars and
foreign currencies, our future revenue, gross margin, expenses and financial condition are still affected by such factors as changes in foreign currency exchange rates; unexpected changes in, or
impositions of, legislative or regulatory requirements, including export and trade barriers and taxes; longer payment cycles and greater difficulty in accounts receivable collection. We are also
subject to general geopolitical risks in connection with international operations, such as political, social and economic instability, potential hostilities and changes in diplomatic and trade
relationships. We cannot assure investors that one or
more of the foregoing factors will not have a material adverse effect on our business, financial condition and operating results or require us to modify our current business practices.

We may be exposed to liability due to product defects.

The risk of product liability claims is inherent in the testing, manufacturing, marketing and sale of human diagnostic and therapeutic products. We may seek to
acquire additional insurance for clinical liability risks. We may not be able to obtain such insurance or general product liability insurance on acceptable terms or in sufficient amounts. A product
liability claim or recall could have a serious adverse effect on our business, financial condition and results of operations.

Ethical, legal and social concerns surrounding the use of genetic information could reduce demand for our products.

Genetic testing has raised ethical issues regarding privacy and the appropriate uses of the resulting information. For these reasons, governmental authorities may
call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, such
concerns may lead individuals to refuse to use genetics tests even if permissible. Any of these scenarios could reduce the potential markets for our molecular diagnostic products, which could have a
material adverse effect on our business, financial condition and results of operations.

Our strategic equity investments may result in losses.

We periodically make strategic equity investments in various publicly traded and non-publicly traded companies with businesses or technologies that
may complement our business. The market values of these strategic equity investments may fluctuate due to market conditions and other conditions over which we have no control. Other than temporary
declines in the market price and valuations of the securities that we hold in other companies will require us to record losses relative to our ownership interest. This could result in future charges
on our earnings and as a result, it is

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uncertain
whether or not we will realize any long term benefits associated with these strategic investments.

The market price of our common stock has been volatile.

The market price of our common stock is volatile. During the twelve-month period ending on December 31, 2007, the volume of our common stock traded from
255,600 to 7,694,100 shares. Moreover, during that period, our common stock traded as low as $20.00 per share and as high as $31.95 per share.

Furthermore,
volatility in the stock price of other companies has often led to securities class action litigation against those companies. Any future securities litigation against us
could result in substantial costs and divert management's attention and resources, which could seriously harm our business, financial condition and results of operations.

The matters relating to our internal review of our historical stock option granting practices and the restatement of our consolidated financial statements may have a material
adverse effect on us.

During 2006, we conducted an internal review, performed under the direction of our Audit Committee of the Board of Directors, of our historical stock option
granting practices from January 1, 1997 through May 31, 2006. As a result of this review, we restated our consolidated financial statements for the years ended December 31, 2005,
2004 and 2003 to record additional non-cash stock-based compensation expense and the related tax impact resulting from stock options granted during fiscal years 1997 to 1999. We have been,
and may in the future be, subject to litigation or other proceedings or actions arising in relation to our historical stock option granting practices and the restatement of our prior period financial
statements. For example, three purported derivative lawsuits have been filed against us and several of our current and former officers and directors alleging that the defendants breached their
fiduciary duty by backdating stock option grants, as well as violations of federal securities laws in connection with the dissemination of our financial and proxy statements, violations of Generally
Accepted Accounting Principles, violations of Section 162(m) of the Internal Revenue Code and violations of state law including violation of the California Corporations Code. In addition, we
have received notice from the Securities and Exchange Commission that it is conducting an informal inquiry into our stock option practices and we have received notice from the IRS that it is
conducting an employment tax audit for the 2005 and 2006 tax years. Litigation and any potential regulatory proceeding or action may be time consuming, expensive and distracting from the conduct of
our business. The adverse resolution of any specific lawsuit or any potential regulatory proceeding or action could have a material adverse effect on our business, financial condition and results of
operations.

Global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or short-term investments and our
ability to meet our financing objectives.

Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our
short-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. While as of the date of this
filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or short-term investments since
December 31, 2007, no assurance can be given that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash
equivalents or short-term investments or our ability to meet our financing objectives.

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ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

Our corporate headquarters are located in Santa Clara, California, where we lease approximately 200,000 square feet. Our manufacturing facilities are located in
West Sacramento, California and Singapore, where we own approximately 170,000 square feet and lease approximately 150,000 square feet, respectively. Additionally, we lease approximately 250,000 square
feet of administrative and research and development space in California (Emeryville, South San Francisco, Sunnyvale and West Sacramento), Massachusetts (Bedford), China (Shanghai), Japan (Osaka and
Tokyo) and the United Kingdom (Wooburn Green). We believe that our existing properties are in good condition and are suitable for the conduct of our business.

ITEM 3.    LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in "Item 8. Financial Statements and Supplementary DataNote 12. Commitments
and Contingencies" to the consolidated financial statements, and is incorporated by reference herein.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the year ended December 31, 2007.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq Global Market under the symbol of AFFX. The following table sets forth on a per share basis, for the periods indicated,
the low and high closing prices of our common stock as reported by the Nasdaq Global Select Market.

Low

High2007First Quarter

$
21.72

$
30.07Second Quarter

$
24.21

$
31.60Third Quarter

$
22.34

$
28.53Fourth Quarter

$
20.00

$
27.882006First Quarter

$
30.31

$
47.62Second Quarter

$
25.60

$
34.90Third Quarter

$
18.81

$
26.03Fourth Quarter

$
20.54

$
27.03


As
of February 20, 2008, there were approximately 382 holders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company
("DTC"). All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and
therefore are considered to be held of record by Cede & Co. as one shareholder.

No
dividends have been paid on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not anticipate paying any cash dividends on our
common stock in the foreseeable future.

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Performance Graph

The graph below compares the cumulative total return* on our common stock for the period commencing on December 31, 2002 and ending December 31,
2007 compared to the CRSP Total Return Index for the Nasdaq National Market (U.S. companies) and the CRSP Total Return Index for the Nasdaq Pharmaceutical Stocks (SIC 283). The stock price performance
shown on the graph below is not necessarily indicative of future price performance.

Comparison of Five-Year Cumulative Stockholder Return (*)

GRAPHIC

|                                        |  | 12/31/2002 |  | 12/31/2003 |  | 12/31/2004 |  | 12/31/2005 |  | 12/31/2006 |  | 12/31/2007
|--------------------------------------- |  | ---------- |  | ---------- |  | ---------- |  | ---------- |  | ---------- |  | ----------
|Affymetrix, Inc.                        |  | 100.0      |  | 107.5      |  | 159.7      |  | 208.6      |  | 100.7      |  | 101.1     
|Nasdaq Stock Market (U.S. Companies)    |  | 100.0      |  | 149.5      |  | 162.7      |  | 166.2      |  | 182.6      |  | 198.0     
|Nasdaq Pharmaceuticals Stocks (SIC 283) |  | 100.0      |  | 146.6      |  | 156.1      |  | 171.9      |  | 168.3      |  | 177.0     

---

The
information under the caption "Performance Graph" is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any filing of Affymetrix under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this 10-K and irrespective of any general incorporation
language in such filings.

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ITEM 6.    SELECTED FINANCIAL DATA

The following selected historical consolidated financial information has been derived from our audited consolidated financial statements. The balance sheet data
as of December 31, 2007 and 2006 and statements of operations data for each of the three years in the period ended December 31, 2007 are derived from audited consolidated financial
statements included in this Form 10-K. You should read this table in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Item 8, "Financial Statements and Supplementary Data."

|                                                          |                                     | Year Ended December 31,
|--------------------------------------------------------- | ----------------------------------- | -----------------------
|
|
|Consolidated Statement of Operations Data:                |                                     |                        
|Revenue:                                                  |                                     |                        
|                                                          | Product and product related revenue |                        
|                                                          | Royalties and other revenue         |                        
|                                                          | Revenue from Perlegen Sciences      |                        
|                                                          |                                     |                        
|                                                          |                                     | Total revenue          
|                                                          |                                     |                        
|Income (loss) from operations                             |                                     |                        
|                                                          |                                     |                        
|Net income (loss)(1)                                      |                                     | $                      
|                                                          |                                     |                        
|Basic net income (loss) per common share                  |                                     | $                      
|                                                          |                                     |                        
|Diluted net income (loss) per common share                |                                     | $                      
|                                                          |                                     |                        
|Consolidated Balance Sheet Data:                          |                                     |                        
|Cash, cash equivalents, and available-for-sale secuirties |                                     | $                      
|Working capital                                           |                                     |                        
|Total assets(2),(3)                                       |                                     |                        
|Long-term obligations(4)                                  |                                     |                        

---

In
2007, we initiated a restructuring plan (the "2007 Plan") to consolidate an administrative facility located in Sunnyvale, California into its main campus in Santa Clara, California and terminate
certain employees in the research and development and selling, general and administrative functions.

In
2006 and 2007, we recognized approximately $13.5 million and $15.3 million, respectively, of expense related to these plans which was presented in a single line item labeled
"Restructuring charges" in our Consolidated Statements of Operations.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear
elsewhere in this document.

This
discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including "Item 1: Business"; "Item 1A: Risk
Factors"; "Item 6: Selected Financial Data"; and "Item 8: Financial Statements and Supplementary Data." The various sections of this discussion contain a number of forward-looking
statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing. Our actual results may differ materially.

All
statements in this Annual Report on Form 10-K that are not historical are "forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934 as amended, including statements regarding our "expectations," "beliefs," "hopes," "intentions," "strategies" or the like. Such statements are based on our current expectations
and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. We caution investors that there
can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors,
including, but not limited to, the risk factors discussed in this Annual Report on Form 10-K in Item 1A. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances
on which any such statements are based.

Overview

We are engaged in the development, manufacture, sale and service of consumables and systems for genetic analysis in the life sciences and clinical healthcare
markets and are recognized as a market
leader in creating breakthrough tools that are advancing our understanding of the molecular basis of life. There are a number of factors that influence the size and development of our industry,
including: the availability of genomic sequence data for human and other organisms, technological innovation that increases throughput and lowers the cost of genomic and genetic analysis, the
development of new computational techniques to handle and analyze large amounts of genomic data, the availability of government and private funding for basic and disease-related research, the amount
of capital and ongoing expenditures allocated to research and development spending by biotechnology, pharmaceutical and diagnostic companies, the application of genomics to new areas including
molecular diagnostics, agriculture, human identity and consumer goods, and the availability of genetic markers and signatures of diagnostic value.

We
have established our GeneChip® system as the platform of choice for acquiring, analyzing and managing complex genetic information. Our integrated GeneChip®
platform includes disposable DNA probe arrays (chips) consisting of gene sequences set out in an ordered, high density pattern; certain reagents for use with the probe arrays; a scanner and other
instruments used to process the probe arrays; and software to analyze and manage genomic information obtained from the probe arrays. We currently sell our products directly to pharmaceutical,
biotechnology, agrichemical, diagnostics and consumer products companies as well as academic research centers, government research laboratories, private foundation laboratories and clinical reference
laboratories in North America and Europe. We also sell our products through life science supply specialists acting as authorized distributors in Latin

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America,
India, the Middle East and Asia Pacific regions, including China. The following overview describes a few of the key elements of our business strategy and our goals:

Increase top-line revenue growth.We intend to continue our top-line revenue growth through the
successful commercialization of our technologies and expansion of our customer base, including leveraging our technologies into new markets. We also believe that the genotyping market will continue to
be one of the most attractive growth opportunities in life sciences and that new content packaged in versatile formats will drive growth for years to come. These opportunities include emerging
cytogenetic and copy number diagnostics and our new Drug Metabolizing Enzymes and Transporters (DMET) product which we believe addresses a significant unmet need for our pharmaceutical partners. We
anticipate that these products and technologies will stimulate our business in 2008 and beyond. In addition, our revenues in 2008 also includes a non-recurring $90 million
intellectual property payment received in January 2008.

While
continued innovation is essential to create new opportunities, we are also pursuing additional paths to grow the business including our acquisition of USB Corporation in January
2008 for approximately $75 million in cash. This acquisition is expected to significantly accelerate next-generation enzymology and reagents that will be used with the sequencing
applications that we have in development.

Improve operating efficiency.Our goal is to generate continued improvement in gross margin throughout 2008. In February
2008, we implemented a restructuring plan in order to optimize our production capacity and cost structure to enable us to increase our future gross margins. We intend to move, by the end of 2008, the
majority of our probe array manufacturing from our West Sacramento, California facility to our Singapore facility. In connection with this plan, we expect to incur total non-cash charges
in the first quarter of 2008 of $12 million to $15 million related to the abandonment of certain long-lived manufacturing assets and approximately $0.5 million in cash
outlays related to employee severance. Depending on the rate at which we transfer production capacity to Singapore, we may incur additional charges in 2008 associated with the reduction of capacity in
West Sacramento, California. Additionally, we will continue to monitor our expenses closely to help ensure our costs remain in line with our revenue growth.

CRITICAL ACCOUNTING POLICIES & ESTIMATES

General

The following section of Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial
statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our
significant accounting policies are fully described in Note 2 to our consolidated financial statements. However, certain accounting policies are particularly important to the
reporting of our financial position and results of operations and require the application of significant judgment by our management. An accounting policy is deemed to be critical if it requires an
accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or
changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.

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Management
believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the consolidated financial statements.

REVENUE RECOGNITION

We enter into contracts to sell our products and, while the majority of our sales agreements contain standard terms and conditions, there are agreements that
contain multiple elements or non-standard terms and conditions. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including
whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes, and if so, how the value of the arrangement
should be allocated among the deliverable elements, when and how to recognize revenue for each element, and the period over which revenue should be recognized. We recognize revenue for delivered
elements only when the fair values of undelivered elements are known and customer acceptance, if required, has occurred. Changes in the allocation of the sales price between delivered to undelivered
elements might impact the timing of revenue recognition, but would not change the total revenue recognized on any arrangement.

ACCOUNTS RECEIVABLE

We evaluate the collectability of our trade receivables based on a combination of factors. We regularly analyze our significant customer accounts, and, when we
become aware of a specific customer's inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial
position, we record specific bad debt allowances to reduce the related receivable to the amount we reasonably believe is collectible. We also record allowances for bad debt on a small portion of all
other customer balances based on a variety of factors, including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and historical
experience. If circumstances related to specific customers change, our estimates of the recoverability of receivables could be further adjusted.

INVENTORIES

We enter into inventory purchases and commitments so that we can meet future shipment schedules based on forecasted demand for our products. The business
environment in which we operate is subject to rapid changes in technology and customer demand. We perform a detailed assessment of inventory each period, which includes a review of, among other
factors, demand requirements, product life cycle and development plans, component cost trends, product pricing, product expiration and quality issues. Based on this analysis, we record adjustments to
inventory for potentially excess, obsolete or impaired goods, when appropriate, in order to report inventory at net realizable value. Revisions to our inventory adjustments may be required if actual
demand, component costs, supplier arrangements, or product life cycles differ from our estimates.

NON-MARKETABLE EQUITY SECURITIES

As part of our strategic efforts to gain access to potential new products and technologies, we invest in equity securities of certain private biotechnology
companies. Our non-marketable equity securities are carried at cost unless we determine that an impairment that is other than temporary has occurred, in which case we write the investment
down to its impaired value. We periodically review our investments for impairment; however, the impairment analysis requires significant judgment in identifying events or circumstances that would
likely have significant adverse effect on the fair value of the investment. The analysis may include assessment of the investee's (i) revenue and earnings trend, (ii) business outlook
for its products and technologies, (iii) liquidity position and the rate at which it is using its cash, and (iv) likelihood of obtaining subsequent rounds of financing. If an investee
obtains additional funding at a valuation lower than our carrying value, we presume that the investment is

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other
than temporarily impaired. We have experienced impairments in our portfolio due to the decline in the value of certain of our non-marketable investments over the past few years.

INCOME TAXES

Income tax expense is based on pretax financial accounting income. Under the liability method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We must then assess
the likelihood that the resulting deferred tax assets will be realized. To the extent we believe that realization is not more likely than not, we establish a valuation allowance. Significant estimates
are required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against our net deferred tax asset. Some of these
estimates are based on interpretations of existing tax laws or regulations. We believe that our estimates are reasonable and that our reserves for income tax related uncertainties are adequate.
Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or
rates, changing interpretations of existing tax laws or regulations, changes in the valuation of our deferred tax assets or liabilities, future levels of research and development spending,
nondeductible expenses, changes in overall levels and geographical mix of pretax earnings and ultimate outcomes of income tax audits.

Effective
January 1, 2007, we adopted Financial Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109("FIN48"), as a change in accounting principle. As a result prior periods are not restated for the effect of FIN 48, and the cumulative effect
of applying FIN 48 was recorded as an adjustment to accumulated deficit as of the beginning of the period of adoption. The cumulative effect of adoption was a $0.6 million increase in
the opening balance of accumulated deficit as a change in accounting principle.

The
total amount of unrecognized tax benefits as of December 31, 2007 was approximately $14.9 million. If recognized, the amount of unrecognized tax benefits that would
impact income from continuing operations and the effective tax rate is $14.0 million. Any changes to acquisition related unrecognized tax benefits of approximately $0.9 million will
impact goodwill. As of December 31, 2007, we do not anticipate any material changes to the amount of unrecognized tax benefit during the next 12 months.

We
classify interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2007, the amount of accrued interest and penalties
related to tax uncertainties was approximately $0.1 million for a total cumulative amount of $0.2 million as of December 31, 2007.

We
file U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 1992 through 2007 tax years generally remain subject to
examination by federal and state tax authorities. In significant foreign jurisdictions, the 2002 through 2007 tax years generally remain subject to examination by their respective tax authorities.

CONTINGENCIES

We are subject to legal proceedings principally related to intellectual property matters. Based on the information available at the balance sheet dates, we assess
the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. If losses are probable and reasonably estimable, we will record a reserve in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 5,Accounting for Contingencies. Any reserves recorded may change in the
future due to new developments in each matter.

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ACCOUNTING FOR STOCK-BASED COMPENSATION

Beginning January 1, 2006, we account for employee stock-based compensation in accordance with SFAS No. 123R,Share-Based
Payment("SFAS 123R"). Under the provisions of SFAS 123R, we estimate the fair value of our employee stock awards at the date of grant using the Black-Scholes
option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected term, volatility and forfeiture rates of the
awards. The expected stock price volatility assumption was determined using a combination of historical and implied volatility of our common stock. We determined that blended volatility is more
reflective of market conditions and a
better indicator of expected volatility than historical volatility. The estimate of these key assumptions is based on historical information and judgment regarding market factors and trends. As
required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value employee stock-based
awards granted in future periods.

SFAS 123R
requires that employee stock-based compensation costs be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of
compensation paid to employees. Accordingly, in 2007, we recognized employee stock-based compensation of $10.7 million -$1.1 million in cost of product sales, $2.1 million
in research and development expense and $7.5 million in selling, general and administrative expenses, which includes approximately $0.3 million related to the modification of an
executive officer's stock option grant to increase the associated exercise period. We adopted SFAS 123R on a modified prospective basis. As of December 31, 2007, $28.4 million of
total unrecognized compensation cost related to non-vested stock options not yet recognized is expected to be allocated to cost of products sales and operating expenses over a
weighted-average period of 2.5 years.

There
was no stock-based compensation expense related to employee stock options recognized under SFAS 123R during the fiscal years prior to 2006.

RESTRUCTURING

In recent years we engaged in, and may continue to engage in, restructuring actions, which require management to utilize significant estimates related to expenses
for severance and other employee separation costs, lease cancellation, realizable values of assets that may become duplicative or obsolete, and other exit costs. If the actual amounts differ from our
estimates, the amount of the restructuring charges could be materially impacted. For a full description of our restructuring actions, see Note 3.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FIN 48. Under FIN 48 a company recognizes the benefit from a tax position only if it is
more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position. FIN 48 clarifies how a company
would measure the income tax benefits from the tax positions that are recognized, provides guidance as to the timing of the derecognition of previously recognized tax benefits and describes the
methods for classifying and disclosing the liabilities within the financial statements for any unrecognized tax benefits. FIN 48 also addresses when a company should record interest and
penalties related to tax positions and how the interest and penalties may be classified within the income statement and presented in the balance sheet. We adopted FIN 48 effective
January 1, 2007 as described in Note 15.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements("SFAS 157"). SFAS 157 establishes a
framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements.
SFAS 157 does not require any new fair value measurement. SFAS 157 requires prospective application for fiscal year ending December 31, 2008.

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and FinancialLiabilitiesIncluding an Amendment of
FASB No. 115("SFAS 159"). The Statement permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at
fair value that are not currently measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected would be reported in earnings at each subsequent
reporting date. SFAS 159 also establishes presentation and disclosure requirements in order to facilitate comparisons between entities choosing different measurement attributes for similar
types of assets and liabilities. SFAS 159 does not affect existing accounting requirements for certain assets and liabilities to be carried at fair value. This statement is effective for fiscal
years beginning after November 15, 2007 and is required to be adopted by us for the fiscal year ending December 31, 2008. We do not believe that the adoption of SFAS No. 159 will
have a material impact on our consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141R,Business Combinations("SFAS No. 141R"). SFAS No. 141R amends
SFAS 141 and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. It also
provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. It is effective for fiscal years beginning on or
after December 15, 2008 and will be applied prospectively.

