**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 20-F**

 
| **o** | **Registration Statement Pursuant to  Section 12(b) or (g) of the Securities Exchange Act of 1934** |
|-------|-----------------------------------------------------------------------------------------------------|

 

or

 
| **x** | **Annual Report Pursuant to Section  13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|-------------------------------------------------------------------------------------------|

 

Forthe fiscal year ended December 31, 2006

or

 
| **o** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

Forthe transition period from                          to                         

 

Commissionfile number: 000-51196

 

**AIXTRONAktiengesellschaft**

**(Exact Name of Registrant as Specified in Its Charter)**

** **

**Federal Republic of Germany**

(Jurisdiction ofIncorporation or Organization)

** **

**Kackertstrasse 15-17**

**D-52072 Aachen**

**Federal Republic of Germany**

(Address ofPrincipal Executive Offices)

** **

**Securities registered or to be registered pursuant to Section12(b) of the Act:**

** **

**Ordinary shares, no par value (only in connection with thelisting of**

**its American Depositary Shares on the NASDAQ Capital Market)**

(Title of Class)

** **

**Securities registered or to be registered pursuant to Section12(g) of the Act:  None**

** **

**Securities for which there is a reporting obligation pursuantto Section 15(d) of the Act:  None**

 

The number ofoutstanding shares of each of the issuer’s classes of capital or common stockas of December 31, 2006: 89,799,397 ordinary shares, no par value.

 

Indicate by check markif the registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

 

Yes  o    No  x

 

If this report is anannual or transition report, indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934.

 

Yes  o    No  x

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports) and (2) has been subject to such filing requirements for the past90 days.

 

Yes  x    No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct.  (Check one):

 

Largeaccelerated filer  o                   Accelerated filer  x                            Non-acceleratedfiler  o

 

Indicate by check markwhich financial statement item the registrant has elected to follow.

Item17  o    Item18  x

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  o    No  x

 

 

 

----

 

**Tableof Contents**
| PART I                                                              |   |   |   |
|---------------------------------------------------------------------|--------|--------|--------|
| Item 1: Identity of Directors, Senior Management  and Advisers |   |   |   |
| Item 2: Offer Statistics and Expected Timetable                |   |   |   |
| Item 3:  Key Information                                       |   |   |   |
| A.  Selected Financial Data                                         |   |   |   |
| Exchange  Rate Information                                          |   |   |   |
| B. Capitalization and Indebtedness                                  |   |   |   |
| C. Reasons for the Offer and Use of Proceeds                        |   |   |   |
| D. Risk  Factors                                                    |   |   |   |
| Company-Related  Risk                                               |   |   |   |
| Risks Relating to Holding AIXTRON’s ADSs and Ordinary  Shares  |   |   |   |
| Item 4: Information on the Company                             |   |   |   |
| A. History and Development of the Company                           |   |   |   |
| Important  Events                                                   |   |   |   |
| Capital  Expenditures                                               |   |   |   |
| B.  Business Overview                                               |   |   |   |
| Technology                                                          |   |   |   |
| Products  and Services                                              |   |   |   |
| Seasonality                                                         |   |   |   |
| Principal  Markets                                                  |   |   |   |
| Geographical  segments                                              |   |   |   |
| Raw Materials and Manufacturing                                     |   |   |   |
| Marketing  Channels                                                 |   |   |   |
| Intellectual  Property                                              |   |   |   |
| Strategy and Competitive Positioning                                |   |   |   |
| Government  Regulation                                              |   |   |   |
| C.  Organizational Structure                                        |   |   |   |
| D.  Property, Plant and Equipment                                   |   |   |   |
| Environmental  Issues                                               |   |   |   |
| Item 4A: Unresolved Staff Comments                                  |   |   |   |
| Item 5: Operating and Financial Review and  Prospects          |   |   |   |
| A.  Operating Results                                               |   |   |   |
| Preparation of consolidated financial statements under  IFRS        |   |   |   |
| Critical  Accounting Policies                                       |   |   |   |
| Recently Issued Accounting Standards                                |   |   |   |
| Management’s Discussion and Analysis of Results of  Operations |   |   |   |
| Overview                                                            |   |   |   |
| Significant Factors Affecting Results                               |   |   |   |
| Results  of Operations                                              |   |   |   |
| B. Liquidity and Capital Resources                                  |   |   |   |
| C. Research and Development, Patents and Licenses,  etc.            |   |   |   |
| D.  Trend Information                                               |   |   |   |
| E. Off-Balance Sheet Arrangements                                   |   |   |   |
| Contingencies                                                       |   |   |   |
| F. Tabular Disclosure of Contractual Obligations                    |   |   |   |
| Item 6: Directors, Senior Management and  Employees            |   |   |   |
| A. Directors and Senior Management                                  |   |   |   |
| Supervisory  Board                                                  |   |   |   |
| Executive  Board                                                    |   |   |   |
| B.  Compensation                                                    |   |   |   |
| C. Board  Practices                                                 |   |   |   |
| Audit  Committee                                                    |   |   |   |
| Compliance with NASDAQ Listing Standards on Corporate  Governance   |   |   |   |
| D. Employees                                                        |   |   |   |
| E. Share  Ownership                                                 |   |   |   |
| Employee  Bonds and Options                                         |   |   |   |
| Item 7: Major  Shareholders and Related Party Transactions     |   |   |   |

 

2

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| A. Major Shareholders                                                                       |   |   |   |
|---------------------------------------------------------------------------------------------|--------|--------|--------|
| B.  Related Party Transactions                                                              |   |   |   |
| Item 8:  Financial Information                                                         |   |   |   |
| A. Consolidated Statements and Other Financial  Information                                 |   |   |   |
| Export  Revenues                                                                            |   |   |   |
| Legal  Proceedings                                                                          |   |   |   |
| Policy on Dividend Distributions                                                            |   |   |   |
| B.  Significant Changes                                                                     |   |   |   |
| Item 9:  The Offer and Listing                                                         |   |   |   |
| Trading  Markets                                                                            |   |   |   |
| Market  Price Information                                                                   |   |   |   |
| Item 10:  Additional Information                                                       |   |   |   |
| A. Share  Capital                                                                           |   |   |   |
| B. Memorandum and Articles of Association                                                   |   |   |   |
| Corporate  Governance                                                                       |   |   |   |
| Sarbanes-Oxley Act Requirements and NASDAQ Rules                                            |   |   |   |
| C.  Material Contracts                                                                      |   |   |   |
| Employment contracts of current members of the  Executive Board                             |   |   |   |
| Intellectual Property Agreements                                                            |   |   |   |
| D.  Exchange Controls                                                                       |   |   |   |
| E. Taxation                                                                                 |   |   |   |
| German  Taxation                                                                            |   |   |   |
| U.S. Federal  Taxation                                                                      |   |   |   |
| F.  Dividends and Paying Agents                                                             |   |   |   |
| G.  Statement by Experts                                                                    |   |   |   |
| H.  Documents on Display                                                                    |   |   |   |
| I.  Subsidiary Information                                                                  |   |   |   |
| Item 11: Quantitative and Qualitative Disclosure  about Market Risk                    |   |   |   |
| Exchange  Rate Risk                                                                         |   |   |   |
| Foreign  Currency Risk                                                                      |   |   |   |
| Interest  Rate Risk                                                                         |   |   |   |
| Item 12: Description of Securities other than  Equity Securities                       |   |   |   |
| PART II                                                                                     |   |   |   |
| Item 13: Defaults, Dividend Arrearages and  Delinquencies                              |   |   |   |
| Item 14: Material Modifications to the Rights of  Security Holders and Use of Proceeds |   |   |   |
| Item 15:  Controls and Procedures                                                      |   |   |   |
| Item 16A: Audit Committee Financial Experts                                            |   |   |   |
| Item 16B:  Code of Ethics                                                              |   |   |   |
| Item 16C: Principal Accountant Fees and Services                                       |   |   |   |
| Audit Committee Pre-Approval Policies                                                       |   |   |   |
| Item 16D: Exemptions from Listing Standards for  Audit Committees                      |   |   |   |
| Item 16E: Purchases of Equity Securities by the  Issuer                                |   |   |   |
| PART  III                                                                                   |   |   |   |
| Item 17:  Financial Statements                                                         |   |   |   |
| Item 18:  Financial Statements                                                         |   |   |   |
| Item 19:  Exhibits                                                                     |   |   |   |
| Signatures                                                                                  |   |   |   |
| Report of Independent Registered Public Accounting  Firm                                    |   |   |   |
| Consolidated Statements of Income                                                           |   |   |   |
| Consolidated  Balance Sheet                                                                 |   |   |   |
| Consolidated Cash Flow Statement                                                            |   |   |   |
| Consolidated Statement of Changes in Equity                                                 |   |   |   |
| Notes to the Consolidated Financial Statements                                              |   |   |   |

 

3

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**Presentationof Information**

In this Annual Report onForm 20-F (this “report”), unless the context otherwise requires, references to“the Company” or “AIXTRON” are to AIXTRON Aktiengesellschaft and itsconsolidated subsidiaries.  Throughoutthis report, whenever a reference is made to AIXTRON’s website, such referencedoes not incorporate information from the website by reference into thisreport.

The Company’s auditedConsolidated Financial Statements are prepared in accordance with InternationalFinancial Reporting Standards (“IFRS”) as adopted by the European Union and itsinterpretations adopted by the International Accounting Standards Board (“IASB”).

AIXTRON publishes itsaudited Consolidated Financial Statements in euros.  As used in this report, “EUR”, “euro” or “€”means the single unified currency that was introduced in the Federal Republicof Germany and ten other participating member states of the European Union onJanuary 1, 1999. “U.S. dollar”, “U.S.$,” or “USD” means the lawful currency ofthe United States of America.

Except where AIXTRONotherwise attributes market or industry data to another source, all such dataincluded in this report are its own estimates. These estimates are based upon the Company’s experience in its industryand its familiarity with the relevant markets. While AIXTRON believes these estimates to be reliable, the Company hasnot verified them with independent sources.

**Forward-LookingStatements**

AIXTRON believes thatvarious statements in this report may constitute forward-looking statements.  You can identify these statements byforward-looking words such as “may,” “will,” “could,” “expect,” “anticipate,” “contemplate,”“believe,” “estimate,” “intends,” and “continue” or similar words.  You should read statements that contain thesewords carefully because they:
|        | · |   | discuss future expectations;                                                    |
|--------|--------|--------|---------------------------------------------------------------------------------|
|   |   |   |                                                                            |
|   | · |   | contain projections of future results of operations  or financial condition; or |
|   |   |   |                                                                            |
|   | · |   | state other “forward-looking” information.                            |

 

AIXTRON believes it isimportant to communicate its expectations. There may be events in the future that AIXTRON is unable to predictaccurately or over which the Company has no control.  The risk factors and cautionary languagediscussed in this document provide examples of risks, uncertainties and eventsthat may cause actual results to differ materially from the expectationsdescribed by AIXTRON in its forward-looking statements, including among otherthings:
|        | · |   | the extent to which the technologies AIXTRON offers  are demanded by the market place;                                                 |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                   |
|   | · |   | the actual number of customer orders AIXTRON  receives;                                                                                |
|   |   |   |                                                                                                                                   |
|   | · |   | the timing of final acceptance of products by  customers;                                                                              |
|   |   |   |                                                                                                                                   |
|   | · |   | the financial climate and accessibility of  financing, general conditions in the thin film equipment market and in the  macro-economy; |
|   |   |   |                                                                                                                                   |
|   | · |   | cancellations, rescheduling or delays in product  shipments;                                                                           |
|   |   |   |                                                                                                                                   |
|   | · |   | manufacturing capacity constraints;                                                                                                    |
|   |   |   |                                                                                                                                   |
|   | · |   | lengthy sales and qualification cycles;                                                                                                |
|   |   |   |                                                                                                                                   |
|   | · |   | difficulties in the production process;                                                                                                |
|   |   |   |                                                                                                                                   |
|   | · |   | changes in semiconductor industry growth;                                                                                              |

 

4

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|        | · |   | increased competition;                                           |
|--------|--------|--------|------------------------------------------------------------------|
|   |   |   |                                                             |
|   | · |   | exchange rate fluctuations;                                      |
|   |   |   |                                                             |
|   | · |   | availability of government funding;                              |
|   |   |   |                                                             |
|   | · |   | variability and availability of interest rates;                  |
|   |   |   |                                                             |
|   | · |   | delays in developing and commercializing new  products; and      |
|   |   |   |                                                             |
|   | · |   | general economic conditions being less favorable  than expected. |

 

You are cautioned not toplace undue reliance on these forward-looking statements, which speak only asof the date of this report.

All subsequent writtenand oral forward-looking statements attributable to AIXTRON or to any personacting on its behalf are expressly qualified in their entirety by the foregoingcautionary statements.  AIXTRON does notundertake and expressly disclaim any obligation to release publicly anyrevisions to these forward-looking statements to reflect events orcircumstances after the date of this report or to reflect the occurrence ofunanticipated events.

5

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# **PART I**

6

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## **Item 1: Identity of Directors, Senior Managementand Advisers**

Not applicable.

7

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## **Item 2:  Offer Statistics and Expected Timetable**

Not applicable.

8

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## **Item 3:  Key Information**

### **A.Selected Financial Data**

The table below presentsAIXTRON’s selected historical consolidated financial data as of the dates andfor the periods indicated, which are derived from the Company’s auditedConsolidated Financial Statements.  Thehistorical consolidated statement of operations data presented below for thefiscal years ended December 31, 2006, 2005, and 2004 and the historicalconsolidated balance sheet data as of December 31, 2006 and 2005 havebeen derived from AIXTRON’s historical Consolidated Financial Statementsincluded in this report and audited by Deloitte & Touche GmbH in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates).

You should read theselected consolidated financial data set forth below in conjunction with “Item5 — Operating and Financial Review and Prospects” and AIXTRON’s ConsolidatedFinancial Statements included in this report. The historical results included below and elsewhere in this report arenot necessarily indicative of AIXTRON’s future performance.
| ** **                                                  | ** ** | **Historical  (in thousands of euro, except share and per share data)  As of or For the Year Ended December 31** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2006**                                                                                                                                                                                              | ** ** | **2006** | ** ** | **2005** | ** ** | **2005** | ** ** | **2004** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                  | ** ** | **IFRS**                                                                                                                                                                                              | ** ** | **US GAAP** | ** ** | **IFRS** | ** ** | **US GAAP** | ** ** | **IFRS** | ** ** | **US GAAP** | ** ** | **US GAAP** | ** ** | **US GAAP** | ** ** |
| **Consolidated Statement of  Operations Data:**             |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                     |       | 171,685                                                                                                                                                                                               |       | 171,685 |   | 139,402 |   | 139,402 |   | 140,004 |   | 140,004 |   | 90,402 |   | 152,112 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  income (loss)                                    |       | 5,699                                                                                                                                                                                                 |       | 4,682 |   | -52,675 |   | -94,273 |   | 9,674 |   | 8,097 |   | -26,606 |   | 20,890 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  income (loss)                                          |       | 5,857                                                                                                                                                                                                 |       | 5,180 |   | -53,468 |   | -95,969 |   | 7,681 |   | 7,146 |   | -17,838 |   | 15,143 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings  (loss) per share-basic (EUR)(1)                   |       | 0.07                                                                                                                                                                                                  |       | 0.06 |   | -0.65 |   | -1.17 |   | 0.12 |   | 0.11 |   | -0.28 |   | 0.23 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings  (loss) per share-diluted (EUR)(1)                 |       | 0.07                                                                                                                                                                                                  |       | 0.06 |   | -0.65 |   | -1.17 |   | 0.12 |   | 0.11 |   | -0.28 |   | 0.23 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends  declared per common share (EUR)(2)               |       | 0.00                                                                                                                                                                                                  |       | 0.00 |   | 0.00 |   | 0.00 |   | 0.00 |   | 0.00 |   | 0.08 |   | 0.18 |   |
| **Consolidated Balance Sheet  Data:**                       |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **                                                  |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  assets                                               |       | 263,482                                                                                                                                                                                               |       | 261,821 |   | 237,317 |   | 235,711 |   | 176,335 |   | 174,880 |   | 163,712 |   | 192,760 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  liabilities                                          |       | 79,540                                                                                                                                                                                                |       | 79,540 |   | 53,718 |   | 53,718 |   | 39,368 |   | 39,476 |   | 35,261 |   | 40,770 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority  interests                                         |       | 0                                                                                                                                                                                                     |       | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 159 |   | 359 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’  equity                                  |       | 183,942                                                                                                                                                                                               |       | 182,281 |   | 183,599 |   | 181,993 |   | 136,967 |   | 135,404 |   | 128,292 |   | 151,631 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Subscribed  capital                                         |       | 87,836                                                                                                                                                                                                |       | 87,836 |   | 87,797 |   | 87,797 |   | 64,832 |   | 64,832 |   | 64,832 |   | 64,832 |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other Data:**                                             |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Adjusted weighted average  number of shares outstanding** |       |                                                                                                                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| -  basic                                                    |       | 87,824,321                                                                                                                                                                                            |       | 87,824,321 |   | 82,111,081 |   | 82,111,081 |   | 64,831,512 |   | 64,831,512 |   | 64,831,512 |   | 64,828,872 |   |
| - diluted                                                   |       | 87,902,699                                                                                                                                                                                            |       | 87,902,699 |   | 82,111,081 |   | 82,111,081 |   | 65,165,246 |   | 64,856,952 |   | 64,831,512 |   | 64,854,312 |   |

----

| (1)    |   | Gives effect to the increases in stated share  capital of 2:1 and 2:1 in 2000 and 2001, respectively, resulting in  respective cumulative conversion factors of 1:2 in 2000 and 1:1 in 2001 when  compared to results as reported in those periods.                                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                              |
| (2)    |   | Dividends declared in each year relate to prior year  earnings. Gives effect to the increases in stated share capital of 2:1 and  2:1 in 2000 and in 2001, respectively, resulting in respective cumulative  conversion factors of 1:4 and 1:2 when compared to actual dividends paid per  share. |

 

9

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#### ***Exchange Rate Information***

The following tables setforth, for the periods indicated, information concerning the exchange rates foreuros per U.S. dollar.  AIXTRON hasprovided these rates solely for your convenience and you should not construethese translations as a representation that euro amounts actually representthese U.S. dollar amounts or that the euro amounts could have been, or couldbe, converted into U.S. dollars at those rates or at any other rate.  AIXTRON did not use these rates in thepreparation of its financial statements included elsewhere in this report.  Fluctuations in the exchange rate between theU.S. dollar and the euro will affect the U.S. dollar equivalent of the europrice of the Company’s ordinary shares traded on the Frankfurt Stock Exchangeand are likely to affect the market price of the Company’s American DepositaryShares (“ADSs”) traded on the NASDAQ Capital Market.

As used in this report,the term “noon buying rate” refers to the rate of exchange for euro, expressedin U.S. dollar per euro, as announced by the Federal Reserve Bank of New Yorkfor customs purposes as the rate in The City of New York for cable transfers inforeign currencies.

The table below showsthe average noon buying rates in The City of New York for cable transfers inforeign currencies as certified for customs purposes by the Federal ReserveBank of New York for U.S. dollar per euro for AIXTRON’s fiscal years.  The average is computed using the noon buyingrate on the last business day of each month during the period indicated.

| Year ended December 31, | ** ** | **Average Rate** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| 2002                                   |       | 0.9495                |       |
| 2003                                   |       | 1.1411                |       |
| 2004                                   |       | 1.2478                |       |
| 2005                                   |       | 1.2400                |       |
| 2006                                   |       | 1.2661                |       |
| Quarter ended December 31, 2006        |       | 1.3077                |       |

 

The following tableshows the noon buying rates for euros in U.S. dollars for the last six months.
| **Month Ended**                           | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------------------------|------------|----------|------------|---------|------------|
| August 2006                               |       | 1.2914   |       | 1.2735  |       |
| September 2006                            |       | 1.2833   |       | 1.2648  |       |
| October 2006                              |       | 1.2773   |       | 1.2502  |       |
| November 2006                             |       | 1.3261   |       | 1.2705  |       |
| December 2006                             |       | 1.3327   |       | 1.3073  |       |
| January 2007                              |       | 1.3286   |       | 1.2904  |       |
| February 2007 (through February 15, 2007) |       | 1.3140   |       | 1.2933  |       |

 

On February 15, 2007, the noon buying rate wasU.S. $ 1.3140 per € 1.00.

### **B.Capitalization and Indebtedness**

Not applicable

### **C.Reasons for the Offer and Use of Proceeds**

Not applicable

10

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#### **D.Risk Factors**

*Any ofthe following risks could have a material adverse effect on AIXTRON’s financialposition, results of operations, liquidity and the actual outcome of mattersthat the forward-looking statements contained in this annual report referto.  The risks described below are notthe only ones the Company faces.  Theremay be additional risks AIXTRON is currently unaware of and risks that arecommon to most companies.  There may alsobe risks that AIXTRON now believes are immaterial, but which may ultimatelyhave a material adverse effect on the Company’s financial position, results ofoperations, liquidity and the actual outcome of matters that theforward-looking statements contained in this annual report refer to.  For additional information regardingforward-looking statements, see “Forward-looking statements notice” included inthis annual report.*

#### ***Company-Related Risk***

***The compound semiconductor and the semiconductor industriescan be highly volatile and unpredictable, which may adversely affect AIXTRON’soperating results and result in significant volatility in the market price ofits ordinary shares and American Depositary Shares.***

The compoundsemiconductor and the semiconductor manufacturing equipment industry can beaffected by the cyclical nature of the semiconductor industry.  Although semiconductors are used in manydifferent products, the markets for those products are interrelated to variousdegrees.  The industry has historicallyexperienced sudden changes in supply and demand for semiconductors.  The timing, length and severity of theseindustry cycles are difficult to predict. During periods of declining demand for semiconductor manufacturingequipment, AIXTRON needs to be able to quickly and effectively align its coststructure with prevailing market conditions, to manage its inventory levels toreduce the possibility of future inventory write-downs resulting fromobsolescence, and to motivate and retain key employees.  Because a high proportion of AIXTRON’s costsare fixed in the near term, the Company’s ability to reduce expenses quickly inresponse to revenue shortfalls is limited. During periods of rapid growth, AIXTRON’s business must be able toacquire and/or develop sufficient manufacturing capacity and inventory to meetcustomer demand, and to attract, hire, assimilate and retain a sufficientnumber of qualified people.  The Company’scustomers often accelerate or delay expenditures, as well as attempt to cancelor reschedule their orders, in reaction to variations in their businesses ormarket conditions.  As a result, AIXTRONmust be able to react quickly to these changes in supply and demand.  A failure to quickly align the Company’s coststructure and manufacturing capabilities with industry fluctuations could leadto significant losses or to fail to capitalize on increased demand.  In either event, the results of operationsmay be adversely affected, which could result in significant volatility in themarket price of the Company’s ordinary shares and American Depositary Shares(ADSs).

***In order to compete, AIXTRON must attract, retain andmotivate key employees, and its failure to do so could have an adverse effecton its results of operations.***

In order to compete,AIXTRON must attract, retain and motivate executives and other key employees,including those in managerial, technical, sales, marketing and supportpositions.  Hiring and retainingqualified executives, scientists, engineers, technical staff and salesrepresentatives are critical to the Company’s business, and competition forexperienced employees in the semiconductor industry can be intense.  To attract, retain and motivate qualifiedemployees, AIXTRON relies heavily on paying cash compensation at market-competitiverates and offering additional incentives and bonus payments.  If such cash payments cease to be viewed as avaluable benefit by the Company’s key employees, the Company’s ability toattract, retain and motivate its employees could be adversely impacted, whichcould negatively affect its results of operations and/or require AIXTRON toincrease the amount it expends on cash and other forms of compensation.

***AIXTRON depends on a limited number of customers thatoperate in highly concentrated industries.***

AIXTRON’s customer baseis, has been and may in the future be highly concentrated.  Orders from a relatively limited number ofcustomers have accounted for, and likely will continue to account for, asubstantial portion of the Company’s revenues, which may lead customers todemand pricing and other terms less favorable to the Company.  If a principal customer discontinues itsrelationship with AIXTRON or suffers economic setbacks, AIXTRON’s business,financial condition and operating results could be materially and adverselyaffected.  AIXTRON’s ability to increaserevenues in the future will depend in part upon its ability to obtain ordersfrom new customers.  AIXTRON cannot becertain that it will be able to do so.

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In addition, because arelatively small number of large manufacturers, many of whom are AIXTRON’scustomers, dominate the industries in which they operate, it may be especiallydifficult for the Company to replace these customers if it loses theirbusiness.  A large portion of orders inAIXTRON’s order backlog are orders from its principal customers.  Furthermore, AIXTRON does not have long-termcontracts with many of its customers.  Asa result, the Company’s agreements with its customers do not provide anyassurance of future revenues and AIXTRON is exposed to competitive pricepressure on most new orders it attempts to obtain.  The Company’s failure to obtain new ordersfrom new or existing customers, would have a negative impact on its results ofoperations.

***AIXTRON’s business operates in a highly competitive industrycharacterized by increasingly rapid technological changes, and if the Companydoes not develop new products in a timely manner, it may not be able to competesuccessfully in this market.***

The introduction of newproducts and technologies occurs at a continuously increasing pace and growsincreasingly complex over time.  IfAIXTRON’s business does not develop and introduce new products and technologiesin a timely manner in response to changing market conditions or customerrequirements, its financial condition and results of operations could bematerially and adversely affected. AIXTRON’s competitive advantage and future success depend on its abilityto:
|  | · |   | successfully develop new products and technologies; |
|--|--------|--------|-----------------------------------------------------|

 
|  | · |   | develop new markets for its products and services; |
|--|--------|--------|----------------------------------------------------|

 
|  | · |   | introduce new products to the marketplace in a  timely manner; |
|--|--------|--------|----------------------------------------------------------------|

 
|  | · |   | qualify new products with its customers; and |
|--|--------|--------|----------------------------------------------|

 
|  | · |   | commence and adjust production to meet customer  demands. |
|--|--------|--------|-----------------------------------------------------------|

 

***AIXTRON’s competitors may have greater resources thanAIXTRON, or may otherwise be better suited to compete in the Company’s markets,and AIXTRON’s failure to compete successfully with these companies wouldseriously harm its business.***

Some of AIXTRON’scompetitors have greater financial, engineering, manufacturing and marketingresources than the Company does.  Inaddition, AIXTRON faces competition from smaller emerging equipment companieswhose strategy is to provide a portion of the products and services that theCompany’s semiconductor equipment business offers, using innovative technologyto sell products into specialized markets. New product introductions or enhancements by AIXTRON’s competitors couldcause a decline in revenues or loss of market acceptance of its existingproducts.  Increased competitive pressurecould also lead to intensified price competition resulting in lower margins.  The Company’s failure to compete successfullywith these other companies would seriously harm its business.

***AIXTRON faces lengthy sales and qualification cycles for itsproducts and, in many cases, must invest a substantial amount of time and fundswith no assurance that these efforts or expenditures will result in revenues.***

Revenues from AIXTRON’ssystems primarily depend upon the decision of a prospective customer to investin or upgrade its manufacturing capabilities, which typically involves asignificant capital commitment by the customer. Customers usually place orders with AIXTRON between three to ninemonths, or longer, after the Company’s initial contact with them regarding aparticular system. AIXTRON often experiences delays in obtaining system orderswhile customers evaluate and receive internal approvals for the purchase ofthese systems.  These delays may includethe time necessary to plan, design or complete a new or expanded semiconductorfabrication facility.  Due to thesefactors, the Company expends substantial funds as well as marketing andmanagement efforts to sell its semiconductor production systems.  These expenditures and efforts may not resultin revenues.

In order to expand itsmaterials production capabilities, the Company has dedicated a number of itssystems to the manufacture of wafers and devices.  At any given time, some of AIXTRON’s productsare being tested to determine whether they meet customer or industryspecifications.  During such aqualification period, AIXTRON invests significant resources and dedicatessubstantial production capacity to the manufacture of these new products, priorto any commitment to purchase by the prospective customer and withoutgenerating significant revenues from the qualification process.

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If AIXTRON was unable tomeet these specifications or does not receive sufficient customer orders toprofitably use the dedicated production capacity, its business, financialcondition, results of operations and cash flows could be materially andadversely affected.

AIXTRON’s future budgetsfor operating expenses, capital expenditures, operating leases and servicecontracts are based upon the Company’s assumptions as to the anticipated marketacceptance of its products.  If AIXTRON’sproducts do not meet the expected customer demand, the Company’s business,financial condition, results of operations and cash flows could be materiallyand adversely affected.

***AIXTRON’s quarterly operating results fluctuatesignificantly, which may cause the market price of its ordinary shares and itsADSs to increase or decrease significantly.***

AIXTRON has historicallyexperienced significant fluctuations in its quarterly operating results and theCompany anticipates that such fluctuations will continue.  AIXTRON’s results may vary significantlydepending on a number of factors, including:
|  | · |   | changes in the semiconductor market environment; |
|--|--------|--------|--------------------------------------------------|

 
|  | · |   | changes in regulations affecting the semiconductor  industry; |
|--|--------|--------|---------------------------------------------------------------|

 
|  | · |   | changes in the mix or cost of its products and  services; |
|--|--------|--------|-----------------------------------------------------------|

 
|  | · |   | the timing of the introduction or acceptance of new  products and services offered by AIXTRON or its competitors; and |
|--|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

 
|  | · |   | exchange rate fluctuations, in particular between  the euro, the U.S. dollar and the pound sterling. |
|--|--------|--------|------------------------------------------------------------------------------------------------------|

 

In addition, the Companyderives a substantial portion of its revenues in any fiscal period from thesale of a relatively small number of high-priced systems.  As a result, the timing of recognition ofrevenue for a single transaction could have a material effect on total revenuesand operating results for a particular reporting period.  A delay of only a week or two can often shiftthe related realization of revenues into the next quarter, which couldadversely affect the Company’s ability to meet expectations.  In addition, customers at times attempt tocancel or reschedule orders, even when not permitted to do so under thecontractual terms of the purchase order.

As stated above, AIXTRONhas experienced long and unpredictable sales cycles.  The timing of an order often depends on thecapital expenditure budget cycle of customers. In addition, the time it takes the Company to build a product tocustomer specifications, which the Company refers to as the build cycle,typically ranges from four to nine months, followed in certain cases by aperiod of customer acceptance during which the customer evaluates theperformance of AIXTRON’s system and may potentially reject its system.  As a result of the build cycle and evaluationperiods, the period between a customer’s initial purchase decision and revenuerecognition on an order often varies widely, and variations in length of thisperiod can cause further fluctuations in operating results.

The factors describedabove, together with the cyclical nature of the semiconductor industry, couldcause the market price of AIXTRON’s ordinary shares and its ADSs to fluctuatesignificantly.

***AIXTRON’s business is exposed to the risksof operating an international business.***

AIXTRON’s business hasoperations located in many countries throughout the world to support theCompany’s sales and services to the global semiconductor industry. Managinginternational operations located in many countries throughout the worldpresents complex management challenges. These challenges may make it moredifficult for AIXTRON to implement business strategies and enforce centralizedbusiness processes and controls across its enterprise.

***AIXTRON is highly dependent on international revenues,particularly revenues from Asian countries.***

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Revenues outside ofEurope accounted for 87.05 % of the Company’s total revenues for the yearended December 31, 2006, versus 84.18 % for the year endedDecember 31, 2005, and 90.26 % of total revenues for the year endedDecember 31, 2004.  Revenues from AIXTRON’sAsian-based customers accounted for 78.76 % for the year ended December31, 2006, versus 73.91 % of total revenues for the year ended December 31,2005, and 77.21 % of total revenues for the year ended December 31, 2004.  AIXTRON anticipates that internationalrevenues, including revenues from Asia, will continue to account for asignificant portion of its revenues.  Asa result, a significant portion of the Company’s revenues will be subject torisks, including:
|        | • |   | unexpected changes in foreign law or regulatory  requirements; |
|--------|--------|--------|----------------------------------------------------------------|
|   |   |   |                                                           |
|   | • |   | exchange rate volatility;                                      |
|   |   |   |                                                           |
|   | • |   | tariffs and other trade barriers;                              |
|   |   |   |                                                           |
|   | • |   | political and economic instability;                            |
|   |   |   |                                                           |
|   | • |   | military confrontation;                                        |
|   |   |   |                                                           |
|   | • |   | difficulties in accounts receivable collection;                |
|   |   |   |                                                           |
|   | • |   | extended payment terms;                                        |
|   |   |   |                                                           |
|   | • |   | difficulties in managing distributors or  representatives;     |
|   |   |   |                                                           |
|   | • |   | difficulties in staffing its subsidiaries;                     |
|   |   |   |                                                           |
|   | • |   | difficulties in managing foreign subsidiary  operations; and   |
|   |   |   |                                                           |
|   | • |   | potentially adverse tax consequences.                          |

 

Wherever currencydevaluations occur abroad, AIXTRON’s products become more expensive for itscustomers in that country.  In addition,difficult economic conditions may limit capital spending by the Company’scustomers.  These circumstances may alsoaffect the ability of AIXTRON’s customers to meet their payment obligations,resulting in cancellations or deferrals of existing orders and the limitationof additional orders.

***Exchange rate fluctuations, in particular between the euro,the U.S. dollar and the pound sterling, could adversely affect AIXTRON’sability to price its products competitively and its operating results.***

The Company’s operationsare conducted by entities in many countries and a substantial portion of itssales and productions costs are denominated in currencies other than the euro.As a result, fluctuations between the value of the euro and other majorcurrencies, in particular the U.S. Dollar and the pound sterling, may affectthe Company’s operating results. While AIXTRON has taken steps to reduce partof these currency exposures, including by entering into forward exchangecontracts to hedge the exchange rate risk arising on the export of equipment,AIXTRON is not able to completely eliminate the risk that fluctuations inforeign currencies will adversely affect its operating results.

Further details can befound in “Item 11, Quantitative and Qualitative Disclosure about Market Risk.”

***Because AIXTRON’s operating income is subject to taxation indiffering jurisdiction, the Company is exposed to a number of different taxrisks.***

Because AIXTRON operatesin a number of countries throughout the world, including the U.S., itsoperating income is subject to taxation in differing jurisdictions and atdiffering tax rates.  AIXTRON seeks toorganize its affairs in a tax efficient and balanced manner, taking intoaccount the applicable regulations of the jurisdictions in which itoperates.  As a result of the Company’smulti-jurisdictional operations, it is exposed to a number of different taxrisks, including tax risks related to: income tax, value added tax, payroll tax, social security tax, customsand excise duties, sales and use tax, U.S. state tax, withholding tax requirements,tax treaty interpretation, tax credits, permanent establishments, transferpricing on internal deliveries of goods and services (including benefit testsand requirements to prove the arm’s length character of internal transactions),loss carryforwards, multi-jurisdictional double taxation, acquisitions,dispositions, reorganizations, and internal restructurings.

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The tax authorities inthe jurisdictions in which AIXTRON operates may audit the Company’s tax returnsand may disagree with the positions taken in those returns.  An adverse outcome resulting from anysettlement or future examination of AIXTRON’s tax returns may subject theCompany to additional tax liabilities and may adversely affect its effectivetax rate which could have a material adverse effect on its financial position,results of operations and liquidity.  Inaddition, any examination by the tax authorities could cause AIXTRON to incursignificant legal expenses and divert the Company’s management’s attention fromthe operation of its business.

***AIXTRON is exposed to risks associated with acquisitions.***

AIXTRON has in the pastand may in the future undertake acquisitions of or significant investments in,other businesses with complementary products, services or technologies.  Acquisitions, or other significant investments,involve many risks, including:
|        | • |   | difficulties in integrating the operations,  technologies, products and personnel of acquired companies;                                                           |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                               |
|   | • |   | lack of synergies or the inability to realize  expected synergies and cost-savings;                                                                                |
|   |   |   |                                                                                                                                                               |
|   | • |   | revenue and expense levels of acquired entities  differing from those anticipated at the time of the acquisitions;                                                 |
|   |   |   |                                                                                                                                                               |
|   | • |   | difficulties in managing geographically dispersed  operations;                                                                                                     |
|   |   |   |                                                                                                                                                               |
|   | • |   | the potential loss of key employees, customers and  strategic partners of acquired companies;                                                                      |
|   |   |   |                                                                                                                                                               |
|   | • |   | claims by terminated employees, shareholders of  acquired companies or other third parties related to the transaction;                                             |
|   |   |   |                                                                                                                                                               |
|   | • |   | the issuance of dilutive securities, assumption or  incurrence of additional debt obligations or expenses, or use of substantial  portions of AIXTRON’s cash; |
|   |   |   |                                                                                                                                                               |
|   | • |   | diversion of AIXTRON’s management’s attention from  normal daily operations of the business; and                                                    |
|   |   |   |                                                                                                                                                               |
|   | • |   | the impairment of acquired intangible assets as a  result of technological advancements, or worse-than-expected performance of  acquired companies.                |

 

AIXTRON may not besuccessful in addressing the risks that its past or future acquisitions maypresent and the Company may fail to realize the perceived benefits of suchacquisitions.

***AIXTRON is dependent on a limited number of suppliers andthe Company’s operating results could be harmed if it loses access to sourcesof materials or services.***

The systems that AIXTRONproduces are complex and require the Company to manufacture or obtain throughthird party sources many critical components. Many of these components are only available from a limited number ofsuppliers or, in some cases, a single supplier. Because of the cost of AIXTRON’s systems, the Company generally aims tokeep its inventories at minimum levels. Because AIXTRON often does not account for a significant part of itssuppliers’ business, the Company may not have access to sufficient capacityfrom these suppliers in periods of high demand. In addition, AIXTRON risks having important suppliers terminate productlines, change business focus or even go out of business.  If AIXTRON was required to change any of itssuppliers, it would be required to re-qualify each new supplier.  In the near term, the Company’s supplierqualification processes could prevent or delay component shipments, which couldin turn prevent the Company from delivering products to its customers in atimely manner.  AIXTRON estimates that itcould take approximately six to eighteen months to replace suppliers of certaincritical components used in its systems. In addition, in connection withthird-party manufacturing activities, it is possible that AIXTRON may encounterunforeseen technical complexities that it may be unable to resolve, or that theresolution of such complexities may lead to delays in the implementation ofthese third-party manufacturing activities.

