<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q
(MARK ONE)

  /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 ---- EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 1997

                                       OR

      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 0-20470

                       Integrated Process Equipment Corp.
                       ----------------------------------
             (Exact name of registrant as specified in its charter)

     Delaware                                          77-0296222
------------------------------------------------------------------------------
(State or other jurisdiction of            (I.R.S. employer identification no.)
incorporation or organization)

     911 Bern Court,  San Jose, California                  95112
------------------------------------------------------------------------------
(Address of principal executive offices)

Registrant's telephone number, including area code  (408) 436-2170
                                                    --------------

------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last 
report.

      Indicate by (X) 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 /X/ No / /
                                      ----   ----

      As of November 10, 1997, 308,469 shares of Class A Common Stock and
17,264,625 shares of Common Stock of the registrant were outstanding.



                                  Page 1 of 26
<PAGE>   2
                          PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                     JUNE 30,     SEPTEMBER 30,
                  ASSETS                                                               1997           1997
                                                                                   -----------    ------------- 
                                                                                                   (Unaudited)
<S>                                                                                <C>            <C>
Current assets:                                                                                     
    Cash and cash equivalents                                                      $    40,656    $   114,944 
    Accounts receivable                                                                 45,590         58,222 
    Inventories                                                                         44,729         46,891 
    Prepaid expenses                                                                       968          1,315 
    Deferred income taxes                                                               11,425         11,425 
    Net assets of discontinued operations                                                2,463          3,506 
                                                                                   -----------    ----------- 
            Total current assets                                                       145,831        236,303 
                                                                                   -----------    ----------- 
                                                                                                              
Property, plant and equipment, net                                                      25,462         29,297 
Intangible assets, net                                                                  11,798         11,142 
Deferred income taxes                                                                   13,381         11,734 
Other assets                                                                             1,593          5,552 
                                                                                   -----------    ----------- 
                                                                                                              
                                                                                   $   198,065    $   294,028 
                                                                                   ===========    =========== 
                                                                                    
                                                                                                    
                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Notes payable                                                                  $       124    $       124
    Current portion of long-term debt                                                   10,599          2,283 
    Accounts payable                                                                    17,445         15,256 
    Accrued liabilities                                                                 18,567         19,070 
                                                                                   -----------    ----------- 
            Total current liabilities                                                   46,735         36,733 
                                                                                                              
Long-term debt, less current portion                                                    19,546        117,252 
                                                                                   -----------    ----------- 
        Total liabilities                                                               66,281        153,985 
                                                                                   -----------    ----------- 
Stockholders' equity:                                                                                         
Series B preferred stock, $ .01 par value per share. Nonvoting, authorized                                    
    2,000,000 shares:                                                                                         
    Series B-1 cumulative preferred stock.  Authorized 21,478 shares,                                         
      issued and outstanding 14,543 shares at June 30, 1997, 14,408                                           
      shares at September 30, 1997.  Liquidation preference of $1,342.                    -              -   
    Series B-2 cumulative preferred stock.  Authorized 21,478 shares,                                         
      issued and outstanding 19,544 shares at June 30 and September 30, 1997.                                 
      Liquidation preference of $1,820.                                                   -              -   
    Series B-3 cumulative preferred stock.  Authorized 21,478 shares,                                         
      issued and outstanding 9,898 shares at June 30 and September 30, 1997.                                  
      Liquidation preference of $922.                                                     -              -   
Series D preferred stock, $10 par value per share. Authorized 17,342 shares                                   
      at June 30, 1997 and 17,564 shares at September 30, 1997; 1,000 votes                                   
      per share; no shares issued and outstanding.  Liquidation preference                                    
     of $120 per share.                                                                   -              -   
Common stock, $.01 par value per share.  Authorized 50,000,000 shares;                                        
    one vote per share; issued and outstanding.                                                               
    16,889,071 shares at June 30, 1997 and 17,183,443 at September 30, 1997.               169            172 
Class A common stock, $.01 par value per share.  Authorized 3,500,000                                         
    shares, four votes per share; issued and outstanding 453,057 shares at                                    
    June 30, 1997 and 380,763 shares at September 30, 1997.                                  5              4 
Additional paid-in capital.                                                            189,422        193,119 
Accumulated deficit.                                                                   (57,850)       (53,282)
Foreign currency translation adjustment.                                                    38             30 
                                                                                   -----------    ----------- 
            Total stockholders' equity.                                                131,784        140,043 
                                                                                   -----------    -----------
                                                                                   $   198,065    $   294,028
                                                                                   ===========    ===========
</TABLE>
                                                                      

See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>   3
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                                                                        THREE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                   ----------------------------
                                                                                     1996                1997
                                                                                   --------            --------

<S>                                                                                <C>                 <C>     
Revenue                                                                            $ 29,407            $ 51,274

Cost of goods sold                                                                   19,043              29,078
                                                                                   --------            --------
            Gross margin                                                             10,364              22,196
                                                                                   --------            --------

Operating expenses:
    Research and development                                                          6,507               6,709
    Selling, general and administrative                                               6,305               7,788
                                                                                   --------            --------
            Total operating expenses                                                 12,812              14,497
                                                                                   --------            --------

            Operating income (loss)                                                  (2,448)              7,699

Other income (expense):
    Interest income                                                                     109                 203
    Interest expense                                                                   (572)               (473)
    Other, net                                                                           67                  15
                                                                                   --------            --------
            Total other income (expense)                                               (396)               (255)
                                                                                   --------            --------

            Income (loss) from continuing operations before income taxes             (2,844)              7,444

Income tax expense (benefit)                                                         (1,185)              2,753
                                                                                   --------            --------

            Income (loss) from continuing operations                                 (1,659)              4,691

Net loss from discontinued operations                                                (1,718)                -
                                                                                   --------            --------

            Net income (loss)                                                        (3,377)              4,691
Cumulative dividends on preferred stock                                                 (81)                (61)
                                                                                   --------            --------

            Net income (loss) attributable to common stockholders                  $ (3,458)           $  4,630
                                                                                   ========            ========

Income (loss) per common share:
     From continuing operations                                                    $   (.12)           $    .24
     From discontinued operations                                                      (.12)                -
                                                                                   --------            --------

Income (loss) per common share                                                     $   (.24)           $    .24
                                                                                   ========            ========

Shares used in per share calculation                                                 14,785              19,004
                                                                                   ========            ========
</TABLE>











See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   4
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
               FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                                           
                                         Series B                                  Class A         
                                      Preferred Stock      Common Stock         Common Stock      Additional
                                     ----------------  -------------------   ------------------    Paid-In     Accumulated
                                     Shares    Amount   Shares      Amount   Shares      Amount    Capital       Deficit   
                                     -------   ------  ----------   ------   ---------   ------   ----------   ----------- 
<S>                                  <C>       <C>     <C>          <C>      <C>         <C>      <C>          <C>         
Balance -                                                                                                                  
   June 30, 1997                      43,985   $  --   16,889,071   $  169     453,057   $    5   $  189,422   $  (57,850) 
                                                                                                                           
Net income                             --         --         --        --         --        --        --            4,691   
                                                                                                                           
Conversion of Series B                                                                                                     
  Preferred Stock                       (135)     --        1,692      --         --        --        --           --      
                                                                                                                           
Conversion of Class A                                                                                                      
  Common Stock                         --         --       72,294        1     (72,294)      (1)      --           --      
                                                                                                                           
Exercise of Stock Options                                                                                                  
 (including tax benefits of $1,106)    --         --      220,138        2        --        --         3,697       --      
                                                                                                                           
Employee Stock Purchase Plan           --         --          248      --         --        --        --           --      
                                                                                                                           
Cumulative translation adjustment      --         --         --        --         --        --        --           --      
                                                                                                                           
Dividends Paid                         --         --         --        --         --        --        --             (123) 
                                     -------   ------  ----------   ------   ---------   ------   ----------   ----------  
                                                                                                                           