RESULTS OF OPERATIONS

The following discussion compares the historical results of operations for the years ended December 31, 2007, 2006 and 2005.

PRODUCT SALES

The components of product sales are as follows (in thousands, except percentage amounts):

|             |                     | Year ended December 31, |         | Dollar
change from |   | Percentage
change from |        
|------------ | ------------------- | ----------------------- | ------- | ------------------ | - | ---------------------- | -------
|
|Probe arrays |                     | $                       | 181,202 |                    | $ | 170,359                |        
|Reagents     |                     |                         | 59,902  |                    |   | 43,283                 |        
|Instruments  |                     |                         | 38,679  |                    |   | 47,101                 |        
|             |                     |                         |         |                    |   |                        |        
|             | Total product sales |                         | $       | 279,783            |   | $                      | 260,743
|             |                     |                         |         |                    |   |                        |        

Total
product sales increased in 2007 as compared to 2006. Probe array sales increased primarily due to the growth in genotyping unit sales of $23.3 million. This increase was
partially offset by a decrease of
$12.8 million related to a reduction in the average selling price of our probe arrays. Reagent sales grew primarily due to an increase of $9.9 million related to growth in unit sales and
$6.7 million due to an increase in average selling price. The average selling price of our probe arrays decreased primarily due to the implementation of our strategy to grow our market share in
the genotyping market in 2007 and a shift in the pricing for our bundled consumables between probe arrays and reagents for our new SNP 6.0 products. Instrument sales decreased primarily due to a
decline of $4.0 million because of a drop in the average selling price of our GeneChip® Scanner 3000 and a decrease of $4.4 million primarily due to reduction in unit sales.

Total
product sales decreased in 2006 as compared to 2005. Probe array sales declined primarily due to a decrease of $25.4 million related to the reduction of the average selling
price of our probe arrays primarily due to a decrease in the selling price of our current two-chip 500K genotyping product and a decrease of $2.2 million due to a decline in unit
sales. Instrument sales decreased primarily due to a decrease of $9.7 million related to a decline in unit sales of our GeneChip® Scanner 3000, a

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decrease
of $2.3 million due to a drop in unit sales of our GeneChip® Scanner 3000 high-resolution upgrades and a decrease of $3.2 million in unit sales of our
automation equipment.

PRODUCT RELATED REVENUE (in thousands, except percentage amounts)

The components of product related revenue are as follows:

|                                   |  | Year ended December 31, |        | Dollar
change from |   | Percentage
change from | 
|---------------------------------- |  | ----------------------- | ------ | ------------------ | - | ---------------------- | 
|
|Subscription fees                  |  | $                       | 3,809  |                    | $ | 7,237                  | 
|Service and other                  |  |                         | 39,346 |                    |   | 41,235                 | 
|License fees and milestone revenue |  |                         | 14,649 |                    |   | 14,568                 | 
|                                   |  |                         |        |                    |   |                        | 
|Total product related revenue      |  | $                       | 57,804 |                    | $ | 63,040                 | 
|                                   |  |                         |        |                    |   |                        | 

Total
product related revenue decreased in 2007 as compared to 2006 primarily due to a decrease in subscription fees of about $3.4 million due to our efforts to transition our
customers to the volume-based pricing on array sales. There was also a decrease of approximately $2.1 million of other revenue related to our genotyping services business due to the variable
timing of projects.

Total
product related revenue increased in 2006 as compared to 2005 primarily due to an increase in service and other revenue of approximately $19.3 million related to our
genotyping services business. This increase was partially offset by the decline in subscription fees earned under our GeneChip® array access programs as we continue to transition customers
to volume-based pricing on array sales.

In
January 2003, under the terms of an expanded collaboration agreement, Roche paid us an access fee of $70 million, which we recognized as a component of product related revenue
in license fees over the research and development period of approximately five years. The amortization of this access fee was completed in 2007.

ROYALTY AND OTHER REVENUE (in thousands, except percentage amounts)

|                            |  | Year ended December 31, |        | Dollar
change from |   | Percentage
change from | 
|--------------------------- |  | ----------------------- | ------ | ------------------ | - | ---------------------- | 
|
|Royalties and other revenue |  | $                       | 21,687 |                    | $ | 16,840                 | 

Royalties
and other revenue increased in 2007 as compared to 2006 primarily due to the recognition of a $7.5 million non-recurring license fee related to a change of
control provision. Our royalties and other revenues are primarily dependent on the issuance of new licenses and other intellectual property payments, which may fluctuate. For example, in the first
quarter of 2008, we received a non-recurring $90.0 million intellectual property payment which will be recognized as other revenue.

The
increase in royalties and other revenue in 2006 as compared to 2005 was primarily related to the recognition of $9.5 million related to a license agreement entered into in the
second half of 2006 with no continuing performance obligations. We also recorded an additional $5.3 million in deferred revenue
related to this license agreement which will be recognized when the payment is received. We expect to receive this payment in 2008.

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REVENUE FROM PERLEGEN SCIENCES, INC. (in thousands, except percentage amounts)

|                               |  | Year ended December 31, |        | Dollar
change from |   | Percentage
change from | 
|------------------------------ |  | ----------------------- | ------ | ------------------ | - | ---------------------- | 
|
|Revenue from Perlegen Sciences |  | $                       | 12,046 |                    | $ | 14,694                 | 

Perlegen
revenue decreased in 2007 primarily due to lower demand for our commercial products. In the fourth quarter of 2006, we entered into new supply agreements with Perlegen, which
include terms that are generally consistent with our standard supply terms and discontinued the requirement for royalty payments.

Perlegen
revenue increased in 2006 as compared to 2005 primarily related to increased demand by Perlegen for our commercial probe arrays. The increase of $11.2 million was
partially offset by a decrease in demand for wafers used by Perlegen for internal research and development of $3.1 million. Probe arrays and wafers used by Perlegen for use in their internal
research and development activities are sold at our fully burdened cost of manufacturing. We also earn a royalty on certain of these wafers if they are used by Perlegen for certain revenue activities.
Royalties recognized were $0.9 million and $2.8 million in 2006 and 2005, respectively. We rely on reports from Perlegen to recognize royalty revenue.

PRODUCT AND PRODUCT RELATED GROSS MARGINS (in thousands, except percentage amounts)

|                                                                        |  | Year ended December 31, |         | Dollar/Point
change from |  
|----------------------------------------------------------------------- |  | ----------------------- | ------- | ------------------------ | -
|
|Gross margin on product sales                                           |  | $                       | 175,646 |                          | $
|Gross margin on product related revenue                                 |  |                         | 27,993  |                          |  
|                                                                        |  |                         |         |                          |  
|Gross margin on product and product related revenue                     |  | $                       | 203,639 |                          | $
|                                                                        |  |                         |         |                          |  
|Product gross margin as a percentage of product sales                   |  |                         | 62.8    | %                        |  
|Product related gross margin as a percentage of product related revenue |  |                         | 48.4    | %                        |  

The
0.9 point decrease in product gross margin in 2007 as compared to 2006 is primarily due to the following factors: 2.2 points of the decrease is attributable to a decline in the
average selling price of our probe arrays as we implemented a strategy to increase our market share in the genotyping market in 2007 and a shift in the pricing for our bundled consumables between
probe arrays and reagents for our new SNP 6.0 products; 1.5 points of the decrease is attributable to a decline in the average selling price of our instrumentation products; and 1.3 points of the
decrease is attributable to higher costs of production for reagents. These decreases were partially offset by a increase of 4.3 points due to the growth in genotyping unit sales.

The
5.4 point decrease in product related gross margins in 2007 is primarily due to a shift in product mix as our genotyping services business grew as a percentage of total product
related sales. In addition, sales of our GeneChip® array access agreements declined as we continued to transition customers to volume-based discounting on product sales.

The
8.3 point decrease in product gross margin in 2006 as compared to 2005 is primarily due to the following three factors: 3.2 points of the decrease can be attributed to a decrease in
the average selling price of our probe arrays primarily due to a decrease in the selling price of our two-chip 500K

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genotyping
product; 3.5 points of the decrease is due to underutilized capacity in our probe array and instrument manufacturing facilities and increased manufacturing costs for our chips; 1.5 points
of the decrease is due to start-up costs for our new Singapore manufacturing facility. These decreases were partially offset by a 1.6 point increase in product gross margins as we sold
more of our higher margin products.

The
21.7 point decrease in product related gross margin in 2006 as compared to 2005 was primarily due to an increase in expenses related to our genotyping services business as well as
the continuing decline in sales of our access agreements as we continue to transition customers to volume-based discounting on product sales.

COST OF PERLEGEN REVENUES (in thousands, except percentage amounts)

|                                       |  | Year ended December 31, |       | Dollar
change from |   | Percentage
change from | 
|-------------------------------------- |  | ----------------------- | ----- | ------------------ | - | ---------------------- | 
|
|Cost of revenue from Perlegen Sciences |  | $                       | 4,768 |                    | $ | 5,218                  | 

Cost
of Perlegen revenue decreased in 2007 as compared to 2006 due to decreased demand for our commercial products.

Cost
of Perlegen revenue was flat in 2006 as compared to 2005 primarily due to decreased demand by Perlegen for wafers used for internal research and development which are sold at our
fully burdened cost of manufacturing which was offset by an increase in the costs of commercial products purchased by Perlegen.

RESEARCH AND DEVELOPMENT EXPENSES (in thousands, except percentage amounts)

|                         |  | Year ended December 31, |        | Dollar
change from |   | Percentage
change from | 
|------------------------ |  | ----------------------- | ------ | ------------------ | - | ---------------------- | 
|
|Research and development |  | $                       | 72,740 |                    | $ | 86,296                 | 

The
decrease in research and development expenses in 2007 as compared to 2006 was primarily due to a $4.9 million decrease in supplies and purchased services due to cost cutting
measures and re-prioritization of projects, a $2.7 million decrease in total compensation and benefits due to a reduction in headcount, and a decrease in stock-based compensation
expense of $1.6 million.

The
increase in research and development expenses in 2006 as compared to 2005 was primarily due to an increase in headcount related costs of $5.6 million primarily due to our
acquisition of ParAllele as well as an increase in new hires in the first half of 2006 and an increase of $3.7 million of stock-based compensation expense related to our adoption of
SFAS 123R.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (in thousands, except percentage amounts)

|                                    |  | Year ended December 31, |         | Dollar
change from |   | Percentage
change from | 
|----------------------------------- |  | ----------------------- | ------- | ------------------ | - | ---------------------- | 
|
|Selling, general and administrative |  | $                       | 138,488 |                    | $ | 145,126                | 

The
decrease in selling, general and administrative expenses in 2007 as compared to 2006 was primarily due to cost cutting efforts including $6.9 million of lower legal expenses,
$6.0 million of lower headcount related costs and $2.8 million of lower stock-based compensation expense. These decreases were partially offset by an increase in variable compensation
due to our improved operating results.

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The
increase in selling, general and administrative expenses in 2006 as compared to 2005 was partially due to $10.0 million of stock-based compensation expense related to our
adoption of SFAS 123R. Our
stock-based compensation expense included a $1.1 million charge in the second quarter of 2006 due to the modification of an executive officer's stock option grant to include an extension of
time to exercise as well as the vesting of certain stock options without a requisite service period. Additionally, legal expenses increased by $4.1 million in 2006 as we continued to defend our
patent rights. In the third quarter of 2006, we also incurred approximately $1.1 million in costs related to our stock option review. Lastly, we saw an increase related to higher headcount
related costs of $6.3 million in 2006.

ACQUIRED IN-PROCESS TECHNOLOGY (in thousands, except percentage amounts)

|                               |  | Year ended December 31, |   | Dollar
change from |   | Percentage
change from | 
|------------------------------ |  | ----------------------- | - | ------------------ | - | ---------------------- | 
|
|Acquired in-process technology |  | $                       |  |                    | $ |                       | 

During
the year ended December 31, 2005, we recorded a charge of approximately $8.3 million to acquired in-process technology upon the October 21, 2005
completion of our acquisition of ParAllele, a provider of comprehensive genetic discovery solutions to the life science research, pharmaceutical and diagnostic sectors. We utilized the assistance of a
third party valuation specialist to help us determine the estimated fair value of certain research and development programs in-process at the acquisition date that had not yet reached
technological feasibility and had no alternative future use. These projects primarily included the development of a DNA genotyping
product and to a lesser extent certain RNA and other expression products. The fair values of these projects were determined using the Income Approach whereby we estimated each project's related future
net cash flows between 2005 and 2015 and discounted them to their present value using a risk adjusted discount rate of 28%. This discount rate is based on our estimated weighted average cost of
capital adjusted upward for the risks associated with the projects acquired. The projected cash flows from the acquired projects were based on estimates of revenues and operating profits related to
the projects considering the stage of development of each potential product acquired, the time and resources needed to complete the development and approval of each product, the life of each potential
commercialized product and the inherent difficulties and uncertainties in developing products and services based on complex genetic technologies and biochemical processes. As of October 21,
2005, the DNA genotyping project was 33% complete and the RNA & other projects were 40% complete and the expected costs to complete the DNA genotyping project were approximately
$5.6 million and $1.5 million to complete the RNA and other projects. As of December 31, 2007, there was no significant update to the percentage of completion of the projects, nor
the anticipated costs to complete as certain of the projects were delayed during 2006 as we re-prioritized our efforts in connection with our restructuring plans.

The
estimates used by us in valuing the licensed technologies and acquired in process technologies were based upon assumptions we believe to be reasonable but which are inherently
uncertain and unpredictable. Our assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may
vary from the projected results.

RESTRUCTURING (in thousands, except percentage amounts)

|              |  | Year ended December 31, |        | Dollar
change from |   | Percentage
change from | 
|------------- |  | ----------------------- | ------ | ------------------ | - | ---------------------- | 
|
|Restructuring |  | $                       | 15,296 |                    | $ | 13,497                 | 

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Fiscal 2007 Restructuring Plan

In July 2007, we announced that we will be consolidating an administrative facility located in Sunnyvale, California into our main campus in Santa Clara,
California during the fourth quarter of 2007 (the "2007 Plan"). Additionally, in August and December 2007, we terminated certain employees in the research and development and selling, general and
administrative functions. We estimate that the total restructuring expenses to be incurred in connection with the 2007 Plan will be approximately $4.6 million. Of this total, we estimate that
approximately $3.0 million relates to employee severance and approximately $1.4 million, net of estimated sublease income of $1.6 million, relates to contract termination and
$0.2 million of other costs associated with vacating the leased Kifer facility, which occurred during the fourth quarter of 2007. The estimated cash outlays to be incurred in connection with
these restructuring activities are estimated to be approximately $4.6 million. In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities("SFAS 146"), the costs relating to employee severance are being accrued over the remaining service periods of the employees.

During
2007, we recognized approximately $2.9 million of expense related to employee termination benefits associated with the 2007 Plan, which was presented as a component of the
line item labeled "Restructuring charges" in our Consolidated Statements of Operations.

Fiscal 2006 Restructuring Plan

In the third quarter of 2006, we initiated a restructuring plan (the "2006 Plan") to better align certain of our expenses with our current business outlook. Our
primary focus of the 2006 Plan was in the general and administrative functions and included rationalizing our facilities. In August 2006, we terminated certain employees in the general and
administrative functions. Additionally, in September 2006, we announced our plan to close our Bedford, Massachusetts based instrumentation manufacturing and development facility. We consolidated the
Bedford facility's instrument manufacturing operations with our probe array manufacturing facility in West Sacramento, California. Our instrumentation development capabilities were consolidated with
our principal research and development facilities
located in Santa Clara, California. Implementation of the 2006 Plan began in the fourth quarter of 2006 and continued into the first half of 2007 and eliminated or transferred certain positions. The
closure of our Bedford, Massachusetts facility was substantially completed by the third quarter of fiscal 2007.

We
estimate that the total restructuring expenses to be incurred in connection with the 2006 Plan will be approximately $25.3 million. Of this total, we estimate that
$20.2 million relates to employee severance and relocation benefits, $2.9 million relates to contract termination costs associated with vacating the leased Bedford facility, net of
estimated sublease income of $6.7 million,, and approximately $2.2 million relates to other restructuring costs such as fixed asset write-downs and equipment and inventory relocation
costs. We incurred restructuring expenses beginning in the third quarter of 2006 and continued incurring related expenses through the third quarter of 2007. Cash outlays incurred in connection with
these restructuring activities are estimated to be approximately $16.8 million. In accordance with SFAS 146, the costs relating to employee severance and relocation were accrued over the
remaining service periods of the employees.

During
the third and fourth quarters of 2006, we recognized approximately $13.5 million of expense which was presented in a single line item labeled "Restructuring charges" in our
Consolidated Statements of Operations, of which approximately $7.5 million of the expense related to the modification of a former employee's equity awards, all of which became fully vested
under the terms of a prior leave of absence agreement when he was involuntarily terminated in connection with the plan.

We
have incurred total restructuring charges for both the 2006 Plan and the 2007 Plan of approximately $15.3 million and $13.5 million for fiscal years 2007 and 2006,
respectively.

47

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In February 2008, we implemented a restructuring plan in order to optimize our production capacity and cost structure to enable us to increase our future gross margins. We intend to
move, by the end of 2008, the majority of our probe array manufacturing from our West Sacramento, California facility to our Singapore facility. In connection with this plan, we expect to incur total
non-cash charges in the first quarter of 2008 of $12 million to $15 million related to the abandonment of certain long-lived manufacturing assets and
approximately $0.5 million in cash outlays related to employee severance. Depending on the rate at which we transfer production capacity to Singapore, we may incur additional charges in 2008
associated with the reduction of capacity in West Sacramento, California.

INTEREST INCOME AND OTHER, NET (in thousands, except percentage amounts)

The components of interest income and other, net, are as follows:

|                                     |                                      | Year ended December 31, |        | Dollar
change from |   | Percentage
change from |       
|------------------------------------ | ------------------------------------ | ----------------------- | ------ | ------------------ | - | ---------------------- | ------
|
|Interest income                      |                                      | $                       | 13,812 |                    | $ | 11,283                 |       
|Realized loss in Perlegen            |                                      |                         |       |                    |   |                       |       
|Write down of equity investment, net |                                      |                         | (3,861 | )                  |   | (211                   | )     
|Currency gains (losses), net         |                                      |                         | 276    |                    |   | 3,003                  |       
|Other                                |                                      |                         | 5,193  |                    |   | 3                      |       
|                                     |                                      |                         |        |                    |   |                        |       
|                                     | Total interest income and other, net |                         | $      | 15,420             |   | $                      | 14,078
|                                     |                                      |                         |        |                    |   |                        |       

Interest
income and other, net increased in 2007 as compared to 2006 primarily due to an increase in our cash and marketable securities balances, higher yields on those balances and the
recognition of a $6.0 million net gain on an equity investment. These increases were partially offset by the write-down of a non-marketable equity investment of
$3.0 million and a decrease in currency gains.

Interest
income increased in 2006 as compared to 2005 due to an increase in the returns on our cash and marketable securities balances. In 2006, we also realized a $1.6 million
currency gain on assets held in various foreign currencies. In 2005, we realized losses related to the recognition of our proportionate share of Perlegen's net loss. The carrying value of our
investment in Perlegen was written down to zero at December 31, 2005; therefore, to the extent we do not make any additional future investments in Perlegen, we do not expect further expenses
related to this investment.

INTEREST EXPENSE (in thousands, except percentage amounts)

|                 |  | Year ended December 31, |       | Dollar
change from |   | Percentage
change from | 
|---------------- |  | ----------------------- | ----- | ------------------ | - | ---------------------- | 
|
|Interest expense |  | $                       | 3,218 |                    | $ | 1,600                  | 

Interest
expense increased in 2007 as compared to 2006 as we began recognizing interest expense on our $316.3 million 3.50% senior convertible notes issued in November 2007.

Interest
expense remained flat in 2006 as compared to 2005. Interest expense in 2006 and 2005 primarily consists of interest and amortization of the debt issuance costs associated with
our $120.0 million 0.75% senior convertible notes issued in December 2003.

48

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INCOME TAX PROVISION (BENEFIT) (in thousands, except percentage amounts)

|                               |  | Year ended December 31, |       | Dollar
change from |   | Percentage
change from | 
|------------------------------ |  | ----------------------- | ----- | ------------------ | - | ---------------------- | 
|
|Income tax provision (benefit) |  | $                       | 5,689 |                    | $ | 7,637                  | 

The
provision for income taxes in 2007 is less than the 35% U.S. federal statutory rate applied to consolidated income before income taxes primarily due to income tax benefits related to
federal and state research tax credits in the United States and due to income generated in foreign jurisdictions taxed at a lower rate than the U.S. federal statutory rate. In 2006, the provision for
income taxes was
more than the 35% U.S. federal statutory rate primarily due to losses incurred in foreign jurisdictions and the tax impact of non-deductible stock-based compensation expenses under
SFAS 123R. In 2005, the benefit for income taxes was more than the 35% U.S. federal statutory rate primarily due to the reduction in the valuation allowance for certain deferred tax assets.