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Although AIXTRON has notexperienced any material delays related to its suppliers in the last threeyears, any such delays would have a negative impact on its customer acceptance,and ultimately, to its ability to generate revenues.  In addition, AIXTRON generally does not havelong-term supply agreements with many of its suppliers.  Consequently, the Company could experiencesignificant price increases and may not be able to obtain replacementcomponents in a timely manner or at all. Such price increases would increase the cost of goods which couldadversely affect the Company’s gross margins and operating results.

***AIXTRON may increase production in anticipation of customerorders that may not materialize, which would negatively affect the Company’soperating results.***

AIXTRON schedulesproduction of its systems based upon order backlog and customercommitments.  Based on the complexity ofthe systems that AIXTRON produces, the Company must expend considerable effortsin hiring, training and retaining qualified manufacturing personnel.  AIXTRON has in the past experienced delays incustomer delivery schedules, as well as outright cancellations of orders.  As a consequence, the Company may incursignificant near term expenses for manufacturing capabilities that it may notbe able to fully utilize, which would negatively affect its gross margins andits profitability.  Moreover, industryanalysts evaluate AIXTRON’s backlog in determining the Company’sprospects.  If AIXTRON experiencessignificant reductions in its backlog as a result of cancellations or theCompany’s failure to obtain new orders, it could experience negative ratingsfrom analysts which could adversely impact the trading value of the Company’sstock.

***The semiconductor industry and AIXTRON’s operations arecharacterized by a high percentage of costs that are fixed or otherwisedifficult to reduce in the short-term, and by product demand that is highlyvariable and is subject to significant downturns that may adversely affect theCompany’s business, results of operations and financial condition.***

The semiconductorindustry and AIXTRON’s operations are characterized by high costs, such asthose related to facility construction and equipment, research and development,and employment and training of a highly skilled workforce, that are eitherfixed or difficult to reduce in the short-term. At the same time, demand for the Company’s products is highly variableand downturns have been experienced, often in connection with maturing productcycles and downturns in general economic market conditions.  These downturns have been characterized byreduced product demand, manufacturing overcapacity, high inventory levels anddecreased average selling prices.  Thecombination of these factors may cause AIXTRON’s revenue, gross margin, cashflow and profitability to vary significantly both in the short-term and overthe long-term.

***AIXTRON’s businesses use potentially harmful chemicals andother hazardous materials.  AIXTRON issubject to environmental risks and regulations which could harm the Company’sresults of operations and financial condition.***

The Company’s researchand development activities, as well as the manufacturing and demonstration ofAIXTRON’s products, involve the use of potentially harmful chemical and otherhazardous or potentially hazardous materials and radioactive compounds. AIXTRONcannot completely eliminate the risk of contamination or injury from the use,storage, handling or disposal of these materials.  In the event of contamination or injury,AIXTRON could be held liable for damages that result, and any liability couldexceed the Company’s resources. AIXTRON is subject to the laws and regulationsof numerous jurisdictions governing the use, storage, handling and disposal ofthese materials and specified waste products. The Company’s cost of compliance with these laws and regulations includelocal, state and federal fees and costs related to the installation andmaintenance of safeguards to mitigate the risk of potential release ofhazardous materials (including equipment safeguards, such as scrubbers).  The amounts expended in compliance with theselaws and regulations to date have not had a material effect on the Company’scapital expenditures, earnings and competitive position.  However, if stricter laws were passed orapplicable environmental laws were more strictly enforced, AIXTRON may incursignificant additional capital expenditure to address compliance with such environmentallaws and regulations.

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Failure or inability tocomply with existing or future environmental regulations could result insignificant remediation liabilities, the imposition of fines and/or thesuspension or termination of production, each of which could materially andadversely affect the Company’s business, financial condition, results ofoperations and cash flows.

***AIXTRON is exposed to the risk that third parties mayviolate the Company’s proprietary rights or accuse the Company of infringing upontheir proprietary rights.***

AIXTRON’s success in themarkets in which it operates may depend on its ability to operate withoutinfringing the intellectual property rights of others and to prevent othersfrom infringing the Company’s intellectual property rights.

There has beensubstantial litigation regarding patents and other intellectual property rightsin the semiconductor industry.  AIXTRONmay become a party to patent litigation or proceedings to determine its patentrights with respect to third parties, including, potentially, its customers.Interference  proceedings may benecessary to establish which party was the first to discover certainintellectual property.  AIXTRON may alsobecome involved in patent litigation against third parties to enforce theCompany’s patent rights, to invalidate patents held by third parties, or todefend against similar claims by others. The cost to AIXTRON of any patent litigation or similar proceeding couldbe substantial, and it may require significant management time.  Any patent infringement litigation may alsoadversely affect the Company’s ADS or ordinary share prices.  If infringement litigation against theCompany was resolved unfavorably, AIXTRON may be enjoined from providing someof its products or services, or the Company may be required to obtain a licensefrom a third party.  AIXTRON may not beable to obtain the requisite license on commercially acceptable terms at all,which could require the Company to cease selling systems that containinfringing technology until it can identify and implement subsystems that donot infringe on third party technology. AIXTRON may not be successful in developing non-infringing solutions andmay be prevented from selling its systems, which could result in a significantreduction in the Company’s revenues and a reduction in the value of itsordinary shares and ADSs.

***The Company’s competitive position may depend on its abilityto protect its intellectual property rights and trade secrets.  If AIXTRON was unable to protect such rightsand secrets, other companies may be able to compete more effectively againstit, and the Company’s business could suffer.***

AIXTRON’s success isdependent upon the protection of the Company’s proprietary rights.  In the high-tech industry, intellectualproperty is an important asset that is always at risk of infringement.  AIXTRON incurs costs to file for patents anddefend its intellectual property and AIXTRON relies upon the laws of Germanyand of foreign countries in which it develops, manufactures or sells itsproducts to protect its proprietary rights. However, there can be no assurance that these proprietary rights willprovide competitive advantages, or that other parties will not challenge,invalidate or circumvent these rights. Moreover, the laws of some foreign countries may not be as protective ofintellectual property rights as those in the United States, and mechanisms forenforcement of intellectual property rights may be inadequate.  Infringement upon the Company’s proprietaryrights by a third party could result in lost market and revenue opportunitiesfor AIXTRON.

AIXTRON relies on tradesecret protection for its confidential and proprietary information andprocedures.  AIXTRON currently protectsthis information and these procedures as trade secrets through recognizedpractices, including confidentiality agreements with employees, consultants,collaborators and customers.  Theseconfidentiality agreements may be breached, however, and AIXTRON may not haveadequate remedies for any breach.  Inaddition, these trade secrets may otherwise become known to, or beindependently discovered by, competitors. If AIXTRON’s trade secrets were to become known to, or be independentlydiscovered by, competitors, the Company’s competitive position and its businessmay be negatively impacted.

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#### ***Risks Relating to Holding AIXTRON’s ADSs and Ordinary Shares***

***You may be unable to enforce a judgment against AIXTRON ormembers of its Executive Board or Supervisory Board.***

AIXTRON is a stockcorporation organized under the laws of the Federal Republic of Germany.  Only one of the members of its Supervisory orExecutive Boards is currently a citizen or resident of the United States.  Substantially all of the assets of theseindividuals and most of the assets of the Company are located outside theUnited States.  As a result, it may notbe possible for you to enforce against AIXTRON judgments obtained in the UnitedStates.  You may also encounterdifficulties in connection with the enforcement in Germany of liabilities basedsolely upon United States laws in original actions or in actions for theenforcement of judgments of United States courts.

***You may have less access to information about AIXTRON andless opportunity to exercise your rights as a shareholder if you hold AIXTRON’sordinary shares through its ADSs.***

The rights and terms ofAIXTRON’s ADSs are designed to replicate, to the extent reasonably practicable,the rights applicable to the Company’s ordinary shares, for which there is noactive trading market in the United States. However, because of aspects of German law, the Company’s Articles ofAssociation and the contractual terms of the deposit agreement under whichAIXTRON’s ADSs are issued, your rights as a holder of ADSs will differ invarious ways from a shareholder’s rights, and you may be affected in otherways, including:

 
|        | • |   | you may not be able to participate in rights  offerings or dividend alternatives;                                                                                                                                                                                          |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                       |
|   | • |   | you may not receive copies of AIXTRON’s reports as  promptly as a holder of ordinary shares;                                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                       |
|   | • |   | you will be able to exercise voting rights only by  instructing the depositary how to exercise the voting rights of the shares  that underlie your ADSs, and due to logistical, timing and other issues, you  may not receive the opportunity to exercise a right to vote; |
|   |   |   |                                                                                                                                                                                                                                                                       |
|   | • |   | the deposit agreement may be amended by the Company  and the depositary, or may be terminated by AIXTRON or the depositary,  without your consent in a manner that could prejudice your rights; and                                                                        |
|   |   |   |                                                                                                                                                                                                                                                                       |
|   | • |   | the deposit agreement limits AIXTRON’s obligations  and liabilities and those of the depositary.                                                                                                                                                                      |

 

***As a holder of AIXTRON’s ADSs you may have fewer or lesswell-defined shareholders’ rights compared to a holder of common stock of aU.S. company.***

AIXTRON’s corporateaffairs are governed by its Articles of Association (Satzung) and Germanlaw.  German law is generally lessspecific than U.S. law in terms of governance of corporate operations.  Under German law, as a holder of AIXTRON’sADSs you may have fewer or less well-defined rights than you would as ashareholder of a U.S. company.  Forexample, a shareholder of a U.S. corporation may institute lawsuits on behalfof the corporation and class actions.  InGermany the company must assert claims for damages against members of theExecutive Board or the Supervisory Board upon a respective shareholders’resolution requiring a simple majority of the votes cast.  Moreover, in Germany, shareholders whoseshares represent 1 % or a proportional amount of € 100,000 of the statedshare capital of the stock corporation may apply in court for authorization toassert claims for damages of the Company against members of the Executive Boardand/or the Supervisory Board in their own name. However, the Company may at any time assert its claims for damages onits own behalf; in such case any pending authorization or court proceedinginitiated by a shareholder of the Company related to the same claims fordamages will then be inadmissible.  As aresult, a shareholder of a German stock corporation may not be able to protecthis or her interest in the shares as well as a shareholder of a U.S.corporation could.

***AIXTRON may in the future be considered a passive foreigninvestment company.***

The United StatesInternal Revenue Code contains special rules relating to passive foreigninvestment companies (“PFICs”).  A UnitedStates holder who owns stock in a PFIC is generally subject to adverse taxconsequences under these rules.  Theserules do not apply to non-United States holders.  A company is treated as a PFIC if at least75 % of the company’s gross income for a taxable year consists of “passiveincome,” defined generally as income from passive investments, as opposed tooperating income.  A company is alsotreated as a PFIC if the average percentage of the value of its assets,including cash balances, that produce or are held for the production of passiveincome is at least 50 %.

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While AIXTRON believesit is currently not a PFIC, because a company’s status as a PFIC is a complex,factual determination made on an annual basis, there can be no assurance thatthe Company will not become a PFIC in the future.  The Company will explain in more detail thePFIC rules and their consequences to United States holders under “Item 10Additional Information — Taxation.”

If AIXTRON wasclassified as a PFIC, unless a U.S. holder made a timely specific election, aspecial tax regime would apply to any “excess distribution,” which would besuch holder’s share of distributions in any year that are greater than125 % of the average annual distributions received by such holder in thethree preceding years or such holder’s holding period, if shorter; and any gainrealized on the sale or other disposition of the ADSs.  Under this regime, any excess distributionand realized gain would be treated as ordinary income and would be subject totax as if the excess distribution or gain had been realized ratably over suchholder’s holding period for the ADSs.  AU.S. holder will generally be required to pay taxes on the amount allocated toa year at the highest marginal tax rate and pay interest on the prior year’staxes.  Such U.S. holder may be able toameliorate the tax consequences somewhat by making a mark-to-market election or“QEF election”, which is an election to have AIXTRON treated as a qualifiedelecting fund for U.S. federal income tax purposes.  You should consult your tax advisor of theconsequences of AIXTRON’s classification as a PFIC.

***Because AIXTRON is not obligated tocontinue to have its ADSs quoted on the NASDAQ Capital Market beyond eighteenmonths after the closing of the AIXTRON, Inc. acquisition, your ability totrade the ADSs may be eliminated in the future, and the market prices of theCompany’s ADSs and ordinary shares may be negatively affected and it may becomemore difficult to sell the ordinary shares.***

Because AIXTRON is notobligated to continue to have the ADSs quoted on the NASDAQ Capital Market fora prolonged period, some United States holders of AIXTRON’s ADSs may beprohibited from or disinclined to own shares of companies that may have notrading market inside the United States. This may result in the sale of ADSs received in the acquisition of Genusor the underlying ordinary shares, which could adversely affect the marketprice for the ADSs and ordinary shares. In addition, if the ADSs are no longer quoted on the NASDAQ CapitalMarket, there can be no assurance that a market will develop for the ADSs andit will be more difficult for a United States holder to sell the underlyingordinary shares outside the United States.

***Identification of deficiencies or weaknesses in AIXTRON’sinternal control over financial reporting may have an adverse impact on theCompany’s financial condition and results of operations and the trading priceof its securities.***

Commencing with AIXTRON’sannual report for the fiscal year ended December 31, 2006, the Company’smanagement is required to prepare a report relating to its evaluation of theCompany’s internal control over financial reporting, as required pursuant toSection 404 of the U.S. Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).AIXTRON intends to take prompt measures to eliminate any identifieddeficiencies or weaknesses in the Company’s internal control structure.  Such measures may involve significant effortand expense.  Depending on the nature andextent of any identified deficiency or weakness, AIXTRON could be required torestate previously issued financial statements. Any of such actions may have an adverse impact on the Company’sfinancial condition and results of operations and the trading price of itssecurities.

19

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## **Item 4:  Information on the Company**

### **A.History and Development of the Company**

AIXTRONAktiengesellschaft was incorporated as a German limited liability corporationin 1983 and converted to a stock corporation under the laws of the FederalRepublic of Germany in 1997.  AIXTRON is headquarteredin Aachen, Germany and has wholly-owned subsidiaries in Germany, the UnitedKingdom, Japan, South Korea, Sweden, Taiwan and the United States.  AIXTRON’s principal executive office islocated at Kackertstrasse 15-17, D-52072 Aachen, Germany, and the Company’stelephone number there is 011-49-241-8909-0.

#### ***Important Events***

***Acquisition ofGenus***

On July 2, 2004 AIXTRONannounced its intention to acquire Genus. Genus, which is based in Sunnyvale, California, supplies chemical vapordeposition (“CVD”) and atomic layer deposition (“ALD”) technologies, which arerequired in the production of advanced semiconductors and hard diskdrives.  At an Extraordinary Meeting ofAIXTRON’s shareholders on September 30, 2004, the Company’s shareholdersapproved the amendment of the Company’s Articles of Association.  This amendment authorized the ExecutiveBoard, with the approval of the Supervisory Board, to increase the capitalagainst contribution in kind in order to effect the Genus transaction.  The approval of this amendment required theaffirmative vote of more than 75 % of the Company’s ordinary sharespresent.  Following this shareholdermeeting, four dissenters filed contestation claims with the local court inAachen against adoption of the resolution. By way of a court approved settlement, these plaintiffs withdrew theircomplaints.  The resolution of theextraordinary meeting of shareholders was subsequently registered in thecommercial register on January 3, 2005.

The ordinary sharesunderlying the American Depositary Shares (“ADSs”) issued in the transactionwere registered with the United States Securities and Exchange Commission (the “SEC”)on AIXTRON’s Registration Statement on Form F—4 (Regis. No. 333-122624),declared effective on February 8, 2005.  On March 10, 2005, the Genus shareholdersapproved the merger pursuant to the laws of the State of California through theaffirmative vote of holders of more than 50 % of the issued andoutstanding shares of Genus.

On March 12, 2005,AIXTRON’s Executive Board resolved, with the approval of the Company’sSupervisory Board, to increase its authorized share capital by issuing24,967,885 ordinary shares against all issued and outstanding Genus shares ascontribution in kind pursuant to the merger. As a result, Genus shareholders received 0.51 of the Company’s ADSs foreach Genus common share.  Each ADSrepresents one of AIXTRON’s ordinary shares. AIXTRON registered this capital increase with the commercial register onMarch 14, 2005. The Frankfurt Stock Exchange’s admission authority authorizedthe registration of the new shares to the regulated securities market of theFrankfurt Stock Exchange with a resolution of March 14, 2005. See “Item 9.  The Offer and the Listing — Trading Markets”and “— Market Price Information.”  Uponconsummation of the transaction, AIXTRON’s historic, pre-merger shareholdersheld approximately 72 % and the former shareholders of Genus heldapproximately 28 % of AIXTRON, taking into consideration all ADSs issuedas part of the transaction.  Based on theaverage market value of the Company’s ordinary shares during a period of twodays before and after the merger agreement, the purchase price amounted to €92.1 million.

On March 14, 2005,4,427,929 of the new ADSs were transferred to a trust in order to serve theemployee stock option program of Genus, and to cover both convertible bonds andwarrants issued by Genus.  In accordancewith IFRS, AIXTRON’s financial statements show the shares held in this propertytrust as its own shares, which are deducted from the share capital.  In August 2005, 2,383,920 shares were issuedto the owners of Genus’ convertible bonds. In the third quarter 2005, 41,226 ADSs from this property trust wereissued to employees for exercised share options.

AIXTRON completed theGenus merger on March 14, 2005. On March 15, 2005, the AIXTRON Group’s (definedas parent company AIXTRON AG and its subsidiaries, listed in Note 34 to theConsolidated Financial Statements incorporated by reference to Item 18, inwhich AIXTRON AG has 100 % direct or indirect shareholding or which can becontrolled by AIXTRON AG) ADSs started trading on the NASDAQ in the UnitedStates under the ticker symbol AIXG. Genus changed its name to AIXTRON, Inc. inMay 2006, although it continues to trade under the name “Genus.”

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***Amendmentsto AIXTRON’s Articles of Association***

At AIXTRON’s ordinaryshareholders’ meeting on May 11, 2006, the Company’s shareholders approvedamendments to §§ 19, 20, and 21 of AIXTRON’s Articles of Association:

*A. Resolutionon the amendment of § 19 (Calling of General Meetings) and § 20 (Attendance ofGeneral Meetings) of the Articles of Association:*

As a result of the German Act on Corporate Integrity andModernization of the Right of Rescission (Gesetz zur Unternehmensintegrität undzur Modernisierung des Anfechtungsrechts (the “UMAG”)) which entered into forceon November 1, 2005, among other things, the statutory provisions governing thecalling of general meetings and attendance of general meetings have changed.

In accordance with these changes, general meetings must nowbe called at least thirty days in advance of the date of the respectivemeeting. The Articles of Association may determine that attendance of thegeneral meeting or the exercise of voting rights shall require a notice ofattendance from the shareholder which must be given prior to the date of the respectivegeneral meeting. With respect to bearer shares, the Articles of Association mayadditionally determine how shareholders must evidence that they are entitled toattend the general meeting and to exercise their voting rights.

The following amendments to the Articles of Associationwere made:
|        | a)       |                                                                                                                                                                                                                                                                                                                                                     | § 19 sentence 2 of the Articles of Association  (Calling of General Meetings) is hereby amended and shall read as follows:                                                      |   |
|--------|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |     |                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                 |   |
|   |     |                                                                                                                                                                                                                                                                                                                                                     | “General meetings shall be called at least thirty  days in advance of the day by the end of which the shareholders must have  given notice of attendance (§ 20 (1)).” |   |
|   |     |                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                 |   |
|   | b)       |                                                                                                                                                                                                                                                                                                                                                     | § 20 of the Articles of Association (Attendance of  General Meetings) is hereby amended   and shall read as follows:                                                            |   |
|   |     |                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                 |   |
|   | “1. | Those shareholders who have given notice of  attendance not later than by the end of the seventh day prior to the date of  the respective general meeting shall be entitled to attend such general  meeting and to exercise their voting rights. Notice of attendance must be in  text form and may be given in German or English.                       |
|   |     |                                                                                                                                                                                                                                                                                                                                                     |
|   | 2.       | In addition, the shareholders must evidence that  they are entitled to attend the general meeting and to exercise their voting  rights. This shall require submission by the shareholders of proof of their  shareholding in text form issued by the bank which keeps their securities  account. Such proof may be submitted in German or English.” |
|        |          |                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                      |        |  |

 

*B. Resolutionon the amendment of § 21 (Presiding Over General Meetings) of the Articles ofAssociation:*

As a result of the UMAG, among other things, the statutoryprovisions governing the course of general meetings have changed. In accordancewith these changes, the Articles of Association may empower the personpresiding over the general meeting to limit the right of shareholders to speakand to ask questions to an appropriate amount of time.

The following amendment to the Articles of Association wasmade:

In § 21 of the Articles of Association (Presiding overGeneral Meetings), a new subsection 3 was added as follows:
|   | “3. | The person presiding over the general meeting may  limit the right of shareholders to speak and to ask questions, to an  appropriate amount of time. Specifically the person presiding over the general  meeting may determine an appropriate time frame for the course of the entire  general meeting, for individual items on the agenda and for questions and  contributions by the shareholders.” |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The amendments toAIXTRON’s Articles of Association were registered in the commercial register onMay 18, 2006.

*** ***

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***Researchand Development***

For significant researchand development events during the financial year, see “Item 5.  Operating and Financial Review and Prospects —Research and Development, Patents and Licenses, etc.”

#### ***Capital Expenditures***

During 2006, AIXTRON had€ 2.4 million in capital expenditures, of which€ 2.2 million were related to purchases of technical equipment(including testing and laboratory equipment) and € 0.2 million wererelated to intangible assets. Additionally, bank deposits totaling € 2.8 million with amaturity of six months had to be recorded as cash outflow from investing activities.During 2005, AIXTRON had € 12.0 million in capital expenditures,primarily related to purchases of technical equipment built in-house totaling€ 8.3 million (including testing and laboratory equipment) and costsrelated to the acquisition of Genus totaling € 3.6 million.  During 2004, AIXTRON had € 6.4 million incapital expenditures, primarily related to the acquisition of the remaininginterests of Epigress AB and AIXTRON KK totaling € 2.0 million andcapital expenditures for fixed assets and intangible assets totaling€ 4.4 million.  All of theseexpenditures during 2006, 2005, and 2004 were funded out of operating cash flowand available cash resources.

### **B.Business Overview**

#### ***Technology***

AIXTRON is a leadingprovider of deposition equipment to the semiconductor industry.  The Company’s technology solutions are usedby a diverse range of customers worldwide to build advanced components forelectronic and opto-electronic applications based on compound, silicon ororganic semiconductor materials.  Suchcomponents are used in fiber optic communication systems, wireless and mobiletelephony applications, optical and electronic storage devices, computing,signaling and lighting, displays, as well as a range of other leading-edgetechnologies.  More than 400 customersworldwide use the Company’s technology. To date over 1,500 AIXTRON systems have been installed worldwide.

Compound semiconductorsare complex synthetic material structures composed of several chemical elementsgrown on a substrate.  The substrate is aprimary base material on which structures are developed to create semiconductordevices. The Company’s compound semiconductor systems are principally used inthe growth of periodic table group III and group V compounds for numerouscompound semiconductor applications, including optical and electronic devices,such as light emitting diodes (LEDs), lasers, transistors, and logicstructures, and are used in a variety of end applications including lighting,displays, memory, and microprocessor devices, data transmission, mobiletelephony and solar cells.  As an exampleof market positioning, AIXTRON’s Compound Semiconductor production systems arethe recognized market leading technology for growing gallium nitride-basedmaterial device structures.  AIXTRON’sMetal Organic Chemical Vapor Deposition (“MOCVD”) systems are also capable ofdepositing a wide variety of other materials onto a substrate on an atomicscale.

In a productionenvironment, a chemical reaction takes place within a vacuum chamber, known asa reactor platform, and consequently ultra-thin material layers are grown in acrystalline structure on a wafer.  Thechemical composition and sequence of the layers are pre-determined by thedesired architecture of the chip or component, which will subsequently beproduced from the compound semiconductor. The precursors, or primary materials, used to produce the periodic tablegroup III and group V semiconductors by MOCVD are typically eitherorganometallic or hydride group V molecules combined with organometallic groupIII molecules.  During the depositionprocess onto a heated substrate, the molecules decompose, often in a verycomplex manner, to produce the compound materials needed for formation of thedesired semiconductor device.  Morecomplex device structures can consist of more than 100 layers with differentmaterial composition and physical properties and require deposition precisioncontrol down to the atomic scale.  Theability to manage the deposition of new complex, compound materials with atomiclevel accuracy is increasingly essential for the microelectronics and displayindustries to meet the current trends and demands required in microelectronicsand photonics:  higher performance,higher speed, smaller devices and lower energy consumption.

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As well as being theworld’s leading manufacturer of MOCVD equipment for the Compound Semiconductormarket, the Company has begun, in recent years, the process of diversifyinginto other next-generation technologies and markets. These opportunitiesinclude silicon wafer production applications, employing technologies such as:Chemical Vapor Deposition (“CVD”), Atomic Vapor Deposition (or “AVD®”) and Atomic Layer Deposition (“ALD”). The potentialSilicon Semiconductor end market applications include memory and complex logicdevices as well as data storage and MEMS devices.

AIXTRON is alsodeveloping equipment for an Organic Vapor Phase Deposition (or “OVPD®”) technology for organic light emitting diodes (or “OLED”)applications. OLEDs are increasingly being used in new high-performance smalldisplay products and are seen to have relevance to potential future largedisplay, lighting and solar applications in the future.

#### ***Products and Services***

AIXTRON’s products rangefrom customized production-scale chemical vapor deposition systems capable ofdepositing material films on up to 95 two-inch diameter compound semiconductorwafers or 300 mm silicon semiconductor wafers per single production run, tosmall systems for research and development use and small-scale production.  AIXTRON also offers a full range of peripheralequipment and services, including products capable of monitoring theconcentration of gases in the air and of cleaning the exhaust gas from metalorganic chemical vapor deposition processes. AIXTRON assists its customers in designing the production layouts oftube piping and switching devices for the gas supply to thin film depositionsystems, through to a full installation service of “clean room” laboratories(laboratories with reduced particle counts per volume).  Additionally, AIXTRON offers its customersprocess technology, training and consulting services.

Demand for AIXTRON’sproducts is driven by the increasing miniaturization, increased processingspeed and efficiency, and reduced cost of ownership demands for microelectroniccomponents.  The ability of AIXTRON’sproducts to precisely deposit thin film materials and the ability to controlcritical surface dimensions in these components enables semiconductormanufacturers to improve precision performance, yield, and quality in thefabrication of advanced microelectronic devices.

Addressing threestrategic customer market applications — Compound, Silicon, and OrganicSemiconductor Materials — AIXTRON provides customers with technologies for themanufacture of a wide variety of devices:

*Compound Semiconductors:*
|        | • |   | LEDs for lighting, signaling, and outdoor giant  screens                                                                                                                                                                                                   |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                       |
|   | • |   | Optoelectronic devices such as photo diodes, lasers,  or modulators for telecom/datacom applications                                                                                                                                                       |
|   |   |   |                                                                                                                                                                                                                                                       |
|   | • |   | Laser devices for consumer electronics such as  compact discs (“CDs”), digital versatile discs (“DVD”), including next  generation technology such as High Definition DVD (“HD DVD”) and “Blu-Ray”  DVD technology |
|   |   |   |                                                                                                                                                                                                                                                       |
|   | • |   | High-frequency devices, such as Hetero Bipolar  Transistors (“HBTs”) and High Electron Mobility Transistors (“HEMTs”), for  wireless datacom applications                                                                              |
|   |   |   |                                                                                                                                                                                                                                                       |
|   | • |   | Silicon Carbide (“SiC”)-based Schottky diodes for  high-power and high temperature applications                                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                       |
|   | • |   | Solar cell technology                                                                                                                                                                                                                                      |

 

*SiliconSemiconductors:*
|  | • |   | Metal and oxide films for Complementary Metal-Oxide  Semiconductors (“CMOS”) gate stacks used in logic and memory Integrated  Circuits (“ICs”) |
|--|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|        | • |   | Metal and oxide films for capacitor structures as  used in Dynamic Random Access Memory (DRAM) and Ferro-Electric Random Access  Memory (“FeRAM”) ICs     |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                |
|   | • |   | Silicon Germanium (“SiGe”) and Strained Silicon  epitaxial layers for high-performance CMOS logic ICs                                                     |
|   |   |   |                                                                                                                                                                |
|   | • |   | MEMS (“Micro-Electro-Mechanical Systems”) for the  integration of mechanical elements, sensors, actuators, and electronics on a  common silicon substrate |
|   |   |   |                                                                                                                                                                |
|   | • |   | Thin Film Heads (“TFH”), i.e. read-write sensors used  in computer and hard disk drives                                                                   |

 

*Organic Semiconductors:*
|        | • |   | OLEDs for Flat Panel and Flexible Display  applications                                                                                                      |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                         |
|   | • |   | OLEDs for solid state lighting and signage  applications                                                                                                     |
|   |   |   |                                                                                                                                                         |
|   | • |   | Organic transparent thin film solar cells                                                                                                                    |
|   |   |   |                                                                                                                                                         |
|   | • |   | Electronic semiconductor structures (plastic  electronics) for applications in Flexible Displays, Radio Frequency  Identification Devices (“RFID”) |

 

Customers manufacturedevices on AIXTRON’s state-of-the-art equipment that are largely destined forend-user applications such as datacom/telecom, consumer electronics,automotive, for industrial products, and, since the Genus acquisition;computing and data storage.

AIXTRON’s ServiceOrganization provides a full range of customer services, from the initialcustomized development of an AIXTRON system through to the final installationand ongoing operational support of a system. The AIXTRON Group’s onsiteapplication laboratories in Aachen, Germany and Sunnyvale, California areequipped for leading edge research and development and are utilized for thedevelopment of customized solutions for the Company’s customers.  AIXTRON’s service managers, process engineersand service technicians also provide systems consulting as well as installationand process support services. AIXTRON’s standard service program includesservice and support for warranty work, routine field service, expert processsupport, preventative maintenance contracts, spare part stocking at variouslocations worldwide and a 24-hour, seven-days-a-week technical support line.

The following tablesummarizes the systems technologies AIXTRON offers to its customers:

 
| **Material**                         | ** ** | **Compound   Semiconductors**                                                                                                                                                                                                       | ** ** | **Organic   Semiconductors**                                                                                                                                       | ** ** | **Silicon   Semiconductors**                                                                                                                                                                                                                                            |
|--------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Systems Technology**               |       | MOCVD                                                                                                                                                                        |       | OVPD®                                                                                                                                                         |       | CVD  ALD  AVD®                                                                                                                                                                                                                                                     |
| ** **                           |       |                                                                                                                                                                                                                                |       |                                                                                                                                                               |       |                                                                                                                                                                                                                                                                    |
| **Systems**                          |       | Planetary Reactor   CCS Reactor   SiC Reactor                                                                                                                                                                                       |       | Gen1 Prototype   Gen1 R&D Tool  Gen2 Production Tool                                                                                                           |       | Lynx 3 CVD   Stratagem 300 ALD   Tricent® AVD®                                                                                                                                                                                                           |
| ** **                           |       |                                                                                                                                                                                                                                |       |                                                                                                                                                               |       |                                                                                                                                                                                                                                                                    |
| **Potential Applications / Devices** |       | LEDs  Optoelectronics (photo diodes, lasers, modulators for Telecom/Datacom)  Laser devices for consumer electronics (CDs, DVDs)  High-Frequency devices (HBTs, HEMTs) for wireless datacom  SiC based Schottky Diodes  Solar cells |       | OLEDs for  displays  OLEDs for solid state lighting  Organic transparent thin film solar cells  Electronic semiconductor structures for flexible displays and RFID |       | Metal and Oxide  films for   CMOS gate stacks  Metal and Oxide films for   capacitor structures in   DRAMs and FeRAMS  SiGe and SSi expitaxial   layers for CMOS  MEMS - Micro Electronic Mechanical Systems  TFH - Thin Film Heads   for data storage hard disk drives |

 

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#### ***Seasonality***

AIXTRON’s business iscurrently not materially affected by seasonality.

#### ***Principal******Markets***

The supply of gas phasedeposition equipment is AIXTRON’s only reporting segment.  The Company markets and sells its productsworldwide, principally through its direct sales organization and appointedagents.

The following segmentinformation has been prepared in accordance with IAS 14 “Segment Reporting.”  As the Company has only one business segment,the segment information provided relates only to the Company’s geographicalsegments — this being secondary segment information.  For more information about AIXTRON’ssegments, see Note 3 to the Company’s Consolidated Financial Statements.

In presentinginformation on the basis of geographical segments, segments revenue is based onthe geographical location of customers. Segment assets are based on the geographical location of the assets.

Segment capitalexpenditure consists of the total additions to segment assets that are expectedto be used for more than one period.

The following tablesummarizes revenues for the significant geographical areas in which the Companyoperates, for each of the years ended December 31, 2006, 2005, and 2004.

#### ***Geographical******segments***

| in EUR thousands             | ** ** | ** **     | ** ** | **Asia**                | ** ** | **Europe**           | ** ** | **United States** | ** ** | **Consolidation** | ** ** | **Group**               | ** ** |
|----------------------------------------|------------|----------------|------------|-------------------------|------------|----------------------|------------|------------------------|------------|-------------------|------------|-------------------------|------------|
|                                   | ** ** | ** **     |       |                    |       |                 |       |                   |       |              |       |                    |       |
| Revenues realized with third  parties  |       | 2006 2005 2004 |       | 135,223 103,036 108,097 |       | 22,232 22,052 13,642 |       | 14,230  14,314  18,265 |       |              |       | 171,685 139,402 140,004 |       |
|                                   |       |           |       |                    |       |                 |       |                   |       |              |       |                    |       |
| Revenues realized with other  segments |       | 2006           |       | 15,671                  |       | 2,642                |       | 13,101                 |       | (31,414           | )          |                    |       |
|                                        |       | 2005           |       | 11,582                  |       | 1,055                |       | 6,311                  |       | (18,948           | )          |                    |       |
|                                        |       | 2004           |       | 4,905                   |       | 1,676                |       | 11,646                 |       | (18,227           | )          |                    |       |
|                                   |       |           |       |                    |       |                 |       |                   |       |              |       |                    |       |
| **Total segment revenues**             | ** ** | **2006**       | ** ** | **150,894**             | ** ** | **24,874**           | ** ** | **27,331**             | ** ** | **(31,414**       | **)**      | **171,685**             | ** ** |
|                                        | ** ** | **2005**       | ** ** | **114,618**             | ** ** | **23,107**           | ** ** | **20,625**             | ** ** | **(18,948**       | **)**      | **139,402**             | ** ** |
|                                        | ** ** | **2004**       | ** ** | **113,002**             | ** ** | **15,318**           | ** ** | **29,911**             | ** ** | **(18,227**       | **)**      | **140,004**             | ** ** |
|                                   |       |           |       |                    |       |                 |       |                   |       |              |       |                    |       |
| Segment assets                         |       | 2006           |       | 12,967                  |       | 231,370              |       | 91,158            |       | (132,530          | )          | 202,965                 |       |
|                                        |       | 2005           |       | 13,841                  |       | 214,775              |       | 98,795                 |       | (127,862          | )          | 199,549                 |       |
|                                        |       | 2004           |       | 5,798                   |       | 139,087              |       | 10,340                 |       | (30,209           | )          | 125,016                 |       |
|                                   |       |           |       |                    |       |                 |       |                   |       |              |       |                    |       |
| Segment capital  expenditures*         |       | 2006 2005 2004 |       | 202  308  171           |       | 1,953 10,213 5,202   |       | 700  93,262  57        |       |              |       | 2,855 103,783 5,430     |       |

 

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*Segment capital expenditures for the financial year 2005 also include theadditions resulting from the change in composition of the AIXTRON Groupcompanies.

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| **in EUR thousands**   | ** ** | **2006**    | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|----------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
|                             |       |        |       |        |       |        |       |
| Revenues for sale of  goods*     |       | 169,759     |       | 137,306     |       | 138,592     |       |
| Revenues for service  and repair |       | 1,926       |       | 2,096       |       | 1,412       |       |
|                             | ** ** | **171,685** | ** ** | **139,402** | ** ** | **140,004** | ** ** |

 

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*Revenues for the sales of goods in 2005 include revenues from bartertransactions in the amount of € 3,701 thousand.

The sale of equipment,including upgrades, comprised approximately 83 %, 81 % and 83 %of AIXTRON’s revenues in the years ended December 31, 2006, 2005, and 2004,respectively, with the remaining revenue relating to sales of spare parts andservices.

#### ***Raw******Materials******and******Manufacturing***

AIXTRON involvesitself principally in the final assembly stage of the production process, aswell as final equipment tuning and testing. The Company purchases most of its products’ components, sub-assembliesand assemblies from third-party suppliers. Its contractors and suppliers are selected and qualified to supplysource material, standard components, and tested and untested sub-assemblies.  AIXTRON typically has several suppliersqualified for each component or sub-assembly, however AIXTRON completes thefinal system assembly and product testing processes in house.

AIXTRON generallypurchases these components, sub-assemblies and assemblies on a purchase orderbasis and provides rolling forecasts to the suppliers of its future needs.  AIXTRON generally does not enter intocontractual commitments for future supply commitments.  The Company focuses its internal manufacturingefforts on the final assembly and test procedures to ensure the highest qualitystandards.  AIXTRON anticipates continuedreliance upon third party suppliers to achieve and contribute to manufacturingefficiency improvements.

AIXTRON’sprincipal manufacturing activities consist primarily of design, assembly,integration and test operations.  TheCompany has manufacturing sites in Aachen and Herzogenrath, Germany, inSunnyvale, California, and in Cambridge, United Kingdom.  Many of the development and productionprocesses are computerized.

#### ***Marketing******Channels***

AIXTRON sells its productsand services directly through strategically located sales and servicefacilities in Germany, the United States, the United Kingdom, Sweden, Japan,South Korea, China and Taiwan, as well as through independent sales and servicerepresentatives in India, Israel, Poland, Russia and Taiwan.  The relationships with these independentsales and service representatives are generally terminable at the Company’swill.  These arrangements typicallyrequire that AIXTRON reimburse the representatives for their business expensesas well as pay specified service rates or sales commissions, which vary bygeographic region.

#### ***Intellectual******Property***

AIXTRON’s successdepends in part on its proprietary technology. Although AIXTRON attempts to protect its intellectual property rightsthrough patents, copyrights, trade secrets and other measures, the Companycannot assure that its efforts to protect its technology will be adequate orthat competitors will not be able to develop similar technologyindependently.  Moreover, the success ofthe Company’s business depends to a significant extent on its employees’technical expertise, innovation, and experience.