Balance -                                                                                                                  
   September 30, 1997                 43,850    $ --   17,183,443   $  172     380,763   $    4   $  193,119   $  (53,282) 
                                     =======   ======  ==========   ======   =========   ======   ==========   ==========  
                                                                                                                           

                                         Foreign    
                                        Currency    
                                       Translation  
                                        Adjustment  
                                       -----------  
<S>                                    <C>          
Balance -                                           
   June 30, 1997                       $        38  
                                                    
Net income                                    --    
                                                    
Conversion of Series B                              
  Preferred Stock                             --    
                                                    
Conversion of Class A                               
  Common Stock                                --    
                                                    
Exercise of Stock Options                           
 (including tax benefits of $1,106)           --    
                                                    
Employee Stock Purchase Plan                  --    
                                                    
Cumulative translation adjustment               (8) 
                                                    
Dividends Paid                                 --   
                                       -----------  
                                                    
Balance -                                           
   September 30, 1997                  $        30  
                                       ===========  
</TABLE>


 See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>   5
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)





<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED
                                                                                 SEPTEMBER 30,
                                                                           -----------------------
Cash flows from operating activities:                                        1996           1997
                                                                           --------      ---------
<S>                                                                        <C>           <C>      
   Net income (loss)                                                       $ (3,377)     $   4,691
   Adjustments to reconcile net income (loss) to net
     cash (used in) operating activities:
        Depreciation and amortization                                         2,440          2,547
        Deferred tax expense (benefit)                                       (1,805)         2,753
        Costs of warrants issued                                                657           --
        Changes in assets and liabilities:
           (Increase) decrease in accounts receivable                         3,126        (12,632)
           (Increase) in inventories                                         (9,089)        (2,892)
           (Increase) in prepaid expenses and other assets                     (280)          (487)
           Increase (decrease) in accounts payable                            2,276         (2,189)
           Increase in accrued liabilities                                      413          1,233
           (Increase) in net assets of discontinued operations                 (651)        (1,043)
                                                                           --------      ---------
              Net cash (used in) operating activities                        (6,290)        (8,019)
                                                                           --------      ---------

Cash flows from investing activities:
    Purchases of property and equipment                                        (116)        (5,726)
    Proceeds from sale of property and equipment                                745           --
                                                                           --------      ---------
             Net cash provided by (used in) investing activities                629         (5,726)
                                                                           --------      ---------

Cash flows from financing activities:
    Proceeds from long-term debt                                              1,407        111,181
    Repayment of long-term debt and capital leases                             (495)       (25,610)
    Repayment of notes payable                                                 (434)          --
    Payment of preferred stock dividends                                       (396)          (123)
    Net proceeds from issuance of common stock and warrants                   1,105          2,593
                                                                           --------      ---------
              Net cash provided by financing activities                       1,187         88,041
                                                                           --------      ---------

Effect of exchange rate changes on cash                                          15             (8)
                                                                           --------      ---------

Net increase (decrease) in cash and cash equivalents                         (4,459)        74,288

Cash and cash equivalents, beginning of period                               11,325         40,656
                                                                           --------      ---------

Cash and cash equivalents, end of period                                   $  6,866      $ 114,944
                                                                           ========      =========



Supplemental disclosure of cash flow information:
     Cash paid for interest during the period                              $    725      $     245
                                                                           ========      =========



Supplemental disclosure of noncash activities:
    Retirement of Class B 6% cumulative convertible preferred stock        $   (500)     $    --
                                                                           ========      =========
</TABLE>






See accompanying notes to condensed consolidated financial statements.

                                        5
<PAGE>   6
BASIS OF PREPARATION:

      The accompanying condensed consolidated financial statements as of
September 30, 1997 and for the three month period ended September 30, 1997 are
unaudited; however, in the opinion of the management of Integrated Process
Equipment Corp. ("IPEC") and subsidiaries (the "Company"), such statements
include all adjustments (consisting solely of normal recurring accruals)
necessary for the fair statement of the information presented therein. The
condensed consolidated balance sheet as of June 30, 1997 was derived from the
audited financial statements at such date.

      As more fully described in the following notes to condensed consolidated
financial statements, the Company announced its strategic decision to focus on
chemical mechanical planarization (CMP) and CMP-related products and discontinue
the operations of IPEC Clean, Inc. during the second quarter of fiscal 1997.
Prior period financial statements have been restated to reflect the
discontinuation of IPEC Clean, Inc.

      Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
condensed consolidated financial statements and notes do not include all
disclosures required by generally accepted accounting principles for complete
financial statements. Accordingly, these statements should be read in
conjunction with the Company's annual financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended June 30,
1997.

      Results of operations for interim periods are not necessarily indicative
of those to be achieved for full fiscal years.

ORGANIZATION:

      IPEC is a Delaware corporation organized in December 1991 and is the
successor by merger to a California corporation of the same name that was
incorporated in October 1989. The Company is primarily engaged in designing,
manufacturing, marketing and servicing equipment for the semiconductor
manufacturing industry.

      The Company is organized into two divisions. IPEC Planar manufactures CMP
equipment and CMP-related products. IPEC Precision manufactures advanced
plasma-assisted chemical etching equipment and metrology equipment for use
primarily in manufacturing of silicon wafers and semiconductor devices.


                                       6
<PAGE>   7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Income (loss) per share of common stock:

      Net income (loss) per common share is computed by dividing net income
(loss) less dividends on convertible preferred stock by the weighted average
number of common shares outstanding during the period, plus, when their effect
is dilutive, common stock equivalents consisting of certain shares subject to
stock options and warrants.

New Accounting Standards:

      In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). This Statement establishes standards for computing and presenting
earnings per share ("EPS"), and supersedes APB Opinion No. 15. The Statement
replaces primary EPS with basic EPS and requires dual presentation of basic and
diluted EPS. The Statement is effective for both interim and annual periods
ending after December 15, 1997. Earlier application is not permitted. After
adoption, all prior-period EPS data shall be restated to conform to Statement
128. Pro forma basic and diluted EPS, as calculated under Statement 128 would
have been $.27 and $.23 for the three months ended September 30, 1997.


INVENTORIES:

Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                        June 30, 1997    September 30, 1997
                                        -------------    ------------------
                                                             (Unaudited)
<S>                                     <C>              <C>          
Raw materials                           $ 35,977               $39,756  
Work in process                           18,182                18,976  
Finished goods                             3,549                 1,265  
                                        --------               -------  
                                          57,708                59,997   
Less inventory obsolescence reserve      (12,979)              (13,106) 
                                        --------               -------  
                                                                        
                                        $ 44,729               $46,891  
                                        ========               =======  
                                                                              
</TABLE>                                            

DISCONTINUED OPERATIONS:

      In the second quarter of fiscal 1997, the Company announced its decision
to focus its resources on the manufacturing of CMP and CMP-related equipment. As
a result of this decision, the Company adopted a plan for the disposition by
sale of IPEC Clean by December 31, 1997.

      IPEC Clean has been accounted for as a discontinued operation, and
accordingly its operations are segregated for all periods presented in the
accompanying statements of operations. Revenue, related 


                                       7
<PAGE>   8
losses and income tax benefits associated with the discontinued operation for
the three month period ended September 30, 1996 is as follows:

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                          September 30, 1996
                                                          ------------------

                                                            (in thousands)

<S>                                                          <C>         
     Revenue                                                 $      2,610
                                                             ============
                                                          
     Loss from operations before income taxes                      (2,603)
     Income tax  benefit                                             (885)
                                                             ------------
     Net loss from discontinued operations                   $     (1,718)
                                                             ============
</TABLE>

      The Company recorded a pre-tax charge amounting to $27.2 million to write
down intangible assets, accounts receivable, inventory, equipment and other
assets to estimated net realizable value and to record additional liabilities in
the second quarter of fiscal 1997. A charge amounting to $3.0 million was also
recorded to reflect the estimated phase out costs associated with IPEC Clean.
This charge is included in accrued liabilities at September 30, 1997 in the
accompanying condensed consolidated balance sheet. The tax benefit associated
with these charges amounted to $5.2 million.