A
portion of our operations in Singapore operate under various tax holidays and tax incentive programs, which expire in whole or in part at various dates through 2017. There was a
minimal net impact from these tax holidays and tax incentive programs for the year ended December 31, 2007.

SFAS
No. 109,Accounting for Income Taxes("SFAS 109") provides for the recognition of deferred tax assets if realization of
such assets is more likely than not. As of December 31, 2007, current net deferred tax assets totaled $28.7 million. Non-current net deferred tax assets totaled
$18.3 million. We considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized using factors that include historical book income, the
scheduled reversal of temporary differences, and projected future book and taxable income in making this assessment.

Based
upon the weight of available evidence, as of December 31, 2007, we provided for a valuation allowance of $64.6 million against our net deferred tax assets, of which
$53.1 million of the valuation allowance is recorded to offset benefits relating to stock options. This amount of the valuation allowance will not be reduced until the benefit reduces tax that
would otherwise be due.

If
we determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would record a charge to income and an adjustment to deferred tax assets
in the period in which we make that determination.

As
of December 31, 2007, we had net operating loss carryforwards of $133.9 million for U.S. federal purposes, which expire in the years 2020 through 2027. For state
purposes, we had net operating loss carryforwards of $64.7 million, which expire in the years 2010 through 2017. Additionally, we have federal and state research and development tax credit
carryforwards and other various tax credit carryforwards of approximately $50.4 million, which expire in the years 2008 through 2027, if not utilized. Utilization of our net operating loss and
tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss or tax credits before utilization.

49

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LIQUIDITY AND CAPITAL RESOURCES

Cashflow (in thousands)

|                                                                    |  | Year ended December 31, |         
|------------------------------------------------------------------- |  | ----------------------- | --------
|
|Net cash provided by operating activities                           |  | $                       | 32,336  
|Net cash used in investing activities                               |  |                         | (194,096
|Net cash provided by financing activities                           |  |                         | 330,930 
|Effect of foreign currency translation on cash and cash equivalents |  |                         | 411     
|                                                                    |  |                         |         
|Net increase in cash and cash equivalents                           |  | $                       | 169,581 
|                                                                    |  |                         |         

Net Cash Provided by Operating Activities

Cash provided by operating activities is net income (loss) adjusted for certain non-cash items and changes in operating assets and liabilities. Cash
provided by operating activities was comprised of a net income of $12.6 million, non-cash depreciation and amortization of $32.1 million and non-cash stock-based
compensation expense of $10.7 million. Significant changes in assets and liabilities are as follows:

Our
total accounts receivable, including Perlegen, was $81.9 million at December 31, 2007, an increase of $4.1 million from December 31, 2006. The increase is
primarily due to the growth in sales.

Our
inventory balance was $42.9 million at December 31, 2007, a decrease of $3.6 million from December 31, 2006. The decrease is primarily due to better asset
utilization.

Our
prepaid expenses and other assets balance was $59.9 million at December 31, 2007, an increase of $17.0 million from December 31, 2006. The increase is
related to the timing of payments and an increase in other non-trade receivables.

Our
deferred revenue balance was $26.4 million at December 31, 2007, a decrease of $13.8 million from December 31, 2006. The decrease was primarily due to the
completion of our Roche license amortization.

Net Cash Used in Investing Activities

Our investing activities, other than purchases, sales and maturities of available-for-sale securities, primarily consist of capital
expenditures, strategic investments and purchased technology rights.

Cash
used for capital expenditures was $27.4 million, $79.3 million and $40.2 million for the years ended December 31, 2007, 2006 and 2005, respectively. Our
capital expenditures in 2007 primarily related to the completion of our manufacturing expansion and the capitalization of our new enterprise resource planning system. Our capital expenditures in 2006
primarily related to our manufacturing expansion in West Sacramento and capital costs related to our new manufacturing facility in Singapore. Capital expenditures in 2005 related to continued
expansion in our operating facilities, investments in information management systems, and purchases of production and lab equipment.

In
January 2008, we paid approximately $75.0 million for the acquisition of USB Corporation, a privately held Cleveland, Ohio based-company that develops, manufactures and markets
an extensive line of molecular biology and biochemical reagent products.

Net Cash Provided by Financing Activities

Our financing activities for fiscal 2007 primarily consist of the issuance of $316.3 million principal amount of 3.50% senior convertible note due 2038 in
November 2007. Interest on the 3.50% senior convertible notes is due January 15th and July 15th of each year, beginning July 15,
2008.

50

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Cash
provided by the issuance of stock under our employee stock plan was $13.7 million, $9.3 million and $74.7 million in 2007, 2006 and 2005, respectively.

Liquidity

We have financed our operations primarily through product sales, sales of equity and debt securities, collaborative agreements, interest income, and licensing of
our technology. As of December 31, 2007, we had cash, cash equivalents, and available-for-sale securities of approximately $584.3 million. We anticipate that our
existing capital resources along with the cash to be generated from operations, including a $90.0 million intellectual property payment received from Illumina in January 2008, will enable us to
maintain currently planned operations, acquisitions (including our January 2008 acquisition of USB Corporation for approximately $75 million) and capital expenditures (estimated to be
approximately $30.2 million for the year ending December 31, 2008), for the foreseeable future.

However,
this expectation is based on our current operating and financing plans, which are subject to change, and therefore we could require additional funding. Factors that may cause us
to require additional funding may include: future acquisitions; our ability to maintain existing collaborative and customer arrangements and establish and maintain new collaboration and customer
arrangements; the progress of our research and development programs; initiation or expansion of research programs and collaborations; the costs involved in preparing, filing, prosecuting, defending
and enforcing intellectual property rights; the effectiveness of product commercialization activities and arrangements; the purchase of patent licenses; and other factors.

As
of December 31, 2007, we have no credit facility or other committed sources of capital. To the extent capital resources are insufficient to meet future capital requirements; we
will have to raise additional funds to continue the development of our technologies. There can be no assurance that such funds will be available on favorable terms, or at all. To the extent that
additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution to our stockholders. If adequate funds are not
available, we may be required to curtail operations significantly or to obtain funds by entering into collaboration agreements on unattractive terms. Our inability to raise capital would have a
material adverse effect on our business, financial condition and results of operations.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

As of December 31, 2007, we have no off balance sheet arrangements. The impact that our contractual obligations as of December 31, 2007 are expected
to have on our liquidity and cash flow in future periods is as follows (in thousands):

|                                        |                               | Total |         | 2008    |   | 2009-2010 |         | 2011-2012 |        | After 2012
|--------------------------------------- | ----------------------------- | ----- | ------- | ------- | - | --------- | ------- | --------- | ------ | ----------
|Senior convertible notes                |                               | $     | 436,250 |         | $ | 120,000   |         | $         |       |           
|Interest on senior convertible notes(1) |                               |       | 56,245  |         |   | 11,969    |         |           | 22,138 |           
|Operating leases                        |                               |       | 41,235  |         |   | 10,711    |         |           | 13,629 |           
|Purchase commitments(2)                 |                               |       | 1,630   |         |   | 1,630     |         |           |       |           
|Other commitments(3)                    |                               |       | 500     |         |   |          |         |           | 500    |           
|                                        |                               |       |         |         |   |           |         |           |        |           
|                                        | Total contractual obligations |       | $       | 535,860 |   | $         | 144,310 |           | $      | 36,267    
|                                        |                               |       |         |         |   |           |         |           |        |           

---

51

---



The
above table does not reflect unrecognized tax benefits of approximately $14.9 million, the timing of which is uncertain. Refer to Note 15 in the consolidated financial
statements for additional discussion on unrecognized tax benefits.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to
fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short
of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

The
primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we
invest our excess cash in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer
by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of less than three years.

The
table below presents principal amounts and related weighted interest rates by year of maturity for our available-for-sale securities and our debt obligations
(in thousands, except percentage amounts). These amounts are primarily denominated in United States dollars, and the fair value of each as of December 31, 2007 and 2006. Our available for sale
securities are classified on our balance sheet in cash and cash equivalents, available-for-sale securitiesshort-term and
available-for-sale securitieslong-term.

|                                        |  | Periods of Maturity |         |   |   | Fair
Value at
December 31,
2007
|--------------------------------------- |  | ------------------- | ------- | - | - | -------------------------------
|
|ASSETS:                                 |  |                     |         |   |   |                                
|Available-for-sale securities           |  | $                   | 450,649 |   | $ | 90,322                         
|Average interest rate                   |  |                     | 1.3     | % |   | 4.8                            
|LIABILITIES:                            |  |                     |         |   |   |                                
|0.75% senior convertible notes due 2033 |  | $                   | 120,000 |   | $ |                               
|Average interest rate                   |  |                     | 0.75    | % |   |                                
|3.50% senior convertible notes due 2038 |  | $                   |        |   | $ |                               
|Average interest rate                   |  |                     |         |   |   |                                

52

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|
|

|                                        |  | Periods of Maturity |         |   |   | Fair
Value at
December 31,
2006
|--------------------------------------- |  | ------------------- | ------- | - | - | -------------------------------
|
|ASSETS:                                 |  |                     |         |   |   |                                
|Available-for-sale securities           |  | $                   | 128,331 |   | $ | 10,564                         
|Average interest rate                   |  |                     | 3.5     | % |   | 4.8                            
|LIABILITIES:                            |  |                     |         |   |   |                                
|0.75% senior convertible notes due 2033 |  | $                   |        |   | $ | 120,000                        
|Average interest rate                   |  |                     |         |   |   | 0.75                           

Foreign Currency Exchange Rate Risk

We derive a portion of our revenues in foreign currencies, predominantly in Europe and Japan. In addition, a portion of our assets are held in nonfunctional
currencies of our subsidiaries. In early 2003, we began hedging activities by using currency forward contracts to manage a portion of the currency exposures created from our activities denominated in
foreign currencies. Our hedging program is designed to reduce, but does not entirely eliminate, the impact of currency exchange rate movements. Prior to 2007, we hedged a percentage of forecasted
international revenue with forward contracts and the gains and losses on these contracts largely offset gains and losses on the transactions being hedged. Our revenue hedging policy is designed to
reduce the negative impact on our forecasted revenue due to foreign currency exchange rate movements. In 2007, we did not carry or initiate new currency forward contracts on a percentage of forecasted
international revenue, based on management's internal assessment of the risk posed by extrapolating historical and potential future currency rate changes. Management will continue to reevaluate this
risk on an ongoing basis. As of December 31, 2007, we had no open hedging contracts.

53

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  AFFYMETRIX, INC.



|                                                        |  | Page No.
|------------------------------------------------------- |  | --------
|Report of Independent Registered Public Accounting Firm |  | 55      
|Consolidated Balance Sheets                             |  | 56      
|Consolidated Statements of Operations                   |  | 57      
|Consolidated Statements of Comprehensive Income (Loss)  |  | 58      
|Consolidated Statements of Stockholders' Equity         |  | 59      
|Consolidated Statements of Cash Flows                   |  | 60      
|Notes to Consolidated Financial Statements              |  | 61      

54

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of Affymetrix, Inc.

We
have audited the accompanying consolidated balance sheets of Affymetrix, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations,
comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule
listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Affymetrix, Inc. at December 31,
2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

As
discussed in Notes 2, 14 and 15 to the consolidated financial statements, Affymetrix, Inc. changed its method of accounting for stock-based compensation as of
January 1, 2006 and its method of accounting for uncertain tax positions as of January 1, 2007.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Affymetrix, Inc.'s internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2008 expressed an unqualified opinion thereon.

|                                       |  | /s/ERNST & YOUNG LLP
|-------------------------------------- |  | --------------------
|San Jose, California
February 28, 2008 |  |                     

55

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AFFYMETRIX, INC.        CONSOLIDATED BALANCE SHEETS        (In thousands, except per share amounts)

|                                                  |                                                                                                                                                       | December 31,               |          
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------
|
|ASSETS:                                           |                                                                                                                                                       |                            |          
|Current assets:                                   |                                                                                                                                                       |                            |          
|                                                  | Cash and cash equivalents                                                                                                                             |                            | $        
|                                                  | Available-for-sale securitiesshort-term portion                                                                                                      |                            |          
|                                                  | Accounts receivable (net of allowances of $2,372 in 2007 and $1,534 in 2006)                                                                          |                            |          
|                                                  | Accounts receivable from Perlegen Sciences                                                                                                            |                            |          
|                                                  | Inventories                                                                                                                                           |                            |          
|                                                  | Deferred tax assetscurrent portion                                                                                                                   |                            |          
|                                                  | Notes receivable from employeescurrent portion                                                                                                       |                            |          
|                                                  | Prepaid expenses and other current assets                                                                                                             |                            |          
|                                                  |                                                                                                                                                       |                            |          
|                                                  |                                                                                                                                                       | Total current assets       |          
|Available-for-sale securitieslong-term portion   |                                                                                                                                                       |                            | 89,912   
|Property and equipment, net                       |                                                                                                                                                       |                            | 143,884  
|Acquired technology rights, net                   |                                                                                                                                                       |                            | 46,797   
|Goodwill                                          |                                                                                                                                                       |                            | 125,050  
|Deferred tax assetslong-term portion             |                                                                                                                                                       |                            | 18,426   
|Notes receivable from employeeslong-term portion |                                                                                                                                                       |                            | 487      
|Other assets                                      |                                                                                                                                                       |                            | 41,927   
|                                                  |                                                                                                                                                       |                            |          
|Total assets                                      |                                                                                                                                                       | $                          | 1,133,591
|                                                  |                                                                                                                                                       |                            |          
|LIABILITIES AND STOCKHOLDERS' EQUITY:             |                                                                                                                                                       |                            |          
|Current liabilities:                              |                                                                                                                                                       |                            |          
|                                                  | Accounts payable and accrued liabilities                                                                                                              |                            | $        
|                                                  | Deferred revenuecurrent portion                                                                                                                      |                            |          
|                                                  |                                                                                                                                                       |                            |          
|                                                  |                                                                                                                                                       | Total current liabilities  |          
|Deferred revenuelong-term portion                |                                                                                                                                                       |                            | 3,922    
|Other long-term liabilities                       |                                                                                                                                                       |                            | 10,971   
|Convertible notes                                 |                                                                                                                                                       |                            | 436,250  
|Commitments and contingencies (Note 12)           |                                                                                                                                                       |                            |          
|Stockholders' equity:                             |                                                                                                                                                       |                            |          
|                                                  | Convertible redeemable preferred stock, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding at December 31, 2007 and 2006      |                            |          
|                                                  | Common stock, $0.01 par value; 200,000 shares authorized; 69,217 and 67,922 shares issued and outstanding at December 31, 2007 and 2006, respectively |                            |          
|                                                  | Additional paid-in capital                                                                                                                            |                            |          
|                                                  | Accumulated other comprehensive income (loss)                                                                                                         |                            |          
|                                                  | Accumulated deficit                                                                                                                                   |                            |          
|                                                  |                                                                                                                                                       |                            |          
|                                                  |                                                                                                                                                       | Total stockholders' equity |          
|                                                  |                                                                                                                                                       |                            |          
|Total liabilities and stockholders' equity        |                                                                                                                                                       | $                          | 1,133,591
|                                                  |                                                                                                                                                       |                            |          

See
Accompanying Notes

56

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AFFYMETRIX, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share amounts)

|                                                                    |                                        | Year Ended December 31,                   |       
|------------------------------------------------------------------- | -------------------------------------- | ----------------------------------------- | ------
|
|REVENUE:                                                            |                                        |                                           |       
|                                                                    | Product sales                          |                                           | $     
|                                                                    | Product related revenue                |                                           |       
|                                                                    |                                        |                                           |       
|                                                                    |                                        | Total product and product related revenue |       
|                                                                    | Royalties and other revenue            |                                           |       
|                                                                    | Revenue from Perlegen Sciences         |                                           |       
|                                                                    |                                        |                                           |       
|                                                                    |                                        | Total revenue                             |       
|                                                                    |                                        |                                           |       
|COSTS AND EXPENSES:                                                 |                                        |                                           |       
|                                                                    | Cost of product sales                  |                                           |       
|                                                                    | Cost of product related revenue        |                                           |       
|                                                                    | Cost of revenue from Perlegen Sciences |                                           |       
|                                                                    | Research and development               |                                           |       
|                                                                    | Selling, general and administrative    |                                           |       
|                                                                    | Stock-based compensation               |                                           |       
|                                                                    | Acquired in-process technology         |                                           |       
|                                                                    | Restructuring charges                  |                                           |       
|                                                                    |                                        |                                           |       
|                                                                    |                                        | Total costs and expenses                  |       
|                                                                    |                                        |                                           |       
|Income (loss) from operations                                       |                                        |                                           | 6,080 
|Interest income and other, net                                      |                                        |                                           | 15,420
|Interest expense                                                    |                                        |                                           | (3,218
|                                                                    |                                        |                                           |       
|Income (loss) before income taxes                                   |                                        |                                           | 18,282
|Income tax provision (benefit)                                      |                                        |                                           | 5,689 
|                                                                    |                                        |                                           |       
|Net income (loss)                                                   |                                        |                                           | 12,593
|                                                                    |                                        |                                           |       
|Basic net income (loss) per common share                            |                                        | $                                         | 0.18  
|                                                                    |                                        |                                           |       
|Diluted net income (loss) per common share                          |                                        | $                                         | 0.17  
|                                                                    |                                        |                                           |       
|Shares used in computing basic net income (loss) per common share   |                                        |                                           | 68,242
|                                                                    |                                        |                                           |       
|Shares used in computing diluted net income (loss) per common share |                                        |                                           | 83,064
|                                                                    |                                        |                                           |       

See
Accompanying Notes

57

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AFFYMETRIX, INC.        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)        (In thousands)

|                                                |                                                                                           | Year Ended December 31,                                             |       
|----------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------
|
|Net income (loss)                               |                                                                                           | $                                                                   | 12,593
|Other comprehensive income (loss):              |                                                                                           |                                                                     |       
|                                                | Foreign currency translation adjustment, net of tax                                       |                                                                     |       
|                                                | Unrealized gains (losses) on available-for-sale and non-marketable securities, net of tax |                                                                     |       
|                                                |                                                                                           | Reclassification adjustment for (losses) gains in net income (loss) |       
|                                                | Unrealized (losses) gains on cash flow hedges, net of tax                                 |                                                                     |       
|                                                |                                                                                           | Reclassification adjustment for gains (losses) in net income (loss) |       
|                                                |                                                                                           |                                                                     |       
|Net change in other comprehensive income (loss) |                                                                                           |                                                                     | 3,715 
|                                                |                                                                                           |                                                                     |       
|Comprehensive income (loss)                     |                                                                                           | $                                                                   | 16,308
|                                                |                                                                                           |                                                                     |       

See
Accompanying Notes

58

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AFFYMETRIX, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDER EQUITY        (In thousands)

|                                        |                                                                                                        | Year Ended December 31, |        
|--------------------------------------- | ------------------------------------------------------------------------------------------------------ | ----------------------- | -------
|
|Convertible redeemable preferred stock: |                                                                                                        |                         |        
|                                        | Balance, beginning of year                                                                             |                         | $      
|                                        |                                                                                                        |                         |        
|                                        |                                                                                                        | Balance, end of year    |        
|                                        |                                                                                                        |                         |        
|Common stock:                           |                                                                                                        |                         |        
|                                        | Balance, beginning of year                                                                             |                         |        
|                                        | Common stock issued                                                                                    |                         |        
|                                        |                                                                                                        |                         |        
|                                        |                                                                                                        | Balance, end of year    |        
|                                        |                                                                                                        |                         |        
|Additional paid-in capital:             |                                                                                                        |                         |        
|                                        | Balance, beginning of year                                                                             |                         |        
|                                        | Issuance of common stock upon exercise of stock options and warrants and issuances of restricted stock |                         |        
|                                        | Issuance of common stock from acquisition of ParAllele                                                 |                         |        
|                                        | Stock-based compensation expense from stock options and restricted stock                               |                         |        
|                                        | Stock-based compensation expense from stock options recorded as restructuring charges                  |                         |        
|                                        | Income tax benefit from employee stock option exercises                                                |                         |        
|                                        | Reclass of deferred compensation into APIC pursuant to SFAS 123R                                       |                         |        
|                                        |                                                                                                        |                         |        
|                                        |                                                                                                        | Balance, end of year    |        
|                                        |                                                                                                        |                         |        
|Deferred stock compensation:            |                                                                                                        |                         |        
|                                        | Balance, beginning of year                                                                             |                         |        
|                                        | Reclass of deferred compensation into APIC pursuant to SFAS 123R                                       |                         |        
|                                        | Amortization of deferred stock compensation                                                            |                         |        
|                                        | Unearned stock compensation, net of cancellations                                                      |                         |        
|                                        |                                                                                                        |                         |        
|                                        |                                                                                                        | Balance, end of year    |        
|                                        |                                                                                                        |                         |        
|Accumulated other comprehensive (loss): |                                                                                                        |                         |        
|                                        | Balance, beginning of year                                                                             |                         |        
|                                        | Unrealized gain (loss) on investments, net of tax                                                      |                         |        
|                                        | Unrealized (loss) gain on hedging contracts, net of tax                                                |                         |        
|                                        | Foreign currency translation adjustment, net of tax                                                    |                         |        
|                                        |                                                                                                        |                         |        
|                                        |                                                                                                        | Balance, end of year    |        
|                                        |                                                                                                        |                         |        
|Accumulated deficit:                    |                                                                                                        |                         |        
|                                        | Balance, beginning of year                                                                             |                         |        
|                                        | Net (loss) income                                                                                      |                         |        
|                                        | Net effect of tax adjustment for adoption of FIN 48                                                    |                         |        
|                                        |                                                                                                        |                         |        
|                                        | Balance, end of year                                                                                   |                         |        
|                                        |                                                                                                        |                         |        
|Total stockholders equity               |                                                                                                        | $                       | 598,407
|                                        |                                                                                                        |                         |        
|Number of shares of common stock        |                                                                                                        |                         |        
|                                        | Balance, beginning of year                                                                             |                         |        
|                                        | Issuance of common stock for cash or services                                                          |                         |        
|                                        | Issuance of common stock for acquisition of ParAllele                                                  |                         |        
|                                        |                                                                                                        |                         |        
|                                        |                                                                                                        | Balance, end of year    |        
|                                        |                                                                                                        |                         |        