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AIXTRON has patents andexclusive and non-exclusive licenses to patents owned by others coveringcertain of AIXTRON’s products, which AIXTRON believes provide the Company witha competitive advantage.  AIXTRON has apolicy of seeking patents on inventions concerning new products andimprovements as part of its ongoing research, development and manufacturingactivities.  AIXTRON is the licensee ofcertain patents owned by Philips, Centre National de la Recherche Scientifiqueand Universal Display Corporation which are critical to the Company’soperations in the fields of MOCVD, AVD® and OVPD®.  Under the terms of those licenses, AIXTRONsells epitaxial reactors that manage the layering of complex materials,produced by thin film deposition processes that enable the high precisionliquid injection, evaporation and gas phase deposition of metal organicmaterials required to produce photoelectric and electronic devices.  Similar principles are employed in the designof Organic Vapor Phase Deposition equipment for use in the manufacture oforganic light emitting devices. Management finds it impractical to quantify the portion of revenuesattributable to products that incorporate the technology governed by theseagreements because all product sales can be aggregated into one group basedupon the common technology.

AIXTRON secures itstechnology by patenting inventions and know-how, provided it is strategicallyexpedient to do so.  As of December 31,2006, 107 patent-protected inventions were in use, of which 6 were registeredin the reporting period.  Patentprotection for these inventions applies, although not exclusively, in the salesmarkets relevant for AIXTRON and within the regions of its main competitors’production locations, particularly in Europe as well as in Japan, South Korea,Taiwan and the United States.  Thesepatents are maintained and renewed annually and will expire between 2007 and2026.

#### ***Strategy******and******Competitive******Positioning***

AIXTRON is strategicallypositioned as one of the world’s leading manufacturers of state-of-the-artdeposition equipment for the production of complex materials for thesemiconductor industry:  CompoundSemiconductors (MOCVD equipment), Silicon Semiconductors (AVD®, ALD, CVD equipment) and Organic Semiconductors (OVPD® equipment).

*Systemsfor Compound Semiconductor Manufacturing*

AIXTRON’s maincompetitor in the market for MOCVD equipment is the Process Equipment Group ofVeeco Instruments Inc./USA. AIXTRON also competes with a number of Asianmanufacturers including Nippon Sanso/Japan and Nippon EMC/Japan, amongstothers. Based on market research by VLSI Research, Inc. it is estimated thatthe share of the MOCVD equipment market held by AIXTRON in 2005 was more than60 % (estimated 2005 total market value: US$ 156 million). The Company’sstrongest competitor in terms of sales, Veeco Instruments Inc., had anestimated market share of approximately 18 % for the same period. The Companyanticipates an estimated market share in excess of 60 % in the global MOCVDmarket for 2006, when next reported by VLSI.

*Systemsfor Silicon Semiconductor Manufacturing*

In the CVD, AVD® and ALD equipmentmarkets, AIXTRON mainly competes with a variety of other equipment companies.  These include Applied Materials, Inc./USA,Tokyo Electron, Ltd./Japan, ASM International N.V./Netherlands, VeecoInstruments Inc./USA, IPS Technology/South Korea, Jusung Engineering Co.,Ltd./South Korea, Aviza Technology, Inc./USA und Hitachi Kokusai Electric Co.,Ltd/Japan.

Based on market researchby VLSI Research, Inc. it is estimated that in 2005 AIXTRON held an approximate13 % share in the developing ALD systems market (total market value:  U.S.$ 127 million), an approximate 12 % shareof the established market for silicide CVD systems (total market value:  U.S.$ 210 million) and a share ofapproximately 48 % of the tungsten silicide CVD systems specifically sold toDRAM and NAND Flash memory chip manufactures (total market value:  approximately U.S.$ 55 million).

With the Company’scurrently available silicon semiconductor manufacturing technologies, AIXTRONis well positioned for the adoption of sub 75 nm memory and logic integratedcircuits (ICs). These technologies enable extremely high precision indepositing very thin material layers and facilitate the even coating of complexthree-dimensional microelectronic device structures. These technologies offerthe semiconductor industry new material coating possibilities for the nextgeneration of computer chips, and, in AIXTRON’s opinion, present highdevelopment potential for the future.

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*Systemsfor Organic Semiconductor Manufacturing*

In the market forOrganic Semiconductor equipment, AIXTRON competes with establishedmanufacturers such as Ulvac Inc./Japan, Tokki Corporation/Japan, AppliedMaterials, Inc./USA, Doosan DND Co., Ltd./South Korea, and Sunic System/SouthKorea as well as a number of smaller companies. While these competitors use established vacuum thermal evaporation (“VTE”)technology to produce organic light emitting diodes (OLEDs), AIXTRON offers toOLED manufacturers its own highly innovative organic vapor phase deposition(OVPD®) technology. As AIXTRON is currently inthe market entry phase, AIXTRON market share information is not meaningful atthis point.

In AIXTRON’s opinion,due to the superior process technology and the potential for reducingmanufacturing costs, OVPD® technology has the potential to competesuccessfully with VTE technology. AIXTRON is positioned as a key system supplier for next generationOLEDs, to be used in innovative, self-lumi­nous displays that have thepotential to replace today’s display technologies such as liquid crystaldisplays (LCDs) and plasma displays (PDPs) at some point in the future, inaddition to future lighting, solar cells, and electronic OLED technologies.

#### ***Government******Regulation***

Due to the nature ofAIXTRON’s products, the shipment of some products to customers in certaincountries requires the Company to obtain an export license from legal andstatutory authorities in the U.S., Germany, U.K. and Sweden, including, forexample, the Department of State and the Department of Commerce in the U.S.,the Bundesamt für Wirtschaft und Ausfuhrkontrolle (“BAFA”) in Germany, and theDepartment of Trade and Industry in the U.K. Although the applicable exportregulations have not had a material impact on the Company’s business to date,AIXTRON may experience delays in obtaining required export licenses, which inturn would cause delays in AIXTRON’s ability to sell its products and recognizerevenues from such sales.

AIXTRON is subject toenvironmental and safety regulations in connection with its businessoperations.  Research and developmentactivities, as well as the manufacturing and demonstration of the Company’sproducts, in both the Company’s compound semiconductor and siliconsemiconductor equipment businesses, involve the use of potentially harmfulchemical and hazardous materials and radioactive compounds.  Failure or inability to comply with existingor future environmental regulations could result in significant remediationliabilities, the imposition of fines and/or the suspension or termination ofproduction, each of which could materially and adversely affect AIXTRON’sbusiness, financial condition, results of operations and cash flows.

Because AIXTRON’ssecurities are publicly traded in the U.S., the Company is also subject to therules and regulations promulgated by the SEC, including those promulgated underthe Sarbanes Oxley Act of 2002.  Inaddition, AIXTRON is subject to the provisions of the U.S. Foreign CorruptPractices Act relating to the maintenance of books and records andanti-bribery.

EU regulation requiresthat AIXTRON prepare its consolidated financial statements in accordance withInternational Financial Reporting Standards (“IFRS”).  Note 40 to the Company’s ConsolidatedFinancial Statements for fiscal year 2006 contains a reconciliation of AIXTRON’sNet Income and Equity under IFRS to U.S. GAAP. See also “Item 5. Operatingand Financial Review and Prospects — Operating Results — European Union RegulationRegarding IFRS” below.

#### **C.Organizational Structure**

The following tablelists AIXTRON’s significant subsidiaries:

**SignificantSubsidiaries of AIXTRON AG (direct and indirect) as of December 31, 2006**
| **Name**                               | ** ** | **Jurisdiction of Incorporation** | ** ** | **Ownership Interest** |
|----------------------------------------|------------|-----------------------------------|------------|------------------------|
| ** **                             | ** ** | ** **                        | ** ** | ** **             |
| Thomas Swan  Scientific Equipment Ltd. |       | England and  Wales                |       | 100%                   |
| Epigress AB                            |       | Sweden                            |       | 100%                   |
| AIXTRON Korea  Co. Ltd.                |       | South Korea                       |       | 100%                   |
| AIXTRON KK                             |       | Japan                             |       | 100%                   |
| AIXTRON Taiwan  Co. Ltd.               |       | Taiwan                            |       | 100%                   |
| AIXTRON, Inc.*                         |       | California, USA                   |       | 100%                   |

 

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*trading as Genus, Inc.;formed upon the merger of former Genus, Inc. (“Genus”), Sunnyvale, California,USA and former AIXTRON Inc., Atlanta, Georgia, USA.

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### **D.Property, Plant and Equipment**

As of December 31, 2006,AIXTRON’s owned facilities used as headquarters and for manufacturing, researchand development, sales and service and engineering. The approximate size andthe uses of such facilities, were:
| **Owned Facility Location** | ** ** | **Approximate Size (sq. m.)** | ** ** | **Mortgaged** | ** ** | **Use**                                                       |
|-----------------------------|------------|-------------------------------|------------|---------------|------------|---------------------------------------------------------------|
| Aachen, Germany             |       | 7,260                         |       | No            |       | Headquarters, Manufacturing, Sales, Research and  Development |
| Herzogenrath, Germany       |       | 12,457                        |       | No            |       | Manufacturing, Sales and Service, Engineering                 |

 

AIXTRON additionallyleases certain office and plant facilities. Most of the lease commitments contain options to renew the leasingcontracts.  These leases typically runfor a period between one to fifteen years. None of the leases include contingent rentals.   The approximate size and the uses of suchfacilities were:
| ** **                   | ** ** | **Approximate Size** | ** ** | ** **           | ** ** | ** **                                                               |
|------------------------------|------------|----------------------|------------|----------------------|------------|--------------------------------------------------------------------------|
| **Leased Facility Location** | ** ** | **(sq. m.)**         | ** ** | **Lease Expires**    | ** ** | **Use**                                                                  |
|                         |       |                 |       |                 |       |                                                                     |
| Cambridge, UK                |       | 2,180                |       | September 13,   2014 |       | Manufacturing, Sales and Service, Engineering                            |
| Lund, Sweden                 |       | 449                  |       | December 31,   2008  |       | Engineering, Service                                                     |
| Sunnyvale, CA, USA           |       | 9,300                |       | December 31,   2012  |       | Manufacturing, Sales and Service, Engineering,  Research and Development |
| Seoul, South Korea           |       | 1,032                |       | August 31,   2010    |       | Sales and Service                                                        |
| Shanghai, China              |       | 282                  |       | July 9,   2008       |       | Representative Office                                                    |
| Hsinchu, Taiwan              |       | 1,000                |       | December 31,   2008  |       | Sales and Service                                                        |
| Tokyo, Japan                 |       | 311                  |       | March 31,   2008     |       | Sales and Service                                                        |

 

AIXTRON believes thatits current facilities are in good condition and are adequate to meet therequirements of its present and foreseeable future operations.

#### ***Environmental Issues***

The research anddevelopment activities, as well as the manufacturing and demonstration ofAIXTRON’s products conducted in some of its facilities, involve the use ofpotentially harmful chemical and other hazardous or potentially hazardousmaterials and radioactive compounds. Failure or inability to comply with existing or future environmentalregulations could result in significant remediation liabilities, the impositionof fines and/or the suspension or termination of production.

29

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## **Item4A:  Unresolved Staff Comments**

None.

 

30

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## **Item 5:  Operating and Financial Review and Prospects**

You should read thefollowing operating and financial review of AIXTRON’s results of operations andfinancial condition together with AIXTRON’s Consolidated Financial Statementsprepared in accordance with IFRS included elsewhere in this report.  A reconciliation of the Company’s 2004, 2005,and 2006 results in accordance with IFRS as adopted by the European Union toAIXTRON’s 2004, 2005, and 2006 results in accordance with U.S. GAAP is providedin Note 40 to the Company’s Consolidated Financial Statements.

The followingdiscussions include “forward-looking statements” that involve risks anduncertainties that are discussed more fully in “Risk Factors” and “Forward-lookingstatements notice” included in this annual report.  Actual results could differ materially fromfuture results expressed or implied by the forward-looking statements.

### **A.Operating Results**

#### ***Preparation of consolidated financial statements under IFRS***

Until 2004, AIXTRONprepared its Consolidated Financial Statements under generally acceptedaccounting principles in the U.S. (“U.S. GAAP”). Starting with fiscal year2005, AIXTRON has prepared its Consolidated Financial Statements in accordancewith IFRS and the interpretations adopted by the International AccountingStandards Board (the “IASB”).

#### ***Critical Accounting Policies***

The preparation ofAIXTRON’s Consolidated Financial Statements requires the Company to makecertain estimates, judgments and assumptions that the Company believes arereasonable based upon the information available.  These estimates and assumptions affect thereported amounts of assets and liabilities at the date of the Company’sConsolidated Financial Statements and the reported amounts of revenues andexpenses during the periods presented. The significant accounting policies that AIXTRON believes are the mostcritical to aid in fully understanding and evaluating its reported financialresults include the following:

*Revenue Recognition*

Revenue is generatedfrom the sale and installation of equipment, spare parts and maintenanceservices. The sale of equipment involves a customer acceptance test atAIXTRON ́s production facility. After successful completion of this test, theequipment is dismantled and packaged for shipment. Upon arrival at the customersite the equipment is reassembled and installed, which is a service generallyperformed by AIXTRON engineers. AIXTRON gives no general rights of return,discounts, credits or other sales incentives within its terms of sale. However,occasionally some customers of AIXTRON have specifically negotiated terms andconditions of business.

Revenues from the saleof products that have been demonstrated to meet product specificationrequirements are recognized upon shipment to the customer, if a full customeracceptance test has been successfully completed at the AIXTRON productionfacility and the risk has passed to the customer.

Revenue relating to theinstallation of the equipment at the customer’s site is recognized when theinstallation is completed and the final customer acceptance has been confirmed.The portion of the contract revenue deferred until completion of theinstallation services is determined based on either the fair value of theinstallation services or the portion of the contract amount that is due andpayable upon completion of the installation. Fair value of the installationservices is determined based on an estimate of the materials and time requiredto complete the installation.

Revenue related toproducts where meeting the product specification requirements has not yet beendemonstrated, or where specific rights of return have been negotiated, isrecognized only upon final customer acceptance.

Revenue on the sale ofspare parts is recognized when title and risk passes to the customer, generallyupon shipment. Revenue from maintenance services is recognized as the servicesare provided.

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*GoodwillValuation*

All businesscombinations are accounted for by applying the purchase method.  Goodwill is stated at cost less any accumulatedimpairment loss.  Goodwill is allocatedto cash-generating units and is tested annually for impairment.

Goodwill purchased aspart of a business acquisition is tested annually for impairment, irrespectiveof whether there is any indication of impairment.  For impairment test purposes, the goodwill isallocated to cash-generating units. Impairment losses are recognized to the extent that the carrying amountexceeds the net realizable value or the value in use (recoverable amount) ofthe cash-generating unit.

In assessing value inuse, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments and therisks associated with the asset.

In estimating thediscounted future cash flows, management makes significant assumptions.  These include determining the appropriatediscount rate, projected sales growth, projected research and development costsand projected capital expenditures.  Inmaking these assumptions, AIXTRON considers current and anticipated marketconditions and technological changes. It is possible, however, that futuremarket conditions and technological changes may differ from AIXTRON’sestimations and this may require impairment of goodwill in future periods.

*Valuation of Inventories*

Inventories are statedat the lower of cost and net realizable value. Net realizable value is the estimatedselling price in the ordinary course of business, less the estimated cost ofcompletion and selling expenses. Cost is determined using weighted averagecost.

The cost includesexpenditures incurred in acquiring the inventories and bringing them to theirexisting location and condition. In the case of work in progress and finishedgoods, cost includes direct material and production cost, as well as anappropriate share of overheads based on normal operating capacity.

Allowance for slowmoving, excess and obsolete, and otherwise unsaleable inventory is recordedbased primarily on either the Company’s estimated forecast of product demandand production requirement for the next twelve months or historical trailingtwelve month usage. This evaluation is inherently judgmental and requiresmaterial estimates, including both forecasted product demand and pricingenvironment, both of which may be susceptible to significant change. As ofDecember 31, 2006, total inventory was € 53.1 million. When there hasbeen no usage of an inventory item during a period of twelve months, theCompany writes down such inventories based on previous experience.

In future periods,write-downs of inventory may be necessary due to (1) reduced demand in themarkets in which the Company operates, (2) technological obsolescence due torapid developments of new products and technological improvements, or (3)changes in economic or other events and conditions that impact the market pricefor the Company’s products.  Thesefactors could result in adjustment to the valuation of inventory in futureperiods, and significantly impact the Company’s future operating results.

*Accounting for Income Taxes*

Deferred tax assets andliabilities are recorded for all temporary differences between tax and commercialbalance sheets and for losses brought forward for tax purposes as well as fortax credits of the companies included in consolidation. The deferred taxes arecalculated, based on tax rates applicable at the balance sheet date or known tobe applicable in the future. Effects of changes in tax rates on the deferredtax assets and liabilities are recognized upon adoption of the amended law.

A deferred tax asset isrecognized only to the extent that it is probable that future taxable profitscan be set off against tax credits and tax loss carry forwards. Deferred taxassets are reduced to the extent that it is no longer probable that the relatedtax benefit can be realized.

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Judgments by managementconcerning the probability that future taxable profits will be available to usedeferred tax assets may have a material effect on the results after taxes andtherefore the policy of accounting for Income Taxes is critical to anunderstanding of the results after taxes.

#### ***Recently Issued Accounting Standards***

The following surveyshows IFRS Standards and Amendments to IFRS not compulsory and not applicablefor reporting periods ending on December 31, 2006.  These standards were not applied earlier thanrequired.  AIXTRON is currently analyzingthe impact of the new standards on its Consolidated Financial Statements.  AIXTRON does not expect the adoption of thesestandards to have a material impact on its Consolidated Financial Statementswith the exception that additional or revised information about financialinstruments should be presented in the notes, when IFRS 7 is applied.
| **IFRS 7**    | * *   | *Financial Instruments: Disclosures*                                                                  |
|---------------|------------|-------------------------------------------------------------------------------------------------------|
| ** **    | * *   | *Issued: August 2005*                                                                                 |
| ** **    | ** ** | ** **                                                                                            |
| **IFRS 8**    | * *   | *Operating Segments*                                                                                  |
| ** **    | * *   | *Issued: November 2006*                                                                               |
| ** **    | ** ** | ** **                                                                                            |
| **IFRIC 7**   | * *   | *Applying the Restatement Approach under IAS 29  Financial Reporting in  Hyperinflationary Economies* |
| ** **    | * *   | *Issued: November 2005*                                                                               |
| ** **    | ** ** | ** **                                                                                            |
| **IFRIC 8**   | * *   | *Scope of IFRS 2*                                                                                     |
| ** **    | * *   | *Issued: January 2006*                                                                                |
| ** **    | ** ** | ** **                                                                                            |
| **IFRIC 9**   | * *   | *Reassessment of Embedded Derivatives*                                                                |
| ** **    | * *   | *Issued: March 2006*                                                                                  |
| ** **    | ** ** | ** **                                                                                            |
| **IFRIC  10** | * *   | *Interim Financial Reporting and Impairment*                                                          |
| ** **    | * *   | *Issued: July 2006*                                                                                   |
| ** **    | ** ** | ** **                                                                                            |
| **IFRIC  11** | * *   | *IFRS 2: Group and Treasury Share Transactions*                                                       |
| ** **    | * *   | *Issued: November 2006*                                                                               |
| ** **    | ** ** | ** **                                                                                            |
| **IFRIC  12** | * *   | *Service Concession Arrangements*                                                                     |
| ** **    | * *   | *Issued: November 2006*                                                                               |
| ** **    | ** ** | ** **                                                                                            |
| **Amendment** | * *   | *Capital Disclosures*                                                                                 |
| **to IAS  1** | * *   | *Issued: August 2005*                                                                                 |

 

#### ***Management’s Discussion and Analysis of Results of Operations***

#### ***Overview***

AIXTRON is a leadingprovider of deposition equipment to the semiconductor industry.  The Company’s technology solutions are usedby customers worldwide to build advanced components for electronic andopto-electronic applications based on compound, silicon or organicsemiconductor materials.  Such componentsare used in fiber optic communication systems, wireless and mobile telephonyapplications, optical and electronic storage devices, computing, signaling andlighting, displays and a range of other technologies.

AIXTRON’s products rangefrom customized production-scale chemical vapor deposition systems to smallsystems for research and development use and small-scale production.  The Company’s technology offering alsoincludes a range of production-qualified deposition technologies for thesilicon industry.  The supply of gasphase deposition equipment is the Company’s only reporting segment.  Equipment sales and installation, includingupgrades, generated 83 %, 81 % and 83 % of the Company’s revenues in 2006,2005, and 2004, respectively.

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The remaining revenueswere generated by the sale of spare parts and by providing maintenanceservices.

AIXTRON’s principalmanufacturing facilities locations are in Germany, the U.S. and the U.K.  The Company sells its products and servicesprincipally through its direct sales organization using facilities in eightcounties, as well as through independent sales and service representatives.

Demand for the Company’sproducts is driven by the increasing miniaturization, increased processingspeed and efficiency, and reduced cost of ownership demands for microelectroniccomponents.  The ability of the Company’sproducts to precisely deposit thin film materials and the ability to controlcritical surface dimensions in these components, enables manufacturers toimprove performance, yield, and quality in the fabrication of advancedmicroelectronic devices.

#### ***Significant Factors Affecting Results***

In comparison to 2005,in 2006 the world real gross domestic product grew by an estimated 5.4 %,semiconductor industry revenues grew by an estimated 10.0 % and spendingon wafer front end (WFE) equipment, such as AIXTRON’s deposition equipment,increased by an estimated 25 %.

**Compound Semiconductor MarketApplications**

AIXTRON’s estimatesindicate that overall demand in the LED manufacturing industry, whichrepresents a significant market for AIXTRON’s compound semiconductor depositionequipment, grew by 10 % in 2006 as compared to the previous year.

Reflecting this feelingof optimism in the marketplace, in 2006 AIXTRON experienced increased demandfor both established compound semiconductor equipment products and the morerecently released new Integrated Concept (IC) common platform and high-capacitysystems.

The increase in marketconfidence was driven largely by rising demand for LED end market applications,including an increased market-driven focus on LED backlighting for small areaconsumer liquid crystal display (“LCD”) and commercial display products. Thedelay in the large scale adoption of a number of other new LED end marketapplications (e.g., mobile phone LED camera flash), and the delayed introductionof a new industry standard for DVD blue lasers (Blu-Ray vs. HD DVD) continue tosuppress any additional potential equipment demand, but medium-term demandexpectations remain promising.

AIXTRON has alsorecently seen a small improvement in demand for MOCVD systems from customersserving the data-communication and telecommunication market, but the Companystill believes that the existing capacity of its customers in that end marketarea means that sustainable revenue growth is unlikely to return before late2007 at the earliest.

**Silicon Semiconductor MarketApplications**

Generally, customerdemand in the silicon market has been volatile during 2006, 2005, and 2004.However, AIXTRON continued to predominantly receive purchase orders andgenerated revenues from silicon semiconductor mass production CVD system ordersfor the production of NAND flash memory and Dynamic Random Access Memory (“DRAM”)devices throughout 2006.

The predictions forAIXTRON’s new silicon semiconductor equipment target applications, employingALD and AVD® technology, remain fluid in the estimated timing on theintroduction of new material films and technologies for the mass production ofnext-generation integrated circuit (“IC”) devices. This has resulted inslower-than-anticipated demand for AIXTRON’s ALD and AVD® productiontechnologies, but the Company continues to experience active interest forresearch & development applications from major production customers.

In this generallyoptimistic market environment, AIXTRON achieved total revenues of€ 171.7 million in 2006, a 23 % increase compared to€ 139.4 million in 2005, when AIXTRON experienced a generally weakercustomer capital spending on deposition tools (2004:  € 140.0 million in revenues).

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Due to increasedrevenues as well as lower operating costs, the Company generated a net incomeafter tax of € 5.9 million in 2006, as compared to a net loss aftertax of € 53.5 million in 2005 (2004: net income of € 7.7 million). AIXTRON’s net loss after tax in2005 included € 30.3 million in certain asset impairments, accruals expensingand certain tax effects as well as beneficial allocations to deferred taxassets which did not occur in 2006.

The value of equipmentorders, excluding spare parts, received by AIXTRON in 2006 rose by 57 %, comparedto 2005, to € 178.0 million, reflecting a significant rise in demandfor compound semiconductor equipment, especially from the LED end applicationmarkets. Equipment order intake increased by 2 % to € 113.6 million in 2005compared to 2004.

#### ***Results of Operations***

*FiscalYear Ended December 31, 2006 Compared with Fiscal Year Ended December 31, 2005and Fiscal Year Ended December 31, 2004*

Key financialinformation regarding the AIXTRON Group’s results of operations is summarizedin the following table:
| **(million €)**                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Sales revenues                          |       | 171.7    |       | 139.4    |       | 140.0    |       |
|                                    |       |     |       |     |       |     |       |
| Gross profit                            |       | 63.4     |       | 34.7     |       | 52.4     |       |
| Gross margin,% revenues                 |       | 37       | %          | 25       | %          | 37       | %          |
|                                    |       |     |       |     |       |     |       |
| Operating result                        |       | 5.7      |       | (52.7    | )          | 9.7      |       |
| Operating result,% revenues             |       | 3        | %          | -38      | %          | 7        | %          |
|                                    |       |     |       |     |       |     |       |
| Net result                              |       | 5.9      |       | (53.5    | )          | 7.7      |       |
| Net result,% Revenues                   |       | 3        | %          | -38      | %          | 6        | %          |
|                                    |       |     |       |     |       |     |       |
| Net result per share - basic (€)   |       | 0.07     |       | (0.65    | )          | 0.12     |       |
| Net result per share - diluted (€) |       | 0.07     |       | (0.65    | )          | 0.12     |       |
|                                    |       |     |       |     |       |     |       |
| Equipment Order Intake                  |       | 178.0    |       | 113.6    |       | 111.4    |       |
| Equipment Order Backlog (End of Period) |       | 85.1     |       | 48.6     |       | 52.5     |       |

 

The results ofoperations of the AIXTRON Group in 2005 and 2006 include the results ofoperations of AIXTRON Inc. (formerly Genus, Inc.) and its subsidiaries,which have been consolidated into AIXTRON’s results of operations sinceMarch 14, 2005. The comparative values for 2004 do not include theresults of Genus, Inc. and the comparative values for 2005 only includeGenus, Inc. from March 14, 2005, the date AIXTRON acquired Genus, Inc.

*Revenues*

AIXTRON recordedrevenues in 2006 of € 171.7 million, an increase of€ 32.3 million, or 23 %, compared to € 139.4 millionin 2005 (2004: € 140.0 million). The year-over-year revenue increasein 2006 was largely due to an improved customer capital spending environment,especially in the compound semiconductor equipment market. AIXTRON alsobenefited from additional revenues generated by AIXTRON’s silicon businessinterests which were significantly expanded with the acquisition of Genus onMarch 14, 2005.

The largest element ofAIXTRON’s revenues in 2006, 56 % (2005: 58 %; 2004: 82 %), wasgenerated from sales of compound semiconductor equipment, which in turn wasdriven by LED systems demand, especially from Asia. Sales of compoundsemiconductor equipment to Asia accounted for 79 % of AIXTRON’s totalrevenues in 2006 (2005: 74 %; 2004: 77 %).

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Revenues related tosales of silicon semiconductor equipment accounted for 27 % of totalrevenues in 2006, an increase from 23 % in 2005 (2004: 1 %). Thisincrease resulted largely from the consolidation of Genus, Inc. (now part ofAIXTRON Inc.) in the AIXTRON Group for the entire fiscal year 2006 whereas in2005, Genus, Inc. was consolidated in the AIXTRON Group only betweenMarch 14, 2005 and December 31, 2005. In 2004, and betweenJanuary 1 and March 31, 2005, revenues from sales of silicon semiconductorequipment were generated solely from AIXTRON’s own silicon technology AVD®.

Equipment sales generated 83 % of revenues in 2006, virtuallyunchanged compared to 2005 and 2004 (81 % and 83 %, respectively).The remaining revenues were provided by spare parts sales and service.

 
| **(million €)**                                                                         | ** ** | **2006**  | ** ** | **2005**   | ** ** | **2004**  | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|
| Revenues                                                                                          | ** ** | **171.7** | ** ** | ** ** | ** ** | **139.4** | ** ** | ** ** | ** ** | **140.0** | ** ** | ** ** | ** ** |
| of which from sale of silicon semiconductor   equipment                                           |       | 46.1      |       | 27%        |       | 32.7      |       | 23% |   | 1.5 |   | 1% |   |
| of which from sale of compound   semiconductor equipment and other equipment   (OVPD®,  SiC) |       | 97.0      |       | 56%        |       | 80.7      |       | 58% |   | 115.1 |   | 82% |   |
| of which other  revenues (service, spare parts,   etc.)                                           |       | 28.6      |       | 17%        |       | 26.0      |       | 19% |   | 23.4 |   | 17% |   |

 

The Company’s revenues in2006 were largely generated in Asia, as was the case in 2005 and 2004:
| **Regional Revenue Split** | ** ** | ** **         | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** |
|----------------------------|------------|--------------------|------------|------------|------------|--------------------|------------|------------|------------|--------------------|------------|------------|------------|
| ** **                 | ** ** | **million €** | ** ** | ** ** | ** ** | **million €** | ** ** | ** ** | ** ** | **million €** | ** ** | ** ** | ** ** |
| Asia                       |       | 135.2              |       | 79         | %          | 103.0              |       | 74         | %          | 108.1              |       | 77         | %          |
| Europe                     |       | 22.2               |       | 13         | %          | 22.1               |       | 16         | %          | 13.6               |       | 10         | %          |
| USA                        |       | 14.3               |       | 8          | %          | 14.3               |       | 10         | %          | 18.3               |       | 13         | %          |
| **Total**                  | ** ** | **171.7**          | ** ** | **100**    | **%**      | **139.4**          | ** ** | **100**    | **%**      | **140.0**          | ** ** | **100**    | **%**      |

 

*GrossProfit*

The Company’s grossprofit increased by € 28.7 million to € 63.4 million in2006, an increase of 83 % compared to 2005 (2004: gross profit of€ 52.4 million).  As aconsequence, the Company’s gross margin rose from 25 % in 2005 to37 % in 2006 (2004: 37 %). The increase in the Company’s gross marginin 2006 as compared to 2005 was driven by a decrease in the cost of salesrelative to revenue by 12 percentage points which in turn was largely due tothe fact that impairment charges resulting from the Genus acquisition, certainimpairment charges on inventories and intangible assets, as well as expensesfor the creation of a reserve for pending losses were incurred in 2005, butwere not incurred in 2006.

*Selling,General and Administrative Expenses*

Selling, generaland administrative (SG&A) expenses totaled € 40.7 million in2006, as compared to € 45.8 million in 2005 (2004: € 31.5million). This decrease was mainly due to both a reduction in administrativeoverheads and efficiency gains in the sales organization despite an expandingbusiness. € 2.3 million in SG&A expenses 2005 were attributable toimpairment charges and expenses for the creation of a reserve for pendinglosses. The € 14.3 million increase in SG&A expenses in 2005 ascompared to 2004 was largely attributable to the consolidation of Genus, Inc.into the AIXTRON Group (€ 10.7 million). Due to the acquisition ofGenus, Inc. (now part of AIXTRON Inc.) in 2005 both the variety of products andthe number of sales channels had increased, leading to an increase in thecomplexity of AIXTRON’s sales and administrative structure.

Due to efficiencygains in the sales organization as well as a reduction in warranty costs,selling expenses in 2006 amounted to € 23.4 million, a decrease of16 % compared to € 27.8 million in 2005 (2004:€ 18.3 million).

Administrativeexpenses in 2006 totaled € 17.3 million (2005:€ 18.0 million; 2004: € 13.2 million). Administrativeexpenses decreased by 4 % in 2006 in comparison to 2005 despite additionalexternal expenses totaling approximately € 2.0 million, which wererelated to compliance with Section 404 of the Sarbanes-Oxley Act completed atthe end of fiscal year 2006 (€ 0 in both 2005 and 2004).

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*Researchand Development Costs*

Research and development (R&D) costs totaled€ 23.9 million in 2006, a decrease of € 6.6 million, or22 %, compared to € 30.5 million in 2005 (2004:€ 20.4 million). The decrease in R&D expense in 2006 compared to2005 was largely due to the fact that € 5.3 million in impairmentcharges incurred in 2005 were not incurred in 2006 as well as a more focusedR&D project selection and control in line with the Company’s strategy. In2005, consolidated R&D expenses included R&D expenses from Genus, Inc.(now part of AIXTRON Inc.) only for the period March 14, 2005 throughDecember 31, 2005, while in 2006 R&D expenses included R&Dexpenses from AIXTRON Inc. for the entire twelve-month period. The ratioof R&D costs to revenues decreased in 2006 to 14 %, compared to 22 %in 2005 (2004: 15 %).

The increase in R&D expenses in 2005 compared to2004 expenses was largely due to impairment charges totaling€ 5.3 million on assets for the development of emerging marketstechnologies (of which € 3.7 million were impairment charges on otherintangible assets and € 1.6 million impairment charges on property, plant,and equipment) and the consolidation of Genus, Inc. into the AIXTRON Group,adding € 5.6 million in R&D expenses to the AIXTRON R&Dexpenses since the date of acquisition on March 14, 2005.

*PersonnelCosts*

With the number ofglobal employees at 566 at year end 2006, slightly reduced as compared to yearend 2005 (570 employees), personnel expenses amounted to€ 42.0 million in 2006, a slight increase in comparison to€ 41.1 million in 2005 (2004: € 29.5 million). The increase in 2006as compared to 2005 primarily reflected additional headcount acquired fromGenus, Inc. (now part of AIXTRON Inc.). Personnel costs are allocated to thecost line items of the income statement as follows:
| **Personnel Costs  (million €)**        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cost of Sales                                |       | 12.2     |       | 8.5      |       | 7.0      |       |
| Selling, General and Administrative Expenses |       | 16.5     |       | 18.6     |       | 12.8     |       |
| Research and Development Expenses            |       | 13.3     |       | 14.0     |       | 9.7      |       |
| **Total**                                    | ** ** | **42.0** | ** ** | **41.1** | ** ** | **29.5** | ** ** |

 

*OtherOperating Income / Expenses*

Other operating income in 2006 was€ 8.5 million, in comparison to € 5.6 million in 2005 and€ 9.9 million in 2004.  Otheroperating income included the receipt of external research and developmentfunding totaling € 4.5 million in 2006, € 2.9 million in2005 and € 2.6 million in 2004. Other operating expenses of €1.6 million in 2006 mainly resultedfrom foreign currency exchange losses of € 0.9 million. Otheroperating expenses of € 2.9 million in 2005 mainly resulted fromforeign currency exchange losses of € 2.1 million, whereas other operatingexpenses of € 0.7 million in 2004 mainly resulted from losses from the disposalof items of property, plant, and equipment of € 0.4 million.

*Impairmentof Goodwill*

No charges for the impairment of goodwill wereincurred in 2006. In connection with testing goodwill for impairment atDecember 31, 2005, AIXTRON concluded that goodwill for its subsidiaryGenus, Inc. was impaired in light of reduced market expectations and theCompany recorded a charge of € 13.7 million in 2005.  The Company did not record any goodwillimpairment charges in 2004.

*Net Interest Income*

Net interest income increased from€ 0.5 million in 2005 to € 1.0 million in 2006 due to anincrease in the amount of interest received from bank balances.  In comparison, net interest income declinedto € 0.5 million in 2005, from € 0.8 million in 2004.  The reduction in the net interest income wasthe result of the reduced amount of interest received from bank balances due tolower bank balances in 2005. Interest expenses amounted to€ 56 thousand in 2006, € 233 thousand in 2005, and€ 2 thousand in 2004.

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*IncomeTaxes*

Despite a positive result before taxes amounting to€ 6.6 million in 2006, AIXTRON recorded a tax expense in 2006 of€ 0.8 million (2005: € 1.3 million; 2004:€ 2.8 million), utilizing tax loss carry-forwards from previousyears. The change in income taxes in 2005 in comparison to 2004 reflectsprofitable operations in 2004 compared to losses on operations in 2005. As ofDecember 31, 2006, AIXTRON had deferred tax assets totalling€ 5.4 million of which € 4.5 million were related to taxloss carry-forwards (December 31, 2005 and 2004: € 6.3 million and€ 5.8 million, respectively).

*Reconciliation to U.S. GAAP*

The Company’sConsolidated Financial Statements have been prepared in accordance with IFRS,which differs in certain significant respects from U.S. GAAP. For 2006, theCompany’s net income for the year after taxes under IFRS was € 5.9 million andfor 2005, net loss under IFRS was € 53.5 million (2004: € 7.7 millionnet income after taxes under IFRS), compared to a consolidated net income underU.S. GAAP of € 5.2 million in 2006 and a consolidated net loss under U.S. GAAPof € 96.0 million in 2005 (2004: € 7.1 million net income under U.S.GAAP).

The most significantitems in reconciling net income (loss) under IFRS to net income (loss) underU.S. GAAP in 2006 were additional charges booked for share-based payments underU.S. GAAP, and in 2005 it was the higher impairment charge related to Genusunder U.S. GAAP.

The most significantitems in reconciling the Company’s consolidated equity under IFRS toconsolidated equity under U.S. GAAP as of December 31, 2006 was the reversal ofwrite-downs in inventories, and the most significant items in reconciling theCompany’s consolidated equity under IFRS to consolidated equity under U.S. GAAPas of December 31, 2005 was the impairment charge related to the Genusacquisition as well as the accounting treatment of inventories.

Please refer to Note 40to the Company’s Consolidated Financial Statements for a reconciliation ofAIXTRON’s equity and net loss in accordance with IFRS to U.S. GAAP.

### **B.Liquidity and Capital Resources**

*Cash Flows*

Compared toDecember 31, 2005, cash and cash equivalents increased by € 15.4 million,or 49 %, to € 46.8 million as of December 31, 2006.The increase in cash and cash equivalents was largely due to cash inflows fromoperating activities totaling € 20.8 million and was recorded despitea € 21.4 million increase in the value of inventories as ofDecember 31, 2006 compared with December 31, 2005. Bycomparison, due to cash outflows from business investments and operatingactivities, AIXTRON’s cash and cash equivalents decreased from € 45.5 millionas of December 31, 2004 to € 31.4 million as of December 31, 2005.