      The net assets of the discontinued operations are summarized in the
accompanying condensed consolidated balance sheets as follows:


<TABLE>
<CAPTION>
                                   June 30, 1997   September 30, 1997
                                   -------------   ------------------
                                           (in thousands)
<S>                                <C>             <C>       
Current assets                     $     7,078        $    6,769 
Current liabilities                     (4,615)           (3,263)
                                   ------------       ---------- 
                                   $     2,463        $    3,506 
                                   ============       ========== 
</TABLE>                                                    


LONG-TERM DEBT:

      The Company completed a private placement of $115.0 million 6.25%
Convertible Subordinated Notes due in 2004 in the first quarter of fiscal 1998.
Interest is payable semi-annually in March and September. The Notes are
subordinated to all existing and future senior indebtedness and effectively
subordinated to all liabilities, including trade payables and lease obligations
of the Company and its subsidiaries. The Notes can be converted after ninety
days from the original issuance into the Company's common stock at a conversion
price of $39.00 per share. The notes are not redeemable by the Company prior to
September 20, 2000.

      Proceeds have been utilized to repay the balance of the Company's
revolving line of credit, described below. Remaining portions of proceeds may be
used to expand the Company's sales and 


                                       8
<PAGE>   9
service operations in Asia, to expand IPEC Precision's facilities and for
general corporate purposes including working capital and research and
development. Pending such uses, the Company intends to invest the net proceeds
in interest-bearing, investment grade securities. Debt issuance costs amounting
to $3.8 million incurred in connection with the private placement have been
included in other assets and are being amortized over seven years.

      The Company entered into a loan agreement in April 1996 with a bank. Under
the terms of the agreement, the Company received a $10.0 million term loan and a
$20.0 million revolving loan facility to provide working capital for general
corporate purposes. The loan agreement was further modified to allow an increase
of the revolving loan facility from $20.0 million to $25.0 million from the
beginning of the last week of each fiscal quarter through the end of the first
week of the subsequent quarter. If the Company is unable to qualify for the
entire commitment amount under its borrowing base, the Company may nonetheless
borrow the amount for which it would not otherwise qualify, by pledging with the
bank dollar for dollar security in the form of cash equivalents or marketable
securities. The borrowing base for the revolving loan facility consists of
eighty percent of eligible accounts receivable as defined by the agreement. At
June 30, 1997, the eligible borrowing base was $23.7 million, of which $20.0
million was borrowed. An additional $5.0 million was borrowed under the
modification to the loan agreement and $5.0 million of cash equivalents were
pledged as restricted cash collateral for this borrowing. At September 30, 1997
there were no amounts outstanding under this loan agreement.

      The facility bears interest at the Company's option at the prime rate plus
 .25% or LIBOR plus 2.75%. The revolving loan facility was modified in April 1997
and extended until April 1998 with an option to renew the facility for a one
year period which the Bank must approve. If the revolving credit facility
expires, the Company is obligated to repay the outstanding balance in twelve
equal monthly payments of principal plus interest. The revolving loan facility
is secured by a first lien on all assets of the Company and its subsidiaries.
The $10 million term loan was repaid in the second quarter of fiscal 1997.

      The terms of the loan agreement include various covenants, which, among
other things, include maintenance of certain financial ratios, limits on the
amount of dividends that can be paid to common stockholders and limit
acquisitions of treasury stock. The Company was in compliance with these
covenants at June 30, 1997 and September 30, 1997.


                                       9
<PAGE>   10
                         PART I -- FINANCIAL INFORMATION


ITEM  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

      The following information should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in this Quarterly
Report and the audited Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for the year ended June
30, 1997.

OVERVIEW

      IPEC is a Delaware corporation primarily engaged in designing,
manufacturing, marketing and servicing equipment for the semiconductor
manufacturing industry. The Company is organized into two divisions. IPEC Planar
manufactures CMP equipment and CMP-related products. IPEC Precision manufactures
advanced plasma-assisted chemical etch systems and metrology equipment for use
primarily in manufacturing silicon wafers and semiconductor devices. Financial
information for fiscal 1997 has been restated to reflect the discontinuation in
fiscal 1997 of IPEC Clean.

      IPEC incurred net losses of $33.7 million and $10.7 million in fiscal 1997
and 1996, respectively, compared to net income of $599,000 in fiscal 1995. The
Company's fiscal 1997 net loss resulted from a $25.0 million charge (net of
taxes) for estimated losses on disposal of IPEC Clean, a $3.6 million loss (net
of taxes) from IPEC Clean operations in fiscal 1997 and a $17.6 million pretax
charge for asset write downs due to the discontinuation of the Avanti 672
program development effort. The Company's fiscal 1996 net loss resulted from a
one-time pretax charge of $37.0 million for the purchase of in-process research
and development in connection with the acquisitions of IPEC Planar Portland and
IPEC Precision. See "Factors Affecting Operating Results -- Operating Results
Are Subject to Quarterly Fluctuations for Varied Reasons."

      The Company's revenue is derived from the sale of products and related
spare parts and service. The Company recognizes product and spare part revenue
when the product or part is shipped. Service revenue is recognized ratably over
the term of service contracts or in some cases upon completion of service.

      The Company's gross margin has varied in the past and may vary
significantly in the future due to many factors and is especially dependent on
the percentage of sales through distributors, materials costs, product mix and
favorable terms given to customers to introduce new products, penetrate new
markets and accelerate purchases. The Company sells directly in the United
States, and such sales historically have had a higher gross margin than indirect
international sales. Gross margins in any period may not be indicative of
margins for future periods. Because IPEC Precision's customer base is new, the
Company believes that IPEC Precision's gross margin could be lower than the
gross margin for the Company's CMP tools. As new products are introduced by IPEC
Precision in future quarters, the Company's gross margin may decrease. See
"Factors Affecting Operating Results -- Operating Results Are Subject to
Quarterly Fluctuations for Varied Reasons."


                                       10
<PAGE>   11
      This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which are subject to the
"safe harbor" created by that section. These forward-looking statements include,
but are not limited to, statements concerning future revenues, operating
margins, expenses, interest income and interest expense, disposal of IPEC Clean,
and cash needs. The Company's actual future results could differ materially from
those projected in the forward-looking statements. Some factors which could
cause future actual results to differ materially from the Company's recent
results or those projected in the forward-looking statements are described in
"Factors Affecting Operating Results" below. The Company assumes no obligation
to update the forward-looking statements or such factors.

RESULTS OF OPERATIONS

      The following table sets forth for the periods indicated the results of
operations for the Company expressed as a percentage of total revenue.