See Accompanying Notes

59

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AFFYMETRIX, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                             |                                                                                       | Year Ended December 31,                                                                  |                                                               
|------------------------------------------------------------ | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                       |                                                                                          |                                                               
|                                                             | Net income (loss)                                                                     |                                                                                          | $                                                             
|                                                             |                                                                                       | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                               
|                                                             |                                                                                       |                                                                                          | Depreciation and amortization                                 
|                                                             |                                                                                       |                                                                                          | Amortization of intangible assets                             
|                                                             |                                                                                       |                                                                                          | Charge for acquired in-process technology                     
|                                                             |                                                                                       |                                                                                          | Amortization of investment premiums, net                      
|                                                             |                                                                                       |                                                                                          | Excess tax benefits for stock-based compensation              
|                                                             |                                                                                       |                                                                                          | Stock-based compensation                                      
|                                                             |                                                                                       |                                                                                          | Restructuring charges                                         
|                                                             |                                                                                       |                                                                                          | Write-down of equity investments                              
|                                                             |                                                                                       |                                                                                          | Realized loss on equity method investment in Perlegen Sciences
|                                                             |                                                                                       |                                                                                          | Realized (gain) loss on the sales of investments              
|                                                             |                                                                                       |                                                                                          | Deferred tax assets                                           
|                                                             |                                                                                       |                                                                                          | Amortization of debt offering costs                           
|                                                             |                                                                                       |                                                                                          | Accretion of interest on notes receivable                     
|                                                             |                                                                                       |                                                                                          | Loss on disposal of equipment                                 
|                                                             |                                                                                       |                                                                                          | Changes in operating assets and liabilities:                  
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                       |                                                                                          |                                                               
|                                                             | Capital expenditures                                                                  |                                                                                          |                                                               
|                                                             | Purchases of available-for-sale securities                                            |                                                                                          |                                                               
|                                                             | Proceeds from sales and maturities of available-for-sale securities                   |                                                                                          |                                                               
|                                                             | Purchase of non-marketable equity investments                                         |                                                                                          |                                                               
|                                                             | Purchase of non-marketable equity investments in Perlegen                             |                                                                                          |                                                               
|                                                             | Capital distribution from non-marketable investment                                   |                                                                                          |                                                               
|                                                             | Purchases of technology rights                                                        |                                                                                          |                                                               
|                                                             | Issuance of loan to ParAllele BioScience, Inc.                                        |                                                                                          |                                                               
|                                                             | Acquisition of ParAllele BioScience, Inc., net of cash acquired                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                       |                                                                                          |                                                               
|                                                             | Issuance of common stock                                                              |                                                                                          |                                                               
|                                                             | Issuance of convertible subordinated notes                                            |                                                                                          |                                                               
|                                                             | Excess tax benefits for stock-based compensation                                      |                                                                                          |                                                               
|                                                             | Repayment of notes receivable from stockholders                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             |                                                                                       |                                                                                          |                                                               
|Effect of exchange rate changes on cash and cash equivalents |                                                                                       |                                                                                          | 411                                                           
|Net increase in cash and cash equivalents                    |                                                                                       |                                                                                          | 169,581                                                       
|Cash and cash equivalents at beginning of year               |                                                                                       |                                                                                          | 119,063                                                       
|                                                             |                                                                                       |                                                                                          |                                                               
|Cash and cash equivalents at end of year                     |                                                                                       | $                                                                                        | 288,644                                                       
|                                                             |                                                                                       |                                                                                          |                                                               
|SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:               |                                                                                       |                                                                                          |                                                               
|                                                             | Recognition of deferred tax assets relating to tax benefits from employee stock plans |                                                                                          | $                                                             
|                                                             |                                                                                       |                                                                                          |                                                               
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:            |                                                                                       |                                                                                          |                                                               
|                                                             | Cash paid for interest                                                                |                                                                                          | $                                                             
|                                                             |                                                                                       |                                                                                          |                                                               
|                                                             | Cash paid for income taxes                                                            |                                                                                          | $                                                             
|                                                             |                                                                                       |                                                                                          |                                                               

See
Accompanying Notes

60

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

NOTE 1NATURE OF OPERATIONS

Affymetrix, Inc. ("Affymetrix" or the "Company") is engaged in the development, manufacture, sale and service of systems for genetic analysis for use in
the life sciences and in clinical diagnostics. Affymetrix has developed its GeneChip® system and related microarray technology as the platform of choice for acquiring, analyzing and
managing complex genetic information. The Company's integrated GeneChip® platform includes: disposable DNA probe arrays (chips) consisting of gene sequences set out in an ordered, high
density pattern, certain reagents for use with the probe arrays, a scanner and other instruments used to process the probe arrays, and software to analyze and manage genomic information obtained from
the probe arrays. Related microarray technology also offered by Affymetrix includes instrumentation, software and licenses for fabricating, scanning, collecting and analyzing results from low density
microarrays. The Company currently sells its products directly to pharmaceutical, biotechnology, agrichemical, diagnostics and consumer products companies as well as academic research centers,
government research laboratories, private foundation laboratories and clinical reference laboratories in North America and Europe. The Company also sells some of its products through life science
supply specialists acting as authorized distributors in Latin America, India, the Middle East and Asia Pacific regions, including China.

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Affymetrix and its wholly owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated. The
Company has accounted for its ownership interest in Perlegen Sciences, Inc. ("Perlegen") using the equity method since March 30, 2001 (see Note 11).

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

FOREIGN CURRENCY

Assets and liabilities of non-U.S. subsidiaries that use the local currency as their functional currency are translated to U.S. dollars at exchange
rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income (loss) within stockholders'
equity. Income and expense accounts are translated at average exchange rates during the year. Foreign currency transaction gains and losses are recognized in interest income and other, net and were
comprised of net gains of $0.3 million, $3.0 million and $0.5 million for the years ended December 31, 2007, 2006, and 2005, respectively.

Beginning
April 1, 2006, Affymetrix, UK Ltd, a wholly-owned subsidiary incorporated in the United Kingdom, and Affymetrix Pte Ltd, a wholly-owned subsidiary
incorporated in Singapore, changed their functional currencies from their local currencies to the U.S. dollar. The change in the functional currency of these subsidiaries is in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52,Foreign Currency Translation, ("SFAS 52") and reflects the changed

61

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

economic
facts and circumstances pertaining to these subsidiaries. Under the requirements of SFAS 52, the Company assessed the various economic factors relating to Affymetrix, UK Ltd and
Affymetrix Pte Ltd and concluded that due to changes in facts, circumstances, scope of operations and business practices, the U.S. dollar is now the currency of the primary economic environment
in which these subsidiaries operate. Consequently, these subsidiaries will no longer generate translation adjustments which would impact the balance of accumulated other comprehensive income.
Translation adjustments from prior periods will continue to remain in accumulated other comprehensive income.

CASH EQUIVALENTS, AVAILABLE-FOR-SALE SECURITIES AND INVESTMENTS



The Company's investments consist of U.S. government notes and bonds; corporate notes, bonds and asset-backed securities; mortgaged-backed securities, municipal
notes and bonds; and publicly traded equity securities. The Company reports all debt securities with maturities at the date of purchase of three months or less that are readily convertible into cash
and have insignificant interest rate risk as cash equivalents. Cash equivalents and available-for-sale securities consist of marketable equity and debt securities. Management
determines the appropriate classification of debt securities at the time of purchase. As of December 31, 2007 and 2006, the Company's investments in debt securities are classified as
available-for-sale and are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders' equity. The cost of
debt securities is adjusted for amortization of premiums and discounts to maturity. This amortization is included in interest income and other, net. Realized gains and losses, as well as interest
income, on available-for-sale securities are also included in interest income and other, net. The cost of securities sold is based on the specific identification method. The
fair values of securities are based on quoted market prices. The Company includes its available-for-sale securities that have an effective maturity of less than twelve months
as of the balance sheet date in current assets and those with an effective maturity greater than twelve months as of the balance sheet date in non-current assets. The Company monitors its
investment portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be
other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined
using quoted market prices.



The Company also has investments in non-marketable securities issued by privately held companies. These investments are included in other assets in
the Consolidated Balance Sheets and are primarily carried at cost. The Company periodically monitors the liquidity and financing activities of the respective issuers to determine if any impairment
exists and accordingly writes down to the extent necessary, the cost basis of our non-marketable equity securities to their estimated fair values. In order to determine whether a decline
in value is other-than-temporary, the Company evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the
financial
condition of and business outlook of the issuer for the company, including key operational and cash flow metrics, current market conditions; and the Company's intent and ability to retain the
investment for a period of time sufficient to allow for any anticipated recovery in estimated fair value.

62

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ACCOUNTS RECEIVABLE

Trade accounts receivable are recorded at net invoice value. The Company considers amounts past due based on the related terms of the invoice. The Company reviews
its exposure to amounts receivable and provides an allowance for specific amounts if collectability is no longer reasonably assured. The Company also provides an allowance for a percentage of the
gross trade receivable balance (excluding any specifically reserved amounts) based on its collection history.

DERIVATIVE INSTRUMENTS

The Company has international operations and during the normal course of business is exposed to foreign currency exchange risks as a result of transactions that
are denominated in currencies other than the United States dollar. The Company enters into foreign currency forward contracts to manage a portion of the volatility related to transactions that are
denominated in foreign currencies. The Company's foreign currency forward contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions that
are independent of those exposures. In addition, the Company does not enter into foreign currency forward contracts for trading or speculative purposes, is not party to any leveraged derivative
instrument, and may only enter into derivative agreements with highly rated counterparties.

The
foreign currency forward contracts used by the Company are generally short-term in nature, maturing within one year, and are accounted for as cash flow hedges. The effect
of exchange rate changes on foreign currency forward contracts is expected to offset the effect of exchange rate changes on the underlying hedged items. For these contracts, unrealized gains or losses
from the effective portion of the hedge is reported as a component of other comprehensive income (loss) in stockholders' equity and is reclassified using the specific identification method into
earnings in the same period or periods in which the hedged transaction affects earnings, and within the same consolidated statement of operations line item. The gain or loss from the ineffective
portion of the hedge in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in interest income and other, net during the period of
change.

INVENTORIES

Inventory cost is computed on an adjusted standard basis (which approximates actual cost on a first-in, first-out basis). Provisions for
slow moving, potentially excess and obsolete inventories are provided based on estimated demand requirements, product life cycle and development plans, component cost trends, product pricing, product
expiration and quality issues.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets or the
lease term, whichever is shorter. Equipment and furniture is depreciated over useful lives generally ranging from 3 to 7 years, company-owned buildings are depreciated over 25 years and
leasehold improvements are depreciated over lease terms generally ranging from 3 to 15 years. Maintenance and repair costs are expensed as incurred.

63

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

GOODWILL AND ACQUIRED TECHNOLOGY RIGHTS

Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquired arising from business combinations. In
accordance with SFAS No. 142,Goodwill and Other Intangible Assets("SFAS 142"), goodwill is subject to impairment tests annually, or
earlier if indicators of potential impairment exist, using a fair-value-based approach. As of December 31, 2007 and 2006, goodwill relates to the acquisition of Neomorphic in
October 2000 and the acquisition of ParAllele in October 2005. There is no impairment of goodwill for any period presented.

Acquired
technology rights are carried at cost less accumulated amortization and are comprised of licenses to technology covered by patents held by third parties or acquired by the
Company. Amortization is computed over the estimated useful life of the underlying patents, which has historically ranged from one to thirteen years. SFAS 142 requires purchased intangible
assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets and certain identifiable intangible assets are reviewed for impairment when events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual
disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values.

INCOME TAXES

Income tax expense is based on pre-tax financial accounting income. Under the liability method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The
Company must then assess the likelihood that the resulting deferred tax assets will be realized. To the extent the Company believes that realization is not more likely than not, the Company
establishes a valuation allowance. Significant estimates are required in determining the Company's provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance to
be recorded against our net deferred tax asset. Some of these estimates are based on interpretations of existing tax laws or regulations. The Company believes that its estimates are reasonable and
that its reserves for income tax related uncertainties are adequate. Various internal and external factors may have favorable or unfavorable effects on the Company's future effective tax rate. These
factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in the valuation of our deferred tax
assets or liabilities, future levels of research and development spending, nondeductible expenses, changes in overall levels of characterization and geographical mix of pretax earnings (losses) and
ultimate outcomes of income tax audits.

64

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

CONTINGENCIES

The Company is subject to various legal proceedings principally related to intellectual property matters. Based on the information available at the most recent
balance sheet date, the Company assesses the likelihood of any material adverse judgments or outcomes that may result from these matters, as well as the range of possible or probable loss, if any. If
losses are probable and reasonably estimable, the
Company will record a reserve in accordance with SFAS 5,Accounting for Contingencies. Any reserves recorded may change in the future due to new
developments in each matter.

REVENUE RECOGNITION



The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is
reasonably assured. In instances where final acceptance of the product or system is required, revenue is deferred until all the acceptance criteria have been met.

The
Company derives the majority of its revenue from product sales of GeneChip® probe arrays, reagents, and related instrumentation that may be sold individually or combined
with any of the product or product related revenue items listed below. When a sale combines multiple elements, the Company accounts for multiple element arrangements under Emerging Issues Task Force
Issue No. 00-21 ("EITF 00-21"),Revenue Arrangements with Multiple Deliverables.

EITF 00-21
provides guidance on accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. In
accordance with EITF 00-21, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair
value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. In
the absence of fair value of a delivered element, the Company allocates revenue first to the fair value of the undelivered elements and the residual revenue to the delivered elements. The Company
recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair
value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or
until fair value can objectively be determined for any remaining undelivered elements.



Product sales, as well as revenues from Perlegen Sciences, include sales of GeneChip® probe arrays, reagents and related instrumentation. Probe array,
reagent and instrumentation revenues are recognized when earned, which is generally upon shipment and transfer of title to the customer and fulfillment of any significant post-delivery
obligations. Accruals are provided for anticipated warranty expenses at the time the associated revenue is recognized.

65

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Product related revenue includes subscription fees earned under GeneChip® array access programs; license fees; milestones and royalties earned from
collaborative product development and supply agreements; equipment service revenue; product related scientific services revenue; and revenue from custom probe array design fees.

Revenue
from subscription fees earned under GeneChip® array access programs is recorded ratably over the related supply term.

The
Company enters into collaborative arrangements which generally include a research and product development phase and a manufacturing and product supply phase. These arrangements may
include up-front nonrefundable license fees, milestones, the rights to royalties based on the sale of final product by the partner, product supply agreements and distribution arrangements.

Any
up-front, nonrefundable payments from collaborative product development agreements are recognized ratably over the research and product development period, and
at-risk substantive based milestones are recognized when earned. Any payments received which are not yet earned are included in deferred revenue.

Revenue
related to extended warranty arrangements is deferred and recognized ratably over the applicable periods. Revenue from custom probe array design fees associated with the
Company's
GeneChip® CustomExpress and CustomSeq products are recognized when the associated products are shipped.

Revenue
from scientific and DNA analysis services are recognized upon shipment of the required data to the customer.



Royalties and other revenue include royalties earned from third party license agreements and research revenue which mainly consists of amounts earned under
government grants. Additionally, other revenue includes fees earned through the license of the Company's intellectual property.

Royalty
revenues are earned from the sale of products by third parties who have been licensed under the Company's intellectual property portfolio. Revenue from minimum royalties is
amortized over the term of the creditable royalty period. Any royalties received in excess of minimum royalty payments are recognized under the terms of the related agreement, generally upon
notification of manufacture or shipment of a product by a licensee.

Research
revenues result primarily from research grants received from U.S. Government entities or from subcontracts with other life science research-based companies which receive their
research grant funding from the U.S. Government. Revenues from research contracts are generated from the efforts of the Company's technical staff and include the costs for material and subcontract
efforts. The Company's research grant contracts generally provide for the payment of negotiated fixed hourly rates for labor hours incurred plus reimbursement of other allowable costs. Research
revenue is recorded in the period in which the associated costs are incurred, up to the limit of the prior approval funding

66

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

amounts
contained in each agreement. The costs associated with these grants are reported as research and development expense.

License
revenues are generally recognized upon execution of the agreement unless the Company has continuing performance obligations, in which case the license revenue is recognized
ratably over the period of expected performance.



The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price is
fixed or determinable, and collectability is reasonably assured. The Company's agreements with distributors do not include rights of return.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist of costs incurred for internal, collaborative and grant-sponsored research and development. Research and development
expenses include salaries, contractor fees, building costs, utilities and allocations of shared corporate services. In addition, the Company funds research and development at other companies and
research institutions under agreements which are generally cancelable. All such costs are charged to research and development expense as incurred.

SOFTWARE DEVELOPMENT COSTS

SFAS No. 86,Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. The Company's software is deemed to have achieved technologically
feasibility at the point a working model of the software product is developed. The Company has capitalized approximately $4.5 million and $2.6 million costs incurred subsequent to the
establishment of technological feasibility for the years ended December 31, 2007 and 2006, respectively. These costs began to be amortized to cost of product sales in the fourth quarter of
2007. The costs of developing routine software enhancements are expensed as research and development as incurred because of the short time between the determination of technological feasibility and
the date of general release of the related products.

The
Company applies Statement of Position No. 98-1,Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. In 2007 and 2006, the Company capitalized approximately $10.7 million and $4.8 million, respectively, related to the implementation of an enterprise
resources planning system. The costs associated with software developed for internal use will be amortized at the time in which the software is ready for its intended use.

ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising costs were $0.5 million for 2007, $1.5 million for 2006, and $1.9 million for
2005.

67

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R,Share-Based
Payment("SFAS 123R") using the modified prospective transition method. Under the modified prospective transition method, prior periods are not restated for the effect
of SFAS 123R. Commencing with the first quarter of 2006, compensation cost includes all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation for all share-based payments granted subsequent to January 1, 2006, based on the
grant date fair value estimated in accordance with the provisions of SFAS 123R. The Company recognizes the fair value of its stock option awards as compensation expense over the requisite
service period of each award, generally four years. Compensation expense related to stock options granted prior to January 1, 2006 is recognized using the graded method while compensation
expense related to stock options granted on or after January 1, 2006 is recognized on a straight-line basis.

Prior
to the adoption of SFAS 123R, the Company applied SFAS 123, amended by SFAS 148, Accounting for Stock-Based
CompensationTransition and Disclosure("SFAS 148"), which allowed companies to apply the existing accounting rules under APB 25, "Accounting for
Stock Issued to Employees," and related Interpretations. In general, as the exercise price of options granted under the Company's plans was equal to the market price of the underlying common stock on
the grant date, no stock-based employee compensation cost was recognized in the Company's net income (loss) for periods prior to the adoption of SFAS 123R. As required by SFAS 148 prior
to the adoption of SFAS 123R, the Company provided pro forma net income (loss) and pro forma net income (loss) per common share disclosures for stock-based awards, as if the
fair-value-based method defined in SFAS 123 had been applied. See Note 14 for further information regarding stock-based compensation.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains
and losses on the Company's available-for-sale securities that are excluded from net income (loss), changes in fair value of derivatives designated as and effective as cash
flow hedges, and foreign currency translation adjustments. Total comprehensive income (loss) has been disclosed in the consolidated statement of comprehensive income (loss).