Due to an increase innet income in 2006 as well as a € 19.8 million increase in the amountof advanced payments from customers, AIXTRON generated € 20.8 millionin cash flows from operating activities in 2006.  In 2005, challenging market conditionsresulted in a net loss of € 53.5 million and € 12.2 million incash used for operating activities.  Incomparison, during 2004, AIXTRON generated cash flows from operating activitiesof € 6.8 million.

In 2006, AIXTRON recordedcash outflows from investing activities of € 5.2 million, includingbank deposits with a maturity of six months which were recorded as cashoutflows totaling € 2.8 million. The decline in cash outflows frominvesting activities in property, plant, and equipment as well as intangibleassets totaling € 2.4 million was due primarily to a more focusedinvesting policy.  By comparison, in 2005net cash used in investing activities was € 3.0 million, includingpurchases of fixed assets (€ 8.3 million) as well as capitalized acquisitionpayments related to the Genus acquisition (€ 3.6 million), less cash acquiredfrom Genus (€ 9.0 million).  In2004, net cash used in investing activities totaled € 6.4 million,including € 3.8 million of capital expenditures in property, plant,and equipment as well as the acquisition cost of a minority interest in AIXTRONKK of € 2.0 million.

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There are currently nomaterial restrictions on the Company’s use of cash resources.

*Financing Activities*

As of December 31, 2006,AIXTRON’s customers were granted advance payment guarantees by six banks(Deutsche Bank AG, Dresdner Bank AG, Commerzbank AG, Lloyds TSB Group plc.,Seoul Guarantee Insurance Co., and Sparkasse Aachen) totaling€ 17.1 million (December 31, 2005: € 11.9 million; December 31, 2004:€ 8.7 million).

The Company had norecorded bank borrowings as of December 31, 2006, as of December 2005, andas of December 2004. Due to an increase in the balance sheet total, the equityto balance sheet total ratio declined to 70 % as ofDecember 31, 2006, from 77 % as of December 31, 2005 (78 %as of December 31, 2004).

A total of 2.0 millionAIXTRON shares, which were issued in connection with the acquisition of Genus,Inc., were deposited into a trust during 2005 to service the Genus, Inc.employee stock options program and to cover the warrants issued by Genus, Inc.AIXTRON treats these specific shares as its own shares. Because AIXTRON’s ownshares are deducted from its subscribed capital, AIXTRON records shareholders’equity net of its own shares.

As part of theacquisition of Genus, Inc., the Company assumed the obligation of Genus, Inc.’sconvertible bonds, which had a total par value of € 4,807,000 (US$ 6,450,000)and an interest rate of 7%. The convertible bonds matured in August 2005.  The holders of the notes had the option toeither convert the note into shares of AIXTRON common stock.  This option was changed as of the date of theAIXTRON acquisition into a right to convert into AIXTRON ADSs.  For this purpose the required AIXTRON ADSswere contributed into the trust as part of the acquisition.  For more information about the contribution,see Note 22 to the Company’s Consolidated Financial Statements.  In August 2005, the convertible bonds and theinterest accrued since March 13, 2005 were settled in full by conversion intoAIXTRON ADSs.  In this conversion,2,383,920 ADSs from the trust were issued to the holders of the convertiblebonds.  As a result no liability from theGenus, Inc. convertible bond exists at the balance sheet dates ofDecember 31, 2006 and December 31, 2005.  For more information about these convertiblebonds, see Note 28 to the Company’s Consolidated Financial Statements.

AIXTRON AG providesloans and other financial security to its subsidiaries where necessary toenable operations to continue efficiently. The Company has granted no securityinterest in its own land and buildings.

In order to support thedevelopment of future equipment technology, the Company continuously exploresand assesses additional funding opportunities available in the market.

Due to the nature of itsbusiness, AIXTRON believes that the business should be financed primarily, butnot exclusively, by equity and not by debt. As a result, the Company’s Articles of Association provide for thepotential offering of equity and equity-linked notes (convertible bonds).

*Assessment of Liquidity andCapital Resources*

The Company’s liquidityis affected by many factors, some of which are related to its ongoingoperations and others which are related to the nature of the semiconductorequipment industry and to the economics of the countries in which the Companyoperates. Although the cash requirements fluctuate based on the timing andextent of these factors, the Company believes that the liquidity provided by existingcash resources and financing arrangements, as well as the ability to raiseequity capital, will be sufficient to fund working capital, capitalexpenditures and other ongoing business requirements for at least the nexttwelve months.  Should the favorablemarket and economic environment currently experienced by AIXTRON change to aperiod of continued weakness, lower customer demand for the Company’s productsand services and continued fixed costs could result in cash generated byoperations to be lower than forecasted and not to be sufficient.  In such a situation, the Company might needto pursue accessing short-term credit facilities or additional equity financingofferings.  See “Item 3. Key Information —D. Risk Factors” for more information about the risks facing the Company.

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### **C. Researchand Development, Patents and Licenses, etc.**

As a high-technologycompany, AIXTRON maintains a strong research and development (R&D)infrastructure, with significant resources devoted to R&D projects.  AIXTRON’s R&D activities are critical forthe Company’s long-term strategy to position itself as one of the world’sleading provider of nano deposition equipment for the manufacture of complexdevice structures for the semiconductor industry.

AIXTRON’s R&Dorganization works closely with its own global sales and service organizationto develop systems, tailored to customers’ individual needs.

AIXTRON maintains itsown R&D laboratories in Aachen, Germany and in Sunnyvale, California. Thesein-house laboratories are equipped with AIXTRON systems for researching newequipment and processes, as well as for producing reference samples ofsemiconductor material films.  As part ofthe R&D efforts employed, AIXTRON regularly collaborates with well-knownuniversities and research centers worldwide and participates in numerousgovernment and European Union-funded development projects.

The following tablesummarizes key R&D information:
| ** **                                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| R&D expenses  (million €)                       |       | 23.9     |       | 30.5     |       | 20.4     |       |
| R&D  expenses, % of sales                            |       | 14%      |       | 22%      |       | 15%      |       |
|                                                     |       |     |       |     |       |     |       |
| R&D  employees (period average)                      |       | 181      |       | 188      |       | 147      |       |
| R&D employees,% of  total headcount (period average) |       | 32%      |       | 33%      |       | 35%      |       |

 

The decrease in R&Dexpense in 2006 compared to 2005 was largely due to the fact that€ 5.3 million in impairment charges incurred in 2005 were notincurred in 2006 as well as a more focused R&D project selection andcontrol in light of the Company’s future strategy. In 2005, consolidatedR&D expenses included R&D expenses from Genus, Inc. (now part ofAIXTRON Inc.) only for the period March 14, 2005 throughDecember 31, 2005 while in 2006, R&D expenses included R&Dexpenses from AIXTRON Inc. for the entire twelve-month period. Theincrease in R&D expenses in 2005 compared to 2004 expenses was largely dueto [exceptional amortization charges totaling € 5.3 million. Additionally, in2005 the consolidation of Genus, Inc. into the AIXTRON Group added € 5.6million in R&D expenses to the AIXTRON R&D expenses since the date ofacquisition (March 14, 2005).

**Manufacturing-Oriented ResearchLaboratory, Taiwan**

OnJune 1, 2006, AIXTRON announced that its Taiwanese subsidiarysuccessfully completed its first R&D project funded by the Taiwanesegovernment. This project entitled “Manufacturing-Oriented Research Lab” relatedto LED production technology, new material films for advanced nano-electronics,such as the next generation of computer chips; transfer of nanotechnology intoproduction; technology and process simulation tools for cost-effectivesemiconductor production; and OLED for display and lighting applications. As aresult of the R&D project, which consisted of 17 joint research projectswith local industry partners and 9 product developments, a number of importantmilestones were reached, including the reduction of operating costs in LEDmanufacturing and the development of red, blue, yellow, and white OLEDs withOVPD® production technology. AIXTRON considers thenetwork of competence introduced by and the expertise developed on theseprojects as key assets for its future business in Taiwan.

AIXTRON utilizes thisresearch activity in Taiwan to enhance its current market position.

**CHEMAPH, Europe**

On August 9, 2006AIXTRON announced its participation in the European Commission-funded CHEMAPH(Chemical Vapor Deposition of Chalcogenide Materials for Phase-change Memories-EU IST Project) project which has a duration of two years and is aimed at thedevelopment of chalcogenide-based phase change materials.

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The consortium carryingout this study consists of three academic and three industrial partners fromfive European countries, namely CNR (National Lab MDM-INFM), Italy; STMicroelectronics, Italy; Epichem, United Kingdom; Consejo Superior deInvestigaciones Cientificas (CSIC), Spain; Vilnius University, Lithuania; andAIXTRON AG, Germany.

Phase-change memories(PCM) are some of the most promising candidates for next-generationnon-volatile memories, having the potential to improve the device performance,compared to Flash memories, as well as being potentially scalable beyond thecurrent generation Flash technology for which one outstanding technologicalissue is the phase-change layer deposition process.

The project aims atdemonstrating the feasibility of a film manufacturing process based onmetal-organic chemical vapor deposition (MOCVD). This technique is known toenable the production of thin films with superior quality compared to thoseobtained by the currently most used method known as sputtering, a physical vapordeposition (PVD) technique.

AIXTRON’s participationin this project is expected to result in the more rapid development andrefinement of the range of its MOCVD systems for chalcogenide materials.

**OPAL 2008, Europe**

On September 15, 2006,AIXTRON announced that it will participate in an R&D project with theCompany’s Organic Vapor Phase Deposition (OVPD®) technologyplatform in a consortium together with OSRAM Opto Semiconductors GmbH, PhilipsGmbH, BASF Future Business GmbH and Applied Materials, Inc. (formerly AppliedFilms). The final goal of this project, called OPAL 2008 (OrganicPhosphorescent lights for Applications in the Lighting market 2008), isthe development of an OLED production technology capable of manufacturing ahigh performance white OLED device at a target cost of a few euro cents per cm2. To reach this target, the individual research activitiesof all partners within this group will be coordinated to maximize the feasibledevelopment synergy effects.

The specialized organicmaterials required will be developed by BASF Future Business GmbH. The devicearchitecture for the lighting modules and the adapted OLED processingtechnology will be developed by OSRAM Opto Semiconductors GmbH and PhilipsGmbH.

AIXTRON’s contributionto the project will be to improve the production capabilities of the OVPD® process by designingequipment for large area material deposition for OLED devices. The researchwill be carried out in Aachen, Germany at the Philips production site in AachenRothe Erde where a prototype OVPD® system is already installed and running.Additional scientific support is provided by RWTH Aachen University.

**OLED 2015, Europe**

The German Ministry ofScience and Technology (BMBF) has indicated its support for the development oforganic light emitting diodes (OLED) for lighting applications with€ 100 million for the next 5 years (OLED 2015). The involvedcompanies in Germany, 33 partners within the OLED initiative, including AIXTRONAG, will collectively contribute an additional € 500 million toachieve the technical targets. The stated scope of the initiative is theintroduction of new OLED lighting technology into the market. TheOPAL 2008 project is funded by the BMBF under the OLED 2015initiative.

### **D.Trend Information**

For information abouttrends, see “Item 5. Operating and Financial Review and Prospects — Overview,” “—Significant Factors,” “ —Operating Results,” and “ —Liquidity and Capitalresources.”

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*Future Strategic Positioning*

Thedevelopment of deposition technology for highly complex materials is expectedto remain the Company’s core competency and competitive advantage, upon whichAIXTRON plans to further establish its expanded product portfolio in the periodof 2007-2008.

 

AIXTRONexpects to maintain its market leadership and strong competitive positioning inthe market for MOCVD systems over the coming years. However, the relatively smallmarket size and the high market concentration on just two internationallyoperating MOCVD system providers may be detrimental to future expansionobjectives of its market leadership.

 

AIXTRONexpects that the principal market driver for silicon semiconductor applicationswill be the demand for new complex material solutions, such as high-kdielectrics, that could potentially replace materials currently used in siliconsemiconductor applications. The combined AIXTRON and Genus strengths in siliconsemiconductor equipment technologies position as well in the silicon systemsmarket niches the Company addresses (tungsten silicide CVD, ALD, and AVD® systems for the production of specialized applicationssuch as gate stacks and capacitors).

 

Based on acceptance of the first AIXTRONGen2-OVPD®-system forthe mass production of OLEDs by RiTdisplay Corporation in 2005, AIXTRON plansto drive forward its strategy to introduce its OVPD® technologyto a broader OLED display and lighting market, with the goal to achieve revenuecontributions in 2007. As with all emerging technologies, there is an elementof risk associated with the timing of AIXTRON’s OVPD® technologybeing adopted by the market.

### **E.Off-Balance Sheet Arrangements**

As of December 31, 2006,the Company had entered into purchase commitments with suppliers in the amountof € 23.4 million (December 31, 2005: € 10.7 million; December 31,2004: € 7.8 million) for purchases within the next 12 months.  Commitments for capital expenditures atDecember 31, 2006 were € 44 thousand (December 31, 2005:  € 0 thousand; December 31, 2004: € 0thousand).

#### ***Contingencies***

The Company is involvedin various legal proceedings, none of which management believes arematerial.  The Company grants somecustomers advance payment guarantees, which are for a limited period oftime.  Management does not expect thatsuch matters will have a material effect on the Company’s net assets, resultsof operations and financial position.

See also “Item 5.Operating and Financial Review and Prospects — Tabular Disclosure ofContractual Obligations”.

### **F.Tabular Disclosure of Contractual Obligations**

In the ordinary courseof business, AIXTRON’s primary contractual obligations regarding cash involvepurchase commitments, operating lease commitments and capital expenditures.

The following table summarizes contractual obligations for future cashoutflows as of December 31, 2006:

 

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| ** **                        | ** ** | **Payments Due by Period (in millions of EUR)** | ** ** |
|-----------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | ** **                                                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **More** | ** ** |
| ** **                        | ** ** | **Total**                                                                          | ** ** | **Less than  1 year** | ** ** | **1-3  years** | ** ** | **3-5  years** | ** ** | **than 5   years** | ** ** |
| Long-Term Debt  Obligations       |       | 0                                                                                  |       | 0 |   | 0 |   | 0 |   | 0 |   |
| Finance lease  commitments        |       | 0                                                                                  |       | 0 |   | 0 |   | 0 |   | 0 |   |
| Operating lease  commitments      |       | 12.31                                                                              |       | 2.26 |   | 4.03 |   | 3.84 |   | 2.18 |   |
| Purchase  commitments             |       | 23.42                                                                              |       | 23.42 |   | 0 |   | 0 |   | 0 |   |
|                              |       |                                                                               |       |   |   |   |   |   |   |   |   |
| **Total contractual obligations** | ** ** | **35.73**                                                                          | ** ** | **25.68** | ** ** | **4.03** | ** ** | **3.84** | ** ** | **2.18** | ** ** |

 

At December 31, 2006, the Company’s commitments for capitalexpenditures were € 44,000.

 

No obligations forfunding of pension plans existed at December 31, 2006.

The Company outsources asubstantial portion of the manufacturing of its operations to third partysuppliers.  As the Company’s products aretechnologically complex, the lead times for purchases from its suppliers canvary up to six months.  Principally, butnot exclusively, contractual commitments are made for specific customer ordersor forecast orders. In some circumstances, where contractual commitments tosuppliers for multiple modules or systems reduce the Company’s purchase pricesper module or system, purchase commitments may be made against anticipateddemand.  For the majority of purchasecommitments, the Company has flexible delivery schedules depending on themarket conditions, which allow the Company, to a certain extent, to delaydelivery beyond originally planned delivery schedule estimates, if necessary.

The Company leasescertain office and plant facilities, office furniture and motor vehicles undervarious operating leases.  Regarding mostof the lease commitments for office and plant facilities the Company hasoptions to renew the leasing contracts. The leases typically run for a period between one and 15 years.  None of the leases includes contingentrentals.

 

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## **Item 6:  Directors, Senior Management and Employees**

### **A.Directors and Senior Management**

In compliance withGerman law — the German Stock Corporation Act (Aktiengesetz) — governing astock corporation such as the Company, AIXTRON has a Supervisory Board (Aufsichtsrat)and an Executive Board (Vorstand).  Thetwo boards are separated and no individual may simultaneously be a member ofboth boards.  The Executive Board isresponsible for managing the Company’s business in accordance with applicablelaws, AIXTRON’s Articles of Association and the Bylaws of the Executive Board,and as such it represents the Company in its dealings with third parties.  The Supervisory Board appoints and removesthe members of the Executive Board.  TheSupervisory Board is responsible for overseeing AIXTRON’s management policy,practice and decisions taken, but is not permitted by law to participate insuch decisions.

In carrying out theirduties, members of both the Supervisory Board and the Executive Board mustexercise the standard of care of a diligent and prudent business person.  In complying with this standard of care,board members must take into account a broad range of considerations, inparticular, the interests of the Company. The members of the Supervisory Board and the Executive Board may also bepersonally liable for violations by AIXTRON under the German Stock CorporationAct.

The Executive Board isrequired to respect the rights of shareholders to be treated on an equal basisand receive equal information.  TheExecutive Board is also required to ensure that appropriate risk managementmechanisms are established and that internal monitoring systems are employed.

#### ***Supervisory Board***

The principal functionof AIXTRON’s Supervisory Board is to supervise the activities and actions ofthe Executive Board without being involved in the conduct of day-to-daytransactions.  The Supervisory Board hascomprehensive monitoring functions and is also responsible for appointing andremoving the members of the Executive Board. Although the Supervisory Board may not make management decisions,certain types of transactions require its prior consent.  The rules of procedure of the ExecutiveBoard, which were approved by the Supervisory Board, provide that some affairs,operations and major transactions, such as large capital expenditure items,require the prior consent of the Supervisory Board. Additionally, the ExecutiveBoard is required to regularly report to the Supervisory Board on currentbusiness operations and future business planning. The Chairman of theSupervisory Board and the respective chairman of the Supervisory Boardcommittees participate in numerous conference calls and personal meetings withthe Executive Board to keep abreast of the Company’s business and itscommercial activities.

All of the Company’spresent Supervisory Board members were elected by its shareholders.  The shareholders may remove any member of theSupervisory Board they have elected in a general meeting by a simple majorityof the votes cast by the shareholders in a general meeting.

The members of theSupervisory Board are each elected for a term expiring at the end of the annualgeneral shareholders’ meeting after the fourth fiscal year following the yearin which the Supervisory Board was elected. Supervisory Board members may be re-elected and are not subject to acompulsory retirement age.  The Company’sArticles of Association establish the compensation of the Supervisory Boardmembers.  For further details, see “—Compensation.”

The Supervisory Board metfour times during 2006:  on March 9,on May 10, on September 21, and on November 15.

AIXTRON’s SupervisoryBoard consists of the following individuals:

·                                          **Dipl.-Kfm. Kim Schindelhauer**(Chairman): Mr. Schindelhauer isa businessman. He joined AIXTRON in 1992. From 1997 to 2002, Mr. Schindelhauerwas the Joint Chief Executive Officer of AIXTRON, and a member of its ExecutiveBoard. From 2002 to the present, Mr. Schindelhauer has been the Chairman ofAIXTRON’s Supervisory Board. Mr. Schindelhauer is member of the Executive Boardof Deutsches Aktieninstitut e.V., Frankfurt/Main, Germany.

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·                                          **Dr. Holger Jürgensen******(DeputyChairman): Dr. Jürgensen is a physicist and was one of AIXTRON’s founders. From1997 to 2002, Dr. Jürgensen wasthe President and Joint Chief Executive Officer of AIXTRON, and a member of itsExecutive Board. From 2002 to the present, Dr. Jürgensen has been the DeputyChairman of AIXTRON’s Supervisory Board.

** **

·                                          **Prof. Dr.****Wolfgang Blättchen**(Chairman of the AuditCommittee): Prof. Dr. Blättchen is a business consultant. Since 1998, Prof. Dr.Blättchen has been a member of AIXTRON’s Supervisory Board. He is a member ofthe Board of Management of Blättchen & Partner AG, Leonberg/Munich,Germany. Prof. Dr. Blättchen is also a member of the Supervisory Board ofGardena AG, Ulm, Germany; chairman of the Supervisory Board of Marc O’Polo AG,Stephanskirchen, Germany; a member of the Supervisory Board of APCOA ParkingAG, Stuttgart, Germany; deputy chairman of the Supervisory Board of HAUBROK AG,Düsseldorf, Germany; and a member of the Supervisory Board of Datagroup ITServices Holding AG, Pliezhausen, Germany. Prof. Dr. Blättchen has been adeputy chairman of the Supervisory Board of Horvárth AG, Stuttgart, Germanythrough September 2006 and chairman of the Supervisory Board of tec2B, untilMarch 2006 and a member of the board of Datagroup IT Services Holding AG, sinceJuly 2006.

** **

·                                          **Karl-Hermann Kuklies:**Mr. Kuklies is a businessman. Since1997, Mr. Kuklies has been a member of AIXTRON’s Supervisory Board.

** **

·                                          **Prof. Dr. Rüdiger von Rosen****:**Prof. Dr. von Rosenis a businessman. Since 2002, Prof. Dr. von Rosen has been a member ofAIXTRON’s Supervisory Board. He is managing director of DeutschesAktieninstitut e.V. and a member of the Supervisory Board ofPriceWaterhouseCoopers AG, Frankfurt/Main, Germany.

** **

·                                          **Dipl.-Kfm. Joachim Simmroß:******Mr. Simmroß is a businessman. Since 1997, Mr. Simmroß hasbeen a member of AIXTRON’s Supervisory Board. Mr. Simmroß is also chairman ofthe Supervisory Board of technotrans AG, Sassenberg, Germany; a member of theSupervisory Board of WeHaCo Unternehmensbeteiligungs-Aktiengesellschaft,Hanover, Germany; a member of the advisorycommittee of BAG-Biologische Analysensystem GmbH, Lich, Germany; a member ofthe advisory committee of Astyx GmbH (formerly MTS Mikrowellen Technologie undSensoren GmbH), Ottobrunn, Germany; a member of the advisory board of KAPPAopto-electronics GmbH, Gleichen, Germany; a member of the Supervisory Board ofCommerz Unternehmensbeteiligungs-Aktiengesellschaft, Frankfurt/Main, Germany; amember of the Supervisory Board of GBK Beteiligungen AG, Hamburg Germany; and amember of the advisory board of Hannover Finanz Beteiligungen undKapitalanlagen GmbH, Hanover, Germany.

 

No member of AIXTRON’sSupervisory Board serves as a director of an SEC-reporting company in theUnited States.

The Supervisory Board’sbusiness address is Kackertstrasse 15-17, D-52072 Aachen, Germany.

#### ***Executive Board***

The Supervisory Boardappoints and removes the members of the Executive Board, who may serve for amaximum term of five years before being reappointed.  The Executive Board is responsible formanaging AIXTRON’s day-to-day business according to the German StockCorporation Act, AIXTRON’s Articles of Association and the rules of procedurefor the conduct of the affairs of the Executive Board, which are approved bythe Supervisory Board.  The rules ofprocedure of the Executive Board describe the allocation of responsibilities ofthe Executive Board members and provide a list of important issues and mattersthat require the Supervisory Board’s prior consent, such as borrowing orlending of material amounts, participating in joint ventures, makinginvestments in other enterprises and establishing subsidiaries.

45

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The Executive Board mustrespect the rights of shareholders to be treated on an equal basis and receiveequal information.  The Executive Boardmust also ensure the establishment of appropriate risk management mechanismsand the use of internal monitoring systems.

As ofDecember 31, 2006 AIXTRON’s Executive Board consisted of thefollowing individuals:

·                                          **Paul Hyland******(Chairmanof the Executive Board, President and Chief Executive Officer): Mr. Hyland hasbeen the President and Chief Executive Officer and a member of the ExecutiveBoard of AIXTRON since April 1, 2002. His present term will expire on March 31, 2010.From 2000 to 2002, prior to his appointment to the Executive Board, Mr. Hylandwas Managing Director of Thomas Swan Scientific Equipment Limited, an acquiredsubsidiary of AIXTRON. Mr. Hyland was born on October 20, 1953.

·                                          **Dr. Bernd Schulte******(Memberof the Executive Board, Executive Vice President and Chief Operating Officer):Dr. Schulte has been Executive Vice President,Chief Operating Officer and a member of the Executive Board of AIXTRON sinceApril 1, 2002. His present term will expire on March 31, 2010. Dr. Schultejoined AIXTRON in 1993, and he served as Director, Sales and Marketing, from2001 to 2002. Dr. Schulte was born on August 22, 1962.

·                                          **Wolfgang Breme******(Memberof the Executive Board, Executive Vice President and Chief Financial Officer):Mr. Breme has been Chief Financial Officer and Executive Vice President and amember of the Executive Board of AIXTRON since April 1, 2005. Hispresent term will expire on March 31, 2008. Mr. Breme was born on May15, 1960.

·                                          **Dr. William W.R. Elder******(Memberof the Executive Board, Executive Vice President): Dr. Elder has been ExecutiveVice President and a member of the Executive Board of AIXTRON sinceJuly 1, 2005. His present term will expire on June 30, 2008. Prior tojoining AIXTRON, Dr. Elder was Chairman of the Board, President and ChiefExecutive Officer of Genus, Inc. since May 1998. Dr. Elder served as Chairman of the Boardof Genus, Inc. from October 1996 to April 1998, as Chairman and CEO of Genus,Inc. from April 1990 to September 1996, and as President and CEO ofGenus, Inc from November 1981 to April 1990. Dr. Elder was born onOctober 24, 1938.

 

Dr. Elder is the onlymember of AIXTRON’s Executive Board that serves as a director of anSEC-reporting company in the United States.

The Executive Board’sbusiness address is Kackertstrasse 15-17, D-52072 Aachen, Germany.

### **B.Compensation**

In a resolution passedduring the annual general meeting on May 18, 2005 and following the respectiveamendment of the Company’s bylaws, AIXTRON modified the Supervisory Board’scompensation, in accordance with the German Corporate Governance Code.

Individual members ofthe Supervisory Board receive € 18,000 per year. The Chairman receives € 54,000per year, and the Deputy Chairman receives € 27,000 per year. Supervisory Boardmembers receive in the aggregate a variable compensation of 1% of the Company’sretained earnings, less an amount corresponding to 4% of the paid-incontributions to the share capital.  TheChairman receives 6/17, the Deputy Chairman 3/17, and each other member of theSupervisory Board 2/17 of the variable compensation.  The Company limits variable compensation tofour times the fixed compensation per Supervisory Board member.  In addition, Supervisory Board members receivean attendance fee of € 1,500 for attending committee meetings, with theChairman receiving twice that amount. The total annual attendance fee per Supervisory Board member is limitedto one and a half times that person’s fixed compensation.

Executive Boardremuneration consists of three components: fixed remuneration includingallowances for private pension provision, a variable bonus, and stock-basedremuneration. In the Executive Board contracts of employment, an annual incomeis stipulated for the fixed remuneration component. The variable bonus is alignedto the consolidated net income for the year.

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As far as stock-basedremuneration is concerned, the Executive Board members participate in theAIXTRON stock option plans. The appropriateness of the above-mentioned paymentsis reviewed every 3 years.

The fixed remuneration componentis non-performance-related and is paid out on a monthly basis (13 times a year)as a salary. Additional payments in kind are made, mainly consisting of companycar usage and premiums for insurance policies.

The variableremuneration is paid from an “accrued internal bonus”, defined as 10% of themodified consolidated net income for the year concerned and limited to no morethan EUR 6.5 million in total. In 2006, EUR 411,000 is payable. Themodified consolidated net income for the year is obtained from the Company’sConsolidated Financial Statements (IFRS) certified by the auditor, less aconsolidated loss carryforward figure and those amounts that are to beallocated to earnings reserves in the Annual Financial Statements of AIXTRON AGby law or in accordance with the Articles of Association. The consolidated losscarryforward is obtained from consolidated net losses from previous years, lessconsolidated net income from subsequent fiscal years. Loss carryforwards fromfiscal years before January 1, 2006 are not taken into account.

AIXTRON and itsaffiliates paid € 1.67 million aggregate cash compensation during the2006 fiscal year to four members of the Executive Board for services in allcapacities and €0.18 million to six members of the Supervisory Board.  The tables below set forth these amounts byindividual members of the Executive and Supervisory boards, respectively.
| **Executive Board Member** | ** ** | **Fixed  (EUR)** | ** ** | **Premium  for Pension  Provision(EUR)** | ** ** | **Others*  (EUR)** | ** ** | **Variable  (EUR)** | ** ** | **Total Cash  Remu-  neration  (EUR)** | ** ** | **Stock-  based  Remu-  neration  (EUR)** | ** ** | **Total  Executive  Board  Remuneration  (EUR)** | ** ** |
|--------------------------------------|------------|------------------|------------|-----------------------------------------------|------------|--------------------|------------|---------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|--------------------------------------------------|------------|
| Paul Hyland                          |       | 310,918          |       | 40,000                                        |       | 9,577              |       | 176,000             |       | 536,495                                     |       | 52,148                                    |       | 588.643                                          |       |
| Wolfgang Breme                       |       | 223,200          |       | 40,000                                        |       | 9,259              |       | 88,000              |       | 360,459                                     |       | 12,678                                    |       | 373.137                                          |       |
| Dr. Bernd  Schulte                   |       | 260,000          |       | 40,000                                        |       | 10,926             |       | 88,000              |       | 398,926                                     |       | 52,148                                    |       | 451.074                                          |       |
| Dr. William W.R.  Elder              |       | 286,634          |       | 8,251                                         |       | 16,150             |       | 59,000              |       | 370,035                                     |       | 66,600                                    |       | 436.635                                          |       |
| Total                                |       | 1,080,752        |       | 128,251                                       |       | 45,912             |       | 411,000             |       | 1,665,915                                   |       | 183,574                                   | ** ** | 1.849.489                                        |       |

----

* Benefits in kind
| **Supervisory Board Member**                                 | ** ** | **Fixed** | ** ** | **Variable** | ** ** | **Attendance  Fee** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------|------------|-----------|------------|--------------|------------|---------------------|------------|-----------|------------|
| Kim  Schindelhauer* (Chairman of the Supervisory Board)                |       | 54,000    |       | 0            |       | 6,000               |       | 60,000    |       |
| Dr. Holger  Jürgensen* (Deputy Chairman of the Supervisory Board) |       | 27,000    |       | 0            |       | 6,000               |       | 33,000    |       |
| Prof. Dr.  Wolfgang Blättchen* (Chairman of the Audit Committee)  |       | 18,000    |       | 0            |       | 12,000              |       | 30,000    |       |
| Karl-Hermann  Kuklies                                                  |       | 18,000    |       | 0            |       | 0                   |       | 18,000    |       |
| Prof. Dr.  Rüdiger von Rosen                                      |       | 18,000    |       | 0            |       | 0                   |       | 18,000    |       |
| Joachim Simmroß*                                                  |       | 18,000    |       | 0            |       | 6,000               |       | 24,000    |       |
| Total                                                                  |       | 153,000   |       | 0            |       | 30,000              |       | 183,000   |       |

----

* Member of the Audit Committee

Remuneration of theExecutive Board is included in “personnel expenses”; remuneration of theSupervisory Board is included in “other operating expenses.”

47

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AIXTRON has granted eachExecutive Board member 55,000 new options to receive AIXTRON shares in2006.  Additionally, no member hasexercised his right to receive AIXTRON shares in 2006.  No options to acquire AIXTRON ordinary sharesmay be granted to members of the Supervisory Board.

In total, as at December31, 2006, the AIXTRON Executive Board held options to subscribe to 617,876shares or American depositary shares (“ADS”) in the Company. The amounts ofshares, underlying the options, are set out below. The realizable profits fromexercising of the stock options can differ significantly from the figures shownin the table.
| **Executive  Board  Member** | ** ** | **Allocation**                                                       | ** ** | **Outstanding  (shares)**                           | ** ** | **Exercisable  (shares)**          | ** ** | **Option Value  on Allocation  (EUR)**                    | ** ** | **Exercise  Price  (EUR)**                  | ** ** | **Maturity**                                                            |
|------------------------------|------------|----------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------------------------------|
| Paul Hyland                  |       | May 2006  May 2004  May 2003  May 2002  May 2001  May 2000           |       | 55,000  35,000  27,500  27,500  5,000  5,400        |       | 0  8,750  13,750  0  0  1,350      |       | 84,150  107,800  48,950  152,625  106,500  114,507        |       | 3.83  6.17  3.10  7.48  26.93  67.39        |       | Nov. 2016  Nov. 2014  Nov. 2013  May 2017  May 2016  May 2015           |
| Wolfgang Breme               |       | May 2006                                                             |       | 55,000                                              |       | 0                                  |       | 84,150                                                    |       | 3.83                                        |       | Nov. 2016                                                               |
| Dr. Bernd  Schulte           |       | May 2006  May 2004  May 2003  May 2002  May 2001  May 2000  May 1999 |       | 55,000  35,000  27,500  27,500  5,000  2,640  2,976 |       | 0  8,750  13,750  0  0  660  2,976 |       | 84,150  107,800  48,950  152,625  106,500  55,981  35,640 |       | 3.83  6.17  3.10  7.48  26.93  67.39  18.70 |       | Nov. 2016  Nov. 2014  Nov. 2013  May 2017  May 2016  May 2015  May 2014 |
| Dr. William W.R.  Elder      |       | May 2006  Oct. 2003  Oct. 2002  June 2002                            |       | 55,000  102,000  43,860  51,000                     |       | 0  78,625  43,860  51,000          |       | EUR 84,150  US $285,600  US $62,281  US $72,420           |       | EUR 3.83  US $8.00  US $2.53  US $5.02      |       | Nov. 2016  Oct. 2013  Oct. 2007  June 2007                              |
| Total                        |       |                                                                 |       | 617,876                                             |       | 223,471                            |       |                                                      |       |                                        |       |                                                                    |

 

The current ExecutiveBoard members have no individual pension benefits. The allowances for pensionprovision, paid by AIXTRON and listed above, are paid into an insurancecontract with a benevolent fund.

The Company’s netobligation in respect of defined benefit pension plans reflects commitments totwo former members of the Executive Board of AIXTRON AG. As at the end of 2006,this resulted in pension provisions totaling € 0.98 million). Expenditure fromthese pensions amounted to € 5 thousand in the reporting year.

### **C.Board Practices**

See “Item 6. Directors,Senior Management and Employees — Supervisory Board” and “— Executive Board.”

No additional benefitsare generally paid to the Company’s Executive Board Members upon termination oftheir employment contracts. If the employment contract of any of the Company’sExecutive Board Members is terminated without notice for good cause on the partof the Executive Board Member and for which he has to bear responsibility, theentitlement to the profit sharing bonus lapses from the time that thetermination becomes effective.

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See “Item 10. AdditionalInformation — Material Contracts” as well as Exhibits 4.4, 4.5, 4.6, 4.7, 4.8,and 4.9 to this report for further details of the Company’s directors’employment contracts.

#### ***Audit Committee***

According to Article16.1 of AIXTRON’s Articles of Association, the Supervisory Board is authorizedand, if prescribed by law, required to form committees of its members.

The Audit Committeeprimarily deals with matters such as accounting, risk management, the controlsystem, the auditors’ mandate, identification of areas to be audited, auditors’fee arrangements, while at the same time ensuring the necessary independence ofthe auditors. The Chairman of the Committee regularly reports to theSupervisory Board with regard to the work performed.

As of November 14, 2006,AIXTRON’s Audit Committee operates under the terms of reference of a codifiedAudit Committee charter. The Audit Committee’s charter includes the followingterms of reference:

·                  The AuditCommittee consists of up to four members, elects one Audit Committee member tobe the Audit Committee’s chairman and one Audit Committee member to be afinancial expert, and meets at least two times per year.

·                  The AuditCommittee performs its duties in accordance with legal requirements, AIXTRON’sarticles of association, the charter of AIXTRON’s Supervisory Board, and theAudit Committee charter.

·                  The AuditCommittee may inspect AIXTRON’s records and routinely liaises with both theCompany’s Executive Board and the auditors of the Company to identify andremedy possible weaknesses in AIXTRON’s accounting and internal controls and tosolve potential differences of opinion between the Company’s Executive Boardand the Company’s auditors.

Set forth in the tablebelow are the current members of the Audit Committee:

| Committee       | ** ** | **Members**                                                                                                                                 |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|
| Audit Committee |       | Prof. Dr.  Wolfgang Blättchen (Chairman), Dr. Holger Jürgensen, Dipl.-Kfm. Kim  Schindelhauer and Dipl.-Kfm. Joachim Simmroß |

 

#### ***Compliance with NASDAQ Listing Standards on Corporate Governance***

For information aboutthe Company’s compliance with the NASDAQ listing Standards on corporategovernance, see “Item 10. Additional Information — Memorandum and Articles ofAssociation — Sarbanes-Oxley Requirements and NASDAQ Rules.”

### **D.Employees**

The Company’sacquisition of Genus, now part of AIXTRON Inc., in March 2005 increasedsignificantly both the total number of employees (from 443 employees as ofDecember 31, 2004 to 570 employees as of December 31, 2005) and the proportionof U. S. employees (from 6 % as of December 31, 2004 to 21 % asof December 31, 2005).  Throughout 2005 and 2006, the Companyimplemented a number of cost reduction measures, including terminations ofemployee labor contracts in the United States and closures on existingfixed-term employee labor contracts in Germany. As a result, the global number of employees decreased by 9 % between March 31, 2005 (624 employees) andDecember 31, 2006 (566 employees). As of December 31, 2006, the majority of AIXTRON’s worldwide employeeswas based in Europe.  The following tableillustrates the division of AIXTRON’s employees by category of activity andgeographic region at December 31 for each of the years 2006, 2005, and 2004:

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### **Employees by Function**as of December 31

| ** **                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|
|                      |       |     |       |     |       |     |       |   |   |   |   |   |   |
| Sales and  Service        |       | 181      |       | 32       | %          | 171      |       | 30 | % | 112 |   | 25 | % |
| Research and  Development |       | 183      |       | 32       | %          | 187      |       | 33 | % | 161 |   | 36 | % |
| Manufacturing             |       | 128      |       | 23       | %          | 130      |       | 23 | % | 111 |   | 25 | % |
| Administration            |       | 74       |       | 13       | %          | 82       |       | 14 | % | 59 |   | 14 | % |
| **Total**                 | ** ** | **566**  | ** ** | **100**  | **%**      | **570**  | ** ** | **100** | **%** | **443** | ** ** | **100** | **%** |

 

### **Employees by Region**as of December 31

| ** ** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
|       |       |     |       |     |       |     |       |   |   |   |   |   |   |
| Asia       |       | 73       |       | 13       | %          | 70       |       | 12 | % | 34 |   | 8 | % |
| Europe     |       | 364      |       | 64       | %          | 381      |       | 67 | % | 381 |   | 86 | % |
| USA        |       | 129      |       | 23       | %          | 119      |       | 21 | % | 28 |   | 6 | % |
| **Total**  | ** ** | **566**  | ** ** | **100**  | **%**      | **570**  | ** ** | **100** | **%** | **443** | ** ** | **100** | **%** |

 

During the last threeyears, AIXTRON has not experienced any major labor disputes resulting in work stoppages.