<TABLE>
<CAPTION>
                                                                                      PERCENT OF TOTAL REVENUE
                                                                                     --------------------------------
                                                                                     THREE MONTHS ENDED SEPTEMBER 30,
                                                                                     --------------------------------
                                                                                       1996                   1997
                                                                                     --------               ---------
                                                                                                            
<S>                                                                                  <C>                    <C>   
Revenue                                                                                 100.0%                  100.0%
Cost of goods sold                                                                       64.8%                   56.7%
                                                                                     --------               ---------
                                                                                                            
               Gross margin                                                              35.2%                   43.3%
                                                                                     --------               ---------
                                                                                                            
Operating expenses:                                                                                         
        Research and development                                                         22.1%                   13.1%
        Selling, general and administrative                                              21.4%                   15.2%
                                                                                     --------               ---------
               Total operating expenses                                                  43.5%                   28.3%
                                                                                     --------               ---------
                                                                                                            
               Operating income (loss)                                                   (8.3%)                  15.0%
                                                                                                            
Other income (expense):                                                                                     
        Interest income                                                                    .4%                     .4%
        Interest expense                                                                 (1.9%)                   (.9%)
        Other, net                                                                         .2%                    -
                                                                                     --------               ---------
               Total other income (expense)                                              (1.3%)                   (.5%)
                                                                                     --------               ---------
                                                                                                            
               Income (loss) from continuing operations before income taxes              (9.6%)                  14.5%
Income tax expense (benefit)                                                             (4.0%)                   5.4%
                                                                                     --------               ---------
                                                                                                            
               Income (loss) from continuing operations                                  (5.6%)                   9.1%
                                                                                                            
Net loss from discontinued operations                                                    (5.8%)                   -
                                                                                     --------               ---------
                                                                                                            
               Net income (loss)                                                        (11.4%)                   9.1%
                                                                                     ========               =========
</TABLE>


                                       11
<PAGE>   12
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996

      Revenue. Revenue was $51.3 million for the quarter ended September 30,
1997 compared to $29.4 million for the quarter ended September 30, 1996. Revenue
has increased each quarter since the quarter ended September 30, 1996 and has
resulted in the highest quarterly revenue recorded in the Company's history. The
74% growth in revenue from the quarter ended September 30, 1996 resulted
primarily from two factors. First, the Company sold more of its high throughput
systems, the AvantGaard 676 and 776, which have higher average selling prices
than the older Avanti 372M and 472 systems. Second, there was an industrywide
slowdown in semiconductor equipment shipments in the first half of fiscal 1997.
Revenue from international sales represented 30% and 35% of total revenue for
the quarters ended September 30, 1997 and 1996, respectively. Revenue from the
Company's largest customer represented 41% and 51% of total revenue for the
quarters ended September 30, 1997 and 1996, respectively.

      Cost of goods sold. Cost of goods sold decreased as a percentage of
revenue to 56.7% for the quarter ended September 30, 1997 from 64.8% for the
quarter ended September 30, 1996. Cost of goods sold increased as a percentage
of revenue from 54.3% in the quarter ended June 30, 1997. This resulted from
pricing concessions given to certain customers as the AvantGaard 676 and 776
tools were introduced in new markets and from variances in manufacturing costs
because the Company has limited experience manufacturing these new products.
Cost of goods sold for the quarter ended September 30, 1996 was adversely
affected by a $657,000 increase in cost of goods sold related to warrants issued
to a major customer in connection with an agreement to accelerate product
shipments into the first, second and third quarters of fiscal 1997. Cost of
goods sold as a percentage of revenue for the quarter ended September 30, 1996
was also adversely affected by $.8 million of costs associated with
repositioning the Avanti 672, and high levels of fixed manufacturing and
customer service costs allocated across lower revenue.

      Research and development. Research and development expense increased 3% to
$6.7 million for the quarter ended September 30, 1997 from $6.5 million for the
quarter ended September 30, 1996. Expenditures were incurred to further develop
the AvantGaard 676 and integrated cleaner 776 product lines. Additional efforts
are underway to develop 300 mm integrated CMP wafer systems, plasma-assisted
chemical etch systems, metrology technologies and copper dual damascene
processes. Research and development expense for the quarter ended September 30,
1996 included expenditures for the development of the Avanti 672 CMP tool. This
program was discontinued in the second quarter of fiscal 1997.

      Selling, general and administrative. Selling, general and administrative
expense increased 24% to $7.8 million for the quarter ended September 30, 1997
from $6.3 million for the quarter ended September 30, 1996. The $1.5 million
increase resulted primarily from a higher level of sales activity in the quarter
ended September 30, 1997 compared to September 30, 1996. Additionally, for the
quarter ended September 30, 1996, selling, general and administrative expenses
were offset by an $865,000 benefit resulting from adjustments for both the
acquisitions of Westech Systems, Inc. in fiscal 1994 and GAARD Automation, Inc.
in fiscal 1996.


                                       12
<PAGE>   13
      Interest income and interest expense. Interest income and interest expense
for the quarter ended September 30, 1997 did not change significantly from the
quarter ended September 30, 1996. As a result of the $115 million 6.25%
Convertible Subordinated Note financing completed in September 1997, interest
expense in future periods will increase. Investment of proceeds from the
financing will also result in increased interest income in future periods.

      Income tax expense. Income tax expense for the quarter ended September 30,
1997 was $2.8 million compared to a tax benefit of $1.2 million for the quarter
ended September 30, 1996. The effective tax expense (benefit) rates were 37.0%
and (41.7%) for the quarters ended September 30, 1997 and 1996, respectively.
Differences in the effective tax rates result primarily from adjustments for
deferred taxes and state taxes for the quarter ended September 30, 1996.

      Net loss from discontinued operations. As a result of the Company's
decision to focus on CMP and CMP-related products, the Company decided to
discontinue the operations of IPEC Clean and recorded a $25.0 million loss on
disposal of IPEC Clean for the quarter ended December 31, 1996. The operating
results of IPEC Clean have been segregated from the continuing operations of the
Company and reported as discontinued operations for all periods presented. The
loss from operations of IPEC Clean was $1.7 million for the quarter ended
September 30, 1996. Results of operations of IPEC Clean for the quarter ended
September 30, 1997 were charged to an accrued liability established in the
quarter ended December 31, 1996 for estimated phase out costs in connection with
the loss on disposal of IPEC Clean. The Company has signed a letter of intent
for the sale of IPEC Clean and negotiations are currently in progress. See
"Factors affecting operating results - Disposition of IPEC Clean May Require
Significant Resources and Adversely Affect Results."

LIQUIDITY AND CAPITAL RESOURCES

      The Company's principal sources of liquidity include cash and cash
equivalents of $114.9 million as of September 30, 1997, an increase of $74.3
million from June 30, 1997. The increase in cash and cash equivalents during the
quarter ended September 30, 1997 resulted primarily from the private placement
of $115 million of 6.25% Convertible Subordinated Notes due in 2004. The Notes
can be converted after ninety days from the original issuance into the Company's
common stock at a conversion price of $39.00 per share. The Notes are not
redeemable by the Company prior to September 30, 2000.

      Proceeds from the Notes were utilized to repay the balance of the
Company's revolving line of credit. Remaining portions of proceeds may be used
to expand the Company's sales and service operations in Asia, to expand IPEC
Precision's facilities and for general corporate purposes including working
capital and research and development. Pending such uses, the Company has
invested net proceeds in interest bearing investment grade securities.

      As of September 30, 1997, the Company had $199.6 million of working
capital compared to $99.1 million as of June 30, 1997. The Company's accounts
receivable increased to $58.2 million as of September 30, 1997 compared to $45.6
million at June 30, 1997. The increase in accounts receivable was primarily due
to a higher level of sales in the first quarter of fiscal 1998 compared to the
fourth quarter of fiscal 1997, favorable credit terms granted to certain
international customers, and to customers purchasing initial AvantGaard 676 and
776 systems. The Company's inventory increased to $46.9 


                                       13
<PAGE>   14
million as of September 30, 1997 compared to $44.7 million as of June 30, 1997.
This was primarily due to an increase in production of the Company's AvantGaard
676 and 776 systems and increased levels of manufacturing at IPEC Precision.

      The Company's property, plant and equipment increased $3.8 million to
$29.3 million as of September 30, 1997 from $25.5 million as of June 30, 1997,
primarily due to additions of testing and demonstration equipment related to the
AvantGaard 676 and 776 systems.

      Total long-term debt increased to $119.5 million as of September 30, 1997
from $30.1 million as of June 30, 1997 as a result of the issuance of $115
million of Convertible Subordinated Notes described above. Total long-term debt
as a percentage of stockholders' equity increased to 85% as of September 30,
1997 from 23% as of June 30, 1997. The Company also has $20.0 million available
under a revolving loan facility with a bank. As of September 30, 1997 there were
no amounts outstanding under this facility.