The
components of accumulated other comprehensive income (loss) are as follows (in thousands):

December 31,2007

2006Foreign currency translation adjustments, net of tax

$
(342
)
$
(752
)Unrealized gains (losses) on available-for-sale and non-marketable securities, net of tax


2,356


(947
)Unrealized losses on cash flow hedges, net of tax


(16
)

(18
)Accumulated other comprehensive income (loss)

$
1,998

$
(1,717
)


68

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share is calculated using the weighted-average number of common shares outstanding during the period less the weighted-average
shares subject to repurchase. Diluted income (loss) per common share gives effect to dilutive common stock subject to repurchase, stock options and warrants (calculated based on the treasury stock
method), and convertible debt (calculated using an as-if-converted method).

The
following table sets forth a reconciliation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

|                                                                    |                                                                     | Year Ended December 31,                                                          |       
|------------------------------------------------------------------- | ------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------
|
|Numerator:                                                          |                                                                     |                                                                                  |       
|                                                                    | Net income (loss)basic                                             |                                                                                  | $     
|                                                                    | Add effect of dilutive securities:                                  |                                                                                  |       
|                                                                    |                                                                     | Interest on convertible notes (inclusive of amortization of debt issuance costs) |       
|                                                                    |                                                                     |                                                                                  |       
|                                                                    | Net income (loss)diluted                                           |                                                                                  | $     
|                                                                    |                                                                     |                                                                                  |       
|Denominator:                                                        |                                                                     |                                                                                  |       
|                                                                    | Weighted-average shares outstanding                                 |                                                                                  |       
|                                                                    | Less: weighted-average shares of common stock subject to repurchase |                                                                                  |       
|                                                                    |                                                                     |                                                                                  |       
|Shares used in computing basic net income (loss) per common share   |                                                                     |                                                                                  | 68,242
|                                                                    | Add effect of dilutive securities:                                  |                                                                                  |       
|                                                                    |                                                                     | Employee stock options                                                           |       
|                                                                    |                                                                     | Common stock subject to repurchase                                               |       
|                                                                    |                                                                     | Warrants to purchase common stock                                                |       
|                                                                    |                                                                     | Convertible notes                                                                |       
|                                                                    |                                                                     |                                                                                  |       
|Shares used in computing diluted net income (loss) per common share |                                                                     |                                                                                  | 83,064
|                                                                    |                                                                     |                                                                                  |       
|Basic net income (loss) per common share                            |                                                                     | $                                                                                | 0.18  
|                                                                    |                                                                     |                                                                                  |       
|Diluted net income (loss) per common share                          |                                                                     | $                                                                                | 0.17  
|                                                                    |                                                                     |                                                                                  |       

Diluted
earnings per share include certain common share equivalents from outstanding stock options (on the treasury stock method), common stock subject to repurchase, outstanding
warrants to purchase common stock and convertible notes (on the as-if-converted basis).

69

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The securities excluded from diluted earnings per common share, on an actual outstanding basis, were as follows (in thousands):

Year Ended December 31,2007

2006

2005Employee stock options

3,368

6,466

1,427Restricted stock subject to repurchase



93

Convertible notes



3,870

Total

3,368

10,429

1,427


RESTRUCTURING

The Company has in recent years engaged in, and may continue to engage in, restructuring actions, which require management to utilize significant estimates
related to expenses for severance and other employee separation costs, lease cancellation, realizable values of assets that may become duplicative or obsolete, and other exit costs. If the actual
amounts differ from the Company's estimates, the amount of the restructuring charges could be materially impacted. For a full description of the Company's restructuring actions, see Note 3.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FIN 48. Under FIN 48 a company recognizes the benefit from a tax position only if it is
more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position. FIN 48 clarifies how a company
would measure the income tax benefits from the tax positions that are recognized, provides guidance as to the timing of the derecognition of previously recognized tax benefits and describes the
methods for classifying and disclosing the liabilities within the financial statements for any unrecognized tax benefits. FIN 48 also addresses when a company should record interest and
penalties related to tax positions and how the interest and penalties may be classified within the income statement and presented in the balance sheet. The Company adopted FIN 48 effective
January 1, 2007 as described in Note 15.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements("SFAS 157"). SFAS 157 establishes a
framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements.
SFAS 157 does not require any new fair value measurement SFAS 157 requires prospective application for fiscal year ending December 31, 2008.

In
February 2007, FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB
No. 115("SFAS 159"). The Statement permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair
value that are not currently measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected would be reported in earnings at each subsequent reporting
date. SFAS 159 also establishes presentation and disclosure requirements in order to facilitate comparisons between entities choosing different measurement attributes for similar types of
assets and liabilities. SFAS 159 does not affect existing accounting requirements for certain assets and liabilities to

70

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

be
carried at fair value. This statement is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company for the fiscal year ending
December 31, 2008. The Company does not believe that the adoption of SFAS No. 159 will have a material impact on its consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141R,Business Combinations("SFAS No. 141R"). SFAS No. 141R amends
SFAS 141 and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also
provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. It is effective for fiscal years beginning on or
after December 15, 2008 and will be applied prospectively.

NOTE 3RESTRUCTURING

Fiscal 2007 Restructuring Plan

In July 2007, the Company announced that it was consolidating an administrative facility located in Sunnyvale, California into its main campus in Santa Clara,
California during the fourth quarter of 2007 (the "2007 Plan"). Additionally, in August and December 2007, the Company terminated certain employees in the research and development and selling, general
and administrative functions. The
Company estimates that the total restructuring expenses to be incurred in connection with the 2007 Plan will be approximately $4.6 million. Of this total, the Company estimates that
approximately $3.0 million relates to employee severance and approximately $1.4 million relates to contract termination and $0.2 million of other costs associated with vacating
the leased Kifer facility, net of estimated sublease income of $1.6 million. The Kifer facility was vacated during the fourth quarter of 2007. The estimated cash outlays to be incurred in
connection with these restructuring activities are estimated to be approximately $4.6 million. In accordance with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities("SFAS 146"), the costs relating to employee severance are being accrued over the remaining service periods of the employees.

During
2007, the Company recognized approximately $2.9 million of expense related to employee termination benefits associated with the 2007 Plan, which was presented as a
component of the line item labeled "Restructuring charges" in its Consolidated Statements of Operations.

71

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 3RESTRUCTURING (Continued)

The
activity in the accrued restructuring balances related to the 2007 Plan described above for the year ended December 31, 2007 was as follows (in thousands):

|                                           |                           |   |   |   |   |       |       |   |        |        |   | As of December 31, 2007
|------------------------------------------ | ------------------------- | - | - | - | - | ----- | ----- | - | ------ | ------ | - | -----------------------
|
|Employee severance and relocation benefits |                           | $ |  |   | $ | 2,887 |       | $ | (1,333 | )      | $ | (259                   
|Contract termination costs                 |                           |   |  |   |   | 1,216 |       |   | (94    | )      |   |                       
|Other restructuring costs                  |                           |   |  |   |   | 114   |       |   |       |        |   | (114                   
|                                           |                           |   |   |   |   |       |       |   |        |        |   |                        
|                                           | Total restructuring costs |   | $ |  |   | $     | 4,217 |   | $      | (1,427 | ) | $                      
|                                           |                           |   |   |   |   |       |       |   |        |        |   |                        

Fiscal 2006 Restructuring Plan

In the third quarter of 2006, the Company initiated a restructuring plan (the "2006 Plan") to better align certain of its expenses with the Company's current
business outlook. The Company's primary focus of the 2006 Plan was in the general and administrative functions and included rationalizing its facilities. In August 2006, the Company terminated certain
employees in the general and administrative functions. Additionally, in September, the Company announced its plan to close its Bedford, Massachusetts based instrumentation manufacturing and
development facility. The Company consolidated the Bedford facility's instrument manufacturing operations with its probe array manufacturing facility in West Sacramento, California. The Company's
instrumentation development capabilities were consolidated with its principal research and development facilities located in Santa Clara, California. Implementation of the 2006 Plan began in the
fourth quarter of 2006 and continued into the first half of 2007 and eliminated or transferred certain positions. The closure of the Bedford, Massachusetts facility was substantially completed by the
third quarter of fiscal 2007.

The
Company estimates that the total restructuring expenses to be incurred in connection with the 2006 Plan will be approximately $25.3 million. Of this total, the Company
estimates that $20.2 million relates to employee severance and relocation benefits, $2.9 million relates to contract termination costs associated with vacating the leased Bedford
facility, net of estimated sublease income of $6.7 million,
and approximately $2.2 million relates to other restructuring costs such as fixed asset write-downs and equipment and inventory relocation costs. The Company incurred restructuring expenses
beginning in the third quarter of 2006 and continued incurring related expenses through the third quarter of 2007. Cash outlays incurred in connection with these restructuring activities are estimated
to be approximately $16.8 million. In accordance with SFAS 146, the costs relating to employee severance and relocation were accrued over the remaining service periods of the employees.

During
the third and fourth quarters of 2006, the Company recognized approximately $13.5 million of expense which was presented in a single line item labeled "Restructuring
charges" in the Company's Consolidated Statements of Operations, of which approximately $7.5 million of the expense related to the modification of a former Neomorphic employee's equity awards,
all of which became fully vested

72

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 3RESTRUCTURING (Continued)

under
the terms of a prior leave of absence agreement when he was involuntarily terminated in connection with the plan.

The
activity in the accrued restructuring balances related to the 2006 Plan described above for the year ended December 31, 2007 was as follows:

|                                           |                           |   |       |       |   |       |        |   |         |         |   | As of
December 31, 2007
|------------------------------------------ | ------------------------- | - | ----- | ----- | - | ----- | ------ | - | ------- | ------- | - | -----------------------
|
|Employee severance and relocation benefits |                           | $ | 4,130 |       | $ | 6,700 |        | $ | (10,726 | )       | $ | 36                     
|Contract termination costs                 |                           |   |      |       |   | 2,391 |        |   | (630    | )       |   |                        
|Other restructuring costs                  |                           |   |      |       |   | 1,988 |        |   | (986    | )       |   | (1,002                 
|                                           |                           |   |       |       |   |       |        |   |         |         |   |                        
|                                           | Total restructuring costs |   | $     | 4,130 |   | $     | 11,079 |   | $       | (12,342 | ) | $                      
|                                           |                           |   |       |       |   |       |        |   |         |         |   |                        

In
February 2008, the Company implemented a restructuring plan in order to optimize our production capacity and cost structure to enable us to increase its future gross margins. The
Company intends to move, by the end of 2008, the majority of our probe array manufacturing from its West Sacramento, California facility to its Singapore facility. In connection with this plan, the
Company expects to incur total non-cash charges in the first quarter of 2008 of $12 million to $15 million related to the abandonment of certain long-lived
manufacturing assets and approximately $0.5 million in cash outlays related to employee severance. Depending on the rate at which the Company transfers production capacity to Singapore, it may
incur additional charges in 2008 associated with the reduction of capacity in West Sacramento, California.

NOTE 4COLLABORATIVE AGREEMENTS

The Company has agreements with several entities to develop and test probe arrays for the detection of certain gene sequences, mutations or organisms. Under such
agreements, the Company may receive development fees and may receive payments upon achievement of certain technical goals. The
Company also has research agreements with many universities and research organizations. The Company's material agreement is described below.

F. Hoffmann-La Roche Ltd. ("Roche")

In February 1998, the Company entered into a non-exclusive collaborative development agreement with F. Hoffmann-La Roche Ltd.
("Roche") to initially develop human probe array-based diagnostic products. Under the terms of the agreement the parties are collaborating to develop mutually agreed upon arrays, as well as associated
instrumentation, software, and reagents. In January 2003, the Company expanded its collaboration with Roche by granting Roche access to our
GeneChip®technologies to develop and commercialize GeneChip® diagnostic laboratory tests for DNA analysis, genotyping and
resequencing applications, as well as for RNA expression analysis, in a broad range of human disease areas. Using our GeneChip® technologies, Roche intends to develop and market diagnostic
tests for diseases such as cancer and osteoporosis and cardiovascular, metabolic, infectious

73

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 4COLLABORATIVE AGREEMENTS (Continued)

and
inflammatory diseases. Affymetrix and Roche believe that developing targeted microarray expression profiles for cancer, plus genotyping and resequencing profiles for other diseases will enable the
creation and commercialization of novel standardized diagnostic solutions. These solutions ultimately will allow physicians to better diagnose and treat human disease. Under the terms of the
collaborative agreement, Roche paid the Company an access fee of $70 million and the agreement also includes a broad range of other compensation payable by Roche to Affymetrix throughout the
life of the agreement based on royalties on sales of diagnostic kits and milestone payments for technical and commercial achievements. As part of the agreement, Affymetrix will manufacture and supply
Roche with microarrays and related instrumentation based on Affymetrix' GeneChip® platform. In 2003, Roche launched the AmpliChip® CYP450 array product initially for research
use only, but in late 2004 obtained CE marking and FDA regulatory approvals of the product for in-vitro diagnostic use.

The
parties amended the collaborative development agreement in December 2006. Under the terms of the amendment, Roche is relieved of certain future license installment payments that
would have been payable by Roche to Affymetrix under the agreement beginning in 2008, Affymetrix is relieved of certain "most favorable terms and conditions" obligations to Roche, and Roche has agreed
to pay to Affymetrix additional milestone payments related to future commercial achievements. The license agreement is subject to Roche's option to terminate on December 31, 2010 or any time on
or after December 31, 2015, with one year's prior notice. As part of the arrangement between the parties, Affymetrix will continue to manufacture and supply Roche with microarrays and related
instrumentation based on Affymetrix' GeneChip® platform.

The
Company has assessed the revenue recognition of the December 2006 collaborative agreement amendment in accordance with EITF 00-21 to account for the multiple
deliverables in the arrangement and to evaluate the revenue allocated to each of the units of accounting (the research
and development period and the manufacturing and supply period). The Company has established objective and reliable evidence of fair market value for the manufacturing and supply period undelivered
unit of accounting based on analysis of the pricing for similar manufacturing and supply agreements sold to other Powered by Affymetrix partners on a standalone basis that do not contain
a research and development period. The Company has determined that the product transfer pricing, royalties on sales of diagnostic kits and milestone payments for technical and commercial achievements
for the manufacturing and supply period unit of accounting in the amended Roche collaborative agreement reflects the established fair market value for these deliverables. In addition, the Company
re-assessed the estimated remaining research and development period and determined that Roche's one-time, upfront payment of $70 million under the license agreement,
which was paid to Affymetrix in the first quarter of 2003, should continue to be recognized as a component of product related revenue over the remaining estimated research and development period which
was estimated to be through fiscal 2007. Research revenue under this contract was approximately $14.2 million for each of the three years ended December 31, 2007, 2006 and 2005,
respectively. The amortization of this license agreement was completed in December 2007. The associated research costs are not significant for each of the years presented.

74

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 5CONCENTRATIONS OF RISK

Cash equivalents and investments are financial instruments that potentially subject Affymetrix to concentrations of risk to the extent of amounts recorded in the
consolidated balance sheets. Company policy restricts the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued by the United States Government.

The
Company has not experienced significant credit losses from its accounts receivable. Affymetrix performs a regular review of its customer activity and associated credit risks and does
not require collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectability of accounts receivable.

Certain
raw materials or components used in the synthesis of probe arrays or the assembly of instrumentation, are currently available only from a single source or limited sources. No
assurance can be given that these raw materials or other components of the GeneChip® system will be available in commercial quantities at acceptable costs from other vendors should the
need arise. If the Company is required to seek alternative sources of supply, it could be time consuming and expensive.

In
addition, the Company is dependent on its vendors to provide components of appropriate quality and reliability and to meet applicable regulatory requirements. Consequently, in the
event that supplies from these vendors are delayed or interrupted for any reason, the Company's ability to develop and supply its products could be impaired, which could have a material adverse effect
on the Company's business, financial condition and results of operations.

Approximately
51% of the Company's product and product related revenue is generated from sales outside the United States. The Company's results of operations are affected by such factors
as changes in foreign currency exchange rates, trade protection measures, longer accounts receivable collection patterns and changes in regional or worldwide economic or political conditions. The
risks of the Company's international operations are mitigated in part by the extent to which its sales are geographically distributed and its foreign currency hedging program.

NOTE 6AVAILABLE-FOR-SALE SECURITIES AND OTHER FINANCIAL INSTRUMENTS

Investments in Debt and Equity Securities

The fair values of all available-for-sale securities are based on quoted market prices and are included in cash and cash equivalents,
available-for-sale securitiesshort-term and available-for-sale

75

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 6AVAILABLE-FOR-SALE SECURITIES AND OTHER FINANCIAL INSTRUMENTS (Continued)

securitieslong-term
on the Company's Consolidated Balance Sheets based on the securities maturity. The following is a summary of available-for-sale securities as
of December 31, 2007 (in thousands):

|                                                  |                              | Cost             |         | Gross
Unrealized
Gains |         | Gross
Unrealized
Losses |     | Fair Value
|------------------------------------------------- | ---------------------------- | ---------------- | ------- | ---------------------- | ------- | ----------------------- | --- | ----------
|U.S. Government obligations and agency securities |                              | $                | 409,002 |                        | $       | 569                     |     | $         
|U.S. corporate debt securities                    |                              |                  | 128,469 |                        |         | 11                      |     |           
|Non-U.S. equity securities                        |                              |                  | 917     |                        |         |                        |     |           
|                                                  |                              |                  |         |                        |         |                         |     |           
|                                                  | Total securities             |                  | $       | 538,388                |         | $                       | 580 |           
|                                                  |                              |                  |         |                        |         |                         |     |           
|Amounts included in:                              |                              |                  |         |                        |         |                         |     |           
|                                                  | Cash equivalents             |                  | $       | 241,997                |         | $                       | 35  |           
|                                                  | Available-for-sale securites |                  |         | 296,391                |         |                         | 545 |           
|                                                  |                              |                  |         |                        |         |                         |     |           
|                                                  |                              | Total securities |         | $                      | 538,388 |                         | $   | 580       
|                                                  |                              |                  |         |                        |         |                         |     |           
|Amounts mature in:                                |                              |                  |         |                        |         |                         |     |           
|                                                  | Less than one year           |                  | $       | 447,194                |         | $                       | 409 |           
|                                                  | One to two years             |                  |         | 91,194                 |         |                         | 171 |           
|                                                  |                              |                  |         |                        |         |                         |     |           
|                                                  |                              | Total securities |         | $                      | 538,388 |                         | $   | 580       
|                                                  |                              |                  |         |                        |         |                         |     |           

The
following is a summary of available-for-sale securities as of December 31, 2006 (in thousands):

|                                                  |                              | Cost             |         | Gross
Unrealized
Gains |         | Gross
Unrealized
Losses |    | Fair Value
|------------------------------------------------- | ---------------------------- | ---------------- | ------- | ---------------------- | ------- | ----------------------- | -- | ----------
|U.S. Government obligations and agency securities |                              | $                | 16,800  |                        | $       |                        |    | $         
|U.S. corporate debt securities                    |                              |                  | 120,967 |                        |         | 86                      |    |           
|Non-U.S. equity securities                        |                              |                  | 2,000   |                        |         |                        |    |           
|                                                  |                              |                  |         |                        |         |                         |    |           
|                                                  | Total securities             |                  | $       | 139,767                |         | $                       | 86 |           
|                                                  |                              |                  |         |                        |         |                         |    |           
|Amounts included in:                              |                              |                  |         |                        |         |                         |    |           
|                                                  | Cash equivalents             |                  | $       | 10,288                 |         | $                       |   |           
|                                                  | Available-for-sale securites |                  |         | 129,479                |         |                         | 86 |           
|                                                  |                              |                  |         |                        |         |                         |    |           
|                                                  |                              | Total securities |         | $                      | 139,767 |                         | $  | 86        
|                                                  |                              |                  |         |                        |         |                         |    |           
|Amounts mature in:                                |                              |                  |         |                        |         |                         |    |           
|                                                  | Less than one year           |                  | $       | 129,121                |         | $                       |   |           
|                                                  | One to two years             |                  |         | 10,646                 |         |                         | 86 |           
|                                                  |                              |                  |         |                        |         |                         |    |           
|                                                  |                              | Total securities |         | $                      | 139,767 |                         | $  | 86        
|                                                  |                              |                  |         |                        |         |                         |    |           

Realized
gains and (losses) for the year ended December 31, 2007 were $0.2 million and $(0.2) million, respectively. Realized gains and (losses) for the year ended
December 31, 2006 were $0.2 million and $(0.2) million, respectively. Realized gains and (losses) are included in interest income

76

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 6AVAILABLE-FOR-SALE SECURITIES AND OTHER FINANCIAL INSTRUMENTS (Continued)

and
other, net in the accompanying Consolidated Statements of Operations. The gross unrealized losses as of December 31, 2007 and 2006, above were primarily caused by credit concerns in the
securitized market and interest rate increases, respectively. No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers
of our securities. Based on the Company's review of these securities, including the assessment of the severity of the related unrealized losses, the Company has not recorded any
other-than-temporary impairments on these securities.