### **E.Share Ownership**

The following table setsforth certain information known to AIXTRON regarding beneficial ownership ofthe Company’s ordinary shares and options to acquire its equity securities asof December 31, 2006 by (i) each of the Company’s Supervisory andExecutive Board members, (ii) each of the Company’s executive officers, (iii)all directors and executive officers of AIXTRON as a group, (iv) each personknown by AIXTRON to beneficially own more than 5% of its shares, and (v) thepercentage of the Company’s shares held by U.S. holders:
| **Name and Address of Beneficial Owner **** | ** ** | **Number of  Shares (1)** | ** ** | **%  of  Class (2)** | ** ** | **Number of  Options to  Acquire  AIXTRON  Equity  Securities** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | ** **                          | ** ** | ** **                | ** ** | ** **                                                                | ** ** |
| Prof. Dr.  Wolfgang Blättchen                                        |       | 294                                 | (3)        | *                         |       | 0                                                                         |       |
| Wolfgang Breme                                                            |       | 0                                   |       | *                         |       | 55,000                                                                    |       |
| Dr. William W.R.  Elder                                                   |       | 121,747                             | (4)        | *                         |       | 251,860                                                                   | (11)       |
| Paul Hyland                                                               |       | 0                                   |       | *                         |       | 151,350                                                                   | (11)       |
| Dr. Holger  Jürgensen                                                |       | 10,037,108                          | (5)        | 11.18                     | %          | 0                                                                         |       |
| Karl-Hermann  Kuklies                                                     |       | 3,600                               | (6)        | *                         |       | 0                                                                         |       |
| Prof. Dr.  Rudiger von Rosen                                              |       | 1,100                               |       | *                         |       | 0                                                                         |       |
| Kim  Schindelhauer                                                        |       | 1,039,604                           | (7)        | 1.16                      | %          | 0                                                                         |       |
| Dr. Bernd  Schulte                                                        |       | 0                                   |       | *                         |       | 150,908                                                                   | (11)       |
| Joachim Simmroß                                                      |       | 35,000                              | (8)        | *                         |       |                                                                      |       |
| All Supervisory  and Executive Board members as a group.                  |       | 11,238,453                          |       | 12.52                     | %          | 609,118                                                                   |       |
| Approximate% held by  U.S. holders (ADSs outstanding)                     |       | 10,539,639                          | (9)        | 11.74                     | %          |                                                                      |       |

 

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*                    Lessthan 1%.

**             Exceptas indicated otherwise, the address is: c/o AIXTRON Aktiengesellschaft, Kackertstrasse 15-17, D-52072 Aachen,Germany.

(1)             Exceptas otherwise indicated in the footnotes to this table and pursuant toapplicable community property laws, the persons named in the table have solevoting and investment power with respect to all shares of common stock shown asbeneficially owned by them.

(2)             Applicablepercentage ownership is based on 89,799,397 shares of common stock outstandingas of December 31, 2006 (according to German GAAP rules based on the GermanCommercial Code (HGB)) together with applicable options for suchshareholder.  Beneficial ownership isdetermined in accordance with the rules of the SEC, based on factors includingvoting and investment power with respect to shares.

(3)             Consistsof 294 shares owned by Prof. Dr. Blättchen’s wife.

(4)             Equivalentto 121,747 ADSs. Dr. William W.R. Elder, beneficially owns 121,747 ADSs, ofwhich 47,735 were held directly, 55,398 were held indirectly through the Elderfamily trust and 18,614 were held by a custodian for his sons.

(5)             Dr.Jürgensen, directly or indirectly, beneficially owns 10,037,108 shares throughhis ownership stake in CAMMA GmbH.

(6)             Includes1,900 shares owned by his wife and 1,700 shares owned by his daughter.

(7)             Mr.Schindelhauer, directly or indirectly, beneficially owns 1,039,604 sharesthrough his ownership stake in SBG Beteiligung GmbH.

(8)             Includes20,000 shares owned directly, and 15,000 owned indirectly by Mr. Simmroß’swife.

(9)             Equivalentto 10,539,639 ADSs outstanding as a percentage of total shares outstanding,assuming that all ADSs are held by U.S. beneficial holders.  Source: JPMorgan. Data as of December 31, 2006.

(10)       Mr.Hyland, Mr. Breme, and Dr.. Schulte hold options to acquire AIXTRON ordinaryshares. Dr. Elder holds 196,860 options to acquire AIXTRON ADSs and 55,000Options to acquire AIXTRON ordinary shares.

 

As ofDecember 31, 2006, members of the Company’s Supervisory Board, agroup of six persons, indirectly or directly, held 11,116,706 AIXTRON ordinaryshares.

Pursuant to Section 15aof the German Securities Trading Act (WpHG), in effect during the reportingperiod, members of the Executive and Supervisory Boards were required todisclose significant purchases or sales of shares of AIXTRON.  In fiscal year 2006, Supervisory Board memberJoachim Simmroß reported he had purchased directly 300 shares of AIXTRON onSeptember 9, 2006 at a purchase price per share of € 3.02. Additionally,Mr. Simmroß reported that he had purchased on September 25, 2006 2,700 sharesof AIXTRON directly at a purchase price per share of € 3.02 and 5,000shares of AIXTRON indirectly through his wife at a purchase price per share of€ 3.02.

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#### ***Employee Bonds and Options***

*EmployeeBonds*

In November 1997, theCompany issued 6% convertible bonds to employees, due November 2007, with aprincipal amount of € 320 thousand, interest payable annually in arrears. Thebonds are not transferable and must be repurchased at par if the employeeleaves the Company. The notes are convertible, at the option of the holder,into shares of common stock, initially at a conversion rate of 480 shares(after the effects of share splits) of common stock for each € 51.13 principalamount of notes plus payment of an additional € 971.45, subject to adjustmentin certain circumstances. The right to convert expires at the end of the lifeof the bond in November 2007. The conversion feature was not deemed to bebeneficial at issuance.

During 2006 and 2005 nobonds were converted into common stock.

The remainingoutstanding convertible bonds as of December 31, 2006, amounting to€ 3 thousand can be converted, at the option of the holders, into25,440 shares of common stock through November 2007.

As part of theacquisition of Genus, Inc, the Company assumed liabilities from convertiblebonds at total par value of € 4,807 thousand (US$ 6,450 thousand) andat an interest rate of 7%. The convertible bonds were issued by Genus, Inc. inAugust 2002 and had a maturity term of three years. The interest was due everysix months in February and in August and could be paid, at the option of Genus,Inc. either in cash or in shares of common stock. The holder of the notes hadthe option to either convert the note into shares of Genus common stock at aconversion rate of one Genus share for each US$ 1.42 principal amount ofnotes, or to demand that there be a repayment in cash at the due date in August2005. The option of conversion into Genus stock shares was changed, at the dateof the Genus acquisition, into a right to convert each Genus stock share into a0.51 AIXTRON ADS. For this purpose the required AIXTRON ADS were contributedinto the trust as part of the acquisition (see note 22).

In August 2005, theconvertible bonds and the interest incurred since March 13, 2005 were completelysettled by way of conversion into AIXTRON ADS. In this conversion 2,383,920 ADSfrom the trust were issued to the holder of the convertible bonds. As a resultno liability from the Genus convertible bond existed at December 31, 2005 orDecember 31, 2006.

As part of theacquisition of Genus, liabilities for additional options over 60,409 ADS wereassumed. These options were still outstanding as of December 31, 2005. Theoptions were held by unrelated third parties. Their weighted-average exerciseprice was US$ 9.95 per ADS. The options expired on May 13, 2006 without beingexercised.

*Stock Option Plans*

The Company hasdifferent fixed option plans which reserve shares of common stock and AIXTRONAmerican Depository Shares (ADS) for the issuance to members of the ExecutiveBoard, management and employees of the Company. Each AIXTRON ADS represents thebeneficial ownership in one AIXTRON common share. The following is adescription of these plans:

*AIXTRON stock option plan 1999*

In May 1999, optionswere authorized to purchase 3,000,000 shares of common stock (after givingeffect to capital increases, stock splits, and the EURO conversion). Theoptions are exercisable in equal installments of 25% per year after the secondanniversary of the date of grant, subject to certain conditions. Vested optionsare only permitted to be exercised when the performance of the AIXTRON stockexceeds the performance of the Technology AS Price Index (formerly the NewMarket Index) by at least 5% in the reference period or when the turnoverreported by AIXTRON rises by at least 25% per year and the profit/revenue ratiois at least 12%. Regardless of fulfillment of these conditions, the stock optionscan be exercised when 15 years have elapsed. Under the terms of the 1999 plan,options are granted at prices equal to the average closing price over the last20 trading days on the Frankfurt Stock Exchange before the grant date. Alloptions are settled by physical delivery of shares. Under this plan 1,245,151options for the purchase of 1,926,005 common shares were outstanding as ofDecember 31, 2006.

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In 2002, options weregranted with the exercise price slightly less than fair market value. Fairmarket value is determined based upon the closing trading price on grant date.

*AIXTRON stock option plan 2002*

In May 2002, optionswere authorized to purchase 3,511,495 shares of common stock. The options areexercisable in equal installments of 25% per year after the second anniversaryof the date of grant, subject to certain conditions. Options expire ten yearsfrom date of grant. Under the terms of the 2002 plan, options are granted atprices equal to the average closing price over the last 20 trading days on theFrankfurt Stock Exchange before the grant date, plus a premium of 20% over theaverage closing price. No grants were issued with a strike price less than fairmarket value. All options are settled by physical delivery of shares. A totalof 3,134,560 options to purchase the same number of common stock wereoutstanding under this plan as of December 31, 2006.

*Genus stock option plan 2000*

With the acquisition ofGenus, Inc. the Company adopted the Genus Incentive Stock Option Plan 2000.Under this plan at the date of acquisition options were authorized to purchase3,948,014 Genus shares of common stock. At the date of acquisition theseoptions were converted into options to purchase 2,013,487 AIXTRON ADS. Optionsgranted before October 3, 2003 vest over a three-year-period and expire fiveyears from the date of grant. Options granted after October 3, 2003 vest over afour-year-period and expire in ten years from the date of grant. A total of994,469 options to purchase AIXTRON ADS were outstanding under this plan as ofDecember 31, 2006.

See Note 25 to AIXTRON’sConsolidated Financial Statements for more information on AIXTRON’s employeestock option plans.

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## **Item 7:  Major Shareholders and Related PartyTransactions**

### **A.Major Shareholders**

As of December 31, 2006,Dr. Holger Jürgensen, one of the Company’s founders and Deputy Chairman of theCompany’s Supervisory Board, directly or indirectly, beneficially owned11.18 % of AIXTRON’s ordinary shares through his ownership stake in CammaGmbH.  See also “Item 6. Directors,Senior Management and Employees — Share Ownership”.

As ofDecember 31, 2006, J.P. Morgan Services Inc., Newark, held 10,539,639ordinary shares, represented by 10,539,639 ADSs, or 11.74 % of AIXTRON’sshares outstanding.

To the Company’sknowledge and based on public filings, there was no other single natural orlegal person that may be considered a beneficial owner of 5 % or more ofAIXTRON’s outstanding shares as of December 31, 2006.

As of May 11, 2006,AIXTRON had approximately 74,000 shareholders, based on the number of mailingsof invitations for the annual general meeting in accordance with Section 125 ofthe German Corporation Law (AktG).  As ofDecember 31, 2006, 140 registered ADS holders (excluding DTC) held2,186,109 ADSs representing 2.43 % of total shares outstanding.  A significant number of such registered ADSholders may be U.S. beneficial ADS holders, estimated to be 5,933 in totalbased on the number of holders reported by ADP for broker search dated December29, 2006.  See also “Item 6. Directors,Senior Management and Employees — Share Ownership”.

The Company’s majorshareholders do not have voting rights that are different from any othershareholder.

### **B.Related Party Transactions**

Related parties of theCompany are subsidiaries, directors, executive officers and members of theSupervisory Board.  See “Item 6.Directors, Senior Management and Employees — Compensation” for informationrelating to the compensation of AIXTRON’s Executive Board members andSupervisory Board members.

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## **Item 8:  Financial Information**

### **A.Consolidated Statements and Other Financial Information**

See “Item 5. Operatingand Financial Review and Prospects” and “Item 18. Financial Statements.”

#### ***Export Revenues***

Revenues outside ofEurope accounted for € 149,5 million or 87.05% of AIXTRON’s total revenuesfor the year ended December 31, 2006, € 117.3 million or 84.18% of AIXTRON’stotal revenues for the year ended December 31, 2005 and € 126.4 million or90.26% of AIXTRON’s total revenues for the year ended December 31, 2004.  Revenues to AIXTRON’s Asian-based customersaccounted for € 135.2 million or 78.76% of the Company’s totalrevenues for the year ended December 31, 2006, € 103 million or 73.89% of theCompany’s total revenues for the year ended December 31, 2005 and € 108.1million or 77.21% of the Company’s total revenues for the year ended December31, 2004.

#### ***Legal Proceedings***

In the normal course ofbusiness, the Company is subject to various legal proceedings and claims.  The Company believes that the matters theCompany is aware of are not likely to have a material adverse effect on itsfinancial condition or results of operations. The Company is not aware of any unasserted claims that may have amaterial adverse effect on its financial condition or results of operation.

#### ***Policy on Dividend Distributions***

The maximum amount ofdividends available for distribution to shareholders is based on the level ofearnings (Bilanzgewinn), as determined in accordance with the German CommercialCode (Handelsgesetzbuch) and the German Stock Corporation Act(Aktiengesetz).  All dividends must beapproved by the Company’s shareholders.

Net of a transfer of€ 1.4 million to retained earnings, AIXTRON AG, the parent company ofthe AIXTRON Group, recorded a net accumulated income of € 1.4 millionfor 2006.  Since the Company continues tofocus on the development and expansion of its business, AIXTRON’s Executive andSupervisory Boards will propose to the shareholders’ meeting that no dividendbe distributed for 2006. AIXTRON recorded net accumulated results of 0 €for both 2005 and 2004, and no dividends were distributed since therequirements for distributing a dividend were not met in these years.

#### **B.Significant Changes**

See Note 35 (“EventsAfter the Balance Sheet Date”) to AIXTRON’s Consolidated Financial Statementsand “Item 4.  Information on the Company —History and Development of the Company — Important Events.”

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## **Item 9:  The Offer and Listing**

Items 9.A.1. throughA.3., Items 9.A.5. through A.7., and Items B., D., E. and F. are notapplicable.

#### ***Trading Markets***

The principal tradingmarket for AIXTRON’s ordinary shares is the Frankfurt Stock Exchange, where theshares trade under the symbol “AIX.” AIXTRON’s ADRs, each evidencing one ADS, which represents one ordinaryshare, trade on the NASDAQ Capital Market under the symbol “AIXG.”

#### ***Market Price Information***

*Frankfurt Stock Exchange*

The table below setsforth, for the calendar periods indicated, the high and low XETRA closingprices (on the Deutsche Börse’s electronic trading system) for AIXTRON’sordinary shares. See the discussion under “Item 3. Key Information — ExchangeRate Information” for information with respect to rates of exchange between theU.S. dollar and the euro applicable during the periods set forth below.

|                                       | ** ** | **XETRA closing price per  ordinary share*  (in euro)** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **High**                                                                    | ** ** | **Low** | ** ** |
| ** **                            | ** ** | ** **                                                                  | ** ** | ** ** | ** ** |
| **Annual**                            | ** ** | ** **                                                                  | ** ** | ** ** | ** ** |
| 2002**                                |       | 29.45                                                                       |       | 4.25 |   |
| 2003                                  |       | 5.68                                                                        |       | 2.09 |   |
| 2004                                  |       | 7.08                                                                        |       | 3.05 |   |
| 2005                                  |       | 3.95                                                                        |       | 2.36 |   |
| 2006                                  |       | 4.01                                                                        |       | 2.46 |   |
| **Quarterly**                         | ** ** | ** **                                                                  | ** ** | ** ** | ** ** |
| 2003                                  |       |                                                                        |       |   |   |
| First quarter                         |       | 5.09                                                                        |       | 2.09 |   |
| Second quarter                        |       | 4.67                                                                        |       | 2.51 |   |
| Third quarter                         |       | 5.68                                                                        |       | 3.67 |   |
| Fourth quarter                        |       | 5.55                                                                        |       | 4.44 |   |
| 2004                                  |       |                                                                        |       |   |   |
| First quarter                         |       | 7.08                                                                        |       | 4.88 |   |
| Second quarter                        |       | 6.01                                                                        |       | 4.52 |   |
| Third quarter                         |       | 5.82                                                                        |       | 4.71 |   |
| Fourth quarter                        |       | 4.33                                                                        |       | 3.05 |   |
| 2005                                  |       |                                                                        |       |   |   |
| First quarter                         |       | 3.95                                                                        |       | 3.25 |   |
| Second quarter                        |       | 3.22                                                                        |       | 2.36 |   |
| Third quarter                         |       | 3.19                                                                        |       | 2.67 |   |
| Fourth quarter                        |       | 2.93                                                                        |       | 2.39 |   |
| 2006                                  |       |                                                                        |       |   |   |
| First quarter                         |       | 3.88                                                                        |       | 2.46 |   |
| Second quarter                        |       | 4.01                                                                        |       | 2.51 |   |
| Third quarter                         |       | 3.12                                                                        |       | 2.55 |   |
| Fourth quarter                        |       | 3.44                                                                        |       | 2.89 |   |
| **Monthly**                           | ** ** | ** **                                                                  | ** ** | ** ** | ** ** |
| 2006                                  |       |                                                                        |       |   |   |
| August                                |       | 3.04                                                                        |       | 2.82 |   |
| September                             |       | 3.12                                                                        |       | 2.81 |   |
| October                               |       | 3.44                                                                        |       | 2.89 |   |
| November                              |       | 3.40                                                                        |       | 3.10 |   |
| December                              |       | 3.34                                                                        |       | 3.09 |   |
| 2007                                  |       |                                                                        |       |   |   |
| January                               |       | 4.02                                                                        |       | 3.55 |   |
| February  (through February 15, 2007) |       | 4.15                                                                        |       | 3.91 |   |

----

**Source:  Bloomberg*
| ** | The 2000 ordinary shareholders’ meeting resolved to  increase the stated share capital of AIXTRON out of retained earnings by  issuing new shares. In effect, each share with a proportionate value of € 2  per share in the stated share capital was replaced by two shares, each with a  proportionate value of € 1 per share in the stated share capital. The numbers  in the chart reflect this increase. The 2001 ordinary shareholders’ meeting  resolved to increase the stated share capital of AIXTRON out of retained  earnings by issuing new shares. In effect, each share with a proportionate  value of € 2 per share in the stated share capital was replaced by two  shares, each with a proportionate value of € 1 per share in the stated share  capital. The numbers in the chart reflect this increase. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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On February 15, 2007,the XETRA closing price per ordinary share was € 4.04.

*NASDAQ Market*

Official trading ofAIXTRON’s ADSs on the NASDAQ Capital Market commenced on March 11, 2005.

The following table setsforth, for the calendar periods indicated, the high and low closing prices perADS as reported on the NASDAQ Capital Market:

|                                       | ** ** | **Price per  ADS*  (in USD)** | ** ** |
|---------------------------------------|------------|-----------------------------------------|------------|
| ** **                            | ** ** | **High**                                | ** ** | **Low** | ** ** |
| ** **                            | ** ** | ** **                              | ** ** | ** ** | ** ** |
| **Annual**                            | ** ** | ** **                              | ** ** | ** ** | ** ** |
| 2002                                  |       | na                                      |       | na |   |
| 2003                                  |       | na                                      |       | na |   |
| 2004                                  |       | na                                      |       | na |   |
| 2005                                  |       | 4.86                                    |       | 2.78 |   |
| 2006                                  |       | 4.92                                    |       | 2.95 |   |
| **Quarterly**                         | ** ** | ** **                              | ** ** | ** ** | ** ** |
| 2003                                  |       |                                    |       |   |   |
| First quarter                         |       | na                                      |       | na |   |
| Second quarter                        |       | na                                      |       | na |   |
| Third quarter                         |       | na                                      |       | na |   |
| Fourth quarter                        |       | na                                      |       | na |   |
| 2004                                  |       |                                    |       |   |   |
| First quarter                         |       | na                                      |       | na |   |
| Second quarter                        |       | na                                      |       | na |   |
| Third quarter                         |       | na                                      |       | na |   |
| Fourth quarter                        |       | na                                      |       | na |   |
| 2005                                  |       |                                    |       |   |   |
| First quarter                         |       | 4.86                                    |       | 4.16 |   |
| Second quarter                        |       | 4.05                                    |       | 2.97 |   |
| Third quarter                         |       | 3.81                                    |       | 3.21 |   |
| Fourth quarter                        |       | 3.43                                    |       | 2.78 |   |
| 2006                                  |       |                                    |       |   |   |
| First quarter                         |       | 4.57                                    |       | 2.95 |   |
| Second quarter                        |       | 4.92                                    |       | 3.12 |   |
| Third quarter                         |       | 3.92                                    |       | 3.13 |   |
| Fourth quarter                        |       | 4.43                                    |       | 3.59 |   |
| **Monthly**                           | ** ** | ** **                              | ** ** | ** ** | ** ** |
| 2006                                  |       |                                    |       |   |   |
| August                                |       | 3.81                                    |       | 3.54 |   |
| September                             |       | 3.92                                    |       | 3.50 |   |
| October                               |       | 4.29                                    |       | 3.59 |   |
| November                              |       | 4.27                                    |       | 4.08 |   |
| December                              |       | 4.43                                    |       | 4.01 |   |
| 2007                                  |       |                                    |       |   |   |
| January                               |       | 5.26                                    |       | 4.55 |   |
| February  (through February 15, 2007) |       | 5.34                                    |       | 5.04 |   |

----

**Source:  Bloomberg*

On February 15, 2007,the closing price per ADS on the NASDAQ Capital Market was $ 5.29.

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## **Item 10:  Additional Information**

### **A.Share Capital**

Not applicable.

### **B.Memorandum and Articles of Association**

Copies of the Company’s Articlesof Association are publicly available from the commercial register(Handelsregister) of the local court (Amtsgericht) in Aachen, Germany, underthe entry number HRB 7002.  An Englishtranslation of the Company’s Articles of Association as of May 11, 2006 can befound in exhibit no. 1.1.

According to article 2of AIXTRON’s Articles of Association, the purpose of the Company is themanufacture and sale of products, as well as research and development andservices for the implementation of semiconductor technologies and otherphysicochemical technologies, particularly those bearing the AIXTRONtrademark.  The Company is authorized toconduct all transactions suitable for promoting the Company’s purposeindirectly and directly.  The Company mayestablish branch offices in Germany and abroad, may acquire equity interests inother companies in Germany and abroad, as well as purchase or establish suchcompanies.  The Company may outsource allor part of its operations to affiliates.

With respect to Items 10.B.2.through 10.B.10, see “Description of the AIXTRON Ordinary Shares” and “Descriptionof the American Depositary Shares” in the Registration Statement on Form F-4(Reg. No. 333-122624) filed on February 8, 2005.  Regarding the “Description of the AIXTRONOrdinary Shares, incorporated by reference, please note that meanwhile (i) theacquisition of Genus, Inc. has been completed and (ii) in particular thefollowing additional changes have occurred:

The amount of the statedshare capital of AIXTRON has changed and amounts to € 89,799,397 as of December31, 2006.  It is divided into 89,799,397no-par value bearer shares.  Shareholdersare not entitled to be issued a share certificate representing their share(s).

As a result of changesof the German Stock Corporation Act (Aktiengesetz) and changes of the Articlesof Association which were resolved by the stockholders at the general meetingon May 11, 2006, the participation at the general meeting no longer requiresdeposit (Hinterlegung) of ordinary shares, but a timely submission of specialproof of possession of the ordinary shares (Nachweis des Anteilsbesitzes) on acertain date.

According to the GermanStock Corporation Act, the notice requirements provided for in the German StockCorporation Act do not apply to listed companies as defined in the GermanSecurities Trading Act (Wertpapierhandelsgesetz).  For such companies only the noticerequirements provided for in the German Securities Trading Act(Wertpapierhandelsgesetz) apply.

See also Item 6. “Directors,Senior Management and Employees — Supervisory Board” and “— Executive Board”for further information about the Supervisory Board and the Executive Board.

#### ***Corporate Governance***

AIXTRON’s Declaration ofConformity with the recommendations of the Government Commission of the GermanCorporate Governance Code (Regierungskommission Deutscher Corporate GovernanceKodex) was last updated in March 2007 and states the Company’s completecompliance with the Corporate Governance Code. It is posted in the “InvestorRelations” section of AIXTRON’s website at www.aixtron.com.

#### ***Sarbanes-Oxley Act Requirements and NASDAQ Rules***

AIXTRON’s AmericanDepositary Shares were listed for trading on the NASDAQ Capital Market inconnection with the Genus transaction in March 2005.  As a result, AIXTRON is subject to various 

58

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requirements under theU.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and therules of the NASDAQ Capital Market (the “NASDAQ Rules”).

To facilitate theCompany’s compliance with the Sarbanes-Oxley Act, the Exchange Act and theNASDAQ Rules, AIXTRON has taken various steps, including the establishment of aDisclosure Committee that is responsible for reviewing and approving its publicdisclosures, and a review of its Audit Committee policies.  AIXTRON has also introduced procedures toprovide the senior management certifications mandated by the Sarbanes-OxleyAct.  These procedures and certificationsare a basis on which AIXTRON’s Chief Executive Officer and Chief FinancialOfficer may provide such certifications. AIXTRON has also implemented procedures for handling complaints relatedto accounting practices and introduced a Code of Ethics.

In conjunction with theits annual report for the year ending December 31, 2006, the Company isrequired to include a report from its management relating to its evaluation ofthe Company’s internal control over financial reporting, as required pursuantto Section 404 of the U.S. Sarbanes-Oxley Act, see Item 15T in this annualreport on Form 20-F.

Companies listed onNASDAQ are subject to the provisions of NASDAQ Rule 4350 (“Rule 4350”), amongother NASDAQ Rules.

In general, pursuant toRule 4350(a)(1), as amended, a “foreign private issuer” such as AIXTRON mayfollow its home country law and practice in lieu of the corporate governancerequirements of NASDAQ.  A foreignprivate issuer that elects to follow home country practice in lieu of Rule 4350must provide a written statement from an independent counsel in the issuer’shome country certifying that the non-conforming practices are not prohibited bythe home country’s law.  AIXTRON providedsuch a written statement in connection with its March 2005 listing application.

A foreign private issuerthat follows a home country practice in lieu of one or more provisions of Rule4350 is also required to disclose in its annual reports filed with the SEC eachrequirement of Rule 4350 that it does not follow and describe the home countrypractice followed by the issuer in lieu of such requirement.

AIXTRON intendsgenerally to comply with applicable German corporate governance practice ratherthan certain of the requirements of Rule 4350. The requirements of Rule 4350 that AIXTRON is not following and itsnon-conforming practices in lieu thereof are as follows:
|        | · |   | Rule 4350(b)(1)(A) requires distribution to  shareholders of copies of an annual report containing audited financial  statements of the company and its subsidiaries. The report shall be  distributed to shareholders a reasonable period of time prior to the  company’s annual meeting of shareholders and shall be filed with NASDAQ at  the time it is distributed to shareholders. Under the German Stock  Corporation Act (Aktiengesetz) annual and interim reports are not  automatically distributed to shareholders by a company. However, AIXTRON is  required to make its annual reports available to the shareholders at the  Company’s offices and to mail such reports to shareholders upon request.  AIXTRON files its annual reports with the Securities and Exchange Commission.  In addition, under the deposit agreement relating to AIXTRON’s ADSs, the  Company has agreed to provide annual reports to the depositary bank (JPMorgan  Chase Bank) so that the depositary bank may arrange for distribution of such  information to holders of AIXTRON’s ADSs;                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | · |   | Rule 4350(c) requires, among other things, that a  majority of a company’s board of directors must be comprised of independent  directors (as defined in NASDAQ Marketplace Rule 4200) and sets forth certain  voting and independence requirements with respect to the nomination of board  members and the determination of compensation of officers. Under the German  Stock Corporation Act (Aktiengesetz) members of the Executive Board are  elected by the Supervisory Board. The Executive Board manages the Company  under its own responsibility, i.e., the Executive Board is not bound by  orders of third parties. Neither the general meeting nor the Supervisory  Board may issue orders to the Executive Board. The Executive Board is  obligated to comply with the statutory regulations, the provisions of the  Articles of Association and the Rules of Procedure of the Executive Board  relating to the competencies within the company, namely the competencies of  the Supervisory Board and the general meeting. Furthermore the Supervisory  Board is responsible for the compensation agreements with the members of  Executive Board. When concluding these compensation agreements with the  individual members of the Executive Board the Supervisory Board is obligated  to ensure that the overall remuneration for the individual members of the  Executive Board is reasonable in relation to their duties and the situation  of the Company; |

 

59

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|   | · |   | Rule 4350(d) sets forth certain requirements with  respect to a company’s Audit Committee (including committee charter,  composition, responsibilities and authority). The NASDAQ Rules require the  creation of several specified board committees composed of independent  directors and operating pursuant to written charters that set forth their  tasks and responsibilities. AIXTRON currently has an Audit Committee.  Nevertheless, German law precludes certain responsibilities from being  delegated to a committee, such as the selection of the independent auditors,  who are required by German law to be elected at the shareholders’ meeting.  The independence of the members of AIXTRON’s Supervisory Board committees is  governed by the independence standards applicable to Supervisory Board  members. Collectively, AIXTRON’s Supervisory Board is responsible for many of  the same functions as the committees required under Rule 4350; |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | · |   | Rule 4350(f) requires that a company’s by-laws  provide for a quorum for any meeting of the holders of common stock of at  least 33 1/3% of the outstanding shares of the company’s voting stock.  Neither German law nor the rules and regulations promulgated by the Frankfurt  Stock Exchange require a specific quorum for annual general meetings;  therefore, AIXTRON’s Articles of Association do not provide for a quorum. Such  a requirement would be contrary to generally accepted business practice in  Germany and the absence of a quorum requirement in AIXTRON’s Articles of  Association is consistent with German law;                                                                                                                                                                                                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | · |   | Rule 4350(g) requires a company to solicit proxies  and provide proxy statements for all meetings of shareholders and to provide  copies of such proxy solicitation to NASDAQ. Under German law, the voting  right may be exercised by a proxy. There are no restrictions regarding the  person of the proxy. AIXTRON offers to its shareholders to exercise their  voting rights in the general meeting through proxies appointed by the  Company. The proxies appointed by AIXTRON are obliged to vote in accordance  with the instructions of the represented shareholder. In such case, AIXTRON  provides proxy statements which contain recommendations for the exercise of  the voting right on each item of the agenda. In accordance with the  requirements of the German Stock Corporation Act (Aktiengesetz), AIXTRON  keeps the declarations of such proxies available for inspection for a period  of three years.                                                           |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |   | Under the deposit agreement pertaining to AIXTRON’s  ADSs, JPMorgan Chase Bank as AIXTRON’s depositary bank mails to holders of  ADSs a notice stating inter alia that each holder of ADSs is entitled to  instruct the depositary bank as to the exercise of the voting rights. Each  shareholder who desires to exercise or to give instructions for the exercise  of voting rights must execute and return a document provided by the  depositary bank that instructs the depositary bank as to how the number of  the shares represented by such holders’ ADSs are to be voted; and                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | · |   | Rule 4350(i) generally requires U.S. domestic  companies to obtain shareholder approval of all equity-compensation plans  (including stock option plans) and any material revisions to them. In lieu of  the requirements of Rule 4350(i), AIXTRON follows the German Stock  Corporation Act (Aktiengesetz), which requires that the adoption of stock  option plans and any material revisions thereto be approved by the Company’s  shareholders insofar as the issuance of shares and/or stock options under  authorized or contingent capital authorizations requires shareholder  approval. This approval requires consideration of the key elements of the  applicable option plan or relevant modifications.                                                                                                                                                                                                                                                                 |

Othersignificant differences between AIXTRON’s governance practices and those ofU.S. domestic NASDAQ-listed companies are as follows:

*Two-Tier Board*

The German StockCorporation Act requires AIXTRON to have a two-tier board structure consistingof an Executive Board and a Supervisory Board, which is not comparable to theone-tier or unitary board system in the U.S. The two-tier system provides a strict separation of management andsupervision.  Roles and responsibilitiesof each of the two boards are clearly defined by law.

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*Independence*

Under this two-tierboard system, except as described above, AIXTRON’s methods for determining andensuring the independence of its Supervisory Board differ from those of NASDAQMarketplace Rule 4350, which generally contemplates a U.S.-style, one-tiersystem.  In contrast to the NASDAQ Rules,which require the board to affirmatively determine the independence of theindividual directors with reference to specific tests of independence, Germanlaw does not require the Supervisory Board to make such affirmative findings onan individual basis.  At the same time,the Bylaws of AIXTRON’s Supervisory Board contain several provisions to helpensure the independence of the Supervisory Board’s advice and supervision.  Furthermore, the members of AIXTRON’sSupervisory and Executive Boards are strictly independent from oneanother.  A member of one board islegally prohibited from being concurrently active on the other.  Supervisory Board members have independentdecision making authority and are legally prohibited from following thedirection or instruction of any affiliated party.  Moreover, Supervisory Board members may notenter into advisory, service or certain other contracts with AIXTRON, unlessapproved by the Supervisory Board.

*Compliance with the requirementsof NASDAQ Marketplace Rule 4350 applicable to foreign private issuers*

UnderRule 4350(a)(1), as amended, however, even a foreign private issuer such asAIXTRON is still required to comply with Rule 4350(b)(1)(B)(relating todisclosure of “going concern” qualifications), Rule 4350(j)(relating toexecution of NASDAQ form listing agreements) and Rule 4350(m)(relating toissuer notices to NASDAQ of material noncompliance with Rule 4350); and to havean Audit Committee that satisfies Rule 4350(d)(3)(regarding compliance withRule 10A-3 of the Exchange Act) and to ensure that such Audit Committee’smembers meet the independence requirement in 4350(d)(2)(A)(ii)(regardingindependence required under Rule 10A-3 of the Exchange Act).

AIXTRON’s SupervisoryBoard has determined that as of December 31, 2006, the Company is in compliancewith the aforementioned requirements applicable to foreign private issuerspursuant to Rule 4350.  In particular,AIXTRON’s Supervisory Board has determined that each member of the AuditCommittee is “independent” as set forth in Rule 10A-3 of the Exchange Act andas required by Rule 4350(d)(2)(A)(ii).

*CorporateGovernance Guidelines*

AIXTRON has adopted aCode of Ethics that applies to the members of the Company’s Executive Board andsenior financial officers nominated by the Executive Board.

Various documentspertaining to AIXTRON’s corporate governance, including its Articles ofAssociation and the report on the Company’s fulfillment of the requirements ofthe German Corporate Governance Code, may be found on AIXTRON’s internetwebsite at www.aixtron.com.  Theinformation available on AIXTRON’s website is not incorporated by referenceinto this report.

### **C.Material Contracts**

#### ***Employment contracts of current members of the Executive Board.***

The Company’s employmentcontract with **Paul Hyland**,effective as of April 1, 2002 and amended as ofOctober 20, 2004, provides for a base salary of € 310,700 peryear and a bonus in accordance with the employment contract (3% of AIXTRON’sannual Group net income adjusted by additions to and withdrawals from revenuereserves (“modified annual AIXTRON Group net income”)). The total amountavailable to be paid as a bonus to all Executive Board members as a group islimited to € 6.5 million, or 10% of the modified annual AIXTRON Groupnet income.  For the purposes of apension scheme, the Company pays Mr. Hyland € 40,000 per year as thepremium for a life insurance of his choice to be taken out or as an additionalcomponent of his gross salary.  Inaddition, the Company pays Mr. Hyland the employer’s contribution to thecompulsory health insurance or the same amount to an alternative insurance withwaiver.  Mr. Hyland’s present employmentcontract will expire on March 31, 2010.

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The Company’s employmentcontract with **Wolfgang Breme**,effective as of April 1, 2005, provides for a base salary of€ 230,100 per year and a bonus in accordance with the employment contract(1.5% of AIXTRON’s annual Group net income adjusted by additions to andwithdrawals from revenue reserves (“modified annual AIXTRON Group net income”)).  The total amount available to be paid as abonus to all Executive Board members as a group is limited to€ 6.5 million, or 10% of the modified annual AIXTRON Group netincome.  For the purposes of a pensionscheme, the Company pays Mr. Breme € 25,000 per year in the first year ofemployment and € 40,000 per year in the following employment years, as thepremium for a life insurance of his choice to be taken out or as an additionalcomponent of his gross salary.  Inaddition, the Company pays Mr. Breme the employer’s contribution to thecompulsory health insurance or the same amount to an alternative insurance withwaiver.  Mr. Breme’s present employmentcontract will expire on March 31, 2008.

The Company’s employmentcontract with **Dr. Bernd Schulte**,effective April 1, 2002 and amended as of October 20, 2004,provides for a base salary of € 260,000 per year and a bonus in accordance withthe employment contract (1.5% of AIXTRON’s annual Group net income adjusted byadditions to and withdrawals from revenue reserves (“modified annual AIXTRONGroup net income”)).  The total amountavailable to be paid as a bonus to all Executive Board members as a group islimited to € 6.5 million, or 10% of the modified annual AIXTRON Groupnet income.  For the purposes of apension scheme, the Company pays Dr. Schulte € 40,000 per year, as thepremium for a life insurance of his choice to be taken out or as an additionalcomponent of his gross salary.  Inaddition, the Company pays Dr. Schulte the employer’s contribution to thecompulsory health insurance or the same amount to an alternative insurance withwaiver.  Dr. Schulte’s present employmentcontract will expire on March 31, 2010.