      The Company believes that its cash and cash equivalents will be sufficient
to fund its operations for the foreseeable future. The Company's cash needs
depend on, among other things, whether its sales continue to expand, which would
require greater investments in working capital, and on whether the Company is
forced by competitive pressures and commercial terms to continue or increase
extended terms for accounts receivable and whether the Company acquires other
companies or businesses. If the Company requires additional cash, there can be
no assurance that such additional financing will be available when needed or, if
available, will be available on satisfactory terms. In order to raise capital,
the Company may issue debt or equity securities and may incur substantial
dilution. The failure to obtain additional financing when needed on satisfactory
terms would also hinder the Company's ability to invest in capital equipment and
working capital.

FACTORS AFFECTING OPERATING RESULTS

      The Company's Limited Operating History Has Involved Annual and Quarterly
Losses. Prior to the Company's acquisition of IPEC Planar Phoenix in fiscal
1994, the Company did not have significant revenue. The Company had net losses
in fiscal 1996 and 1997 of $10.7 million and $33.7 million, respectively.
Operating results in fiscal 1997 include a net loss of approximately $36.9
million in the second quarter of fiscal 1997, due to one-time charges (net of
taxes) of approximately $40.2 million for discontinuation of the business of
IPEC Clean and of a research and development program. Operating results for
future periods are subject to numerous uncertainties, and there can be no
assurance that the Company will be profitable in future periods.

      Operating Results Are Subject to Quarterly Fluctuations for Varied
Reasons. The Company's operating results are subject to quarterly fluctuations
due to a variety of factors, including industry-wide changes in the demand for
semiconductors or for semiconductor production equipment generally and, in
particular, for high performance semiconductors with smaller line widths and
multiple layers; the timing of significant shipments; accelerations, delays,
cancellations or postponement of orders; the gain or loss of significant
customers; competitive pressures; availability and costs of components from the
Company's suppliers; the timing of product announcements and introductions and
process qualifications by the Company, its customers or its competitors; the
ability of the Company to manufacture, test and 


                                       14
<PAGE>   15
deliver products in a timely and cost-effective manner; the level of field
service operations; the timing and structure of acquisitions and dispositions or
spin-offs; changes in the mix of products sold; the level of international
sales, which historically have had lower margins than domestic sales; delayed or
canceled construction of wafer fabrication facilities by customers; research and
development expenses associated with new product introductions; market
acceptance of new or enhanced versions of the Company's and its customers'
products; reductions in personnel; discontinuance of operations; and the
sufficiency of personnel and capital resources to support operations. The
Company cannot assure that it will be able to anticipate or respond timely to
changes in any of the factors listed above.

      The Company has experienced adverse effects from some of these factors in
the past and may experience them in the future. In the second quarters of fiscal
1995 and 1996, the Company incurred net losses due to one-time charges
associated with the IPEC Planar Portland and IPEC Precision acquisitions. The
Company incurred a loss in the first quarter of fiscal 1997, primarily due to a
decline in demand for semiconductor capital equipment, the Company's lack of a
high-throughput oxide process CMP system, unprofitable operations at IPEC
Precision and increased cost of goods sold resulting from the issuance of
warrants to a major customer as described below. The Company incurred a net loss
in the second quarter of fiscal 1997, due to a $25.0 million charge (net of
taxes) for estimated losses on disposal of IPEC Clean and a $17.6 million pretax
charge for asset write-downs due to discontinuation of the Company's Avanti 672
product development effort. The semiconductor equipment market experienced an
industry-wide slowdown in the second half of calendar 1996, which adversely
affected sales of the Company's CMP polishing equipment. The Company's revenue
from sales of CMP equipment in each of the first three quarters of fiscal 1997
was lower than such revenue in each of the first three quarters of fiscal 1996.
Fiscal 1997 revenue was below fiscal 1996 revenue.

      Results of operations in any period should not be considered indicative of
the results to be expected for future periods. Fluctuations in operating results
may also result in fluctuations in the price of the Company's Common Stock. In
future quarters, the Company's operating results may not meet the expectations
of public market analysts or investors. In such an event, the market price of
the Common Stock would be materially adversely affected.

      The Timing of Significant Shipments and Orders Can Impact Quarterly
Results. The Company derives most of its revenue from the sale of products in a
price range from $250,000 to $1.4 million per unit, and clustered systems can be
priced much higher. As a result, the timing of individual shipments can have a
significant impact on the Company's results of operations for a particular
period. The Company has previously experienced order and delivery delays and
cancellations which caused the Company to miss its quarterly revenue and profit
projections, including during the first quarter of fiscal 1997, and there can be
no assurance that the Company can avoid such order and delivery delays in the
future. During the first quarter of fiscal 1997, a significant customer agreed
to accelerate certain orders into the first three quarters of fiscal 1997, which
could adversely affect the Company's ability to obtain orders from this customer
in fiscal 1998. These accelerated orders represented 14% of the Company's
revenue in fiscal 1997. Cost of goods sold increased in the first three quarters
of fiscal 1997 by $657,000, $191,000 and $212,000, respectively, due to the
issuance of certain warrants in connection with this acceleration. Orders which
the Company has included in its backlog may be canceled. For example, the
Company removed from its backlog orders of approximately $12.0 million in the
fourth quarter of fiscal 1997, primarily due to delays in construction of a
wafer fabrication facility for 


                                       15
<PAGE>   16
Submicron Systems in Thailand. A significant portion of the Company's operating
expenses are relatively fixed in nature and planned expenditures are based in
part on anticipated orders. Ongoing expenditures for product development and
engineering make it difficult to reduce expenses in a particular quarter if the
Company's sales goals for the quarter are not met. Any inability to reduce
spending quickly enough to mitigate any revenue shortfall would magnify the
adverse impact of the revenue shortfall on the Company's results of operations.
See "MD&A -- Results of Operations."

      The Company Depends on a Small Number of Major Customers. A small number
of customers account for a significant percentage of the Company's orders and
revenue. In the quarter ended September 30, 1997 Intel represented 41% of the
Company's revenue. In fiscal 1997, Intel represented 51% of the Company's
revenue. In fiscal 1996, Intel and IBM represented 35% and 11%, respectively, of
the Company's revenue. In fiscal 1995, Intel, IBM and Motorola represented 16%,
24% and 16%, respectively, of the Company's revenue. The Company anticipates
that its revenue will continue to depend on a limited number of major customers,
although the companies considered to be major customers and the percentage of
the Company's revenue represented by each major customer may vary from quarter
to quarter. Several of the Company's major customers, including Intel, must
determine shortly the extent to which they will adopt the Company's AvantGaard
676 or AvantGaard 776, particularly for the oxide process, or comparable
high-throughput products from the Company's competitors. The loss of a major
customer, any material reduction in orders by such customers, including
reductions due to market or competitive conditions or the determination of any
such customer not to adopt the Company's next-generation products, would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's future success depends in part upon its
ability to obtain orders from new customers, as well as the financial condition
of its customers and the general economy.

      The Company Depends on Broader Industry Acceptance of CMP and the
AvantGaard 676 and AvantGaard 776. The CMP process has not been broadly adopted
by semiconductor manufacturers for volume production. IPEC defines semiconductor
manufacturers using CMP in volume production as companies using ten or more CMP
systems. Most semiconductor manufacturers who have CMP equipment use it only for
pilot line production, and few semiconductor manufacturers produce commercial
quantities of ICs using CMP machines. To date, the Company's products have been
used primarily to manufacture advanced semiconductor logic and memory devices.
While industry analysts have projected significant future growth for the CMP
polisher market, these projections depend on the analysts' assumptions, and
variations in industry demand can occur during the several years included in the
projections. There can be no assurance that projected industry growth will occur
or that semiconductor manufacturers will adopt CMP processes for volume
production. Lack of growth in the semiconductor industry and the determination
of such manufacturers not to adopt CMP processes for volume production would
have a material adverse effect on the Company's business, financial condition
and results of operations.