Excluding
our available-for-sale marketable securities, the declines in estimated fair values of certain investments were determined to be
other-than-temporary. Accordingly, the Company recorded net impairment losses on certain investments in both publicly-traded and non-marketable equity securities of
$0.9 million, $0.2 million and $2.2 million during the years ended December 31, 2007, 2006 and 2005, respectively. Net investment losses are included in interest income and
other, net in the Consolidated Statements of Operations. Depending on market conditions, the Company may incur additional charges on this investment portfolio in the future.

Derivative Financial Instruments

The Company derives a portion of its revenues in foreign currencies, predominantly in Europe and Japan. In addition, a portion of its assets are held in
nonfunctional currencies of its subsidiaries. In 2003, the Company began hedging activities by using currency forward contracts to manage a portion of the currency exposures created from its
activities denominated in foreign currencies. The Company's hedging program is designed to reduce, but does not entirely eliminate, the impact of currency exchange rate movements. Prior to 2007, the
Company hedged a percentage of forecasted international revenue with forward contracts and the gains and losses on these contracts largely offset gains and losses on the transactions being hedged. The
Company's revenue hedging policy is designed to reduce the negative impact on its forecasted revenue due to foreign currency exchange rate movements. During 2007, the Company did not carry or initiate
new currency forward contracts on a percentage of forecasted international revenue, based on management's internal assessment of the risk posed by extrapolating historical and potential future
currency rate changes. Management will continue to reevaluate this risk on an ongoing basis.

The
net realized foreign currency gains (losses) related to the foreign currency forward contracts related to revenue were $0.3 million and $1.4 million for the years ended
December 31, 2006 and 2005, respectively. At December 31, 2007 and 2006, total outstanding contracts included the notional equivalent of zero and $35.8 million, respectively, in
foreign currency forward exchange contracts with a fair value of zero for both years. The Company applies hedge accounting based upon the criteria established by SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities("SFAS 133"), whereby the Company designated its 2006 derivatives for revenue
hedging purposes as cash flow hedges. The Company has elected not to designate its derivatives for balance sheet purposes as fair value hedges under SFAS 133 and have appropriately recorded any
changes in fair value to interest income and other, net. During the years ended December 31, 2007 and 2006, all of the Company's hedges under SFAS 133 were deemed effective.

77

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 6AVAILABLE-FOR-SALE SECURITIES AND OTHER FINANCIAL INSTRUMENTS (Continued)

Other Financial Instruments

The carrying amounts and estimated fair values of financial instruments, other than those accounted for in accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities,were as follows at December 31, 2007 and 2006 (in thousands):

|           |                                  | 2007 |   | 2006   
|---------- | -------------------------------- | ---- | - | -------
|
|Assets:    |                                  |      |   |        
|           | Non-marketable equity securities |      | $ | 20,710 
|           | Employee loans receivable        |      |   | 1,863  
|Liability: |                                  |      |   |        
|           | Convertible notes                |      |   | 436,250

The
fair value estimates provided above for the Company's convertible notes were based on quoted market prices available at December 31, 2007 and 2006. All other fair values were
based on current market rates, liquidation and net realizable values.

NOTE 7INVENTORIES

Inventories consist of the following at December 31, 2007 and 2006 (in thousands):

2007

2006Raw materials

$
20,507

$
21,612Work-in-process


11,297


13,127Finished goods


11,108


11,767Total

$
42,912

$
46,506


NOTE 8PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 2007 and 2006 (in thousands):

2007

2006Property and equipment:Construction-in-progress

$
55,209

$
75,870Equipment and furniture


140,237


130,355Building and leasehold improvements


91,188


62,872Land


1,310


1,310287,944


270,407Less: accumulated depreciation and amortization


(144,060
)

(129,085
)Net property and equipment

$
143,884

$
141,322


78

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 8PROPERTY AND EQUIPMENT (Continued)

Construction-in-progress
includes construction costs for new and upgraded facilities in Singapore and West Sacramento, as well as related purchased equipment not
yet placed in service and costs for the new ERP system. For the years ended December 31, 2007, 2006 and 2005, the Company recorded depreciation expense of $23.6 million,
$22.8 million and $20.5 million, respectively.

NOTE 9ACQUIRED TECHNOLOGY RIGHTS

Acquired technology rights are comprised of licenses to technology covered by patents owned by third parties or patents acquired by the Company and are amortized
over the expected useful lives of these assets, which range from one to fifteen years. Accumulated amortization of these rights amounted to $39.0 million and $30.2 million at
December 31, 2007 and 2006, respectively.

The
expected future annual amortization expense of the Company's acquired technology rights is as follows (in thousands):

For the Year Ending December 31,

Amortization
Expense2008

$
8,3142009


7,4462010


6,6762011


6,2802012


5,391Thereafter


12,690Total

$
46,797


NOTE 10ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of December 31, 2007 and 2006 consist of the following (in thousands):

2007

2006Accounts payable

$
14,795

$
23,248Accrued compensation and related liabilities


29,519


19,050Accrued taxes


5,292


6,362Accrued legal


1,244


2,426Accrued warranties


3,007


6,801Other


7,686


5,006Total

$
61,543

$
62,893


79

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 11RELATED PARTY TRANSACTIONS AND NOTES RECEIVABLE FROM EMPLOYEES

Related Party Transactions



As of December 31, 2007, the Company, and certain of its affiliates, including the Company's chief executive officer and members of the board of directors,
held approximately 22% ownership interest in Perlegen Sciences, Inc. ("Perlegen"), a privately-held biotechnology company. In addition, two members of Perlegen's board of directors
are also members of the Company's board of directors.

The
Company formed Perlegen in October 2000 as a wholly-owned subsidiary and spun it off in March 2001 in a $100 million private equity financing. The Company acquired its initial
ownership interest in Perlegen in an arrangement which provides Perlegen rights to use certain of the Company's intellectual property in its development efforts, and also provides the Company rights
to use and commercialize certain data generated by Perlegen in the array field.

The
Company accounts for its ownership interest in Perlegen using the equity method as the Company and its affiliates do not control the strategic, operating, investing and financing
activities of Perlegen; however, the Company does have significant influence over Perlegen's operating activities. Further, the Company has no obligations to provide funding to Perlegen nor does it
guarantee or otherwise have any obligations related to the liabilities or results of operations of Perlegen or its investors. Through January 2005, the Company's investment in Perlegen had no cost
basis; accordingly, the Company has not recorded its proportionate share of Perlegen's operating losses in its financial statements since the
completion of Perlegen's initial financing. In February 2005, the Company participated in Perlegen's Series D preferred stock financing and recorded a $2.0 million investment related to
this transaction, which was included in the Company's balance sheet as a component of other assets. As of June 30, 2005, the Company had reduced the carrying value of its investment to zero
through the recording of its proportionate share of Perlegen's operating losses.

In
accordance with Financial Accounting Standards Board Interpretation No. 46 ("FIN 46"),Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51as amended, the Company has concluded that Perlegen is a variable interest entity in which the Company holds a variable interest, and that
the Company is not the primary beneficiary.

In
December 2003, the Company sold 950,000 shares of Perlegen preferred stock and realized a gain of $1.4 million which was included in interest and other income, net.
Additionally, in January 2004, the Company sold 400,000 shares of Perlegen preferred stock and realized a gain of $0.6 million, which was included in interest income and other, net.

In
June 2005, the Company executed an agreement with a customer pursuant to which the Company agreed to provide genotypic data in the context of whole genome association studies. The
Company had subcontracted certain elements of this agreement to Perlegen, which will use Affymetrix GeneChip® technology to provide the genotypic data. The agreement ended in the third
quarter of 2006 and no expenses were incurred.

In
October 2006, the Company entered into four new supply and license agreements with Perlegen. These four agreements, consisting of a commercial products supply agreement, a
non-commercial products supply agreement and two intellectual property license agreements, replace the prior supply and intellectual property license agreements entered into by the Company
and Perlegen in 2003. Under

80

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 11RELATED PARTY TRANSACTIONS AND NOTES RECEIVABLE FROM EMPLOYEES (Continued)

the
new supply agreements, which include terms that are generally consistent with the Company's standard supply terms, the Company shall supply commercial GeneChip products and certain
non-commercial custom GeneChip products for Perlegen's use in defined fields.

Notes Receivable from Employees

The Company has notes receivable from employees totaling $1.9 million and $2.2 million as of December 31, 2007 and 2006, respectively. The
notes are generally due four to five years after the date of issuance and accrued interest is due based on the Internal Revenue Service imputed interest rate at the date of issuance. Interest rates
have generally been between 2% and 6%.

NOTE 12COMMITMENTS AND CONTINGENCIES

Operating Leases

Affymetrix leases laboratory, office and manufacturing facilities under non-cancelable operating leases that expire at various times through 2016.
Some of these leases contain renewal options ranging from two to five years and escalation clauses. Rent expense related to operating leases was approximately $14.6 million in 2007,
$10.9 million in 2006 and $8.9 million in 2005. In connection with some of these facility leases, the Company has made security deposits totaling $2.8 million, which are included
in long-term other assets in the Consolidated Balance Sheets. Future minimum lease obligations at December 31, 2007 under all non-cancelable operating leases are as
follows (in thousands):

For the Year Ending December 31,

Amount2008

$
10,7112009


7,3642010


6,2652011


5,8572012


5,838Thereafter


5,200Total

$
41,235


Product Warranty Commitment

The Company provides for anticipated warranty costs at the time the associated revenue is recognized. Product warranty costs are estimated based upon the
Company's historical experience and the warranty period. The Company periodically reviews the adequacy of its warranty reserve and adjusts, if necessary, the warranty percentage and accrual based on
actual experience and estimated costs to be incurred. In 2006, the Company reserved approximately $1.3 million to replace chips damaged due to a manufacturing process defect. This manufacturing
process error was resolved by December 31, 2006. Since the beginning of 2007, the Company has noted that improvement in its internal quality control programs has resulted in an overall decline
in product replacement claims. As a result, an adjustment decreasing the warranty reserve balance was made in 2007. Information regarding

81

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 12COMMITMENTS AND CONTINGENCIES (Continued)

the
changes in the Company's product warranty liability for the years ended December 31, 2006 and December 31, 2007 is as follows (in thousands):

AmountBalance at December 31, 2005

$
6,223New warranties issued


5,964Repairs and replacements


(6,643
)Adjustments


1,257Balance at December 31, 2006


6,801New warranties issued


3,310Repairs and replacements


(5,167
)Adjustments


(1,937
)Balance at December 31, 2007

$
3,007


Non-Cancelable Supply Agreements

As of December 31, 2007, the Company had approximately $1.1 million of non-cancelable inventory supply agreements that are in effect
through 2008.

Indemnifications

From time to time the Company has entered into indemnification provisions under certain of its agreements with other companies in the ordinary course of business,
typically with business partners, customers, and suppliers. Pursuant to these agreements, the Company generally indemnifies, holds harmless, and agrees to reimburse the indemnified parties on a case
by case basis for losses suffered or incurred by the indemnified parties in connection with any U.S. patent or other intellectual property infringement claim by any third party with respect to its
products. The term of these indemnification provisions is generally perpetual from the time of the execution of the agreement. The maximum potential amount of future payments the Company could be
required to make under these indemnification provisions is unlimited. In addition, the Company has entered into indemnification agreements with its officers and directors. The Company has not incurred
material costs to defend lawsuits or settle claims related to these indemnification provisions. As of December 31, 2007, the Company had not accrued a liability for this guarantee, because the
likelihood of incurring a payment obligation in connection with this guarantee is remote.

Legal Proceedings

The Company has been in the past and continues to be a party to litigation which has consumed and may in the future continue to consume substantial financial and
managerial resources and which could adversely affect its business, financial condition and results of operations. If in any pending or future intellectual property litigation involving the Company or
its collaborative partners, the Company is found to have infringed the valid intellectual property rights of third parties, the Company, or its collaborative partners, could be subject to significant
liability for damages, could be required to obtain a license from a third party, which may not be available on reasonable terms or at all, or could be

82

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 12COMMITMENTS AND CONTINGENCIES (Continued)

prevented
from manufacturing and selling its products. In addition, if the Company is unable to enforce its patents and other intellectual property rights against others, or if its patents are found
to be invalid or unenforceable, third parties may more easily be able to introduce and sell DNA array technologies that compete with the Company's GeneChip® brand technology, and the
Company's competitive position could suffer. The Company expects to devote substantial financial and managerial resources to protect its intellectual property rights and to defend against the claims
described below as well as any future claims asserted against it. Further, because of the substantial amount of discovery required in connection with any litigation, there is a risk that confidential
information could be compromised by disclosure.



In 2006, three shareholders of the Company filed purported derivative lawsuits on behalf of the Company, which lawsuits name the Company (as nominal defendant)
and several of the Company's current and former officers and directors, and allege that these officers and directors breached their fiduciary duties and breached other laws by participating in
backdating stock options grants. Two of these lawsuits were filed in the United States District Court for the Northern District of California, one on August 30, 2006 and the other on
September 13, 2006, and were subsequently consolidated. The third lawsuit was filed in the Superior Court of the State of California on October 20, 2006. The substance of the allegations
in these cases is similar, and includes claims against the individual defendants for breach of fiduciary duties, unjust enrichment, and violations of federal securities laws, Generally Accepted
Accounting Principles, Section 162(m) of the Internal Revenue Code, and certain state laws in each case in connection with the allegedly backdated options. The plaintiffs seek monetary and
equitable relief on behalf of the Company, including damages and disgorgement from the individual defendants, changes in the Company's corporate governance and internal control procedures, and an
award of attorneys' fees and costs. As previously disclosed in the Company's Form 10-K/A's for the year ended December 31, 2005, the Company's decision to restate its
consolidated financial statements was based on the results of an internal review of its historical stock option granting practices from January 1, 1997 through May 31, 2006 performed
under the direction of the Audit Committee of the Board of Directors. The review did not find any pattern or practice of inappropriately identifying grant dates with hindsight in order to provide
"discounted" or "in-the-money"
grants. The Company does not believe that the claims in these derivative lawsuits have merit and the Company intends to vigorously defend the cases.



On September 12, 2006, the Company received written notice from the Securities and Exchange Commission that it is conducting an informal inquiry into the
Company's stock option practices. The Company has responded to the request for information and is cooperating fully in the informal inquiry. The Company was advised in the SEC's notice that the SEC's
request should not be construed as an indication by the SEC or its staff that any violations of law have occurred; and nor should the request be considered an adverse reflection upon any person,
entity or security.

83

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 12COMMITMENTS AND CONTINGENCIES (Continued)



On October 28, 2003, Enzo Life Sciences, Inc., a wholly-owned subsidiary of Enzo Biochem, Inc. (collectively "Enzo") filed a complaint
against the Company that is now pending in the United States District Court for the Southern District of New York for breach of contract, injunctive relief and declaratory judgment. The Enzo complaint
relates to a 1998 distributorship agreement with Enzo under which the Company served as a non-exclusive distributor of certain reagent labeling kits supplied by Enzo. In its complaint,
Enzo seeks monetary damages and an injunction against the Company from using, manufacturing or selling Enzo products and from inducing collaborators and customers to use Enzo products in violation of
the 1998 agreement. Enzo also seeks the transfer of certain Affymetrix patents to Enzo. In connection with its complaint, Enzo provided the Company with a notice of termination of the 1998 agreement
effective on November 12, 2003.

On
November 10, 2003, the Company filed a complaint against Enzo in the United States District Court for the Southern District of New York for declaratory judgment, breach of
contract and injunctive relief relating to the 1998 agreement. In its complaint, the Company alleges that Enzo has engaged in a pattern of wrongful conduct against it and other Enzo labeling reagent
customers by, among other things, asserting improperly broad rights in its patent portfolio, improperly using the 1998 agreement and distributorship agreements with others in order to corner the
market for non-radioactive labeling reagents, and improperly using the 1998 agreement to claim ownership rights to the Company's proprietary technology. The Company seeks declarations that
it has not breached the 1998 agreement and that nine Enzo patents that are identified in the 1998 agreement
are invalid and/or not infringed by it. The Company also seeks damages and injunctive relief to redress Enzo's alleged breaches of the 1998 agreement, its alleged tortious interference with the
Company's business relationships and prospective economic advantage, and Enzo's alleged unfair competition. The Company filed a notice of related case stating that its complaint against Enzo is
related to the complaints already pending in the Southern District of New York against eight other former Enzo distributors. The U.S. District Court for the Southern District of New York has related
the Company's case. There is no trial date in the actions between Enzo and the Company.

The
Company believes that the claims set forth in Enzo's complaint are without merit and have filed the action in the Southern District of New York to protect its interests. However, the
Company cannot be sure that it will prevail in these matters. The Company's failure to successfully defend against these allegations could result in a material adverse effect on its business,
financial condition and results of operation.



The Company's intellectual property is subject to a number of significant administrative and litigation actions. For example, in Europe and Japan, we expect third
parties to oppose significant patents that the Company owns or controls. Currently, third parties, including several of the Company's competitors, have filed oppositions against several of the
Company's European patents in the European Patent Office. These opposition proceedings are at various procedural stages and will result in the respective patents being either upheld in their entirety,
allowed to issue in amended form in designated European countries, or revoked. Further, in the United States, the Company expects that third parties will continue to "copy" the claims of its patents
in order to provoke interferences in the United States

84

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 12COMMITMENTS AND CONTINGENCIES (Continued)

Patent &
Trademark Office. These proceedings could result in the Company's patent protection being significantly modified or reduced, in the incurrence of significant costs and the consumption
of substantial managerial resources.

NOTE 13SENIOR CONVERTIBLE NOTES

3.50% Senior Convertible Notes

On November 13, 2007, the Company issued $316.3 million principal amount of 3.50% Senior Convertible Notes (the "3.50% Notes") due
January 15, 2038. The net proceeds after issuance costs from the 3.50% Notes offering were approximately $309.4 million. The 3.50% Notes bear interest of 3.50% per year on the principal
amount payable semi-annually in arrears on January 15 and July 15 of each year, beginning July 15, 2008. The Company intends to use the net proceeds of the offering
for working capital and general corporate purposes, which may include funding the Company's operations, capital expenditures, potential acquisitions of businesses, products or technologies believed to
be of strategic importance and repurchases or redemptions of all or a portion of the Company's 0.75% Senior Convertible Notes due 2033. The Company incurred underwriter discount and issuance costs of
approximately $6.9 million, which are being amortized over the effective life of the 3.50% Notes. The effective life of the 3.50% Notes due 2038 is five years, the period up to the first date
that the Holders can require the Company to repurchase the notes.

The
3.50% Notes are convertible into 33.1991 shares of Affymetrix common stock per $1,000 principal amount of notes which equates to 10,499,215 shares of common stock, or a conversion
price equivalent of $30.12 per share of common stock. The conversion rate is subject to adjustment upon the occurrence of the following specified events:



Holders
may convert their 3.50% Notes into shares of Affymetrix stock, subject to adjustment, prior to the close of business on the business day prior to the maturity date.

On
January 15, 2013, 2018 and 2028, the security holders have the option to require the Company to repurchase the 3.50% Notes at a price equal to 100% of the principal amount of
the 3.50% Notes plus accrued and unpaid interest. Additionally, on or after January 15, 2013, Affymetrix has the option of redeeming for cash at 100% of the principal amount all or part of the
then outstanding 3.50% Notes plus accrued but unpaid interest.

85

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 13SENIOR CONVERTIBLE NOTES (Continued)

The
3.50% Notes are unsecured and rank equally with the Company's other existing and future senior indebtedness. The 3.50% Notes are structurally subordinated to any current or future
indebtedness and other liabilities of the Company's subsidiaries.

0.75% Senior Convertible Notes

On December 10, 2003, the Company issued $120.0 million of 0.75% Senior Convertible Notes (the "0.75% Notes") due December 15, 2033. The net
proceeds after issuance costs from the 0.75% Notes offering were approximately $116.0 million. The 0.75% Notes bear interest of 0.75% per year on the principal amount payable
semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2004. The Company used the net proceeds of the offering to repurchase its 4.75%
Notes. The Company incurred broker discount and issuance costs of approximately $3.8 million which are being amortized over the effective life of the 0.75% Notes. The effective life of the
0.75% Notes due 2033 is five years, the period up to the first date that the Holders can require the Company to repurchase the notes.

The
0.75% Notes are convertible into 32.2431 shares of Affymetrix common stock per $1,000 principal amount of notes which equates to 3,869,172 shares of common stock, or a conversion
price equivalent of $31.01 per share of common stock. The conversion rate is subject to adjustment upon the occurrence of the following specified events:



Holders
may convert their 0.75% Notes into shares of Affymetrix' common stock prior to the close of business on the business day prior to the maturity date under the following
circumstances: (1) during any quarterly conversion period prior to December 15, 2028, if the sales price of the Company's common stock for at least 20 trading days in the 30 consecutive
trading-day period ending on the first day of such conversion period reaches a specified threshold, (2) on or after December 28, 2028, at any time after the sale price of the
Company's common stock on any date is greater than 130% of the then current conversion price, (3) during the five consecutive trading-day period in which the average of the trading
prices for the notes was less than 98% of the average of the sale price of the Company's common stock multiplied by the then applicable conversion rate, (4) the 0.75% Notes are called for
redemption, or (5) specified corporate transactions have occurred.