The Company’s employmentcontract with **Dr. William W.R. Elder**,effective July 1, 2005 and amended as of May 11, 2006, provides for abase salary of U.S.$ 360,000 per year and a bonus in accordance with theemployment contract (1.0% of AIXTRON’s annual Group net income adjusted byadditions to and withdrawals from revenue reserves (“modified annual AIXTRONGroup net income”)).  The total amountavailable to be paid as bonus to all Executive Board members as a group islimited to € 6.5 million, or 10% of the modified annual AIXTRON Groupnet income.  A Company pension plan isnot part of the contract.  Dr. Elder’spresent employment contract will expire on June 30, 2008.

The following summary isqualified in its entirety by reference to the agreements, copies of which havebeen filed with the SEC as exhibits to the AIXTRON Form F-4/A RegistrationStatement (File No. 333-122624).

#### ***Intellectual Property Agreements***

Certain information,such as fees and royalties, in the manufacturing license and technical servicesagreement with Laboratoires D’Electronique Philips (“LEP”) dated August 10,1989 (the “LEP Agreement”) and in the exclusive patent and know-how licenseagreement with Centre National de la Recherche Scientifique (“CNRS”) and theInstitut National Polytechnique de Grenoble (“INPG”) executed December 17, 2002(the “CNRS Agreement”) is confidential and has been redacted from the copies ofthe LEP Agreement and the CNRS Agreement AIXTRON filed with the SEC.

The LEP Agreementprovides AIXTRON a license and technical information and support in regard toLEP’s MOVPE reactor prototype (the “Planetary Reactor Prototype”).  The worldwide license granted by LEP toAIXTRON is a non-transferable and exclusive license to use the technicalinformation related to the Planetary Reactor Prototype to develop, manufacture,use, sell or otherwise market planetary reactors.  AIXTRON shall not sublicense or transfer thetechnical information to third parties, except as to disclosures necessary forthe manufacture, operations or maintenance of planetary reactors.

The CNRS Agreement dealswith the system for injection of precursors into a vacuum vapor depositionchamber (the “Product”).  CNRS and INPGgrant AIXTRON an exclusive license to develop, manufacture, use, sell theProduct and exploit the patents and know-how in the entire world with the rightto grant certain sub-licenses.  Exceptfor the specified sub-license grants, the CNRS Agreement is personal, notassignable and non-transferable.  TheCNRS Agreement remains in force during the life of the patents unless it isterminated by any of the parties to this agreement.

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### **D.Exchange Controls**

At present, Germany doesnot restrict the movement of capital between Germany and other countries orindividuals except certain persons, entities and countries subject to embargoesin accordance with German law and applicable resolutions adopted by the UnitedNations and the European Union.

For statisticalpurposes, with certain exceptions, every corporation or individual residing inGermany must report to the German Central Bank any payment received from ormade to a non-resident corporation or individual if the payment exceeds €12,500 (or the equivalent in a foreign currency).  Additionally, corporations and individualsresiding in Germany must report to the German Central Bank any claims of aresident against, or liabilities payable to, a non-resident corporation orindividual exceeding an aggregate of € 5 million (or the equivalent in aforeign currency) at the end of any calendar month.  Resident corporations and individuals arealso required to report annually to the German Central Bank any stakes of 10%or more they hold in the equity of non-resident corporations with total assetsof more than € 3 million.  Corporationsresiding in Germany with assets in excess of € 3 million must report annuallyto the German Central Bank any stake of 10% or more in the company held by anindividual or a corporation located outside Germany.

### **E.Taxation**

#### ***German Taxation***

The following discussionis a summary of certain material German tax consequences for beneficial ownersof AIXTRON’s ordinary shares or ADSs:

(1) who are not Germanresidents for German income tax purposes (i.e., persons whose residence,habitual abode, statutory seat or place of effective management and control isnot located in Germany), and

(2) whose shares or ADSsdo not form part of the business property of a permanent establishment or fixedbase in Germany.  Throughout this sectionsuch owners are referred to as “Non-German Holders.”

The discussion is basedon tax laws of Germany as in effect on the date of this annual report,including the Convention between the United States of America and the FederalRepublic of Germany for the Avoidance of Double Taxation and the Prevention ofFiscal Evasion With Respect to Taxes on Income and Capital and to Certain OtherTaxes (the “Treaty”).  Such laws aresubject to change.  The discussion isalso based in part upon the representations of the Depositary and assumes thateach obligation in the Deposit Agreement and any related agreement will beperformed in accordance with its terms.

The following discussiondoes not purport to be a comprehensive discussion of all German taxconsequences that may be relevant for Non-German Holders.  AIXTRON’s discussion does not address allaspects of German taxation that may be relevant to you in light of yourparticular circumstances.  You shouldconsult your tax advisor regarding the German federal, state and local taxconsequences of the purchase, ownership and disposition of AIXTRON’s shares orADSs and the procedures to follow to obtain a refund of German taxes withheldfrom dividends.

*Taxationof the Company in Germany*

German corporations aresubject to a corporate income tax rate of 25%. The solidarity surcharge of 5.5% on the net assessed corporate incometax has been retained, so that the corporate income tax and the solidaritysurcharge, in the aggregate, amount to a tax rate of 26.375%.

In addition, profits ofGerman resident corporations are subject to a municipal profit-related tradeincome tax.  The exact amount of thistrade income tax depends on the municipality in which the corporation maintainsits business establishment(s) and varies between 9% and 20%.  Trade tax on income is a deductible item incomputing the corporation’s tax base for corporate income tax purposes.  Therefore, the overall tax rate for companiesoperating in Germany ranges between 33% to 41%.

The deduction for ataxable loss carryforward for the fiscal year is unlimited up to a threshold of€ 1,000,000, thereafter taxable income can only be offset to the extent of 60%.  The temporary loss carryforward is reduced bythe amount used and remains unlimited in life.

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The German governmenthas announced that it intends to reform the corporate tax system as from 2008onwards, which is expected to result in a reduction of the tax rates to about30%, but, on the other hand, the tax basis will be broadened (e.g., bytightening depreciation rules and by imposing rigid limitations on interestexpenses). Details of the reform have not yet been determined.

*WithholdingTax on Dividends*

For dividenddistributions made by AIXTRON, the Company is generally required to withholdtax of 20%.  A solidarity surcharge of5.5% on the withholding tax has been retained, resulting in a surcharge amountto 1.1 % (5.5% x 20%), and a total effective withholding tax rate fromdividends of 21.1%. For many Non-German Holders, the withholding tax rate isreduced under applicable income tax treaties. Under most income tax treaties towhich Germany is a party, the rate of dividend withholding tax is reduced to15%. To reduce the withholding to the applicable treaty rate of 15%, aNon-German Holder must apply for a refund of withholding taxes paid. Thereforeyou may apply for a refund of German withholding tax in an amount equal to 6.1%of the gross amount of the dividend you received (21.1% aggregate Germanwithholding tax rate minus 15% Income Tax Treaty withholding tax rate). Theapplication for refund must be filed with the German Federal Tax Office. Therelevant forms can be obtained from the German Federal Tax Office or fromGerman embassies and consulates.

*SpecialTax Rules for U.S. Shareholders*

Under the Treaty, thewithholding tax rate generally is reduced to 15% of the gross amount of thedividends.  Dividend payments to aneligible U.S. holder made by AIXTRON will be subject to a 15% generalwithholding tax rate under the Treaty.

Dividend distributionsmade by the Company are subject to a 20% withholding tax plus a solidaritysurcharge of 5.5% on the withholding tax resulting in an aggregate German withholdingtax of 21.1% of the declared dividend, and eligible U.S. holders (as definedbelow under “U.S. Taxation”) are entitled to receive a payment from the Germantax authorities equal to 6.1% of the declared dividend.

Accordingly, for adeclared dividend of 100, an eligible U.S. holder initially will receive 78.9(100 minus the 21.1% withholding tax). The eligible U.S. holder is then entitled to a refund from the Germantax authorities of 6.1 and will, as a result, effectively receive a total of 85(i.e., 85% of the declared dividend).

*WithholdingRefund Procedure for U.S. Shareholders*

For shares and ADSs keptin custody with The Depository Trust Company in New York or one of itsparticipating banks, the German tax authorities have introduced a collective procedurefor the refund of German dividend withholding tax and the solidarity surchargethereon on a trial basis.  Under thisprocedure, The Depository Trust Company may submit claims for refunds payableto eligible U.S. holders under the Treaty collectively to the German taxauthorities on behalf of these eligible U.S. holders.

The German Federal TaxOffice will pay the refund amounts on a preliminary basis to The DepositoryTrust Company, which will redistribute these amounts to the eligible U.S.holders according to the regulations governing the procedure.  The German Federal Tax Office may reviewwhether the refund was made in accordance with the law within four years aftermaking the payment to The Depository Trust Company.  Details of this collective procedure areavailable from The Depository Trust Company. Individual claims for refunds may be made on a special German form whichmust be filed with the German Federal Tax Office (Bundeszentralamt für Steuern,Dienstsitz Bonn, An der Küppe 1, 53225 Bonn, Germany).  Copies of this form can be downloaded fromthe following website:

http://www.bzst.bund.de/003_menue_links/008_kapertragsteuer/084_ausl_antragsteller/843_vordruck/004_E_USA.pdf

or can be obtained fromthe Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W.,Washington, D.C. 20007-1998.  Claims mustbe filed within a four-year period from the end of the calendar year in whichthe dividend was received.

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As part of theindividual refund claim, an eligible U.S. holder must submit to the German taxauthorities the original bank voucher (or a certified copy thereof) issued bythe paying agent documenting the tax withheld, and an official certification onIRS Form 6166 of its last United States federal income tax return.  IRS Form 6166 may be obtained by filing arequest with the Internal Revenue Service Center in Philadelphia, Pennsylvania,Foreign Certification Request, P.O. Box 16347, Philadelphia, PA19114-0447.  Requests for certificationmust include the eligible U.S. holder’s name, Social Security or EmployerIdentification Number, tax return form number, and tax period for which thecertification is requested.  Requests forcertifications can include a request to the Internal Revenue Service to sendthe certification directly to the German tax authorities.  If no such request is made, the InternalRevenue Service will send a certification on IRS Form 6166 to the eligible U.S.holder, who then must submit this document with his refund claim.

*Taxationof Capital Gains for U.S. Shareholders*

The Income Tax Treatyprovides that the German capital gains tax does not apply to gains on the saleor other disposition of ADSs or Ordinary shares.

*Inheritanceand Gift Tax*

The Estate Tax Treatyprovides that an individual whose domicile is determined to be in the UnitedStates for purposes of such Treaty will not be subject to German inheritanceand gift tax (the equivalent of the United States federal estate and gift tax)on the individual’s death or making of a gift unless the ADSs or OrdinaryShares (1) are part of the business property of a permanent establishmentlocated in Germany or (2) are part of the assets of a fixed base of anindividual located in Germany and used for the performance of independentpersonal services.  An individual’s domicilein the United States, however does not prevent imposition of German inheritanceand gift tax with respect to an heir, donee, or other beneficiary who either isor is deemed to be resident in Germany at the time the individual died or thegift was made.

The Estate Tax Treatyalso provides a credit against U.S. federal estate and gift tax liability forthe amount of inheritance and gift tax paid to Germany, subject to certainlimitations, in a case where the ADSs or Ordinary Shares are subject to Germaninheritance or gift tax and U.S. federal estate or gift tax.

*OtherTaxes*

No German transfer,stamp or similar taxes apply to the purchase, sale or other disposition ofshares or ADSs by Non-German Holder. Currently, net worth tax is not levied in Germany.

#### ***U.S. Federal Taxation***

The following is asummary of the principal U.S. federal income tax consequences that may berelevant with respect to the acquisition, ownership and disposition of AIXTRON’sshares or ADSs.  This summary addresses only the U.S. federal income taxconsiderations of holders that hold shares or ADSs as capital assets.  This summary does not address taxconsiderations applicable to holders that may be subject to special tax rules,such as:
|        | · |   | financial  institutions;                         |
|--------|--------|--------|--------------------------------------------------|
|   |   |   |                                             |
|   | · |   | insurance  companies;                            |
|   |   |   |                                             |
|   | · |   | real estate  investment trusts;                  |
|   |   |   |                                             |
|   | · |   | regulated  investment companies;                 |
|   |   |   |                                             |
|   | · |   | grantor trusts;                                  |
|   |   |   |                                             |
|   | · |   | dealers or  traders in securities or currencies; |
|   |   |   |                                             |
|   | · |   | tax-exempt entities;                             |

 

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|        | · |   | persons that received shares or ADSs as compensation  for the performance of services;                                                                                                          |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                            |
|   | · |   | persons that will hold shares or ADSs as part of a  “hedging” or “conversion” transaction or as a position in a “straddle” for  U.S. federal income tax purposes; |
|   |   |   |                                                                                                                                                                                            |
|   | · |   | certain former citizens or long-term residents of  the United States;                                                                                                                           |
|   |   |   |                                                                                                                                                                                            |
|   | · |   | persons that have a “functional currency” other than  the U.S. dollar; or                                                                                                             |
|   |   |   |                                                                                                                                                                                            |
|   | · |   | holders that own (or are deemed to own) 10% or more  (by voting power or value) of AIXTRON’s shares or ADSs.                                                                               |

 

Moreover, this summarydoes not address the U.S. federal estate and gift or alternative minimum taxconsequences of the acquisition, ownership and disposition of AIXTRON’s sharesor ADSs.  This summary is based on (1)the federal tax laws of the United States as in effect and available on thedate of this annual report, including the Internal Revenue Code of 1986, asamended (the “Code”), judicial and administrative interpretations thereof, andcurrently effective and proposed U.S. Treasury Regulations, each as availableon the date hereof, and (2) in part on the representations and covenants of theDepositary and the assumption that each obligation in the Deposit Agreement andany related agreement will be performed in accordance with its terms.  All of the foregoing is subject to change,which change could apply retroactively and could affect the tax consequencesdescribed below.

For purposes of thissummary, a “U.S. Holder” is a beneficial owner of AIXTRON’s shares or ADSsthat, for U.S. federal income tax purposes, is: (1) a citizen or resident ofthe U.S., (2) a partnership or corporation created or organized in or under thelaws of the United States or any state thereof or the District of Columbia, (3)an estate, the income of which is subject to U.S. federal income taxationregardless of its source or (4) a trust if such trust validly elects to betreated as a U.S. person for U.S. federal income tax purposes or if (a) a courtwithin the U.S. is able to exercise primary supervision over its administrationand (b) one or more U.S. persons have the authority to control all of thesubstantial decisions of the trust.  A “Non-U.S.Holder” is a beneficial owner of AIXTRON’s shares or ADSs that is not a U.S.Holder.

If a partnership (or anyother entity treated as a partnership for U.S. federal income tax purposes)holds AIXTRON’s shares or ADSs, the tax treatment of such partnership and apartner in such partnership generally will depend on the status of the partnerand the activities of the partnership. Such a partnership or partner should consult its own tax advisor as toits consequences.

Each prospectivepurchaser should consult his/her own tax advisor with respect to the U.S.federal, state, local and foreign tax consequences of acquiring, owning ordisposing of AIXTRON’s shares or ADSs.

*Ownership of ADSs in general*

For U.S. federal incometax purposes, a holder of ADSs generally will be treated as the owner of theshares represented by such ADSs.  The U.S.Treasury Department has expressed concern that depositaries for ADSs, or otherintermediaries between the holders of shares of an issuer and the issuer, maybe taking actions that are inconsistent with the claiming of U.S. foreign taxcredits by U.S. Holders of such receipts or shares.  Accordingly, the analysis regarding theavailability of a U.S. foreign tax credit for German taxes and sourcing rulesdescribed below could be affected by future actions that may be taken by theU.S. Treasury Department.

*Distributions*

Subject to thediscussion below under “— Passive Foreign Investment Company Considerations,”the gross amount of any distribution the Company makes of cash or property(other than certain distributions, if any, of shares distributed pro rata toall AIXTRON shareholders, including holders of ADSs) with respect to shares orADSs, before reduction for any German taxes withheld therefrom, will beincludible in income by a U.S. Holder as dividend income to the extent suchdistributions are paid out of the Company’s current or accumulated earnings andprofits as determined under U.S. federal income tax principles.  Subject to the discussion below under “—Passive Foreign Investment Company Considerations,” individuals who are U.S.Holders may be taxed on any such dividends received in a taxable year beginningon or before December 31, 2010 at the lower tax rate applicable to long-termcapital gains (i.e., gains from the sale of capital assets held for more thanone year).  

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In order to qualify forthe preferential rate of taxation, certain requirements must be met, includingcertain holding period requirements and the absence of certain risk reductiontransactions with respect to the shares or ADSs.  Such dividends will not be eligible for thedividends received deduction generally allowed to corporate U.S. Holders.  Subject to the discussion below under “—Passive Foreign Investment Company Considerations,” to the extent, if any, thatthe amount of any distribution AIXTRON makes exceeds its current andaccumulated earnings and profits as determined under U.S. federal income taxprinciples, it will be treated first as a tax-free return of the U.S. Holder’sadjusted tax basis in the shares or ADSs and thereafter as capital gain.  AIXTRON does not maintain calculations of itsearnings and profits under U.S. federal income tax principles.

Any such dividend paidin euros will be included in the gross income of a U.S. Holder in an amountequal to the U.S. dollar value of the euros on the date of receipt, which inthe case of ADSs, is the date they are received by the depositary.  The amount of any distribution of propertyother than cash will be the fair market value of such property on the date ofdistribution.  A U.S. Holder may elect todeduct in computing his/her taxable income or, subject to certain complexlimitations on foreign tax credits generally, credit against its U.S. federalincome tax liability German withholding tax at the rate applicable to such U.S.Holder.  As discussed under “GermanTaxation—Special Tax Rules for U.S. Shareholders” above in this Item 10 underthe Treaty, dividends paid by AIXTRON to a U.S. Holder generally will besubject to a German withholding tax rate of 15%.  Such reduced rate of withholding will applyonly if such U.S. Holder is treated as a resident of the U.S. for purposes ofsuch Treaty and otherwise is entitled to the benefits of such treaty and thedividends are not effectively connected with a permanent establishment or fixedbase of such U.S. Holder that is situated in Germany.

Dividends received by a U.S. Holder with respect toordinary shares or ADSs will be treated as foreign source income, which may berelevant in calculating such holder’s foreign tax credit limitation. The limitationon foreign taxes eligible for credit is calculated separately with respect tospecific classes of income. For purposes of calculating the U.S. foreign taxcredit, dividends paid by AIXTRON generally will constitute passive income, orin the case of certain U.S. Holders, financial services income.  U.S. Holders should note, however, that the “financialservices income” category will be eliminated for taxable years beginning afterDecember 31, 2006, and the foreign tax credit limitation categories after suchtime will be limited to “passive category income” and “general category income.”  U.S. Holders should consult their taxadvisors regarding the availability of, and limitations on, any such foreigntax credit.

Subject to thediscussion under “Backup Withholding Tax and Information Reporting Requirements”below in this section, a Non-U.S. Holder of shares or ADSs generally will notbe subject to U.S. federal income or withholding tax on dividends received onshares or ADSs, unless such income is effectively connected with the conduct bysuch Non-U.S. Holder of a trade or business in the United States.

*Sale or exchange of shares orADSs*

Subject to thediscussion below under “— Passive Foreign Investment Company Considerations,” aU.S. Holder generally will recognize gain or loss on the sale or exchange ofshares or ADSs equal to the difference between the amount realized on such saleor exchange and the U.S. Holder’s adjusted tax basis in the shares orADSs.  Such gain or loss will be capitalgain or loss.  In the case of anon-corporate U.S. Holder, the maximum marginal U.S. federal income tax rateapplicable to such gain will be lower than the maximum marginal U.S. federalincome tax rate applicable to ordinary income (other than certain dividends) ifsuch U.S. Holder’s holding period for such shares or ADSs exceeds oneyear.  Gain or loss, if any, recognizedby a U.S. Holder generally will be treated as U.S. source income or loss forU.S. foreign tax credit purposes.  Thedeductibility of capital losses is subject to limitations.

A U.S. Holder’s initialtax basis in shares or ADSs will be the U.S. dollar value of the eurodenominated purchase price determined on the date of purchase.  If the shares or ADSs are treated as tradedon an “established securities market,” a cash basis U.S. Holder, or, if itelects, an accrual basis U.S. Holder, will determine the dollar value of thecost of such shares or ADSs by translating the amount paid at the spot rate ofexchange on the settlement date of the purchase.  If a U.S. Holder converts U.S. dollars toeuros and immediately uses that currency to purchase shares or ADSs, suchconversion generally will not result in taxable gain or loss to such U.S.Holder.  With respect to the sale orexchange of shares or ADSs, the amount realized generally will be the U.S.dollar value of the payment received determined on (1) the date of receipt ofpayment in the case of a cash basis U.S. Holder and (2) the date of dispositionin the case of an accrual basis U.S. Holder. If the shares or ADSs are treated as traded on an “establishedsecurities market,” a cash basis taxpayer, or, if he/she elects, an accrualbasis taxpayer, will determine the U.S. dollar value of the amount realized bytranslating the amount received at the spot rate of exchange on the settlementdate of the sale.

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Subject to thediscussion under “Backup Withholding Tax and Information Reporting Requirements”below in this section, a Non-U.S. Holder of shares or ADSs generally will notbe subject to U.S. federal income or withholding tax on any gain realized onthe sale or exchange of such shares or ADSs unless (1) such gain is effectivelyconnected with the conduct by such Non-U.S. Holder of a trade or business inthe U.S. or (2) in the case of any gain realized by an individual Non-U.S. Holder,such holder is present in the U.S. for 183 days or more in the taxable year ofsuch sale or exchange and certain other conditions are met.

*PassiveForeign Investment Company Considerations*

A Non-U.S. corporationwill be classified as a “passive foreign investment company,” or a PFIC, forU.S. federal income tax purposes in any taxable year in which, after applyingcertain look-through rules, either:  (i)at least 75 % of its gross income is “passive income;” or (ii) at least 50 % ofthe average value of its gross assets is attributable to assets that producepassive income or are held for the production of passive income.  Passive income for this purpose generallyincludes dividends, interest, royalties, rents and gains from commodities andsecurities transactions.

Based on certainestimates of the Company’s gross income and gross assets and the nature of theCompany’s business, AIXTRON does not believe it was a PFIC for the taxable yearending December 31, 2006. AIXTRON’s status in future years will depend on its assets andactivities in those years.  AIXTRON hasno reason to believe that its assets or activities will change in a manner thatwould cause the Company to be classified as a PFIC, but there can be no assurancethat AIXTRON will not be considered a PFIC for any taxable year.  If AIXTRON were a PFIC, U.S. Holdersgenerally would be subject to imputed interest charges and otherdisadvantageous tax treatment with respect to any gain from the sale or exchangeof, and certain distributions with respect to, shares or ADSs.

If AIXTRON were a PFIC,U.S. Holders could make a variety of elections that may alleviate certain taxconsequences referred to above, and one of these elections may be maderetroactively.  However, it is expectedthat the conditions necessary for making certain of such elections will notapply in the case of AIXTRON’s shares and the ADSs.  U.S. Holders should consult their own taxadvisor regarding the tax consequences that would arise if AIXTRON were to betreated as a PFIC.

*Backup withholding tax andinformation reporting requirements*

U.S. backup withholdingtax and information reporting requirements generally apply to certain paymentsto certain non-corporate holders of stock. Information reporting generally will apply to payments of dividends on,and to proceeds from the sale or redemption of, shares or ADSs made within theUnited States, or by a U.S. payor or U.S. middleman to a holder of shares orADSs, other than an “exempt recipient,” including a corporation, a payee thatis not a U.S. person that provides an appropriate certification, and certainother persons.  A payor will be requiredto withhold backup withholding tax from any payments of dividends on, or theproceeds from the, sale or redemption of, shares or ADSs within the UnitedStates to a holder, or by a U.S. payor or U.S. middleman, other than an “exemptrecipient,” if such holder fails to furnish its correct taxpayer identificationnumber or otherwise fails to comply with, or establish an exemption from, suchbackup withholding tax requirements.  Thebackup withholding rate is 28% for taxable years through 2010.

In the case of suchpayments made within the U.S. to a foreign simple trust, a foreign grantortrust or a foreign partnership, other than payments to a foreign simple trust,a foreign grantor trust or a foreign partnership that qualifies as a “withholdingforeign trust” or a “withholding foreign partnership” within the meaning of theapplicable U.S. Treasury Regulations and payments to a foreign simple trust, aforeign grantor trust or a foreign partnership that are effectively connectedwith the conduct of a trade or business in the U.S., the beneficiaries of theforeign simple trust, the persons treated as the owners of the foreign grantortrust or the partners of the foreign partnership, as the case may be, will berequired to provide the certification discussed above in order to establish anexemption from backup withholding tax and information reportingrequirements.  Moreover, a payor may relyon a certification provided by a payee that is not a U.S. person only if suchpayor does not have actual knowledge or a reason to know that any informationor certification stated in such certificate is incorrect.

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The above summary is notintended to constitute a complete analysis of all tax consequences that may berelevant to the acquisition, ownership and disposition of shares or ADSs, anddoes not address state, local, foreign or other tax laws.  Holders of shares or ADSs should consulttheir own tax advisors concerning the tax consequences of their particularsituations.

### **F.Dividends and Paying Agents**

Not applicable.

### **G.Statement by Experts**

Not applicable.

### **H.Documents on Display**

AIXTRON is subject tothe informational requirements of the U.S. Exchange Act. In accordance withthese requirements, AIXTRON files reports and other information with theSEC.  These materials, including thisreport and the exhibits thereto, may be inspected and copied at the SEC’sPublic Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies ofthe materials may be obtained from the SEC’s Public Reference Room atprescribed rates.  The public may obtaininformation on the operation of the SEC’s Public Reference Room by calling theSEC in the United States at 1-800-SEC-0330. AIXTRON’s filings, including this report, are also available on the SEC’swebsite at www.sec.gov.

### **I.Subsidiary Information**

Not applicable.

69

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## **Item 11:  Quantitative and Qualitative Disclosure aboutMarket Risk**

The global nature ofAIXTRON’s businesses exposes the Company to market risks resulting from changesin foreign currency exchange rate and interest rates.  Accordingly, changes in foreign currencyexchange rates and interest rates may adversely affect its operating resultsand financial condition.  AIXTRON is alsoexposed to commodity price risks. AIXTRON seeks to manage and control these market risks primarily throughmonitoring of its operating and financial activities and the use of derivativefinancial instruments.

#### **ExchangeRate Risk**

*TransactionRisk and Currency Risk Management*

The global nature ofAIXTRON’s businesses exposes its operations and reported financial results andcash flows to the risks arising from fluctuations in the exchange rates of thedollar, the euro and other world currencies.  AIXTRON’s businesses are exposed totransaction risk whenever the Company has revenues in a currency that isdifferent from the currency in which it incurs the costs of generating thoserevenues.  When AIXTRON converts the revenuesinto the currency in which it incurs the costs, the value of the revenues mayhave declined in the interim relative to the currency in which the Companyincurred the costs.  These risksprimarily affect the Company’s business in Europe, which generates a part ofAIXTRON’s system revenues in foreign currencies, primarily U.S. dollars, andincurs manufacturing costs primarily in euros.

*Effectsof Currency Translation*

Most of AIXTRON’ssubsidiaries are located outside the euro zone. Since the Company’s financial reporting currency is the euro, AIXTRONtranslates the income statements of these subsidiaries into euros so that theCompany can include their financial results in its Consolidated FinancialStatements.  Period-to-period changes inthe average exchange rate for a particular country’s currency can significantlyaffect the translation of both revenues and operating income denominated inthat currency into euros.  Unlike theeffect of exchange rate fluctuations on transaction exposure, the exchange ratetransaction risk does not affect local currency cash flows.

AIXTRON has assets andliabilities outside the euro zone.  Theseassets and liabilities are denominated in local currencies and reside primarilyat AIXTRON’s subsidiaries in the United States and the United Kingdom.

When AIXTRON convertsnet asset values into euros, currency fluctuations result in period-to-periodchanges in those net asset values.  TheCompany’s equity position reflects these changes in net asset values.  AIXTRON generally does not hedge against thistype of risk.

#### **ForeignCurrency Risk**

The Company’s activitiesexpose it to the financial risks of changes in foreign currency exchange rates.The Company enters into a variety of derivative financial instruments to manageits exposure to foreign currency risk, including forward exchange contracts tohedge the exchange rate risk arising on the export of equipment. The mainexchange rates giving rise to the risk are those between the U.S. dollar,pound sterling, and euro.

The Company’s use ofderivative financial instruments is governed by the Company’s policies approvedby the board of directors which provide principles on foreign exchange raterisk and the use of derivative financial instruments. Exposures are reviewed ona regular basis. The Company does not enter into derivative financialinstruments for speculative purposes.

Exposure to exchangerate risk is managed by the Company through sensitivity analysis. The followingtable details the Company’s sensitivity to a 10 % increase in the value of theeuro against the respective foreign currencies. This represents AIXTRON’sassessment of the possible change in foreign exchange rates. 

70

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The sensitivity analysisof the Company’s exposure to foreign currency risk at the reporting date hasbeen determined based on the change taking place at the beginning of thefinancial year and held constant throughout the reporting period. A negativenumber indicates a decrease in revenue and net income or net loss where theeuro strengthens against the respective currency.
| ** **                  | ** ** | **U.S. Dollar Impact** | ** ** | **Pound Sterling Impact** | ** ** |
|-----------------------------|------------|----------------------------------|------------|-------------------------------------|------------|
| **(€ thousands)** | ** ** | **2006**                         | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                        |       |                             |       |                                |       |   |   |   |   |   |   |   |   |
| Revenue                     |       | (11,319                          | )          | (8,359                              | )          | (9,696 | ) | (291 | ) | (591 | ) | (408 | ) |
| Net Income / (Loss)         |       | (3,651                           | )          | (206                                | )          | (2,786 | ) | 499 |   | 123 |   | 2,417 |   |

 

The sensitivity of theCompany’s net income to exchange rate risk is reduced, in comparison with theeffect on revenue, by the use of foreign currency exchange contracts and by the“natural hedge” effect of costs incurred in those currencies. The sensitivityanalysis for the impact of a strengthening of the euro against the U.S. dollarin 2005 includes the effect on the results of a theoretical increase inimpairment of goodwill amounting to € 2.6 million in 2005.

It is the Company’spolicy to enter into forward foreign exchange contracts to cover specificforeign currency receipts within the range of 80 to 90 % of the expectedexposure. The Company also enters into forward foreign exchange contracts tomanage the risk associated with anticipated sales transactions out to 15 monthswithin 50 to 60 % of the exposure generated.

#### **InterestRate Risk**

The Company is subjectonly to minor effects from interest rate fluctuations relating to interest rateinfluenced cash and cash equivalents, short term investments, bank loans andconvertible bonds.

See Note 29 to theCompany’s Consolidated Financial Statements (“Financial Instruments”) for moreinformation on the credit, interest rate, and currency risks arising in AIXTRON’snormal course of business.

71

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## **Item 12:  Description of Securities other than EquitySecurities**

Not applicable.

 

72

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# **PART II**

73

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## **Item 13:  Defaults, Dividend Arrearages andDelinquencies**

Not applicable.

74

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## **Item 14:  Material Modifications to the Rights ofSecurity Holders and Use of Proceeds**

Not applicable.

75

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## **Item 15:  Controls and Procedures**

Attached as exhibits tothis Form 20-F are certifications of AIXTRON’s Chief Executive Officer(CEO) and Chief Financial Officer (CFO), which are required in accordancewith Rule 13a-14 of the Exchange Act. This “Controls and Procedures”section includes information concerning the controls and controls evaluationreferred to in the certifications. Page 88 sets forth the report of Deloitte& Touch GmbH, our independent registered public accounting firm regardingits audit of AIXTRON’s internal control over financial reporting and of management’sassessment of internal control over financial reporting set forth below in thissection.  This section should be read inconjunction with the certifications and the Deloitte & Touche GmbH reportfor a more complete understanding of the topics presented.

**Evaluation of Disclosure Controlsand Procedures**

Disclosure controls andprocedures are defined by Rules 13a-15(e) or 15d-15(e) of the Exchange Act ascontrols and other procedures that are designed to ensure that informationrequired to be disclosed by AIXTRON in reports filed with the SEC under theExchange Act is recorded, processed, summarized and reported within therequired time periods. Disclosure controls and procedures are also designed toensure that the information is accumulated and communicated to the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, to allow timely decisions regarding required disclosure.

There are inherentlimitations to the effectiveness of any system of disclosure controls andprocedures, including the possibility of human error and the circumvention oroverriding of such controls and procedures. Accordingly, even effectivedisclosure controls and procedures can only provide reasonable assurance ofachieving their control objectives. Acknowledging this, AIXTRON has designedits disclosure controls and procedures to provide such reasonable assurance. 

The Company’s ChiefExecutive Officer, Paul Hyland, and its Chief Financial Officer, WolfgangBreme, with the participation of management, have performed an evaluation ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures as of December 31, 2006. In connection with thisevaluation, the Company’s Chief Executive Officer and its Chief FinancialOfficer have concluded that such disclosure controls and procedures wereeffective as of December 31, 2006.

**Management Report on InternalControl Over Financial Reporting**

AIXTRON’s management isresponsible for establishing and maintaining adequate internal control overfinancial reporting (as such term is defined in Rules 13a-15(f) or 15d-15(f) ofthe Exchange Act) to provide reasonable assurance regarding the reliability ofits financial reporting and the preparation of financial statements forexternal purposes. Internal control over financial reporting includes thosepolicies and procedures that: (i) pertain to the maintenance of recordsthat, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of AIXTRON; (ii) provide reasonable assurancethat all transactions are recorded as necessary to permit the preparation ofAIXTRON’s Consolidated Financial Statements and the proper authorization ofreceipts and expenditures of AIXTRON are being made in accordance withauthorization of AIXTRON’s management and directors; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of AIXTRON’s assets that could have a materialeffect on AIXTRON’s Consolidated Financial Statements.

76

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Management assessedAIXTRON’s internal control over financial reporting as of December 31,2006, the end of its fiscal year. Management based its assessment on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission. Management’s assessmentincluded evaluation of such elements as the design and operating effectivenessof key financial reporting controls, process documentation, accounting policiesand AIXTRON’s overall control environment. This assessment is supported bytesting and monitoring.

Based on the Company’sassessment, management has concluded that AIXTRON’s internal control overfinancial reporting was effective as of December 31, 2006 to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external reporting purposes. AIXTRON’s managementreviewed the results of management’s assessment with the Audit Committee ofAIXTRON’s Supervisory Board.

There were no changes inthe Company’s internal controls over financial reporting that occurred duringthe fiscal year ended December 31, 2006 that have materially affected, or arereasonably likely to materially affect, AIXTRON’s internal controls overfinancial reporting.

AIXTRON’s independentregistered public accounting firm, Deloitte & Touche GmbH, auditedmanagement’s assessment and independently assessed the effectiveness of theCompany’s internal control over financial reporting. Deloitte & Touche GmbHhas issued an attestation report concurring with management’s assessment, whichis included herein.

**Inherent Limitations onEffectiveness of Controls**

AIXTRON’s management,including the CEO and CFO, does not expect that its Disclosure Controls or itsinternal control over financial reporting will prevent or detect all error andall fraud. A control system, no matter how well designed and operated, canprovide only reasonable, not absolute, assurance that the control system’sobjectives will be met. The design of a control system must reflect the factthat there are resource constraints, and the benefits of controls must beconsidered relative to their costs. Further, because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that misstatements due to error or fraud will not occur orthat all control issues and instances of fraud, if any, within the Company havebeen detected. These inherent limitations include the realities that judgmentsin decision-making can be faulty and that breakdowns can occur because ofsimple error or mistake. Controls can also be circumvented by the individualacts of some persons, by collusion of two or more people, or by managementoverride of the controls. The design of any system of controls is based in parton certain assumptions about the likelihood of future events, and there can beno assurance that any design will succeed in achieving its stated goals underall potential future conditions. Projections of any evaluation of controlseffectiveness to future periods are subject to risks. Over time, controls maybecome inadequate because of changes in conditions or deterioration in thedegree of compliance with policies or procedures.

77

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## **Item 16A:  Audit Committee Financial Experts**

As of December 31, 2006,AIXTRON’s Supervisory Board has determined that Prof. Dr. Blättchen is an “AuditCommittee financial expert.” The Supervisory Board has determined that the “AuditCommittee financial expert” is “independent” as set forth in Rule 10A-3 of theExchange Act.

78

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## **Item 16B:  Code of Ethics**

AIXTRON has adopted acode of ethics that applies to the members of the Company’s Executive Board andsenior financial officers nominated by AIXTRON’s Executive Board.  All of these Executive Board members andsenior financial officers have agreed to abide by this code of ethics.  AIXTRON’s code of ethics, which is filed asan exhibit to this annual report on Form 20-F, is consistent with therequirements of the German Code of Corporate Governance and the NASDAQ CapitalMarket and. The Company has revised its code of ethics in 2006 and haspublished the updated version of the code of ethics on its website atwww.aixtron.com.

79

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## **Item 16C:  Principal Accountant Fees and Services**

Fees related to auditservices and other services rendered by AIXTRON’s independent principalaccountant, Deloitte & Touche worldwide, for the years 2006 and 2005 wereas follows:

|                            | ** ** | **Year ended**             | ** ** |
|----------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **December 31,**           | ** ** |
| **Type of Fees** | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| ** **                 | ** ** | **(EUR in millions)** | ** ** |
| **Audit  Fees**            |       | 1.37                            |       | 1.15 |   |
| **Audit-Related  Fees**    |       | 0.04                            |       | 0.03 |   |
| **Tax  Fees**              |       | 0.05                            |       | 0.07 |   |
| **All  Other Fees**        |       | 0.01                            |       | 0.02 |   |
| ** **                 |       |                            |       |   |   |
| **Total**                  | ** ** | **1.47**                        | ** ** | **1.27** | ** ** |

 

In the above table, “auditfees” are the aggregate Deloitte & Touche fees for professional services inconnection with the audit of the Company’s Consolidated Financial Statements,reviews of interim financial statements, as well as audits of statutoryfinancial statements of AIXTRON and its subsidiaries.  Also included in “audit fees” are amounts forattestation services in relation to regulatory filings and other compliancerequirements. “Audit-related fees” are fees for accounting advice on actual orcontemplated transactions, due diligence engagements related to acquisitions,attestation regarding compliance with certain agreements and other agreed-uponprocedures. “Tax fees” are fees for tax advice on actual or contemplatedtransactions, tax compliance and expatriate employee tax services. “All OtherFees” are miscellaneous items.