      The Company's future results depend on sales of the AvantGaard 676,
AvantGaard 776 and Avanti 472 CMP wafer polishing systems. The Avanti 372M CMP
wafer polishing system is based on older technology and is sold primarily to one
customer, with shipments expected only through calendar 1999. Because shipments
of the Avanti 372M are limited and the Avanti 472 does not offer the same
throughput or footprint as the AvantGaard 676 or AvantGaard 776 or other
high-throughput CMP 


                                       16
<PAGE>   17
systems, the Company expects its reliance on sales of the AvantGaard 676 and
AvantGaard 776 to increase in the future. As of September 30, 1997, the
AvantGaard 676 had been shipped to nine customers and the AvantGaard 776 had
been shipped to six customers. The AvantGaard 676 was initially designed solely
to planarize metal layers and has not been broadly adopted for this purpose in
volume production. The Company's oxide process for the AvantGaard 676 and
AvantGaard 776 was recently developed and has not been widely accepted. Several
customers are qualifying a new production level oxide CMP process for these
systems, and the Company believes that the oxide process is being used in
production by a very limited number of customers. The AvantGaard 776 was
designed to integrate CMP, metrology and wafer cleaning in a single unit with
both oxide and metal capability. If commercial use does not confirm the utility
of the AvantGaard 676 and AvantGaard 776 for both oxide and metal processes, or
if customers do not broadly adopt the AvantGaard 676 and AvantGaard 776, the
Company's business, financial condition and results of operations would be
materially and adversely affected.

      The Company's future results also depend on sales of IPEC Precision's
products, which are currently oriented toward semiconductor wafer manufacturers
and have not been widely adopted by these or other semiconductor industry
customers. There can be no assurance that customers will accept these products
or that these products can be sold profitably or in volume.

      The Company Must Develop New Products Due to Technological Change. The
Company derives most of its revenue from sales of CMP equipment and related
products by IPEC Planar. Semiconductor manufacturing equipment and processes are
subject to rapid technological changes and product obsolescence. Sales of
certain of the Company's products generally depend on new semiconductor
fabrication facility construction projects and facility upgrades by customers.
The Company's strategy depends in part on developing and introducing products
that lower the semiconductor manufacturer's cost of ownership, which involves a
number of factors, including product acquisition and operating expenses,
throughput, reliability, footprint and wafer yields. The Company believes that
its future success will depend in part upon its ability to enhance its existing
products, develop new products and qualify new processes on its CMP systems to
address technological changes and customer requirements.

      Product or Process Development Difficulties Could Adversely Affect the
Company's Results of Operations. The Company's current development efforts
include the AvantGaard 876 300 mm wafer CMP systems, plasma-assisted chemical
etch systems, metrology technologies and copper dual damascene processes.
Semiconductor equipment companies often experience delays in completing advanced
products and processes. In the past, the Company has experienced delays in
developing new CMP tools and processes and the plasma-assisted chemical etch
system. The Company cannot assure that any product in development will be
completed as scheduled or that completed products or processes will be
commercially adopted. Due to the complexity and sophistication of the Company's
products and related automation software, the Company's products from time to
time may contain defects or "bugs" which can be difficult to correct.
Furthermore, as the Company continues to develop and enhance its products, there
can be no assurance that the Company will be able to identify and correct
defects in a timely manner. IPEC Precision may require a large amount of capital
in order to commercialize its current products and products under development.
If any of the Company's products currently under development are not
commercialized in a timely manner, the Company could be required to write off


                                       17
<PAGE>   18
inventory and other assets related to the development project, and the Company
could lose customers and revenue. For example, the Company incurred a $17.6
million pretax asset write off in the second quarter of fiscal 1997 for
discontinuance of the Avanti 672 product development program. To the extent
products developed by the Company are based upon anticipated changes in
semiconductor production technologies, sales for such products may be adversely
affected if other technology becomes accepted in the industry.

      The Company May be Adversely Affected by the Intensely Competitive Market
in Which it Participates. The semiconductor equipment industry is an intensely
competitive market. The Company believes that direct domestic and international
competition in CMP polishing systems and clustered CMP polishing and cleaning
systems is likely to increase substantially. The Company is aware of a number of
companies currently marketing CMP systems that directly compete with the
Company's systems, including Applied Materials, Inc. ("Applied Materials"),
Ebara Corporation, SpeedFam International, Inc., and Strasbaugh. Competition is
increasing significantly in the market for high-throughput planarization
systems. The Company is aware that other capital equipment manufacturers not
currently involved in the development of CMP systems may also attempt to enter
and develop products for this market or to develop alternative technologies
which may reduce the need for the Company's products. For example, Lam Research
Corporation, a semiconductor production equipment supplier, acquired OnTrak
Systems, Inc., a manufacturer of wafer processing equipment which has developed
a CMP tool. The Company anticipates that its customers will be increasingly
inclined to utilize multiple CMP suppliers. Therefore, successful process
qualification of the Company's CMP systems may not lead to exclusive source
supplier relationships with its customers in the future. The Company also
believes that other companies are developing or marketing products which compete
with the Company's plasma-assisted chemical etch systems and metrology equipment
and that such competition may increase in the future.

      The trend toward consolidation in the semiconductor equipment industry has
made it increasingly important to have the financial resources necessary to
compete effectively across a broad range of product offerings, to fund customer
service and support on a worldwide basis and to invest in both product and
process research and development. Certain current and potential competitors,
including Applied Materials, provide customers with evaluation tools and have
substantially greater financial resources and name recognition than the Company.
In addition, current and potential competitors, including Applied Materials,
that supply a broader range of semiconductor capital equipment may have better
relationships with semiconductor manufacturers, including the Company's
customers. The Company expects its current competitors to continue to improve
the design and performance of their existing products and processes, and to
introduce new products and processes with improved price and performance
characteristics. New product introductions or product announcements by the
Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products and could adversely affect the
acceptance of new products. Moreover, increased competitive pressure could lead
to intensified price based competition, which could have a material adverse
effect on the Company's business, financial condition and results of operations.

               The Company is Subject to Risks Associated with International
Sales. International sales accounted for approximately 30% of the Company's
revenue for the quarter ended September 30, 1997. International sales accounted
for approximately 27% and 28% of the Company's revenue in fiscal 1997 


                                       18
<PAGE>   19
and 1996, respectively. The Company's international sales historically have had
lower gross margins than domestic sales since these sales have been made through
distributors, which purchase products from the Company at a discount to list
price. The Company expects that international sales will continue to account for
a significant portion of its revenue in future periods. Margins on international
sales may vary in the future depending on the level of sales made through
distributors. International sales are subject to certain inherent risks,
including tariffs, embargoes and other trade barriers, staffing and operating
foreign sales and service operations, managing distributors and collecting
accounts receivable. The Company is also subject to risks associated with
regulations relating to the import and export of high technology products. The
export of the Company's products to certain countries is limited by law. The
Company cannot predict whether quotas, duties, taxes or other charges or
restrictions upon the importation or exportation of the Company's products in
the future will be implemented by the United States or any other country.

      Fluctuations in currency exchange rates could cause the Company's products
to become relatively more expensive to customers in a particular country,
leading to a reduction in sales or profitability in that country. While the
Company's sales are currently denominated only in U.S. dollars, future
international activity may result in foreign currency denominated sales. Gains
and losses on the conversion to U.S. dollars of accounts receivable and accounts
payable arising from international operations may contribute to fluctuations in
the Company's results of operations.

      The Company's Strategy Relies on Increased Penetration of the Asian
Market. The Company believes that its future success will depend in part upon
continued acceptance of its products by Asian semiconductor manufacturers. This
market segment is large, represents a substantial percentage of the worldwide
semiconductor manufacturing capacity, and is difficult for foreign companies to
penetrate. Asian manufacturers may develop alternatives to CMP or may enhance
existing manufacturing techniques such as spin-on glass and deposited glass to
achieve acceptable yields for DRAMs and other integrated circuits involving
three or more metal layers and line widths at or below 0.5 micron. The Company
currently sells its products in Asia through sales representatives and
distributors. The Company is establishing a fully-staffed Asia Pacific division
to service this market. A direct presence in these markets, particularly Japan,
requires the allocation of substantial management and financial resources, may
adversely affect the Company's relationship with its current distributors, and
may increase a number of risks related to international sales as described
above.