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 13SENIOR CONVERTIBLE NOTES (Continued)

On
December 15, 2008, 2013, 2018, 2023 and 2028 the security Holders have the option to require the Company to repurchase the 0.75% Notes at a price equal to 100% of the principal
amount of the 0.75% Notes plus accrued and unpaid interest. Additionally, on or after December 15, 2008, Affymetrix has the option of redeeming for cash at 100% of the principal amount all or
part of the then outstanding 0.75% Notes plus accrued but unpaid interest.

The
0.75% Notes are unsecured and rank equally with the Company's other existing and future senior indebtedness. The Notes are structurally subordinated to any current or future
indebtedness and other liabilities of the Company's subsidiaries.

NOTE 14STOCKHOLDERS' EQUITY

Stockholder Rights Plan

On October 15, 1998, the Board of Directors of the Company declared a dividend of (i) one preferred share purchase right (a "Right") for each
outstanding share of common stock of the Company, and
(ii) a number of Rights for each share of Series AA Preferred Stock of the Company equal to the number of shares of common stock into which such share of Series AA Preferred Stock
was convertible. The dividend was paid on October 27, 1998 (the "Record Date") to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company
one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Series B Preferred Stock") at a price of $62.50
per one one-thousandth of a share of Series B Preferred Stock, subject to adjustment. The Rights will be exercisable if a person or group hereafter acquires beneficial ownership of
15% or more of the common stock of the Company or announces a tender offer for 15% or more of the common stock. The Board of Directors will be entitled to redeem the Rights at one cent per Right at
any time before any such person acquires beneficial ownership of 15% or more of the outstanding common stock. If a person or group acquires 15% or more of the outstanding common stock of the Company,
each Right will entitle its holder to purchase, at the Right's exercise price, a number of shares of common stock having a market value at that time of twice the Right's exercise price. Rights held by
the 15% holder will become void and will not be exercisable to purchase shares at the bargain purchase price. If the Company is acquired in a merger or other business combination transaction after a
person acquires 15% or more of the Company's common stock, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring company's
common shares having a market value at that time of twice the Right's exercise price.

On
February 7, 2000, the Company's Board of the Directors approved an amendment to its stockholders rights plan. The amendment increases the exercise price of the Preferred Share
Purchase Rights to $625.00 and extends the expiration date of the plan to February 2010. Under the amended plan, each Preferred Share Purchase Right entitles stockholders to buy one
one-thousandth of a share of Series B Junior Participating Preferred Stock of the Company at the new exercise price of $625.00. The Rights will be exercisable if a person or group
acquires beneficial ownership of 15% or more of the common stock of the Company or announces a tender offer for 15% or more of the common stock.

87

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 14STOCKHOLDERS' EQUITY (Continued)

Stock-Based Compensation Plans

The Company has a stock-based compensation program that provides the Board of Directors broad discretion in creating equity incentives for employees, officers,
directors and consultants. This program includes incentive and non-qualified stock options and non-vested stock awards (also known as restricted stock) granted under various
stock plans. Stock options are generally time-based, vesting 25% on each annual anniversary of the grant date over four years and expire 7 to 10 years from the grant date.
Non-vested restricted stock awards are generally time-based, vesting 33% on each of the second, third and fourth anniversaries of the grant date. As of December 31,
2007, the Company had approximately 1.1 million shares of common stock reserved for future issuance under its stock-based compensation plans. New shares are
issued as a result of stock option exercises and non-vested restricted stock awards. A more detailed description of the Company's current stock option plans follows below.

In
1998, the Board of Directors adopted the Affymetrix 1998 Stock Incentive Plan (the "1998 Stock Plan") under which nonqualified stock options and restricted stock may be granted to
employees and outside consultants, except that members of the Board of Directors and individuals who are considered officers of the Company under the rules of the National Association of Securities
Dealers shall not be eligible. Options granted under the 1998 Stock Plan expire no later than ten years from the date of grant. The option price shall be at least 100% of the fair value of the
Company's common stock on the date of grant (110% in certain circumstances), as determined by the Board of Directors. Options may be granted with different vesting terms from time to time as
determined by the Board of Directors. A total of 3,600,000 shares of common stock are authorized for issuance under the 1998 Stock Plan.

In
2000, the Board of Directors adopted the 2000 Equity Incentive Plan (the "2000 Stock Plan"), which was amended and restated in 2001, under which restricted shares, stock units, stock
options and stock appreciation rights may be granted to employees, outside directors and consultants. Options granted under the 2000 Stock Plan expire no later than ten years from the date of grant.
The option price shall be at least 100% of the fair value of the Company's common stock on the date of grant (110% in certain circumstances), as determined by the Board of Directors. Options may be
granted with different vesting terms from time to time as determined by the Board of Directors. In 2004, the 2000 Stock Plan was amended and restated to increase share availability by 2,500,000 shares
bringing the total shares of common stock authorized for issuance under the 2000 Stock Plan to 7,500,000.

Adoption of SFAS 123R

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R using the modified prospective transition method.
Under the modified prospective transition method, prior periods are not restated for the effect of SFAS 123R. Commencing with the first quarter of 2006, compensation cost includes all
share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and
compensation for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. The Company
recognizes the fair value of its stock option awards as compensation expense over the requisite service period of each award, generally four years. Compensation expense related to

88

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 14STOCKHOLDERS' EQUITY (Continued)

stock
options granted prior to January 1, 2006 is recognized using the graded method while compensation expense related to stock options granted on or after January 1, 2006 is recognized
on a straight-line basis.

Prior
to the adoption of SFAS 123R, the Company applied SFAS 123, amended by SFAS 148, which allowed companies to apply the existing accounting rules under
APB 25,Accounting for Stock Issued to Employees, and related Interpretations. In general, as the exercise price of options granted under the
Company's plans was equal to the market price of the underlying common stock on the grant date, no stock-based employee compensation cost was recognized in the Company's net income (loss) for periods
prior to the adoption of SFAS 123R. As required by SFAS 148 prior to the adoption of SFAS 123R, the Company provided pro forma net income (loss) and pro forma net income (loss)
per common share disclosures for stock-based awards, as if the fair-value-based method defined in SFAS 123 had been applied.

As
a result of adopting SFAS 123R, the Company's loss before taxes, net loss and basic and diluted loss per share for the year ended December 31, 2006 was
$14.1 million, $10.0 million, $0.15 lower, respectively, than if the Company had continued to account for stock-based compensation under APB Opinion No. 25. In accordance with
SFAS 123R, the Company is also required to present excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows. Income tax benefit
of $5.3 million and $7.2 million was realized from stock option exercises during the years ended December 31, 2007 and 2006, respectively.

Impact of SFAS 123R

The following table sets forth the total stock-based compensation expense resulting from stock options and non-vested stock awards included in the
Company's Condensed Consolidated Statements of Income (Loss) upon the adoption of SFAS 123R (in thousands):

Years Ended December 31,2007

2006Costs of product sales

$
1,107

$
1,389Research and development


2,064


3,653Selling, general and administrative


7,215


10,008Restructuring


340


7,544Total stock-based compensation expense


10,726


22,594Income tax benefit


(3,642
)

(4,567
)Total stock-based compensation expense, net of tax

$
7,084

$
18,027


Selling,
general and administrative expense included a $1.1 million charge in the second quarter of 2006 due to the modification of an executive officer's stock option grant to
include an extension of time to exercise, as well as the vesting of certain stock options without a requisite service period. Restructuring expense included a $7.5 million charge in the third
quarter of 2006 due to the modification of a former Neomorphic employee's equity awards, all of which became fully vested under

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 14STOCKHOLDERS' EQUITY (Continued)

the
terms of a prior leave of absence agreement when he was involuntarily terminated in connection with the Company's third quarter restructuring effort.

As
of December 31, 2007, $28.4 million of total unrecognized stock-based compensation expense related to non-vested awards is expected to be recognized over the
respective vesting terms of each award through 2011. The weighted-average term of the unrecognized stock-based compensation expense is 2.5 years.

The
following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS 123, as amended by
SFAS 148, to stock-based employee compensation for fiscal 2005 (in thousands, except per share amounts):

Year Ended December 31, 2005Net incomeas reported

$
65,787Add: Stock-based employee compensation expense included in reported net income, net of tax


384Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of tax


(15,800
)Pro forma net income

$
50,371Net income per share:Basic net income per common shareas reported

$
1.03Diluted net income per common shareas reported

$
0.96Basic net income per common sharepro forma

$
0.79Diluted net income per common sharepro forma

$
0.74


Stock Options

The fair value of options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

Year Ended December 31,2007

2006

2005Risk free interest rate

4.4
%
5.0
%
4.1
%Expected dividend yield

0.0
%
0.0
%
0.0
%Expected volatility

42
%
40
%
45
%Expected option term (in years)

4.5

4.5

3.6


The
risk free interest rate for periods within the contractual life of the Company's stock options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected
term is derived from an analysis of the Company's historical exercise trends over ten years. The expected volatility for the years ended December 31, 2007 and 2006 is based on a blend of
historical and market-based implied volatility. The expected volatility for the year ended December 31, 2005 is based solely on historical volatility. The Company's management changed its
expected volatility estimation approach based upon

90

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 14STOCKHOLDERS' EQUITY (Continued)

the
availability of actively traded options on the Company's common stock and because management believes this blended method is more representative of future stock price trends than historical
volatility alone. Using the assumptions above, the weighted average grant date fair value of options granted during the years ended December 31, 2007, 2006 and 2005 was $10.18, $11.61 and
$18.97, respectively.

Activity
under the Company's stock plans for the year ended December 31, 2007 is as follows (in thousands, except per share amounts):

|                                                 |  | Shares |   | Weighted-Average
Exercise Price
Per Share |       | Weighted-Average
Remaining
Contractual Terms |     | Aggregate
Intrinsic Value
|------------------------------------------------ |  | ------ | - | ----------------------------------------- | ----- | -------------------------------------------- | --- | -------------------------
|
|Outstanding at December 31, 2006                 |  | 6,466  |   | $                                         | 31.42 |                                              |     |                          
|Grants                                           |  | 946    |   |                                           | 24.87 |                                              |     |                          
|Exercises                                        |  | (768   | ) |                                           | 18.82 |                                              |     |                          
|Forfeitures                                      |  | (565   | ) |                                           | 33.78 |                                              |     |                          
|Expirations                                      |  | (604   | ) |                                           | 39.53 |                                              |     |                          
|                                                 |  |        |   |                                           |       |                                              |     |                          
|Outstanding at December 31, 2007                 |  | 5,475  |   | $                                         | 30.91 |                                              | 3.7 |                          
|                                                 |  |        |   |                                           |       |                                              |     |                          
|Exercisable at December 31, 2007                 |  | 3,802  |   | $                                         | 32.09 |                                              | 2.7 |                          
|                                                 |  |        |   |                                           |       |                                              |     |                          
|Vested and expected to vest at December 31, 2007 |  | 5,091  |   | $                                         | 31.09 |                                              | 3.5 |                          
|                                                 |  |        |   |                                           |       |                                              |     |                          

The
aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company's closing stock price on the last trading
day of its fourth quarter of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option
holders exercised their options on December 31, 2007. This amount changes based on the fair market value of the Company's common stock. Total intrinsic value of options exercised is
$6.2 million, $6.2 million, and $74.2 million for the years ended December 31, 2007, 2006 and 2005, respectively.

Restricted Stock

The following table summarizes the Company's non-vested restricted stock activity for the year ended December 31, 2007 (in thousands, except
per share amounts):

Number of Shares

Weighted-Average
Grant Date Fair ValueNon-vested stock outstanding at December 31, 2006

247

$
30.81Granted

701

$
25.17Vested

(77
)
$
25.95Forfeited

(147
)
$
32.31Non-vested stock outstanding at December 31, 2007

724

$
25.53


91

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 14STOCKHOLDERS' EQUITY (Continued)

Total
fair value of shares vested is $18.5 million and $7.6 million for the years ended December 31, 2007 and 2006, respectively. The Company did not grant
restricted stock prior to the year ended December 31, 2005.

The
following table summarizes information concerning currently outstanding and exercisable options at December 31, 2007:

|                 |  | Options Outstanding |  | Options Exercisable
|---------------- |  | ------------------- |  | -------------------
|
|
|$0.26 - $21.96   |  | 808                 |  | 4.73               
|$22.20 - $24.44  |  | 918                 |  | 1.86               
|$24.55 - $27.02  |  | 825                 |  | 4.84               
|$27.05 - $30.45  |  | 1,167               |  | 4.21               
|$30.47 - $46.75  |  | 831                 |  | 4.18               
|$46.94 - $53.22  |  | 785                 |  | 2.14               
|$53.39 - $132.59 |  | 141                 |  | 4.60               
|                 |  |                     |  |                    
|Total            |  | 5,475               |  | 3.70               
|                 |  |                     |  |                    

Reserved Shares

At December 31, 2007, the Company has shares reserved for future issuance as follows (in thousands):

Options outstanding

5,475Options available for future grants

1,097Convertible subordinated notes

14,36920,941


92

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 15INCOME TAXES

The following table presents the U.S. and foreign components of consolidated income (loss) before income taxes and the provision for income taxes (in thousands).
Note that certain prior year information has been reclassified to conform to current year presentation:

Year Ended December 31,2007

2006

2005INCOME (LOSS) BEFORE INCOME TAXES:U.S.

$
11,370

$
14,760

$
127,382Foreign


6,910


(20,827
)

(64,774
)Income (loss) before income taxes

$
18,280

$
(6,067
)
$
62,608PROVISION (BENEFIT) FOR INCOME TAXES:Current:Federal


153


13,203


30,380State


14


888


2,663Foreign


2,002


41


1,969Subtotal


2,169


14,132


35,012Deferred:Federal


5,251


(5,565
)

(36,536
)State


(1,207
)

(1,261
)

(905
)Foreign


(524
)

331


(750
)Subtotal


3,520


(6,495
)

(38,191
)Provision (benefit) for income taxes

$
5,689

$
7,637

$
(3,179
)


The
difference between the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate (35%) to income (loss) before taxes is explained
as follows (in thousands):

Year Ended December 31,2007

2006

2005Tax at federal statutory rate

$
6,398

$
(2,123
)
$
21,913Previously unbenefited losses


749





(57,550
)State taxes, net


(1,213
)

704


4,042Non-deductible stock compensation


559


3,840


281Foreign rate differential


(585
)

7,018


29,120Non-deductible in-process research and development








2,910Research credits


(849
)

(2,163
)

(2,137
)Export tax benefits








(1,142
)Domestic manufacturing deduction








(840
)Other


630


361


224$
5,689

$
7,637

$
(3,179
)


93

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AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 15INCOME TAXES (Continued)

Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's assets are as follows (in thousands):

December 31,2007

2006Deferred tax assets:Net operating loss carryforwards

$
46,367

$
38,779Tax credit carryforwards


35,088


32,268Deferred revenue


2,022


7,843Capitalized research and development costs


1,706


2,416Intangibles


685


1,339Stock-based compensation


8,512


6,215Accrued compensation


2,850


2,882Accrued warranty


1,206


2,673Inventory reserve


4,213


7,103Reserves and other


6,393


8,813Depreciation and amortization


6,031


4,198Other, net


1,097


476Total deferred tax assets


116,170


115,005Valuation allowance for deferred tax assets


(64,592
)

(68,029
)Net deferred tax assets


51,578


46,976Net deferred tax liabilities:Acquired intangibles


(1,235
)

(1,498
)Other, net


(3,333
)

(2,774
)Total deferred tax liabilities


(4,568
)

(4,272
)Net deferred tax assets

$
47,010

$
42,704


As
of December 31, 2007, the Company had total net operating loss carryforwards of $198.6 million, comprised of $133.9 million for U.S. federal purposes, which
expire in the years 2020 through 2027 if not utilized, and $64.7 million for state purposes, which expire in the years 2010 through 2017 if not utilized. Additionally, the Company has federal
and state research and development tax credit carryforwards and other various tax credit carryforwards of approximately $50.4 million, which expire in the years 2008 through 2027 if not
utilized. Utilization of the Company's net operating loss and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss before utilization.

The
valuation allowance decreased by $3.4 million and $8.6 million for the years ended December 31, 2007 and 2006, respectively. The remaining valuation allowance as
of December 31, 2007 is $64.6 million, primarily due to the benefit of stock options that have not been realized on a tax return. In assessing the realizability of its deferred tax
assets, the Company considered whether it is

94

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 15INCOME TAXES (Continued)

more
likely than not that some portion or all of the deferred tax assets will not be realized. The Company considered historical book income, the scheduled reversal of deferred tax assets, and
projected future book and taxable income in making this assessment. Based upon a detailed analysis of historical and projected book and taxable income, the Company determined that the realization of
certain deferred tax assets is considered more likely than not.

Approximately
$53.1 million of the valuation allowance as of December 31, 2007 is attributable to the income tax benefits of stock option deductions, the benefit of which
will be credited to stockholders' equity when, and if, realized. Approximately $9.3 million of the valuation allowance as of December 31, 2007 is attributable to the acquisition of
certain ParAllele tax attributes, the benefit of which will be credited to goodwill when, and if, realized.

A
deferred tax liability of approximately $1.5 million has been recorded against the unrealized gain on certain investments, which is included in accumulated other comprehensive
income, as of December 31, 2007.

Not
included in the deferred tax assets as of December 31, 2007 is approximately $4.2 million of tax benefits related to employee stock plans. When realized, the tax
benefit of these assets will be accounted for as a credit to additional paid-in capital, rather than a reduction of the income tax provision.

As
of December 31, 2007, cumulative un-remitted foreign earnings that are considered to be permanently invested outside the United States and on which no U.S. taxes
have been provided were approximately $15.4 million. The residual U.S. tax liability, if such amounts were remitted, would be nominal.

Of
the total tax benefits resulting from the exercise of employee stock options and other employee stock programs, the amounts booked to stockholders' equity were approximately
$5.4 million and $7.6 million for the years ended December 31, 2007 and 2006 respectively.

A
portion of the Company's operations in Singapore operate under various tax holidays and tax incentive programs, which expire in whole or in part at various dates through 2017. There
was a minimal net impact of these tax holidays and tax incentive programs for the year ended December 31, 2007.

Effective
January 1, 2007, the Company adopted Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109("FIN48"), as a change in accounting principle. As a result, prior periods are not restated for the effect of FIN 48, and the cumulative
effect of applying FIN 48 was recorded as an adjustment to accumulated deficit as of the beginning of the period of adoption. The cumulative effect of adoption was an increase of
$0.6 million to the opening balance of accumulated deficit as a change in accounting principle.

95

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 15INCOME TAXES (Continued)

The
following table presents the total amount of unrecognized tax benefits (in thousands):

Unrecognized tax benefits, January 1, 2007

$
13,871Gross increasestax positions in prior period


93Gross decreasestax positions in prior period


(37
)Gross increasescurrent period tax positions


1,246Settlements


(239
)Lapse of statute of limitations


Unrecognized tax benefits, December 31, 2007

$
14,934


If
recognized, the amount of unrecognized tax benefits that would impact income from continuing operations and the effective tax rate is $14.0 million. Any changes to acquisition
related unrecognized tax benefits of approximately $0.9 million will impact goodwill. As of December 31, 2007, the Company does not anticipate any material changes to the amount of
unrecognized tax benefits during the next 12 months. The Company classifies interest and penalties related to tax positions as components of income tax expense. For the year ended
December 31, 2007, the amount of accrued interest and penalties related to tax uncertainties was approximately $0.1 million for a total cumulative amount of $0.2 million as of
December 31, 2007.

The
Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 1992 through 2007 tax years generally remain
subject to examination by federal and state tax authorities. In significant foreign jurisdictions, the 2002 through 2007 tax years generally remain subject to examination by their respective tax
authorities.

NOTE 16PRODUCT SALES, GEOGRAPHIC SALES, AND SIGNIFICANT CUSTOMERS

The Company has determined that, in accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related
Information, it operates in one segment as it only reports operating results

96

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 16PRODUCT SALES, GEOGRAPHIC SALES, AND SIGNIFICANT CUSTOMERS (Continued)

on
an aggregate basis to the chief operating decision maker of the Company. The Company reported product and product related revenue by type and by region as follows (in thousands):

Year Ended December 31,2007

2006

2005Total product and product related revenue:Probe arrays

$
181,202

$
170,359

$
197,949Reagents


59,902


43,283


42,428Instruments


38,679


47,101


62,636Subscription fees


3,809


7,237


12,448Service and other


39,346


41,235


20,172License fee and milestone revenue


14,649


14,568


14,557Total product and product related revenue

$
337,587

$
323,783

$
350,190Customer location:United States

$
164,166

$
155,737

$
173,496Europe


114,228


108,215


108,907Japan


31,550


37,403


47,920Other


27,643


22,428


19,867Total

$
337,587

$
323,783

$
350,190


There
were no customers representing 10% or more of total revenue in 2007, 2006 and 2005.