#### ***Audit Committee Pre-Approval Policies***

In accordance withGerman law, AIXTRON’S independent auditors are appointed at the AnnualShareholders’ Meeting based on a recommendation of the Company’s SupervisoryBoard.  The Audit Committee of theSupervisory Board prepares the Board’s recommendation on the selection of theindependent auditors.  Subsequent to theauditors’ appointment, the Supervisory Board awards the contract and in itssole authority approves the terms and scope of the audit and all auditengagement fees, as well as monitors the auditors’ independence.  On May 11, 2006, at the Annual GeneralMeeting of Shareholders, Deloitte & Touche GmbHWirtschaftsprüfungsgesellschaft, Hanover, Germany was appointed to serve as theCompany’s independent auditors for the year ending December 31, 2006.

In order to assure theintegrity of independent audits, AIXTRON’s Audit Committee established a policyto approve all audit and permissible non-audit services provided by the Company’sindependent auditors prior to the auditors’ engagement.  As part of this approval process, the AuditCommittee adopted pre-approval policies and procedures pursuant to which theAudit Committee annually pre-approves certain types of services to be performedby AIXTRON’s independent auditors.  Underthe policies, the Company’s independent auditors are not allowed to perform anynon-audit services which may impair the auditors’ independence under the rulesof the SEC.  In fiscal year 2006 theSupervisory Board pre-approved 100% of the performance by Deloitte & ToucheGmbH Wirtschaftsprüfungsgesellschaft, Hanover, Germany of the above specifiedaudit and permitted non-audit services.

80

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## **Item 16D:  Exemptions from Listing Standards for AuditCommittees**

Not applicable.

81

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## **Item 16E:  Purchases of Equity Securities by the Issuer**

Not applicable.

 

82

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# **PART III**

 

83

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## **Item 17:  Financial Statements**

Not applicable.

 

84

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## **Item 18:  Financial Statements**

See pages F-1 to F-58,incorporated herein by reference.

85

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## **Item 19:  Exhibits**

|                     | ** ** | ** **                                                                                                                                                                                                                                                                                        |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Exhibit  Number** | ** ** | **Description  of Exhibit**                                                                                                                                                                                                                                                                       |
|   1.1     |       | Articles of Association (*Satzung*) as of May 11, 2006 (English translation;  incorporated by reference to Exhibit 1.1 to Form 20-F, dated June 22, 2006,  File No. 000-51196).                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.2     |       | Manufacturing License and Technical Services  Agreement, dated as of August 10, 1989, between AIXTRON Aktiengesellschaft  and Laboratoires D’Electronique Philips (incorporated by reference to Exhibit  10.2 to Form F-4, dated February 8, 2005, File No. 333-122624).                     |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.3     |       | Exclusive Patent and Know—How License Agreement  among AIXTRON Aktiengesellschaft, Centre National de la Recherche  Scientifique and the Institut National Polytechnique de Grenoble  (incorporated by reference to Exhibit 10.3 to Form F-4, dated February 8,  2005, File No. 333-122624). |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.4     |       | Contract between AIXTRON AG and Mr. Paul Hyland,  effective April 1, 2002. (English translation; incorporated by reference to  Exhibit 4.4 to Form 20-F, dated June 22, 2006, File No. 000-51196).                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.5     |       | Amendment to contract between AIXTRON AG and Mr.  Paul Hyland, dated October 20, 2004. (English translation;  incorporated by reference to Exhibit 4.5 to Form 20-F, dated June 22, 2006,  File No. 000-51196).                                                                         |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.6     |       | Contract between AIXTRON AG and Mr. Wolfgang Breme,  effective April 1, 2005. (English translation)                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.7     |       | Contract between AIXTRON AG and Dr. Bernd Schulte,  effective April 1, 2002. (English translation; incorporated by reference to  Exhibit 4.7 to Form 20-F, dated June 22, 2006, File No. 000-51196).                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.8     |       | Amendment to contract between AIXTRON AG and Dr.  Bernd Schulte, dated October 20, 2004. (Incorporated by reference to Exhibit  4.8 to Form 20-F, dated June 22, 2006, File No. 000-51196).                                                                                                       |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.9     |       | Contract between AIXTRON AG and Dr. William W.R.  Elder, effective July 1, 2005. (English translation; incorporated by  reference to Exhibit 4.9 to Form 20-F, dated June 22, 2006, File No.  000-51196).                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                              |
|   4.10    |       | Amendment to contract between AIXTRON AG and Dr. William  W.R. Elder, dated May 11, 2006; incorporated by reference to  Exhibit 4.10 to Form 20-F, dated June 22, 2006, File No. 000-51196).                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                              |
|   8.1     |       | List of Subsidiaries (incorporated by reference to  the list of significant subsidiaries set forth in this report under the  caption “Item 4. Information on the Company — Organizational Structure.”)                                                                             |
|                |       |                                                                                                                                                                                                                                                                                              |
| 11.1                |       | Code of Ethics, revised in 2006.                                                                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                              |
| 12.1                |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                              |
| 12.2                |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                              |
| 13.1                |       | Certification of Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                              |
| 14.1                |       | Consent of Deloitte & Touche GmbH  Wirtschaftsprüfungsgesellschaft.                                                                                                                                                                                                                      |

 

86

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## **Signatures**

The registrant hereby certifies that it meetsall of the requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.

Date: March 15, 2007
|        |   |                                              |
|--------|--------|---------------------------------------------------|
|   |   | AIXTRON AKTIENGESELLSCHAFT                        |
|   |   |                                              |
|   | /s/    | PAUL HYLAND                                       |
|   | Name:  | **Paul  Hyland**                                  |
|   | Title: | **President  and Chief Executive Officer**        |
|   |   |                                              |
|   | /s/    | WOLFGANG BREME                                    |
|   | Name:  | **Wolfgang  Breme**                               |
|   | Title: | **Executive  Vice President and Chief Financial** |
|   |   | **Officer**                                       |

 

87

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## **Reportof Independent Registered Public Accounting Firm**

ToThe Supervisory Board

AIXTRONAG

Aachen, Germany

We have audited theaccompanying consolidated balance sheets of AIXTRON Aktiengesellschaft andsubsidiaries (“AIXTRON”) as of December 31, 2006 and 2005 and the relatedconsolidated statements of income, changes in stockholders’ equity, statementof recognized income and expenses and cash flows for each of the years in thethree-year period ended December 31, 2006. These consolidated financialstatements are the responsibility of AIXTRON’s management. Our responsibilityis to express an opinion on these consolidated financial statements based onour audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of AIXTRON Aktiengesellschaft and subsidiaries as ofDecember 31, 2006 and 2005 and the results of their operations and their cashflows for each of the years in the three-year period endedDecember 31, 2006, in conformity with International Financial ReportingStandards as adopted by the European Union.

International FinancialReporting Standards as adopted by the European Union vary in certainsignificant respects from accounting principles generally accepted in theUnited States of America. The application of the latter would have affected thedetermination of net income for each of the three years in the period endedDecember 31, 2006, and the determination of stockholders’ equity and financialposition at December 31, 2006, 2005 and 2004, to the extent summarizedin Note 40.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2006, based on criteria establishedin Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report of March 13, 2007expressed an unqualified opinion on management’s assessment of theeffectiveness of the Company’s internal control over financial reporting and anunqualified opinion on the effectiveness of the Company’s internal control overfinancial reporting.
| /s/ Deloitte & Touche GmbH       |   |
|--------------------------------------|--------|
| Wirtschaftsprüfungsgesellschaft |   |

 

Hanover,Germany

March13, 2007

 

 

88

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**Consolidated financial statements**

 
| Consolidated income  statement                 |
|------------------------------------------------|
| Consolidated  balance sheet                    |
| Consolidated cash flow statement               |
| Consolidated statement of changes in equity    |
| Statement of recognised income and expenses    |
| Notes to the consolidated financial statements |
| 1.                                             |   | General principles |
| 2.                                             |   | Significant  accounting policies |
| 3.                                             |   | Segment  reporting |
| 4.                                             |   | Acquisition of  subsidiaries |
| 5.                                             |   | Research and  development |
| 6.                                             |   | Other operating income |
| 7.                                             |   | Other operating  expenses |
| 8.                                             |   | Personnel expenses |
| 9.                                             |   | Net financing costs |
| 10.                                            |   | Income tax expense/benefit |
| 11.                                            |   | Current tax  assets and liabilities |
| 12.                                            |   | Property, plant  and equipment |
| 13.                                            |   | Intangible assets |
| 14.                                            |   | Investment property |
| 15.                                            |   | Other non-current  assets |
| 16.                                            |   | Deferred tax  assets and liabilities |
| 17.                                            |   | Long-term receivables  from current tax |
| 18.                                            |   | Inventories |
| 19.                                            |   | Trade  receivables and other current receivables |
| 20.                                            |   | Other financial  assets |
| 21.                                            |   | Cash and cash  equivalents |
| 22.                                            |   | Shareholders’ Equity |
| 23.                                            |   | Earnings per share |
| 24.                                            |   | Employee benefits |
| 25.                                            |   | Share-based payment |
| 26.                                            |   | Provisions |
| 27.                                            |   | Trade  payables and other current liabilities |
| 28.                                            |   | Convertible  bonds and options |
| 29.                                            |   | Financial instruments |
| 30.                                            |   | Operating  leases |
| 31.                                            |   | Capital commitments |
| 32.                                            |   | Contingencies |
| 33.                                            |   | Related  parties |
| 34.                                            |   | Consolidated entities |
| 35.                                            |   | Events after  the balance sheet date |
| 36.                                            |   | Auditors’  fees |
| 37.                                            |   | Employees |
| 38.                                            |   | Additional  information about the cash flow statement |
| 39.                                            |   | Statement of  compliance with the German Corporate Governance Code |
| 40.                                            |   | Reconciliation to  US-GAAP |
| 41.                                            |   | Additional  US-GAAP Information |
| 42.                                            |   | Supervisory  and Executive Boards |

 

F-1

----

**Consolidated income statement**
| ***in EUR thousands***                                                                | ** **   | **Note**     | ** **   | **2006**     | ** **   | **2005**     | ** **   | **2004**     | ** **   |
|---------------------------------------------------------------------------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------|
|                                                                                  |         |         |         |         |         |         |         |         |         |
| Revenues                                                                              |         |         |         | 171,685      |         | 139,402      |         | 140,004      |         |
| Cost of sales                                                                         |         |         |         | 108,245      |         | 104,676      |         | 87,604       |         |
| **Gross profit**                                                                      | * *     | * *     | ** **   | **63,440**   | ** **   | **34,726**   | ** **   | **52,400**   | ** **   |
|                                                                                  | * *     | * *     |         |         |         |         |         |         |         |
| Selling expenses                                                                      | * *     | * *     |         | 23,366       |         | 27,766       |         | 18,297       |         |
| General administration expenses                                                       | * *     | * *     |         | 17,266       |         | 18,004       |         | 13,240       |         |
| Research and development costs                                                        | * *     | *5*          |         | 23,942       |         | 30,514       |         | 20,407       |         |
| Other operating income                                                                | * *     | *6*          |         | 8,468        |         | 5,565        |         | 9,939        |         |
| Other operating expenses                                                              | * *     | *7*          |         | 1,635        |         | 2,900        |         | 721          |         |
| Impairment of goodwill                                                                | * *     | *13*         |         | 0            |         | 13,782       |         | 0            |         |
| **Operating result**                                                                  | * *     | * *     | ** **   | **5,699**    | ** **   | **(52,675**  | **)**        | **9,674**    | ** **   |
| ** **                                                                            | * *     | * *     | ** **   | ** **   | ** **   | ** **   | ** **   | ** **   | ** **   |
| Interest income                                                                       | * *     | * *     |         | 1,003        |         | 693          |         | 786          |         |
| Interest expense                                                                      | * *     | * *     |         | 56           |         | 233          |         | 2            |         |
| **Net interest**                                                                      | * *     | *9*          | ** **   | **947**      | ** **   | **460**      | ** **   | **784**      | ** **   |
| **Result before taxes**                                                               | * *     | * *     | ** **   | **6,646**    | ** **   | **(52,215**  | **)**        | **10,458**   | ** **   |
| ** **                                                                            | * *     | * *     | ** **   | ** **   | ** **   | ** **   | ** **   | ** **   | ** **   |
| Taxes on income                                                                       | * *     | *10*         |         | 789          |         | 1,253        |         | 2,829        |         |
| **Net income/loss for the year (after taxes)**                                        | *** *** | *** *** |         | 5,857        |         | (53,468      | )            | 7,629        |         |
| ** **                                                                            | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** |
| Loss attributable to minority interests (after  taxes)                                | * *     | * *     |         | 0            |         | 0            |         | (52          | )            |
| **Profit/loss attributable to the shareholders of the  parent company (after taxes)** | * *     | * *     | ** **   | **5,857**    | ** **   | **(53,468**  | **)**        | **7,681**    | ** **   |
| ** **                                                                            | * *     | * *     | * *     | * *     | * *     | * *     | * *     | * *     | * *     |
| Basic earnings per share (EUR)                                                        | * *     | *23*         |         | 0.07         |         | (0.65        | )            | 0.12         |         |
| Diluted earnings per  share (EUR)                                                     | * *     | *23*         |         | 0.07         |         | (0.65        | )            | 0.12         |         |

 

See accompanying notes to consolidated financial statements.

F-2

----

**Consolidatedbalance sheet**
| ***in EUR thousands***                                          | ** ** | **Note**   | ** ** | **12/31/2006** | ** ** | **12/31/2005** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|
| ** **                                                                |       |       |       |           |       |           |       |
| **Assets**                                                                |       |       |       |           |       |           |       |
| Property, plant and equipment                                             | * *   | *12*       |       | 36,381         |       | 42,179         |       |
| Goodwill                                                                  | * *   | *13*       |       | 65,052         |       | 71,002         |       |
| Other intangible assets                                                   | * *   | *13*       |       | 15,097         |       | 19,766         |       |
| Investment property                                                       | * *   | *14*       |       | 4,908          |       | 4,908          |       |
| Other non-current assets                                                  | * *   | *15*       |       | 671            |       | 499            |       |
| Deferred tax assets                                                       | * *   | *16*       |       | 5,380          |       | 6,331          |       |
| Tax assets                                                                | * *   | *17*       |       | 486            |       | 0              |       |
| **Total non-current assets**                                              | * *   | * *   | ** ** | **127,975**    | ** ** | **144,685**    | ** ** |
| Inventories                                                               | * *   | *18*       |       | 53,149         |       | 33,113         |       |
| Trade receivables less allowance kEUR 311 (2005:  kEUR 445)               | * *   | *19*       |       | 27,677         |       | 24,209         |       |
| Current tax assets                                                        | * *   | *11*       |       | 699            |       | 0              |       |
| Other current assets                                                      | * *   | *19*       |       | 4,450          |       | 3,875          |       |
| Other financial assets                                                    | * *   | *20*       |       | 2,781          |       | 0              |       |
| Cash and cash equivalents                                                 | * *   | *21*       |       | 46,751         |       | 31,435         |       |
| **Total current assets**                                                  | * *   | * *   | ** ** | **135,507**    | ** ** | **92,632**     | ** ** |
| **Total assets**                                                          | * *   | * *   | ** ** | **263,482**    | ** ** | **237,317**    | ** ** |
|                                                                      | * *   | * *   |       |           |       |           |       |
|                                                                      | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| **Liabilities and shareholders’  equity**                            | * *   | * *   | ** ** | ** **     | ** ** | ** **     | ** ** |
| Subscribed  capital  Number of shares: 87,836,154 (last year: 87,796,614) | * *   | * *   |       | 87,836         |       | 87,797         |       |
| Additional paid-in capital                                                | * *   | * *   |       | 97,444         |       | 95,951         |       |
| Accumulated deficit                                                       | * *   | * *   |       | (3,406         | )          | (9,264         | )          |
| Income and expenses recognised in equity                                  | * *   | * *   |       | 2,068          |       | 9,115          |       |
| **Total shareholders’ equity**                                       | * *   | *22*       | ** ** | **183,942**    | ** ** | **183,599**    | ** ** |
| Provisions for pensions                                                   | * *   | *24*       |       | 983            |       | 978            |       |
| Other non-current liabilities                                             | * *   | * *   |       | 76             |       | 176            |       |
| Other non-current accruals and provisions                                 | * *   | *26*       |       | 2,030          |       | 3,122          |       |
| **Total non-current liabilities**                                         | * *   | * *   | ** ** | **3,089**      | ** ** | **4,276**      | ** ** |
| Trade payables                                                            | * *   | *27*       |       | 29,926         |       | 17,479         |       |
| Advance payments from customers                                           | * *   | * *   |       | 31,421         |       | 11,845         |       |
| Other current accruals and provisions                                     | * *   | *26*       |       | 12,591         |       | 14,032         |       |
| Other current liabilities                                                 | * *   | *27*       |       | 1,443          |       | 3,949          |       |
| Current tax liabilities                                                   | * *   | *11*       |       | 536            |       | 1,404          |       |
| Convertible bonds                                                         | * *   | *28*       |       | 3              |       | 3              |       |
| Deferred revenues                                                         | * *   | * *   |       | 531            |       | 730            |       |
| **Total current liabilities**                                             | * *   | * *   | ** ** | **76,451**     | ** ** | **49,442**     | ** ** |
| **Total liabilities**                                                     | * *   | * *   | ** ** | **79,540**     | ** ** | **53,718**     | ** ** |
| **Total liabilities and  shareholders’ equity**                      |       |       | ** ** | **263,482**    | ** ** | **237,317**    | ** ** |

 

See accompanying notes toconsolidated financial statements.

F-3

----

**Consolidatedcash flow statement**
| ***in EUR thousands***                                                     | ** ** | **Note** | ** ** | **2006**   | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|-------------|------------|------------|------------|
| ** **                                                                           | * *   | * * |       |       |       |        |       |       |       |
| **Cash inflow/outflow from  operating activities**                                   | * *   | * * |       |       |       |        |       |       |       |
| Net income/loss for the year (after taxes)                                           | * *   | * * |       | 5,857      |       | (53,468     | )          | 7,681      |       |
| **Reconciliation between profit  and cash inflow/outflow from operating activities** | * *   | * * |       |       |       |        |       |       |       |
| Expense  from share-based payments                                                   | * *   | * * |       | 1,450      |       | 1,801       |       | 1,041      |       |
| Impairment  expense                                                                  | * *   | * * |       | 816        |       | 26,630      |       | 0          |       |
| Depreciation  and amortization expense                                               | * *   | * * |       | 9,900      |       | 10,406      |       | 5,986      |       |
| Net  result from disposal of property, plant and equipment                           | * *   | * * |       | 38         |       | 484         |       | 370        |       |
| Deferred  income taxes                                                               | * *   | * * |       | 1,351      |       | (509        | )          | 1,700      |       |
| Other  non-cash expenses                                                             | * *   | * * |       | 1,247      |       | 0           |       | 0          |       |
|                                                                                 | * *   | * * |       |       |       |        |       |       |       |
|                                                                                 | * *   | * * |       |       |       |        |       |       |       |
| **Change in**                                                                        | * *   | * * |       |       |       |        |       |       |       |
| Inventories                                                                          | * *   | * * |       | (21,388    | )          | 8,738       |       | (4,265     | )          |
| Trade receivables                                                                    | * *   | * * |       | (4,749     | )          | (5,316      | )          | (6,513     | )          |
| Other assets                                                                         | * *   | * * |       | (1,640     | )          | 328         |       | (4,624     | )          |
| Trade payables                                                                       | * *   | * * |       | 12,894     |       | (560        | )          | 2,157      |       |
| Provisions and other liabilities                                                     | * *   | * * |       | (3,773     | )          | 1,138       |       | 4,130      |       |
| Deferred revenues                                                                    | * *   | * * |       | (151       | )          | (1,280      | )          | (1,243     | )          |
| Non-current liabilities                                                              | * *   | * * |       | (924       | )          | 1,091       |       | (20        | )          |
| Advance payments from customers                                                      | * *   | * * |       | 19,841     |       | (1,684      | )          | 432        |       |
| **Cash inflow/outflow from  operating activities**                                   | * *   | * * | ** ** | **20,769** | ** ** | **(12,201** | **)**      | **6,832**  | ** ** |
|                                                                                 | * *   | * * |       |       |       |        |       |       |       |
| **Cash inflow/outflow from  investing activities**                                   | * *   | * * |       |       |       |        |       |       |       |
| Cash from acquisition of Genus, Inc.                                                 | * *   | * * |       | 0          |       | 9,049       |       | 0          |       |
| Cost related to the Genus acquisition                                                | * *   | * * |       | 0          |       | (3,628      | )          | 0          |       |
| Capital expenditures in property, plant and  equipment                               | * *   | * * |       | (2,181     | )          | (8,323      | )          | (3,763     | )          |
| Capital expenditures in intangible assets                                            | * *   | * * |       | (184       | )          | (64         | )          | (618       | )          |
| Bank deposits with a maturity of 6 months                                            | * *   | *20*     |       | (2,781     | )          | 0           |       | 0          |       |
| Acquisition of minority interests                                                    | * *   | * * |       | 0          |       | 0           |       | (2,011     | )          |
| Proceeds from the sale of property, plant and  equipment                             | * *   | * * |       | 0          |       | 0           |       | 3          |       |
| **Cash inflow/outflow from  investing activities**                                   | * *   | * * | ** ** | **(5,146** | **)**      | **(2,966**  | **)**      | **(6,389** | **)**      |
| ** **                                                                           | * *   | * * |       |       |       |        |       |       |       |
| **Cash inflow/outflow from  financing activities**                                   | * *   | * * |       |       |       |        |       |       |       |
| Change in minorities                                                                 | * *   | * * |       | 0          |       | 0           |       | (52        | )          |
| Exercise of stock options                                                            | * *   | * * |       | 83         |       | 0           |       | 0          |       |
| **Cash inflow/outflow from  financing activities**                                   | * *   | * * | ** ** | **83**     | ** ** | **0**       | ** ** | **(52**    | **)**      |
| ** **                                                                           | * *   | * * | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** |
| Effect of changes of exchange rates on cash and  cash equivalents                    | * *   | * * |       | (390       | )          | 1,104       |       | (196       | )          |
| Net change in cash and cash equivalents                                              | * *   | * * |       | 15,316     |       | (14,063     | )          | 195        |       |
| Cash and cash equivalents at the beginning of the  period                            | * *   | * * |       | 31,435     |       | 45,498      |       | 45,303     |       |
| **Cash and cash equivalents at  the end of the period**                              | * *   | *21*     | ** ** | **46,751** | ** ** | **31,435**  | ** ** | **45,498** | ** ** |
|                                                                                 |       |     |       |       |       |        |       |       |       |
| Interest paid                                                                        |       |     |       | (166       | )          | (38         | )          | (2         | )          |
| Interest received                                                                    |       |     |       | 971        |       | 691         |       | 806        |       |
| Income taxes paid                                                                    |       |     |       | (1,313     | )          | (506        | )          | (240       | )          |
| Income taxes received                                                                |       |     |       | 8          |       | 23          |       | 934        |       |

 

See accompanyingnotes to consolidated financial statements.

F-4

----

**Consolidated statement of changes in equity**
| ** **                                    | ** ** | ** **                             | ** ** | ** **              | ** ** | ** **                              | ** ** | ** **                         | ** ** | **Income and expense  recognised directly in  equity** | ** ** | ** **                                | ** ** | ** **                                       | ** ** | ** **                 | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|-------------------------|------------|-----------------------------------------|------------|------------------------------------|------------|----------------------------------------------------------------------------|------------|-------------------------------------------|------------|--------------------------------------------------|------------|----------------------------|------------|
| ** **                                    | ** ** | **Sub-  scribed  capital  under  HGB** | ** ** | **Trea-  sury  shares** | ** ** | **Sub-  scribed  capital  under  IFRS** | ** ** | **Addi-  tional  paid-in-capital** | ** ** | **Currency  trans-  lation**                                               | ** ** | **Derivative  financial  instru-  ments** | ** ** | **Retained  Earnings/  Accumu-  lated  deficit** | ** ** | **Minority  inte-  rests** | ** ** | **Share-  holders’  equity** | ** ** |
| ***in EUR thousands***              | ** ** | ** **                             | ** ** | ** **              | ** ** | ** **                              | ** ** | ** **                         | ** ** | ** **                                                                 | ** ** | ** **                                | ** ** | ** **                                       | ** ** | ** **                 | ** ** | **Total** | ** ** |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Balance at January 1, 2004                    |       | 64,832                                 |       |                    |       | 64,832                                  |       | 27,762                             |       | (2,244                                                                     | )          | 1,469                                     |       | 36,524                                           |       | 159                        |       | 128,502 |   |
| Net income for the period                     |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       | 7,680                                            |       | (52                        | )          | 7,628 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Expense for stock options                     |       |                                   |       |                    |       |                                    |       | 1,041                              |       |                                                                       |       |                                      |       |                                             |       |                       |       | 1,041 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Currency translation                          |       |                                   |       |                    |       |                                    |       |                               |       | 48                                                                         |       |                                      |       |                                             |       |                       |       | 48 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Acquisition minority interests                |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       | (107                       | )          | (107 | ) |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Derivative financial instruments net of tax   |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       | (145                                      | )          |                                             |       |                       |       | (145 | ) |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Balance at December 31, 2004                  |       | 64,832                                 |       |                    |       | 64,832                                  |       | 28,803                             |       | (2,196                                                                     | )          | 1,324                                     |       | 44,204                                           |       | 0                          |       | 136,967 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Balance at January 1, 2005                    |       | 64,832                                 |       |                    |       | 64,832                                  |       | 28,803                             |       | (2,196                                                                     | )          | 1,324                                     |       | 44,204                                           |       | 0                          |       | 136,967 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Net loss for the period                       |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       | (53,468                                          | )          |                       |       | (53,468 | ) |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Capital increase against contribution in kind |       | 24,968                                 |       | (4,428                  | )          | 20,540                                  |       | 62,161                             |       |                                                                       |       |                                      |       |                                             |       |                       |       | 82,701 |   |
| Expense for stock options                     |       |                                   |       |                    |       |                                    |       | 1,801                              |       |                                                                       |       |                                      |       |                                             |       |                       |       | 1,801 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Exercise                                      |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| - convertible bonds                           |       |                                   |       | 2,384                   |       | 2,384                                   |       | 3,142                              |       |                                                                       |       |                                      |       |                                             |       |                       |       | 5,526 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| - stock options                               |       |                                   |       | 41                      |       | 41                                      |       | 44                                 |       |                                                                       |       |                                      |       |                                             |       |                       |       | 85 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Currency translation                          |       |                                   |       |                    |       |                                    |       |                               |       | 11,616                                                                     |       |                                      |       |                                             |       |                       |       | 11,616 |   |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Derivative financial instruments net of tax   |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       | (1,629                                    | )          |                                             |       |                       |       | (1,629 | ) |
|                                          |       |                                   |       |                    |       |                                    |       |                               |       |                                                                       |       |                                      |       |                                             |       |                       |       |   |   |
| Balance at December 31, 2005                  |       | 89,800                                 |       | (2,003                  | )          | 87,797                                  |       | 95,951                             |       | 9,420                                                                      |       | (305                                      | )          | (9,264                                           | )          | 0                          |       | 183,599 |   |

 

F-5

----

 
| ** **                                  | ** ** | ** **                             | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Income and expense  recognised directly in  equity** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Sub-  scribed  capital  under  HGB** | ** ** | **Trea-  sury  shares** | ** ** | **Sub-  scribed  capital  under  IFRS** | ** ** | **Addi-  tional  paid-in-  capital** | ** ** | **Currency  trans-  lation** | ** ** | **Derivative  financial  instru-  ments** | ** ** | **Accumu-  lated  deficit** | ** ** | **Minority  inte-  rests** | ** ** | **Share-  holders’  equity** | ** ** |
| ** **                                  | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Total** | ** ** |
| Balance at January 1, 2006                  |       | 89,800                                 |       | (2,003 | ) | 87,797 |   | 95,951 |   | 9,420 |   | (305 | ) | (9,264 | ) | 0 |   | 183,599 |   |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income for the period                   |       |                                   |       |   |   |   |   |   |   |   |   |   |   | 5,857 |   |   |   | 5,857 |   |
| Expense for stock options                   |       |                                   |       |   |   |   |   | 1,450 |   |   |   |   |   |   |   |   |   | 1,450 |   |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exercise stock options                      |       |                                   |       | 40 |   | 40 |   | 43 |   |   |   |   |   |   |   |   |   | 83 |   |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Currency translation                        |       |                                   |       |   |   |   |   |   |   | (7,871 | ) |   |   |   |   |   |   | (7,871 | ) |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivative financial instruments net of tax |       |                                   |       |   |   |   |   |   |   |   |   | 824 |   |   |   |   |   | 824 |   |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2006                |       | 89,800                                 |       | (1,963 | ) | 87,836 | * | 97,444 |   | 1,549 |   | 519 |   | (3,406 | )* | 0 |   | 183,942 |   |

----

* rounded

See accompanying notesto consolidated financial statements.

** **

**Statement of recognised income and expenses**

| *in EUR thousands*                                                | ** ** | **2006**   | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|-------------|------------|------------|------------|
| * *                                                                    | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Net income/loss**                                                         | ** ** | **5,857**  | ** ** | **(53,468** | **)**      | **7,680**  | ** ** |
| * *                                                                    |       |       |       |        |       |       |       |
| Unrealised gains/losses from derivative financial  instruments before taxes |       | 1,122      |       | (2,493      | )          | (308       | )          |
| Currency translation adjustment                                             |       | (7,871     | )          | 11,616      |       | 48         |       |
| Deferred taxes                                                              |       | (298       | )          | 864         |       | 163        |       |
| **Net income/loss recognised  directly in equity**                          | ** ** | **(7,047** | **)**      | **9,987**   | ** ** | **(97**    | **)**      |
| **Total recognised income and  expenses for the period**                    | ** ** | **(1,190** | **)**      | **(43,481** | **)**      | **7,583**  | ** ** |

 

See accompanyingnotes to consolidated financial statements.

F-6

----

 

**Notes tothe consolidated financial statements**

**1. Generalprinciples**

AIXTRON AG (“AIXTRON AG”) is incorporated as a stockcorporation (“Aktiengesellschaft”) under the laws of the Federal Republic ofGermany. The Company is domiciled at Kackertstraße 15-17, 52072 Aachen,Germany. AIXTRON AG is registered in the commercial register of the DistrictCourt (“Amtsgericht”) of Aachen under HRB 7002.

The consolidated financial statements of AIXTRON AGand its subsidiaries (“AIXTRON” or “Company”) have been prepared in accordancewith International Financial Reporting Standards (IFRS), the interpretationsadopted by the International Accounting Standards Board (IASB) and Section 315aof HGB (German Commercial Law).

Information required under generally accepted accountingstandards in the United States (US-GAAP) is also provided in the notes to theconsolidated financial statements. Material differences in accounting standardsbetween IFRS and US-GAAP are explained in note 40.

AIXTRON is a leading provider of deposition equipmentto the semiconductor and compound-semiconductor industry. The Company’stechnology solutions are used by a diverse range of customers worldwide tobuild advanced components for electronic and opto-electronic applications basedon compound, silicon, or organic semiconductor materials. Such components areused in fibre optic communication systems, wireless and mobile telephonyapplications, optical and electronic storage devices, computing, signalling andlighting, displays, as well as a range of other leading-edge technologies.

These consolidated financial statements have beenprepared by the Executive Board and have been submitted to the SupervisoryBoard for its meeting held on March 13, 2007.

F-7

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**2. Significantaccounting policies**

**(a) Companies included in consolidation**

Companies included inconsolidation are the parent company, AIXTRON AG, and 11 companies, in whichAIXTRON AG has a 100% direct or indirect shareholding or which can becontrolled by AIXTRON AG. The balance sheet date of all consolidated companiesis December 31. A list of all consolidated companies is shown in note 34.

**(b) Basis of accounting**

The consolidatedfinancial statements are presented in Euro (EUR). The amounts are rounded tothe nearest thousand Euro (kEUR). Some items in the balance sheet and incomestatement have been combined under one heading to improve the clarity ofpresentation. Such items are disclosed and commented on individually in thenotes.

The preparation offinancial statements in conformity with IFRS requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosures of contingent assets and liabilities at the balancesheet date and the reported amounts of income and expenses during the reported period.Actual results may differ from these estimates.

Theestimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if this revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods.

Inthe calculation of provisions assumptions and estimates were made in respect ofthe amount of the related transactions as well as in respect of the probabilitythat such transactions will occur. For the calculation of the fair values ofintangible assets AIXTRON assumed future revenues and cash flows to determinethe respective assets. These assumptions are based on the experience of themanagement and on external sources, such as market studies. As to thecalculation of provisions for warranties, the Company also uses estimatedvalues derived from previous experience.

The accounting policiesset out below have been applied consistently to all periods presented in theseconsolidated financial statements.

The accounting policieshave been applied consistently by each consolidated company.

**(c) Bases of consolidation**

**(i)    Subsidiaries**

Entities over whichAIXTRON AG has control are treated as subsidiaries (see note 34). Controlexists when the Company has the power, directly or indirectly, to govern thefinancial and operating policies of an entity so as to obtain benefits from itsactivities. The financial statements of subsidiaries are included in theconsolidated financial statements from the date that controlling influence commences.

**(ii)   Transactions eliminated on consolidation**

All intercompany profitsand losses, transactions and balances have been eliminated in theconsolidation.

F-8

----

**(d) Foreign currency**

The consolidatedfinancial statements have been prepared in Euro (EUR). In the translation offinancial statements of subsidiaries outside the Euro-Zone the local currenciesare used as functional currencies of these subsidiaries. Assets and liabilitiesof these subsidiaries are translated to EUR at the exchange rate ruling at thebalance sheet date. Revenues and expenses are translated to EUR at averageexchange rates for the year or at average exchange rates for the period betweentheir inclusion in the consolidated financial statements and the balance sheetdate. Net equity is translated at historical rates. The differences arising ontranslation are disclosed in income and expenses reocognised in equity.

Exchange gains and lossesresulting from fluctuations in exchange rates in the case of foreign currencytransactions are recognised in the income statement in “other operating income”or “other operating expenses”.

**(e) Derivative financial instruments**

AIXTRON uses derivativefinancial instruments in the form of forward exchange contracts and options tohedge fluctuations in exchange rates in respect of cash flows from forecast andagreed sales transactions denominated in foreign currencies.

AIXTRON does not applyhedge accounting to all derivative financial instruments which do not meet thedocumentation requirements specified in IAS 39. In accordance with the Company’streasury policy, it does not hold or issue derivative financial instruments fortrading purposes.

Derivative financialinstruments are measured at fair value. Gains and losses resulting from themarket valuations of forward exchange contracts and options at the balancesheet date to which hedge accounting is not applied, are recognised throughprofit and loss.

Where hedge accounting asdefined in IAS 39 is applied to a derivative financial instrument to hedge thevariability in cash flows from forecast transactions (cash flow hedges), thegain or loss arising on the market valuation is recognised in equity (incomeand expenses recognised in equity). This gain or loss is recognised in equityuntil the underlying transaction affects the income statement. Where a cashflow hedge does not meet the criteria of hedge accounting, the ineffective partwill be recognised immediately in the income statement.

**(f) Property, plant and equipment**

**(i)    Acquisition ormanufacturing cost**

Items of property, plantand equipment are stated at cost, plus ancillary charges, less accumulated depreciation(see below) and impairment losses (see accounting policy (l)).

Costs of internallygenerated assets include not only costs of material and personnel, but also ashare of overhead costs.

Where parts of an item ofproperty, plant and equipment have different useful lives, they are accountedfor as separate items of property, plant and equipment.

Interest is expensed asincurred.

F-9

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**(ii)   Subsequent costs**

The Company recognises inthe carrying amount of an item of property, plant and equipment the cost ofreplacing components or enhancement of such an item when that cost is incurredif it is probable that the future economic benefits embodied in the item willflow to the Company and the cost of the item can be measured reliably. Allother costs such as repairs and maintenance are expensed as incurred.

**(iii)  Government grants**

Government grants relatedto the acquisition or manufacture of owned assets are deducted from originalcost at date of capitalisation.

**(iv)   Depreciation**

Depreciation is chargedon a straight-line basis over the estimated useful lives of each part of anitem of property, plant and equipment. The estimated useful lives are asfollows:

| ·Buildings                                  |   | 25 years     |
|--------------------------------------------------|--------|--------------|
| ·Machinery and equipment                    |   | 3 - 10 years |
| ·Other plant, factory and office  equipment |   | 3 - 8 years  |

 

**(g) Intangible assets**

**(i) Goodwill**

All business combinationsare accounted for by applying the purchase method. In respect of businessacquisitions that have occurred since January 1, 2004, goodwill represents thedifference between the cost of the acquisition and the fair value of the netidentifiable assets acquired. In respect of acquisitions prior to this date,goodwill was determined under the previous accounting principles (US-GAAP),applied until 2004, and was continued to be recognised at its then carryingamount.

Goodwill is stated atcost less any accumulated impairment loss. Goodwill is allocated tocash-generating units and is tested annually for impairment (see accounting policy(l)).

**(ii)   Research anddevelopment**

Expenditure on researchactivities, undertaken with the prospect of gaining new technical knowledge andunderstanding using scientific methods, is recognised as an expense as incurred.

Expenditure ondevelopment comprises costs incurred with the purpose of using scientific knowledgetechnically and commercially. As not all criteria of IAS 38 are met or are onlymet at a very late point within the development process, for reasons of materialityAIXTRON did not capitalise such costs.

**(iii)  Other intangibleassets**

Other intangible assetsthat are acquired by the Company are stated at cost less accumulatedamortisation (see below) and impairment losses (see accounting policy (l)).

Intangible assetsacquired through business combinations are stated at their fair value at thedate of purchase (see note 4).

Expenditure on internallygenerated goodwill, trademarks and patents is expensed as incurred.

**(iv)   Subsequentexpenditure**

Subsequent expenditure oncapitalised intangible assets is capitalised only when it increases the futureeconomic benefits embodied in the specific asset to which it relates. All otherexpenditure is expensed as incurred.