      The Semiconductor Industry Is Cyclical, Causing Fluctuations in the
Company's Operating Results. The Company's business depends upon capital
expenditures by manufacturers of semiconductor devices, primarily for the
opening of new or expansion of existing fabrication facilities which, in turn,
depends upon the current and anticipated market demand for semiconductor devices
and products utilizing such devices. The semiconductor industry is highly
cyclical and has experienced significant overall growth in recent years, which
has resulted in growth in the semiconductor capital equipment industry. The
cyclicality of the semiconductor industry has had a severe adverse effect on the
industry's demand for semiconductor processing equipment. In certain instances,
industry downturns have lasted for extended periods of time. Because the Company
believes that it must maintain research and development and customer service and
support expenditures even during industry downturns, any downturn in the
semiconductor industry could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that past growth in the 


                                       19
<PAGE>   20
semiconductor and semiconductor capital equipment industries, or the resulting
growth in the Company's business, can be sustained in the future or that the
downturns in the market will not reoccur.

      The Company's planned operations assume that a significant portion of new
orders will result from demand from semiconductor manufacturers building or
expanding fabrication facilities for advanced multi-level semiconductor devices
with design requirements of 0.35 micron and below, and there can be no assurance
that such demand will exist.

      Past Acquisitions Have Adversely Affected Operating Results. The Company's
growth in annual revenues from fiscal 1994 through fiscal 1996 has resulted not
only from expansion of its core CMP business, but also from acquisitions in
fiscal 1994, 1995 and 1996. The Company's expansion through acquisitions has
resulted in significantly higher operating expenses, particularly because the
Company's strategy initially has been to operate each acquired business
independently, resulting in separate marketing, customer support and
administrative functions. The companies acquired generally had not operated
profitably before their acquisition by IPEC. IPEC Clean, acquired in fiscal
1995, has never operated profitably and was discontinued by the Company in the
second quarter of fiscal 1997, resulting in a $25.0 million charge (net of
taxes) in that quarter. IPEC Precision has only recently achieved significant
revenue from shipments of production equipment. There can be no assurance that
the Company will be able to integrate or operate profitably any acquired entity.

      IPEC Precision Joint Development Program May Require Significant Resources
and Adversely Affect Results. The Company has entered into an agreement with
MEMC to develop a family of wafer shaping tools using IPEC Precision's
plasma-based planarization and metrology technology. IPEC Precision and MEMC
have established an LLC which will own the intellectual property developed and
license it to IPEC Precision. IPEC Precision will share expenses related to the
joint development program and pay royalties to the LLC on the sale of newly
developed plasma wafer shaping tools. There can be no assurance that the joint
development program will be successful.

      Disposition of IPEC Clean May Require Significant Resources and Adversely
Affect Results. The Company may dispose of or spin off portions of its business
which the Company determines are not complementary to its strategy. The Company
has signed a letter of intent for the sale of IPEC Clean and negotiations are
currently in progress. There can be no assurance of the terms of such a sale or
whether the Company can complete a sale by the end of calendar 1997. In the
event a sale cannot be achieved by the end of calendar 1997, the Company plans
to shut down IPEC Clean's operations. The IPEC Clean disposition effort could
absorb significant management time and adversely affect the Company's business,
financial condition and results of operations.

      Future Acquisitions May Require Significant Resources and Adversely Affect
Results. The Company's strategy is to obtain additional wafer fabrication
technologies and may involve, in part, acquisitions of products, technologies or
businesses from third parties. The Company also may make acquisitions for other
reasons, including to obtain additional distribution capacity in specified
geographic markets. An acquisition could absorb substantial cash resources,
require the Company to incur or assume debt obligations, or involve the issuance
of additional Common Stock, which could dilute the Company's existing
stockholders. An acquisition which is accounted for as a purchase, like the
Company's past acquisitions, could involve significant one-time charges, or
could involve the 


                                       20
<PAGE>   21
amortization of goodwill over a number of years, which would adversely affect
earnings in those years. An acquired entity may have unknown liabilities, and
its business may not achieve the results anticipated at the time of the
acquisition. An acquisition or disposition would absorb significant management
time and could have a material adverse effect on the Company's business,
financial condition and results of operations.

      The Company Would be Adversely Affected if Suppliers Could Not Deliver
Goods and Services. The Company relies on a limited number of independent
manufacturers to provide certain components in assemblies made to the Company's
specifications and use in the Company's products. In the event that the
Company's subcontractors were to experience financial, operational, production
or quality assurance difficulties that resulted in the reduction or interruption
of supply to the Company, the Company's business, financial condition and
results of operations would be materially adversely affected. In addition, the
Company purchases certain key components from qualified vendors for which
alternative qualified sources are not currently available. Any prolonged
inability to obtain adequate amounts of qualified components would have a
material adverse effect on the Company's business, financial condition and
results of operations.

      The Company Depends on its Key Personnel and Has Appointed a New Chief
Executive Officer. The Company's future success is dependent upon its ability to
attract and retain qualified management, technical, sales and support personnel.
There is intense competition for such personnel, particularly in Phoenix,
Arizona, which has a relatively low unemployment rate, and the Company may
experience difficulty in hiring skilled personnel. IPEC announced the
appointment of Roger D. McDaniel to the position of President and Chief
Executive Officer effective September 1, 1997. Mr. McDaniel will oversee all
financial and operational aspects of the Company. Thomas C. McKee, IPEC's
President and Chief Operating Officer from October 1995 to August 1997, will
remain with the Company through December 1997 as Chief Operating Officer and
serve as a consultant until February 1999. Lack of a smooth transition of
financial and operational control to Mr. McDaniel, the loss of certain key
employees or consultants, or the Company's inability to attract and retain new
key employees could have a material adverse effect on the Company's business,
financial condition and results of operations. During July and October 1996, the
Company effected reductions in its work force to reduce its expenses and may do
so in the future. Repeated layoffs could adversely affect the retention of
employees and could adversely affect the Company's ability to hire new personnel
in the future. Personnel terminations at IPEC Precision included technical
personnel, who could be difficult to replace if IPEC Precision successfully
markets its products and requires additional engineering staff to support
customers.

      The Company Depends on Proprietary Technology, and Protection is
Uncertain. The Company's success depends in significant part on the proprietary
nature of its technology. Patents issued to the Company may not provide the
Company with meaningful advantages and may be challenged. The two initial
patents relating to the Company's single wafer rotational planarization system
products (the Avanti 372M and Avanti 472) expired in September 1997. In 1993,
the technology covered by these patents was licensed on a royalty-free basis to
a competitor. This license was granted pursuant to a settlement arrangement in
which the Company also incurred settlement obligations aggregating $1.4 million,
of which $50,000 remained outstanding at September 30, 1997. To the extent that
a competitor of the Company is able to reproduce or otherwise capitalize on the
Company's technology, it may be difficult or impossible for the Company to
obtain necessary intellectual property 


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<PAGE>   22
protection in the United States or other countries where such competitor
conducts its operations. Moreover, the laws of foreign countries may not protect
the Company's intellectual property to the same extent as do the laws of the
United States.

      The Company also relies on trade secrets that it seeks to protect, in
part, through confidentiality agreements with employees and other parties. These
agreements may be breached, and the Company may not have adequate remedies for
any such breach. The Company's trade secrets may also become known to or
independently developed by others.