NOTE 17DEFINED-CONTRIBUTION SAVINGS PLANS

401(k) Plan

The Company maintains a defined-contribution savings plan which is qualified under Section 401(k) of the Internal Revenue Code. The plan covers
substantially all full-time U.S. employees. Participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. The
Company's expense associated with matching employee contributions totaled $3.7 million in 2007, $3.8 million in 2006 and $3.3 million in 2005. Company contributions to employees
vest ratably over four years.

Director and Executive Deferred Compensation Plan

In December 2004, the Board of Directors approved the creation of the Affymetrix, Inc. Deferred Compensation Plan (the "Plan"). The Plan provides
directors, executive officers and other eligible employees with the opportunity to enter into agreements to defer specified percentages of their cash compensation derived from base salary, bonus
awards and other specified compensation (including director fees). Distributions occur upon termination of service (or the 6-month anniversary after termination), death, or upon such other
dates that may be elected by the participant in accordance with the terms of the Plan. Generally, participants may elect for distributions of deferred amounts upon termination or death to be paid in
the form of either a lump sum or in annual installments.

97

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 17DEFINED-CONTRIBUTION SAVINGS PLANS (Continued)

Distributions
would be made in the event of a change of control of Affymetrix. Deferrals are adjusted for gain or loss based on the performance of one or more investment options selected by the
participant from among investment funds chosen by the Compensation Committee of the Board. The Company in its sole discretion may suspend or terminate the Plan or revise or amend it in any respect,
except that no such action may reduce vested amounts credited to deferral accounts, and such accounts will continue to be owed to the participants or beneficiaries and will continue to be a liability
of the Company until paid. For the years ended December 31, 2007 and 2006, the Company incurred no significant expenses in connection with the Plan.

NOTE 18SUBSEQUENT EVENTS

Intellectual Property Payment

On January 10, 2008, the Company and Illumina, Inc. announced that they had entered into a settlement agreement to resolve their patent litigation.
Under the terms of the settlement, Illumina agreed, without admitting liability, to make a one-time payment to the Company of $90 million. The Company agreed to dismiss with
prejudice all lawsuits it had brought against Illumina. Illumina
agreed to dismiss with prejudice its counterclaims in the relevant lawsuits. In exchange for the payment, the Company granted Illumina, its affiliates and its customers a perpetual covenant not to sue
for making, using or selling any of Illumina's current products, evolutions of those products and services related thereto. In addition, the Company extended the covenant not to sue for four years for
making, using or selling Illumina products or services that are based on future technology developments. The covenant not to sue covers all fields other than photolithography, the process by which the
Company manufactures its arrays and a field in which Illumina does not operate.

The
settlement will resolve all litigations and payments resulting from lawsuits the Company commenced against Illumina in United States District Court for the District of Delaware, in
Regional Court in Düsseldorf (Germany), and in High Court of Justice, Chancery DivisionPatents Court in London (United Kingdom). Payment of the settlement amount was
received in January 2008 and will be recognized as revenue in the first quarter of 2008.

USB Acquisition

On January 31, 2008, the Company announced the completion of its acquisition of USB Corporation, a privately held Cleveland, Ohio-based company
that develops, manufactures and markets an extensive line of molecular biology and biochemical reagent products. The acquisition will enable the Company to accelerate the development and
commercialization of new genetic analysis solutions and increase the value of its current product portfolio. The purchase price was approximately $75 million plus direct expenses. The results
of operations from USB Corporation will be included in the Company's consolidated financial statements from January 31, 2008, the date of closing.

98

---



AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2007

NOTE 19UNAUDITED QUARTERLY FINANCIAL INFORMATION

|                                              |  | 2007 |         | 2006
|--------------------------------------------- |  | ---- | ------- | ----
|
|
|Total revenue (excluding Perlegen)            |  | $    | 107,002 |     
|Perlegen revenue                              |  | $    | 590     |     
|Total cost of goods sold (excluding Perlegen) |  | $    | 37,667  |     
|Perlegen cost of goods sold                   |  | $    | 274     |     
|Net income (loss)                             |  | $    | 12,777  |     
|Basic net income (loss) per common share      |  | $    | 0.19    |     
|Diluted net income (loss) per common share    |  | $    | 0.17    |     

99

---





ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, Affymetrix' management, including our Chief Executive
Officer and Principal Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of Affymetrix' disclosure controls and procedures as defined
in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that Affymetrix' disclosure
controls and procedures were effective as of the end of the period covered by this report.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and
15d-15(f). Under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our management, we conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31, 2007 based on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.

The
effectiveness of our internal control over financial reporting as of December 31, 2007, has been audited by Ernst &Young LLP, our independent registered public
accounting firm, as stated in their report which is included below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Affymetrix, Inc.

We
have audited Affymetrix, Inc.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Affymetrix, Inc.'s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal

100

---



control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Affymetrix, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO
criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Affymetrix, Inc. as of
December 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three fiscal years in the
period ended December 31, 2007 of Affymetrix, Inc. and our report dated February 28, 2008 expressed an unqualified opinion thereon.

| |  | /s/ Ernst & Young LLP
| |  | ---------------------

San
Jose, California
February 28, 2008

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange
Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control
over financial reporting.

ITEM 9B.    OTHER INFORMATION

On February 25, 2008, we committed to a restructuring plan to optimize our production capacity and cost structure in order to enable us to increase our
future gross margins. The restructuring plan was approved as part of our previously announced efforts to reduce expenses in the general and administrative functions.

The
restructuring plan involves moving the majority of our probe array manufacturing from our West Sacramento, California facility to our Singapore facility by the end of 2008. In
connection with this restructuring plan, we expect to incur non-cash charges of approximately $12 million to $15 million related to the abandonment of certain
long-lived manufacturing assets and approximately $0.5 million in cash outlays related to employee severance in the first quarter of 2008. Depending on the rate we transfer our
production capacity to Singapore, we may incur additional expenses associated with the reduction of capacity in our West Sacramento, California facility.

101

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding our directors and executive officers is incorporated by reference to the sections of the Company's proxy statement for the 2008 Annual
Meeting of Stockholders (the "Proxy Statement") entitled "Election of Directors" and "Management."

The
information concerning our corporate governance, including our audit committee, required by this Item is incorporated by reference to the sections of the Proxy Statement entitled
"Governance of the Company" and "Report of the Audit Committee."

The
information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to the section of the Proxy Statement entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" under the heading "Stock Ownership of Principal Stockholders and Management."

CODE OF ETHICS

Affymetrix has adopted a code of business conduct and ethics for directors, officers (including Affymetrix' Chief Executive Officer, Chief Financial Officer and
Corporate Controller) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on Affymetrix' website at http://www.affymetrix.comin the
Corporate Governance section under the "Investors" link. Stockholders may request a free copy of the Code of Business
Conduct and Ethics by sending an email request toinvestor@affymetrix.com.

ITEM 11.    EXECUTIVE COMPENSATION

Incorporated by reference to the sections of the Proxy Statement entitled "Executive Compensation," "Compensation Discussion and Analysis," "Compensation
Committee Report," "Certain Transactions" and "Compensation of Directors."

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Incorporated by reference to the section of the Proxy Statement entitled "Stock Ownership of Principal Stockholders and Management."

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference to the sections of the Proxy Statement entitled "Certain Transactions" and "Governance of the Company."

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

Information about principal accountant fees and services as well as related pre-approval policies appears under "Fees Paid to Ernst &
Young LLP" and "Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm" in the Proxy Statement. Those
portions of the Proxy Statement are incorporated by reference into this report.

102

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)  Financial
Statements. The financial statements as set forth under Item 8 of this report on Form 10-K are incorporated herein by reference.

(a)(2)  Financial
Statement ScheduleSchedule IIValuation and Qualifying Accounts. All other schedules have been omitted as they are not
required, not applicable or the information is otherwise included.

(a)(3)  Exhibits:

|EXHIBIT
NUMBER |  | DESCRIPTION OF DOCUMENT                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1(4)         |  | Agreement and Plan of Merger by and among USB Corporation and Shareholders of USB Corporation and Yew Acquisition, Inc. and Affymetrix, Inc. dated as of December 15, 2007.
|3.1(5)         |  | Restated Certificate of Incorporation.                                                                                                                                     
|3.2(6)         |  | Bylaws.                                                                                                                                                                    
|3.3(7)         |  | Amendment No. 1 to the Bylaws dated as of April 25, 2001.                                                                                                                  
|3.4(8)         |  | Summary of Rights to Purchase Shares of Preferred Stock pursuant to the Rights Agreement dated as of October 15, 1998.                                                     
|4.1(9)         |  | Rights Agreement, dated October 15, 1998, between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.                                           
|4.2(10)        |  | Amendment No. 1 to Rights Agreement, dated as of February 7, 2000, between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.                  
|4.3(11)        |  | Indenture dated as of December 15, 2003, between Affymetrix, Inc. and The Bank of New York, as Trustee.                                                                    
|4.4(12)        |  | Indenture dated as of November 16, 2007, between Affymetrix, Inc. and the Bank of New York Trust Company, N.A. as Trustee.                                                 
|10.1(13)      |  | 1993 Stock Plan, as amended.                                                                                                                                               
|10.2(13)      |  | 1996 Nonemployee Directors Stock Option Plan.                                                                                                                              
|10.3(14)       |  | Lease between Sobrato Interests and Affymetrix, Inc. dated June 12, 1996 (3380 Central Expressway, Santa Clara, CA).                                                       
|10.4(14)       |  | Lease between Sobrato Interests and Affymetrix, Inc. dated May 31, 1996 (3450 Central Expressway, Santa Clara, CA).                                                        
|10.5(15)      |  | 1998 Stock Incentive Plan.                                                                                                                                                 
|10.6(15)      |  | Form of Officer and Director Indemnification Agreement.                                                                                                                    
|10.7(16)       |  | Amendment No. 1 to the 1996 Nonemployee Directors Stock Option Plan of Affymetrix, Inc.                                                                                    
|10.8(17)       |  | Amended and Restated 1996 Non-Employee Directors Stock Plan.                                                                                                               
|10.9(18)*      |  | Common Terms Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                                                                      

103

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|10.10(18)*  |  | License Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                                      
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|10.11(18)*  |  | Affymetrix Instrument and Chip Supply Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.        
|10.12(18)*  |  | Research & Development Collaboration Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.         
|10.13(18)*  |  | Diagnostic Product and Instrument Agency Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.     
|10.14(18)*  |  | Affymetrix Instrument Agency Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                 
|10.15(19)   |  | Lease between Sobrato Interests and Affymetrix dated July 3, 2002 (3420 Central Expressway, Santa Clara, CA).                         
|10.16(19)   |  | First Amendment to Lease between Sobrato Interests and Affymetrix dated September 30, 2003 (3420 Central Expressway, Santa Clara, CA).
|10.17(20)  |  | Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.                                                                     
|10.18(21)  |  | Form of Non-Qualified Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 1996 Non-Employee Directors Stock Plan.  
|10.19(21)  |  | Form of Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.                            
|10.20(22)  |  | Affymetrix, Inc. Deferred Compensation Plan.                                                                                          
|10.21(23)   |  | Fifth Amendment to Lease between Sobrato Interests and Affymetrix, Inc. dated July 3, 2002 (3380 Central Expressway, Santa Clara, CA).
|10.22(23)   |  | First Amendment to Lease between Sobrato Interests and Affymetrix, Inc. dated July 3, 2002 (3450 Central Expressway, Santa Clara, CA).
|10.23(24)   |  | Lease between Keppel Logistics Pte Ltd. and Affymetrix Pte Ltd. dated as of January 1, 2006 (7 Gul Circle, Singapore 629363).         
|10.24(24)  |  | Form of Restricted Stock Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.                        
|10.25(25)  |  | Agreement between the Company and Thane Kreiner, Ph.D. dated May 10, 2006.                                                            
|10.26(26)  |  | Agreement between the Company and Susan E. Siegel dated May 30, 2006.                                                                 
|10.27(27)  |  | Offer Letter from the Company to Kevin M. King dated December 18, 2006.                                                               
|10.28(28)** |  | Amendment Agreement dated December 22, 2006 by and among F. Hoffmann-La Roche Ltd., Roche Molecular Systems, Inc. and Affymetrix, Inc.
|10.29(29)   |  | Offer Letter from the Company to John C. Batty dated May 16, 2007.                                                                    
|10.30(30)   |  | Separation Agreement dated July 27, 2007 between the Company and Thane Kreiner.                                                       
|10.31       |  | Settlement and Release Agreement between the Company and Illumina, Inc. dated January 9, 2008.                                        
|21          |  | List of Subsidiaries.                                                                                                                 

104

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|23   |  | Consent of Independent Registered Public Accounting Firm.                                          
|---- |  | ---------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.    
|31.2 |  | Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
|32.1 |  | Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.    
|32.2 |  | Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

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105

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106

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AFFYMETRIX, INC.        Schedule IIValuation and Qualifying Accounts        (in thousands)

|                              |                                 | Balance at
Beginning of
Period |   | Recorded to
Costs and
Expenses |  | Deductins(1) |       | Balance at
End of Period
|----------------------------- | ------------------------------- | ------------------------------ | - | ------------------------------ |  | ------------ | ----- | ------------------------
|Year Ended December 31, 2007: |                                 |                                |   |                                |  |              |       |                         
|                              | Allowance for doubtful accounts |                                | $ | 1,534                          |  | $            | 934   |                         
|Year Ended December 31, 2006: |                                 |                                |   |                                |  |              |       |                         
|                              | Allowance for doubtful accounts |                                | $ | 415                            |  | $            | 1,486 |                         
|Year Ended December 31, 2005: |                                 |                                |   |                                |  |              |       |                         
|                              | Allowance for doubtful accounts |                                | $ | 841                            |  | $            | (33   | )                       

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107

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SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                  |  | AFFYMETRIX, INC.(Registrant)
|----------------- |  | ----------------------------
|February 29, 2008 |  | By:                         

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Each
individual whose signature appears below constitutes and appoints Barbara A. Caulfield and John C. Batty, and each of them singly, his or her true and lawful
attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby ratifies and confirms all that said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue
thereof.

|    | Name                                                              |  | Title                                                                                    |  | Date             
|--- | ----------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | -----------------
|By: | /s/STEPHEN P.A. FODOR, PH.D.Stephen P.A. Fodor, Ph.D.             |  | Founder, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |  | February 29, 2008
|By: | /s/JOHN C. BATTYJohn C. Batty                                     |  | Executive Vice President. Chief Financial Officer                                        |  | February 29, 2008
|By: | /s/JAMES R. GIBSONJames R. Gibson                                 |  | Principal Accounting Officer                                                             |  | February 29, 2008
|By: | /s/PAUL BERG, PH.D.Paul Berg, Ph.D.                               |  | Director                                                                                 |  | February 29, 2008
|By: | /s/SUSAN D. DESMOND HELLMANN, M.D.Susan D. Desmond-Hellmann, M.D. |  | Director                                                                                 |  | February 29, 2008
|By: | /s/JOHN D. DIEKMAN, PH.D.John D. Diekman, Ph.D.                   |  | Director                                                                                 |  | February 29, 2008
|By: | /s/VERNON R. LOUCKS, JR.Vernon R. Loucks, Jr.                     |  | Director                                                                                 |  | February 29, 2008
|By: | /s/DAVID B. SINGERDavid B. Singer                                 |  | Director                                                                                 |  | February 29, 2008
|By: | /s/ROBERT H. TRICE, PH.D.Robert H. Trice, Ph.D.                   |  | Director                                                                                 |  | February 29, 2008
|By: | /s/ROBERT P. WAYMANRobert P. Wayman                               |  | Director                                                                                 |  | February 29, 2008
|By: | /s/JOHN A. YOUNGJohn A. Young                                     |  | Director                                                                                 |  | February 29, 2008

108

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INDEX TO EXHIBITS

|EXHIBIT
NUMBER |  | DESCRIPTION OF DOCUMENT                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1(4)         |  | Agreement and Plan of Merger by and among USB Corporation and Shareholders of USB Corporation and Yew Acquisition, Inc. and Affymetrix, Inc. dated as of December 15, 2007.
|3.1(5)         |  | Restated Certificate of Incorporation.                                                                                                                                     
|3.2(6)         |  | Bylaws.                                                                                                                                                                    
|3.3(7)         |  | Amendment No. 1 to the Bylaws dated as of April 25, 2001.                                                                                                                  
|3.4(8)         |  | Summary of Rights to Purchase Shares of Preferred Stock pursuant to the Rights Agreement dated as of October 15, 1998.                                                     
|4.1(9)         |  | Rights Agreement, dated October 15, 1998, between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.                                           
|4.2(10)        |  | Amendment No. 1 to Rights Agreement, dated as of February 7, 2000, between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.                  
|4.3(11)        |  | Indenture dated as of December 15, 2003, between Affymetrix, Inc. and The Bank of New York, as Trustee.                                                                    
|4.4(12)        |  | Indenture dated as of November 16, 2007, between Affymetrix, Inc. and the Bank of New York Trust Company, N.A. as Trustee.                                                 
|10.1(13)      |  | 1993 Stock Plan, as amended.                                                                                                                                               
|10.2(13)      |  | 1996 Nonemployee Directors Stock Option Plan.                                                                                                                              
|10.3(14)       |  | Lease between Sobrato Interests and Affymetrix, Inc. dated June 12, 1996 (3380 Central Expressway, Santa Clara, CA).                                                       
|10.4(14)       |  | Lease between Sobrato Interests and Affymetrix, Inc. dated May 31, 1996 (3450 Central Expressway, Santa Clara, CA).                                                        
|10.5(15)      |  | 1998 Stock Incentive Plan.                                                                                                                                                 
|10.6(15)      |  | Form of Officer and Director Indemnification Agreement.                                                                                                                    
|10.7(16)       |  | Amendment No. 1 to the 1996 Nonemployee Directors Stock Option Plan of Affymetrix, Inc.                                                                                    
|10.8(17)       |  | Amended and Restated 1996 Non-Employee Directors Stock Plan.                                                                                                               
|10.9(18)*      |  | Common Terms Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                                                                      
|10.10(18)*     |  | License Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                                                                           
|10.11(18)*     |  | Affymetrix Instrument and Chip Supply Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                                             
|10.12(18)*     |  | Research & Development Collaboration Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                                              
|10.13(18)*     |  | Diagnostic Product and Instrument Agency Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                                          
|10.14(18)*     |  | Affymetrix Instrument Agency Agreement between F. Hoffmann-La Roche Ltd. and Affymetrix, Inc. dated January 29, 2003.                                                      

---



|10.15(19)   |  | Lease between Sobrato Interests and Affymetrix dated July 3, 2002 (3420 Central Expressway, Santa Clara, CA).                         
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|10.16(19)   |  | First Amendment to Lease between Sobrato Interests and Affymetrix dated September 30, 2003 (3420 Central Expressway, Santa Clara, CA).
|10.17(20)  |  | Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.                                                                     
|10.18(21)  |  | Form of Non-Qualified Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 1996 Non-Employee Directors Stock Plan.  
|10.19(21)  |  | Form of Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.                            
|10.20(22)  |  | Affymetrix, Inc. Deferred Compensation Plan.                                                                                          
|10.21(23)   |  | Fifth Amendment to Lease between Sobrato Interests and Affymetrix, Inc. dated July 3, 2002 (3380 Central Expressway, Santa Clara, CA).
|10.22(23)   |  | First Amendment to Lease between Sobrato Interests and Affymetrix, Inc. dated July 3, 2002 (3450 Central Expressway, Santa Clara, CA).
|10.23(24)   |  | Lease between Keppel Logistics Pte Ltd. and Affymetrix Pte Ltd. dated as of January 1, 2006 (7 Gul Circle, Singapore 629363).         
|10.24(24)  |  | Form of Restricted Stock Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.                        
|10.25(25)  |  | Agreement between the Company and Thane Kreiner, Ph.D. dated May 10, 2006.                                                            
|10.26(26)  |  | Agreement between the Company and Susan E. Siegel dated May 30, 2006.                                                                 
|10.27(27)  |  | Offer Letter from the Company to Kevin M. King dated December 18, 2006.                                                               
|10.28(28)** |  | Amendment Agreement dated December 22, 2006 by and among F. Hoffmann-La Roche Ltd., Roche Molecular Systems, Inc. and Affymetrix, Inc.
|10.29(29)   |  | Offer Letter from the Company to John C. Batty dated May 16, 2007.                                                                    
|10.30(30)   |  | Separation Agreement dated July 27, 2007 between the Company and Thane Kreiner.                                                       
|10.31       |  | Settlement and Release Agreement dated January 9, 2008 between the Company and Illumina, Inc.                                         
|21          |  | List of Subsidiaries.                                                                                                                 
|23          |  | Consent of Independent Registered Public Accounting Firm.                                                                             
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.                                       
|31.2        |  | Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.                                   
|32.1        |  | Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.                                       
|32.2        |  | Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.                                   

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