      The Company is Subject to Infringement Claims. As is the case with high
technology companies generally, the Company may from time to time receive notice
of claims of infringement of other parties' proprietary rights. If any Company
equipment is found to infringe a patent, a court may grant an injunction to
prevent making, selling or using the equipment in the applicable country. The
Company may seek to obtain a license of such third party's intellectual property
rights, which may not be available under reasonable terms or at all. Expensive
and time-consuming litigation may be necessary to enforce patents issued to the
Company, to protect trade secrets or know-how owned by the Company, to defend
the Company against claimed infringement of the rights of others and to
determine the scope and validity of proprietary rights of others.

      The Company Has Placed Its Technology in Escrow Under a Significant
License Agreement. The Company manufactures the AvantGaard 676 under a license
from a volume manufacturer of advanced microprocessors. The Company has escrowed
technical data sufficient to permit such manufacturer to manufacture the
Company's AvantGaard 676. The data may be released from escrow if the Company
does not meet certain criteria regarding product or spare part delivery
schedules to the manufacturer. If the data were to be released from escrow, the
semiconductor manufacturer could manufacture the AvantGaard 676 or have the
AvantGaard 676 manufactured by others for its use, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. The escrow terminates in October 1998.

      The Company is Exposed to Product Liability and Environmental Regulations.
The nature of the Company's business exposes it to product liability claims, as
well as the risk that harmful substances will escape into the workplace and the
environment and cause damage or injuries. The Company's products could
malfunction in the future and damage a customer's facilities and harm its
employees. The Company and its customers are subject to stringent federal, state
and local regulations governing the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in their manufacturing
operations. Current or future regulations could require the Company or its
customers to make substantial expenditures for preventive or remedial action,
reduction of chemical exposure or waste treatment or disposal.

      Certain Anti-Takeover Provisions May Discourage Change in Control. The
Company had at September 30, 1997 approximately 381,000 shares of Class A Common
Stock outstanding, which has four votes for each share. The majority of the
Class A Common Stock is beneficially owned by Sanjeev R. Chitre, the Chairman of
the Board of Directors, and a trust for the benefit of his daughter. The voting
power held by the Company's officers and directors may give those individuals
substantial influence over any corporate action submitted to the Company's
stockholders for vote. The Company designated 


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<PAGE>   23
50,000 shares of Series D Preferred Stock in connection with a stockholder
rights plan adopted in May 1997. The Company's Certificate of Incorporation
authorizes the Company's Board of Directors to issue additional Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued shares of preferred
stock and to fix the number of shares constituting any series and the
designation of such series, without further vote or action by its stockholders.
Pursuant to Delaware corporate law, the approval of the holders of outstanding
Preferred Stock may be required for certain corporate actions. Any series of
Preferred Stock which the Company may issue in the future would participate in
these class voting rights and may have additional independent rights to approve
certain actions. The Company is subject to Section 203 of the Delaware General
Corporation Law, which restricts certain business combinations with any
"interested stockholder" as defined by that statute. This statute and the
stockholder rights plan are designed to encourage potential acquirers to
negotiate with the Company's Board of Directors. The voting power held by
officers and directors, outstanding rights to elect members of the Company's
Board of Directors, the Company's stockholder rights plan, the voting rights of
outstanding Preferred Stock and Preferred Stock which may be issued in the
future, the existence of Class A Common Stock and the application of Delaware
General Corporation Law Section 203 could discourage certain types of
transactions involving an actual or potential change in control of the Company,
including transactions in which the holders of Common Stock who are not officers
and directors might otherwise receive a premium for their shares over then
current prices, and may limit the ability of such stockholders to cause or
approve transactions which they may deem to be in their best interests.

      The Company's Common Stock Price is Volatile. The market price of the
Company's Common Stock has been, and may continue to be, extremely volatile. The
market price of the Common Stock may be significantly affected by factors such
as quarter to quarter variations in the actual or anticipated financial results
of the Company or of other companies in the semiconductor industry, or in the
markets served by the Company, announcements by the Company or its competitors
regarding new product introductions, changes in financial estimates by
securities analysts, general market conditions, and other factors. In addition,
the stock market has experienced extreme price and volume fluctuations that have
particularly affected the market price for many high technology companies and
that have often been unrelated to the operating performance of these companies.
The market price of the Company's Common Stock has fluctuated substantially in
recent periods, from a low of $9 1/2 on July 16, 1996 to a high of $37 11/16 on
October 1, 1997. On November 10, 1997, the reported last sale price of the
Company's Common Stock on the Nasdaq National Market was $21 5/8. These broad
market fluctuations may adversely affect the market price of the Common Stock,
and there can be no assurance that the market price of the Common Stock will not
decline below current levels. In the past, following periods of volatility in
the market price of a particular company's securities, securities class action
litigation has often been brought against that company. Such litigation, if
brought against the Company, could result in substantial costs and a diversion
of management's attention and resources.

      The Company May Need to Raise Capital on Unfavorable Terms. The Company
believes that its cash and cash equivalents are sufficient to support its
operation through the foreseeable future. Additional new debt or equity
financing may be required to fund the Company's growth. There can be no
assurance that such additional financing will be available when needed or, if
available, will be on satisfactory terms. In order to raise capital, the Company
may issue debt or equity securities senior to the outstanding Common Stock, and
may incur substantial dilution. The failure to obtain additional 


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<PAGE>   24
financing when needed on satisfactory terms would also hinder the Company's
ability to make continued capital investments.

      The Company Faces Year 2000 Computer Issues. In the next two-and-one-half
years, most large companies will face potentially serious information systems
and computer problems because most software application and operational programs
written in the past will not properly recognize calendar dates beginning in the
year 2000. This could force computers to either shut down or lead to incorrect
calculations. The Company has identified the changes required to its computer
programs and hardware. The necessary modifications to the Company's centralized
financial, customer, and operational information systems are expected to be
completed by the end of calendar 1998. Noncentralized systems, such as software
used to operate the Company's products, are currently being reviewed for Year
2000 problems. The Company is unable to predict the costs to be incurred for
correction of such noncentralized systems, but expects the scope and schedule
for such work to be less complex than for its centralized systems. The Company
believes that Year 2000 problems will not have a material adverse effect on the
Company's business, financial condition and results of operations.


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<PAGE>   25
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

  (a)    Exhibits

         10.1 Purchase Agreement between Integrated Process Equipment Corp. (the
              "Company") and Morgan Stanley & Co. Incorporated ("MS"), acting on
              behalf of MS, Hambrecht & Quist LLC, Prudential Securities
              Incorporated and UBS Securities LLC (collectively, the "Initial
              Purchasers"), dated September 11, 1997.

         10.2 Indenture between the Company and State Street Bank and Trust of
              California, N.A., dated September 15, 1997.

         10.3 Registration Rights Agreement between the Company and the Initial
              Purchasers, dated September 15, 1997.

         10.4 Specimen of 6 1/4% Convertible Subordinated Note due 2004 issued
              by the Company on September 17, 1997 in the amount of
              $115,000,000.

         10.5 Executive Employment Agreement between the Company and Roger D.
              McDaniel (without exhibits), dated August 13, 1997.

  (b)    Reports on Form 8-K:

         A report on Form 8-K was filed on September 3, 1997 reporting (under
         Item 5) with respect to the intention of the Company to raise $100
         million (excluding the proceeds of the over-allotment option, if any)
         through a private offering of Convertible Subordinated Notes within the
         United States to qualified institutional buyers and other institutional
         accredited investors.

         A report on Form 8-K was filed on September 12, 1997 reporting (under
         Item 5) with respect to the announcement of the Company that it had
         completed the pricing of a private placement of $100 million of its 
         6 1/4% Convertible Subordinated Notes due 2004.


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<PAGE>   26
SIGNATURES



         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


Date: November 13, 1997                    INTEGRATED PROCESS EQUIPMENT CORP.
                                           AND SUBSIDIARIES


                                           By: /s/ John S. Hodgson
                                           -----------------------
                                                   John S. Hodgson
                                                   Vice President
                                                    and Chief Financial Officer


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