F-10

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**(v)    Amortisation**

Amortisation is chargedon a straight-line basis over the estimated useful lives of intangible assets,except for goodwill. Goodwill is tested annually in respect of its recoverableamount. Other intangible assets are amortised from the date they are availablefor use. The estimated useful lives are as follows:

| ·Software                                           |   | 2 - 3 years  |
|----------------------------------------------------------|--------|--------------|
| ·Patents and similar rights                         |   | 5 - 18 years |
| ·Customer base and product and  technology know how |   | 6 - 7 years  |

 

**(h)   Investment property**

**Investment properties are measured using the cost model.**

**(i)    Trade receivables and other receivables**

Trade receivables andother receivables are stated at their fair value. Allowance for potential risksfrom bad debts is estimated based on previous experience.

**(j)    Inventories**

Inventories are stated atthe lower of cost and net realisable value. Net realisable value is the estimatedselling price in the ordinary course of business, less the estimated cost ofcompletion and selling expenses. Cost is determined using weighted averagecost.

The cost includesexpenditures incurred in acquiring the inventories and bringing them to theirexisting location and condition. In the case of work in progress and finishedgoods, cost includes direct material and production  cost, as well as an appropriate share ofoverheads based on normal operating capacity.

Allowance for slowmoving, excess and obsolete, and otherwise unsaleable inventory is recordedbased primarily on either the Company’s estimated forecast of product demandand production requirement for the next twelve months or historical trailingtwelve month usage. When there has been no usage of an inventory item during aperiod of twelve months, the Company writes down such inventories based onprevious experience.

**(k)   Cash and cash equivalents**

Cash and cash equivalentscomprise cash on hand, current deposits with credit institutions and short-termnotes with a remaining maturity of three months or less at the date ofacquisition. The basis of measurement is nominal value.

F-11

----

**(l)    Impairment of property, plant and equipmentand intangible assets**

Goodwill purchased aspart of a business acquisition is tested annually for impairment, irrespectiveof whether there is any indication of impairment. For impairment test purposes,the goodwill is allocated to cash-generating units. Impairment losses arerecognised to the extent that the carrying amount exceeds the higher of netrealisable value or value in use (recoverable amount) of the cash-generatingunit.

Property, plant andequipment as well as other intangible assets are tested for impairment, wherethere is any indication that the asset may be impaired. Impairment losses onsuch assets are recognised, to the extent that the carrying amount exceedseither the net realisable value that would be obtainable from a sale in an arm’slength transaction, or the value in use.

In assessing value inuse, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments and therisks associated with the asset.

Impairment losses arereversed if there has been a change in the estimates used to determine therecoverable amount. Reversals are made only to the extent that the carryingamount of the asset does not exceed the carrying amount that would have beendetermined if no impairment loss had been recognised.

An impairment loss inrespect of goodwill is not reversed.

**(m)  Earnings per share**

Basic earnings per shareare computed by dividing net income (loss) by the weighted average number ofissued common shares and AIXTRON ADS (see note 22) for the year. Dilutedearnings per share reflect the potential dilution that could occur if optionsissued under the Company’s stock option plans were exercised and convertiblebonds were converted, unless such conversion had an anti-dilutive effect.

**(n)   Convertible bonds**

Convertible bonds thatcan be converted to share capital at the option of the holder, where the numberof shares issued does not vary with changes in their fair value, are accountedfor as compound financial instruments. Transaction costs that relate to theissue of a compound financial instrument are allocated to the liability andequity components in proportion to the allocation of proceeds. The equitycomponent of the convertible bonds is calculated as the excess of the issueproceeds over the present value of the future interest and principal payments,discounted at the market rate of interest applicable to similar liabilitiesthat do not have a conversion option. The interest expense recognised in theincome statement is calculated using the effective interest rate method.

**(o)   Employee benefits**

**(i)    Definedcontribution plans**

Obligations forcontributions to defined contribution pension plans are recognised as an expensein the income statement as incurred.

**(ii)   Defined benefitplans**

The obligation fromdefined benefit plans is calculated by estimating the amount of future benefitthat employees have earned in return for their service in prior periods; thatbenefit is discounted to determine its present value. The calculation isperformed by a qualified actuary using the projected unit credit method.

F-12

----

Since January 1, 2005, actuarialgains and losses have been recognised in the income statement at each balancesheet date. The comparative figures have not been adjusted according to IAS 8for reasons of materiality.

**(iii)  Share-basedpayment transactions**

The stock option programsallows members of the Executive Board, management and employees of the Companyto acquire shares/ADS (see note 25) of the Company. These stock option programsare accounted for by AIXTRON according to IFRS 2. The fair value of optionsgranted after November 7, 2002 is recognised as personnel expense with a correspondingincrease in the additional paid-in capital. The fair value is calculated atgrant date and spread over the period during which the employees becomeunconditionally entitled to the options. The fair value of the options grantedis measured using a binomial lattice model, taking into account the terms andconditions upon which the options were granted. In the calculation of thepersonnel expense options forfeited are taken into account.

**(p)   Provisions**

A provision is recognisedin the balance sheet when the Company has a present legal or constructiveobligation as a result of a past event, and it is probable that an outflow ofeconomic benefits will be required to settle this obligation. If the effect ismaterial, provisions are determined by discounting the expected future cashflows at a pre-tax interest rate that reflects current market assessments ofthe time value of money and, where appropriate, the risks associated with the liability.

**(i)    Warranties**

The Company offers one totwo year warranties on all of its products. Warranty expenses generally includecost of labor, material and related overhead necessary to repair a product freeof charge during the warranty period. The specific terms and conditions ofthose warranties may vary depending on the equipment sold, the terms of thecontract and the locations from which they are sold. The Company establishesthe costs that may be incurred under its warranty obligations and records aliability in the amount of such costs at the time revenue is recognised.Factors that affect the Company’s warranty liability include the historical andanticipated rates of warranty claims and cost per claim.

The Company accruesmaterial and labor cost for systems shipped based upon historical experience.The Company periodically assesses the adequacy of its recorded warranty provisionsand adjusts the amounts as necessary.

**(iii)  Onerous contracts**

A provision for onerouscontracts is recognised when the expected benefits to be derived by the Companyfrom a contract are lower than the unavoidable cost of meeting its obligationsunder the contract.

**(q)   Trade payables and other payables**

Trade payables and otherpayables are stated at their repayment values. Outstanding invoices relating toother accounting periods are recognised in trade payables.

F-13

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**(r)   Revenue**

Revenue is generated fromthe sale and installation of equipment, spare parts and maintenance services.The sale of equipment involves a customer acceptance test at AIXTRON ́sproduction facility. After successful completion of this test, the equipment isdismantled and packaged for shipment. Upon arrival at the customer site theequipment is reassembled and installed, which is a service generally performedby AIXTRON engineers. AIXTRON gives no general rights of return, discounts,credits or other sales incentives within its terms of sale. However,occasionally some customers of AIXTRON have specifically negotiated terms of conditionsof business.

Revenues from the sale ofproducts that have been demonstrated to meet product specification requirementsare recognised upon shipment to the customer, if a full customer acceptancetest has been successfully completed at the AIXTRON production facility and therisk has passed to the customer.

Revenue relating to theinstallation of the equipment at the customer’s site is recognised when theinstallation is completed and the final customer acceptance has been confirmed.The portion of the contract revenue deferred until completion of theinstallation services is determined based on either the fair value of theinstallation services or the portion of the contract amount that is due andpayable upon completion of the installation. Fair value of the installationservices is determined based on an estimate of the materials and time requiredto complete the installation.

Revenue related toproducts where meeting the product specification requirements has not yet beendemonstrated, or where specific rights of return have been negotiated, isrecognised only upon final customer acceptance.

Revenue on the sale ofspare parts is recognised when title and risk passes to the customer, generallyupon shipment. Revenue from maintenance services is recognised as the servicesare provided.

**(s)   Expenses**

**(i)    Cost of sales**

Cost of sales includessuch direct costs as materials, labor and related production overheads.

**(ii)   Research anddevelopment**

Research and developmentcosts are expensed as incurred. Project funding received from governments (e.g.state funding) and the European Union is recorded in other operating income, ifthe Research and Development costs are incurred and provided that theconditions for the funding have been met.

**(iii)  Operating leasepayments**

Payments made underoperating leases are recognised as expense on a straight-line basis over theterm of the lease.

**(t)    Other operating income**

**Government grants**

Government grants awardedfor project funding are recorded in “Other operating income” if the Researchand Development costs are incurred and provided that the conditions for thefunding have been met.

F-14

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**(u)   Deferred tax**

Deferred tax assets andliabilities are recorded for all temporary differences between tax and commercialbalance sheets and for losses brought forward for tax purposes as well as fortax credits of the companies included in consolidation. The deferred taxes arecalculated, based on tax rates applicable at the balance sheet date or known tobe applicable in the future. Effects of changes in tax rates on the deferredtax assets and liabilities are recognised upon adoption of the amended law.

A deferred tax asset isrecognised only to the extent that it is probable that future taxable profitscan be set off against tax credits and tax loss carry forwards. Deferred taxassets are reduced to the extent that it is no longer probable that the relatedtax benefit can be realised.

**(v)    Segment reporting**

A business segment is adistinguishable component of the Company that is engaged in providing productsor services which are subject to similar risks and rewards. AIXTRON operates inworldwide markets. As the risks and rates of return are primarily affected byprojects and services, the primary format for the reporting of segmentinformation is business segments with secondary information reported geographically.

Internally reportedproduct lines are combined for group reporting in one business segment as definedin IAS 14.34, as they show only insignificant differences as to long termprofit forecasts and as they are materially similar in the assessment of thecriteria used to distinguish the individual business segments as defined in IAS14.9.

Accounting standardsapplied in segment reporting are in accordance with the general accountingpolicies as explained in this section. The disclosed revenues earned with othersegments are at arm’s length.

**(w)   Cash flow statement**

The cash flow statementis prepared in accordance with IAS 7. Cash flows from operating activities areprepared using the indirect method. Cash inflows and cash outflows from taxesand interest are included in cash flows from operating activities.

**(x)   Recently issued accounting standards**

The following list showsIFRS Standards and Amendments to IFRS not compulsory and not applicable forreporting periods ended on December 31, 2006. These standards were not appliedearlier than required. AIXTRON is currently analysing the impact of the newstandards on its consolidated financial statements. The Company does not expectthe adoption of these standards to have a material impact on its consolidatedfinancial statements with the exception that additional or revised informationabout financial instruments should be presented in the notes, when IFRS 7 is applied.
| **IFRS 7** | * * | *Financial Instruments: Disclosures* |   |   |
|------------|----------|--------------------------------------|--------|--------|
|       |     | Issued: August 2005                  |   |   |
|       | * * | * *                             |   |   |
| **IFRS 8** | * * | *Operating Segments*                 |   |   |
|       |     | Issued: November 2006                |   |   |

F-15

----

 
| **IFRIC 7**   | * * | *Applying the Restatement Approach under IAS 29  Financial Reporting in Hyperinflationary Economies* |
|---------------|----------|------------------------------------------------------------------------------------------------------|
|          |     | Issued: November 2005                                                                                |
|          |     |                                                                                                 |
| **IFRIC 8**   | * * | *Scope of IFRS 2*                                                                                    |
|          |     | Issued: January 2006                                                                                 |
|          |     |                                                                                                 |
| **IFRIC 9**   | * * | *Reassessment of Embedded Derivatives*                                                               |
|          |     | Issued: March 2006                                                                                   |
|          |     |                                                                                                 |
| **IFRIC  10** | * * | *Interim Financial Reporting and Impairment*                                                         |
|          |     | Issued: July 2006                                                                                    |
|          |     |                                                                                                 |
| **IFRIC  11** | * * | *IFRS 2 - Group and Treasury Share Transactions*                                                     |
|          |     | Issued: November 2006                                                                                |
|          |     |                                                                                                 |
| **IFRIC  12** | * * | *Service Concession Arrangements*                                                                    |
|          |     | Issued: November 2006                                                                                |
|          |     |                                                                                                 |
| **Amendment** | * * | *Capital Disclosures*                                                                                |
| **to IAS  1** |     | Issued: August 2005                                                                                  |

 

F-16

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**3.     Segment reporting**

Thefollowing segment information has been prepared in accordance with IAS 14 “SegmentReporting”. As AIXTRON has only one reportable business segment (see note 2(v)), the segment information provided relates only to the Company’s geographicalsegments, this being secondary segment information.

TheCompany markets and sells the majority of its products in Asia, Europe and theUnited States, mainly through its direct sales organisation and cooperationpartners.

Inpresenting information on the basis of geographical segments, segment revenueis based on the geographical location of customers. Segment assets are based onthe geographical location of the assets.

Segmentcapital expenditure consists of the total additions to segment assets, that areexpected to be used for more than one period.

**Geographicalsegments**
| ***in EUR thousands***     | ** ** | ** ** | ** ** | **Asia**    | ** ** | **Europe** | ** ** | **United   States** | ** ** | **Consoli-  dation** | ** ** | **Group**   | ** ** |
|--------------------------------------|------------|------------|------------|-------------|------------|------------|------------|--------------------------|------------|----------------------|------------|-------------|------------|
|                                 |       |       |       |        |       |       |       |                     |       |                 |       |        |       |
| Revenues realised with third parties |       | 2006       |       | 135,223     |       | 22,232     |       | 14,230                   |       |                 |       | 171,685     |       |
|                                 |       | 2005       |       | 103,036     |       | 22,052     |       | 14,314                   |       |                 |       | 139,402     |       |
|                                 |       | 2004       |       | 108,097     |       | 13,642     |       | 18,265                   |       |                 |       | 140,004     |       |
|                                 |       |       |       |        |       |       |       |                     |       |                 |       |        |       |
| Internal revenues                    |       | 2006       |       | 15,671      |       | 2,642      |       | 13,101                   |       | (31,414              | )          |        |       |
|                                 |       | 2005       |       | 11,582      |       | 1,055      |       | 6,311                    |       | (18,948              | )          |        |       |
|                                 |       | 2004       |       | 4,905       |       | 1,676      |       | 11,646                   |       | (18,227              | )          |        |       |
|                                 |       |       |       |        |       |       |       |                     |       |                 |       |        |       |
| **Total segment revenues**           | ** ** | **2006**   | ** ** | **150,894** | ** ** | **24,874** | ** ** | **27,331**               | ** ** | **(31,414**          | **)**      | **171,685** | ** ** |
| ** **                           | ** ** | **2005**   | ** ** | **114,618** | ** ** | **23,107** | ** ** | **20,625**               | ** ** | **(18,948**          | **)**      | **139,402** | ** ** |
| ** **                           | ** ** | **2004**   | ** ** | **113,002** | ** ** | **15,318** | ** ** | **29,911**               | ** ** | **(18,227**          | **)**      | **140,004** | ** ** |
|                                 |       |       |       |        |       |       |       |                     |       |                 |       |        |       |
| Segment assets                       |       | 2006       |       | 12,967      |       | 231,370    |       | 91,158                   |       | (32,530              | )          | 202,965     |       |
|                                 |       | 2005       |       | 13,841      |       | 214,775    |       | 98,795                   |       | (127,862             | )          | 199,549     |       |
|                                 |       | 2004       |       | 5,798       |       | 139,087    |       | 10,340                   |       | (30,209              | )          | 125,016     |       |
|                                 |       |       |       |        |       |       |       |                     |       |                 |       |        |       |
| Segment capital expenditures*        |       | 2006       |       | 202         |       | 1,953      |       | 700                      |       |                 |       | 2,855       |       |
|                                 |       | 2005       |       | 308         |       | 10,213     |       | 93,262                   |       |                 |       | 103,783     |       |
|                                 |       | 2004       |       | 171         |       | 5,202      |       | 57                       |       |                 |       | 5,430       |       |

 
| * Segment capital expenditures for the financial  year 2005 also include the additions resulting from  the change in composition of the AIXTRON  Group. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

F-17

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Revenues are shown in the following table:
| ***in EUR thousands*** | ** ** | **2006**    | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|----------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| *** ***                     | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** |
| Revenues for sale of goods       |       | **169,759** |       | 137,306     |       | 138,592     |       |
| Revenues for service and repair  |       | **1,926**   |       | 2,096       |       | 1,412       |       |
|                             |       |        |       |        |       |        |       |
|                             | ** ** | **171,685** | ** ** | **139,402** | ** ** | **140,004** | ** ** |

 

Revenues for sale of goods in 2005 include revenuesfrom barter transactions in the amount of kEUR  3,701.

F-18

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**4.     Acquisition of subsidiaries**

In 2006 there were no acquisitions.

All acquisitions described below were accounted forusing the purchase method of accounting.

In 2006 the former AIXTRON, Inc., Atlanta was mergedinto Genus, Inc., Sunnyvale. The resulting entity was renamed AIXTRON, Inc.,Sunnyvale (see note 34). All disclosures relating to the acquisition of theformer Genus, Inc. are described as referring to “former Genus” or “Genus”.

On July 2, 2004, AIXTRON announced its intention toacquire Genus, Inc. Genus is a supplier of Atomic Layer Deposition technology,which is required in the production of advanced semiconductors and hard diskdrives. AIXTRON acquired all issued and outstanding shares of Genus, Inc. witheffect from March 14, 2005.

The United States Securities and Exchange Commission(SEC) declared the F-4 registration statement of AIXTRON AG effective onFebruary 8, 2005. On March 10, 2005, the extraordinary meeting of shareholdersof Genus, Inc. took place. The shareholders of Genus approved the merger pursuantto the laws of the State of California through the affirmative vote of holdersof more than 50% of the issued and outstanding shares.

As part of the acquisition of Genus by AIXTRON allGenus, Inc. shares were exchanged for AIXTRON American Depositary Shares (ADS)in a stock-for-stock transaction. The shareholders of Genus received 0.51AIXTRON ADS in exchange for each Genus common share. Each AIXTRON ADSrepresents the beneficial ownership in one AIXTRON common share.

In the context of the acquisition, AIXTRON issuedadditional ADS for the holders of employee stock options, other options andconvertible bonds existing at the date of acquisition. These ADS weretransferred to a trust at the date of acquisition that keeps the ADS until theyare granted to the holders of the options and the convertible bonds. Uponconsummation of the transaction, the historical shareholders of AIXTRON AG heldapproximately 72% and the former shareholders of Genus approximately 28% ofAIXTRON AG taking into consideration all ADS issued as part of the transaction(see note 22).

The total purchase price for the acquisition of Genuscomprises the following:

| *in EUR thousands*                                                                                        | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| *** ***                                                                                                        | ** ** | ** ** | ** ** |
| Fair value of an AIXTRON share of common stock as  of March 14, 2005   (20,539,956 shares at 3.72 € per share) |       | 76,409     |       |
| Fair value of the stock options granted by Genus,  Inc.                                                             |       | 2,494      |       |
| Fair value of the convertible bond issued by  Genus, Inc.                                                           |       | 3,799      |       |
| Acquisition-related costs                                                                                           |       | 9,403      |       |
| ** **                                                                                                          | ** ** | **92,105** | ** ** |

 

The fair value of shares granted byAIXTRON AG was calculated as the quoted share price at the transfer date.

F-19

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The following table summarises the effect of the fairvalue adjustments on the assets acquired and liabilities assumed at the date ofacquisition.

| *in EUR thousands*         | ** ** | **Carrying amount** | ** ** | **Fair value   adjustment** | ** ** | **Acquisition cost** | ** ** |
|--------------------------------------|------------|--------------------------|------------|---------------------------------------|------------|---------------------------|------------|
|                                 |       | * *                 | * *   | * *                              | * *   | * *                  | * *   |
| Current assets                       |       | 28,435                   |       | (6,761                                | )          | 21,674                    |       |
| Property, plant and equipment        |       | 9,918                    |       | (5,684                                | )          | 4,234                     |       |
| Other intangible assets              |       | 0                        |       | 24,316                                |       | 24,316                    |       |
| Other assets                         |       | 580                      |       | (412                                  | )          | 168                       |       |
| **Acquired assets**                  |       | **38,933**               | ** ** | **11,459**                            | ** ** | **50,392**                | ** ** |
| Current liabilities                  |       | 15,399                   |       | 5,778                                 |       | 21,177                    |       |
| **Acquired assets less liabilities** |       | **23,534**               | ** ** | **5,681**                             | ** ** | **29,215**                | ** ** |
| Goodwill arising on acquisition      |       |                     |       |                                  |       | 62,890                    |       |
| Total purchase price                 |       |                     |       |                                  |       | 92,105                    |       |

 

The intangible assets acquired were classifiedaccording to the following categories:

| *in EUR millions*     | ** ** | ** ** | ** ** |
|---------------------------------|------------|------------|------------|
|                            |       |       |       |
| Customer base                   |       | 9.2        |       |
| Product and technology know how |       | 15.1       |       |
|                            |       | 24.3       |       |

 

Goodwill was recognised in the course of the transaction.The book value of the goodwill developed as follows:

| *in EUR thousands*                  | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-----------------------------------------------|------------|------------|------------|------------|------------|
|                                          |       |       |       |       |       |
| Carrying amount at January 1                  |       | 57,032     |       | 0          |       |
| Additions at date of first-time consolidation |       | 0          |       | 62,890     |       |
| Subsequent fair value adjustment              |       | (397       | )          | 0          |       |
| Impairment                                    |       | 0          |       | 13,705     |       |
| Effects from currency translation             |       | (5,828     | )          | 7,847      |       |
| Carrying amount at  December 31               | ** ** | **50,807** | ** ** | **57,032** | ** ** |

 

In 2006 the Genus goodwill was reduced in accordancewith IAS 12.68 subsequently realising a deferred tax asset amounting tokEUR 397 which at the date of acquisition did not satisfy the criteria ofIFRS 3 for separate recognition.

The following table summarises pro forma financialinformation assuming the Genus acquisition had occurred on January 1, 2004.This pro forma financial information does not necessarily represent what wouldhave occurred if the transaction had taken place on the date presented andshould not be taken as representative of future consolidated results of operationor financial position.

F-20

----

 

| *in EUR thousands* | ** ** | **01/01 - 12/31/2005** | ** ** | **01/01 - 12/31/2004** | ** ** |
|------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
|                         |       |                             |       |                             |       |
| Revenues                     |       | 143,381                          |       | 172,552                          |       |
| Net loss                     |       | (60,255                          | )          | (10,292                          | )          |
| Earnings per share           |       |                             |       |                             |       |
|  - basic                |       | (0.73                            | )          | (0.12                            | )          |
|  - diluted              |       | (0.73                            | )          | (0.12                            | )          |

 

The consolidated loss for the year 2005 includes a netloss of kEUR 30,722, arising in the original Genus group since the acquisition.

In May 2004, AIXTRON purchased the remaining 10%interest in AIXTRON KK, for an aggregate amount of kEUR 238 in cash includingcosts directly attributable to the business combination. The excess paid abovethe purchased net assets was accounted for as goodwill of kEUR 127. The subsidiaryis a distribution and service company of AIXTRON products in Japan.

In October 2004, AIXTRON purchased the remaining30.08% in Epigress AB for an aggregate amount of kEUR 1,773 in cash includingcost directly attributable to the business combination. The excess paid abovethe purchased net assets was accounted for as goodwill of kEUR 551. Epigress ABfocuses primarily on research and development activities and on the sale andmarketing of MOCVD equipment for silicon carbide (SiC).

**5.     Research and development**

Research and development costs, before deductingproject funding received, were kEUR 23,942, kEUR 30,514 and kEUR 20,407for the years ended December 31, 2006, 2005 and 2004, respectively.

After deducting project funding received and notrepayable, net expenses for research and development were kEUR 19,397,kEUR 27,627 and kEUR 17,856 for the years ended December 31, 2006, 2005and 2004 respectively.

Research and development expenses in 2006 includeimpairment expenses for property, plant and equipment in the amount ofkEUR 816 (2005: kEUR 1,601) and for intangible assets in theamount of kEUR 0 (2005: kEUR 3,701) (see notes 12 and 13 fordetails).

**6.     Other operating income**

| *in EUR thousands*                                       | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                               |       |     |       |     |       |     |       |
| Research and development funding                                   |       | 4,545    |       | 2,887    |       | 2,551    |       |
| Income from resolved contract obligations                          |       | 548      |       | 720      |       | 2,965    |       |
| Income from the reversal of provisions and the  write-off of debts |       | 1,883    |       | 837      |       | 756      |       |
| Other grants, reimbursements and costs passed on                   |       | 99       |       | 369      |       | 0        |       |
| Compensation payments                                              |       | 12       |       | 69       |       | 235      |       |
| Rental income                                                      |       | 0        |       | 22       |       | 216      |       |

 

F-21

----

 

| Foreign exchange  gains |       | 1,059     |       | 9         |       | 2,900     |       |
|-------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Other                   |       | 322       |       | 652       |       | 316       |       |
|                    | ** ** | **8,468** | ** ** | **5,565** | ** ** | **9,939** | ** ** |

 

The amount of exchange differences recognised inprofit or loss except for those arising on financial instruments measured atfair value through profit or loss was kEUR 468 (2005: kEUR 9,2004: kEUR 2,900).

**7.     Other operating expenses**

| *in EUR thousands*                                         | ** ** | **2006**  | ** ** | **2005**  | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------|------------|-----------|------------|-----------|------------|----------|------------|
|                                                                 |       |      |       |      |       |     |       |
| Foreign exchange losses                                              |       | 905       |       | 2,063     |       | 25       |       |
| Losses from the disposal of property, plant and  equipment           |       | 125       |       | 217       |       | 374      |       |
| Additions to allowances for receivables or  write-off of receivables |       | 216       |       | 102       |       | 204      |       |
| Other                                                                |       | 389       |       | 518       |       | 118      |       |
|                                                                 | ** ** | **1,635** | ** ** | **2,900** | ** ** | **721**  | ** ** |

 

**8.     Personnel expenses**

| *in EUR thousands*                           | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                   |       |       |       |       |       |       |       |
| Wages and salaries                                     |       | 35,652     |       | 34,633     |       | 24,991     |       |
| Social insurance contributions                         |       | 4,222      |       | 4,236      |       | 3,436      |       |
| Increase in the obligation from defined benefit  plans |       | 5          |       | 276        |       | 35         |       |
| Expense for defined contribution plans                 |       | 701        |       | 151        |       | 0          |       |
| Stock option expense                                   |       | 1,450      |       | 1,801      |       | 1,041      |       |
|                                                   | ** ** | **42,030** | ** ** | **41,097** | ** ** | **29,503** | ** ** |

 

**9.     Net financing costs**

| *in EUR thousands* | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                         |       |     |       |     |       |     |       |
| Finance income               |       | 1,003    |       | 693      |       | 786      |       |
| Finance expense              |       | (56      | )          | (233     | )          | (2       | )          |
|                         |       |     |       |     |       |     |       |
| Net finance costs            | ** ** | **947**  | ** ** | **460**  | ** ** | **784**  | ** ** |

 

F-22

----

**10.     Income tax expense/benefit**

The following table showsincome tax expenses and income recognised in the consolidated income statement
| ***in EUR thousand***s                               | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|----------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                           |       |       |       |       |       |       |       |
| **Current tax expense/current tax income**                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| for current year                                               |       | 424        |       | 282        |       | 1,096      |       |
| adjustment for prior years                                     |       | (827       | )          | 433        |       | 45         |       |
| **Total current tax expense**                                  | ** ** | **(403**   | **)**      | **715**    | ** ** | **1,141**  | ** ** |
|                                                           |       |       |       |       |       |       |       |
| **Deferred tax expense/deferred tax income**                   |       |       |       |       |       |       |       |
|  from  temporary differences                              |       | 783        |       | (1,441     | )          | 1,325      |       |
|  from  write-downs and reversals                          |       | 409        |       | 1,979      |       | 363        |       |
| **Total deferred tax expense**                                 | ** ** | **1,192**  | ** ** | **538**    | ** ** | **1,688**  | ** ** |
| **Total  income tax expense in consolidated income statement** | ** ** | **789**    | ** ** | **1,253**  | ** ** | **2,829**  | ** ** |

 

Income before taxes onincome and income tax expense relate to the following regions:
| ***in EUR thousands***      | ** ** | **2006**   | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|---------------------------------------|------------|------------|------------|-------------|------------|------------|------------|
| * *                              | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Income/(loss) before income taxes** |       |       |       |        |       |       |       |
| Germany                               |       | 1,389      |       | (20,171     | )          | 9,562      |       |
| Outside Germany                       |       | 5,257      |       | (32,044     | )          | 896        |       |
| **Total**                             | ** ** | **6,646**  | ** ** | **(52,215** | **)**      | **10,458** | ** ** |
| ** **                            | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Income tax expense**                |       |       |       |        |       |       |       |
| Germany                               |       | (623       | )          | 372         |       | 2,277      |       |
| Outside Germany                       |       | 1,412      |       | 881         |       | 552        |       |
| **Total**                             | ** ** | **789**    | ** ** | **1,253**   | ** ** | **2,829**  | ** ** |

 

F-23

----

The Company’s effectivetax rate is different from the German statutory tax rate of 39.45% (2005:39.45%; 2004: 39.28%) which is based on the German corporate income tax rate(including solidarity surcharge and trade tax)

The following table showsthe reconciliation from the expected to the reported tax expense:
| ***in EUR thousands***                                                                                          | ** ** | **2006**  | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-------------|------------|------------|------------|
|                                                                                                                      |       |      |       |        |       |       |       |
| Net result before taxes                                                                                                   | ** ** | **6,646** | ** ** | **(52,215** | **)**      | **10,458** | ** ** |
| Income tax expense (German tax rate)                                                                                      |       | 2,622     |       | (20,599     | )          | 4,108      |       |
| Effect from differences to foreign tax rates                                                                              |       | (680      | )          | 1,494       |       | (48        | )          |
| Non-deductible expenses                                                                                                   |       | 528       |       | 224         |       | 78         |       |
| Non-consideration of tax claims from loss  carryforwards                                                                  |       | 104       |       | 10,467      |       | 33         |       |
| Allowance against deferred tax assets                                                                                     |       | 409       |       | 1,979       |       | 363        |       |
| Other                                                                                                                     |       | (573      | )          | 644         |       | (77        | )          |
| Effect of the use of loss carryforwards                                                                                   |       | (2,830    | )          | (157        | )          | (91        | )          |
| Non-deductible impairment and amortisation of:  Goodwill, acquired customer relations and product and technology know how |       | 957       |       | 8,639       |       | 0          |       |
| Effect of permanent differences                                                                                           |       | 252       |       | (1,438      | )          | (1,537     | )          |
| **Income tax expense in  consolidated income statement**                                                                  | ** ** | **789**   | ** ** | **1,253**   | ** ** | **2,829**  | ** ** |
| **Effective tax rate**                                                                                                    | ** ** | **11.9**  | **%**      | **(2.4**    | **)%**     | **27.1**   | **%**      |

 

**11.     Current tax assets and liabilities**

In 2006 the current taxassets and liabilities, i.e. those actually incurred because the amount of taxpaid in the current or in prior periods was either too high or too low, arekEUR 699 and kEUR 536 respectively. In the previous year current taxliabilities were kEUR 1,404.

F-24

----

**12.     Property, plant and equipment**

**Development of property, plantand equipment**
| ***in EUR thousands***           | ** ** | **Land and  buildings** | ** ** | **Technical   equipment and   machinery** | ** ** | **Other plant,  factory and  office  equipment** | ** ** | **Assets  under  construction** | ** ** | **Total**  | ** ** |
|--------------------------------------------|------------|------------------------------|------------|----------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------|------------|------------|------------|
|                                       |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| **Cost**                                   |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| Balance at January 1, 2005                 |       | 30,120                       |       | 18,145                                                   |       | 10,090                                                     |       | 2,907                           | ** ** | **61,262** | ** ** |
| Acquisitions through business combinations |       | 328                          |       | 2,609                                                    |       | 299                                                        |       | 998                             | ** ** | **4,234**  | ** ** |
| Acquisitions                               |       | 989                          |       | 2,817                                                    |       | 745                                                        |       | 3,846                           | ** ** | **8,397**  | ** ** |
| Disposals                                  |       | 195                          |       | 580                                                      |       | 1,231                                                      |       | 589                             | ** ** | **2,595**  | ** ** |
| Transfers                                  |       | (207                         | )          | 3,347                                                    |       | 207                                                        |       | (3,347                          | )          | **0**      | ** ** |
| Effect of movements in exchange rates      |       | 78                           |       | 390                                                      |       | 304                                                        |       | 134                             | ** ** | **906**    | ** ** |
| Balance at December 31, 2005               | ** ** | **31,113**                   | ** ** | **26,728**                                               | ** ** | **10,414**                                                 | ** ** | **3,949**                       | ** ** | **72,204** | ** ** |
|                                       |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| Balance at January 1, 2006                 |       | 31,113                       |       | 26,728                                                   |       | 10,414                                                     |       | 3,949                           | ** ** | **72,204** | ** ** |
| Acquisitions                               |       | 79                           |       | 1,623                                                    |       | 614                                                        |       | 355                             | ** ** | **2,671**  | ** ** |
| Disposals                                  |       | 82                           |       | 439                                                      |       | 1,386                                                      |       | 1,222                           | ** ** | **3,129**  | ** ** |
| Transfers                                  |       | 0                            |       | 2,893                                                    |       | (112                                                       | )          | (2,781                          | )          | **0**      | ** ** |
| Effect of movements in exchange rates      |       | (15                          | )          | (558                                                     | )          | (192                                                       | )          | (28                             | )          | **(793**   | **)**      |
| Balance at December 31, 2006               | ** ** | **31,095**                   | ** ** | **30,247**                                               | ** ** | **9,338**                                                  | ** ** | **273**                         | ** ** | **70,953** | ** ** |
|                                       |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| **Depreciation and impairment losses**     |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| Balance at January 1, 2005                 |       | 7,218                        |       | 9,794                                                    |       | 7,180                                                      |       | 0                               | ** ** | **24,192** | ** ** |
| Depreciation charge for the year           |       | 1,409                        |       | 3,361                                                    |       | 1,355                                                      |       | 0                               | ** ** | **6,125**  | ** ** |
| Impairment losses                          |       | 0                            |       | 1,012                                                    |       | 0                                                          |       | 589                             | ** ** | **1,601**  | ** ** |
| Disposals                                  |       | 3                            |       | 556                                                      |       | 991                                                        |       | 589                             | ** ** | **2,139**  | ** ** |
| Transfers                                  |       | (70                          | )          | 0                                                        |       | 70                                                         |       | 0                               | ** ** | **0**      | ** ** |
| Effect of movements in exchange rates      |       | 16                           |       | 72                                                       |       | 158                                                        |       | 0                               | ** ** | **246**    | ** ** |
| Balance at December 31, 2005               | ** ** | **8,570**                    | ** ** | **13,683**                                               | ** ** | **7,772**                                                  | ** ** | **0**                           | ** ** | **30,025** | ** ** |
|                                       |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| Balance at January 1, 2006                 |       | 8,570                        |       | 13,683                                                   |       | 7,772                                                      |       | 0                               | ** ** | **30,025** | ** ** |
| Depreciation charge for the year           |       | 1,518                        |       | 3,702                                                    |       | 1,317                                                      |       | 0                               | ** ** | **6,537**  | ** ** |
| Impairment losses                          |       | 0                            |       | 0                                                        |       | 0                                                          |       | 816                             | ** ** | **816**    | ** ** |
| Disposals                                  |       | 2                            |       | 279                                                      |       | 1,371                                                      |       | 816                             | ** ** | **2,468**  | ** ** |
| Transfers                                  |       | 0                            |       | 56                                                       |       | (56                                                        | )          | 0                               | ** ** | **0**      | ** ** |
| Effect of movements in exchange rates      |       | (11                          | )          | (169                                                     | )          | (158                                                       | )          | 0                               | ** ** | **(338**   | **)**      |
| Balance at December 31, 2006               | ** ** | **10,075**                   | ** ** | **16,993**                                               | ** ** | **7,504**                                                  | ** ** | **0**                           | ** ** | **34,572** | ** ** |
|                                       |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| **Carrying amounts**                       |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| At January 1, 2005                         |       | 22,902                       |       | 8,351                                                    |       | 2,910                                                      |       | 2,907                           | ** ** | **37,070** | ** ** |
| At December 31, 2005                       |       | 22,543                       |       | 13,045                                                   |       | 2,642                                                      |       | 3,949                           | ** ** | **42,179** | ** ** |
|                                       |       |                         |       |                                                     |       |                                                       |       |                            |       |       |       |
| At January 1, 2006                         |       | 22,543                       |       | 13,045                                                   |       | 2,642                                                      |       | 3,949                           | ** ** | **42,179** | ** ** |
| At December 31, 2006                       |       | 21,020                       |       | 13,254                                                   |       | 1,834                                                      |       | 273                             | ** ** | **36,381** | ** ** |

** **

F-25

----

**Depreciation**

Depreciation expenseamounted to kEUR 6,537 for 2006 and was kEUR 6,125 andkEUR 5,096 for 2005 and 2004, respectively.

**Impairments**

During 2006 an impairmentloss for self-built systems of kEUR 816 was recognised. Changes in therequired technical specifications and a lack of usability resulted in awrite-off of capitalized materials and personnel expenses.

Impairments in 2005amounted to kEUR 1,601 and were attributable to the complete write-down ofcertain assets. Such assets were constructed for the further development of AIXTRONtechnology in the semiconductor industry (especially silicon germaniumapplications for Telecom/Datacom components). Due to changed market conditionsthe manufacturing cost exceeded the value in use. This was the reason for theimpairment.

All impairment lossesrecognised during 2006 and 2005 are included in research and development costsin the income statement.

**Government grants**

In 2006, the cost ofmachinery and equipment was reduced by kEUR 622 (2005: kEUR 1,070),because of government grants. Of that amount, kEUR 94 (2005: kEUR 648) hasbeen accrued as receivable and kEUR 528 (2005: kEUR 422) was paid in cash.

**Construction in progress**

Construction in progressrelates to self-built systems for development laboratories.

F-26

----

**13.     Intangible assets**

**Development of intangible assets**
| ***in EUR thousands***                              | ** ** | **Goodwill** | ** ** | **Other  intangible  assets** | ** ** | **Total**   | ** ** |
|---------------------------------------------------------------|------------|--------------|------------|-------------------------------|------------|-------------|------------|
|                                                          |       |         |       |                          |       |        |       |
| **Cost**                                                      |       |         |       |                          |       |        |       |
| Balance at January 1, 2005                                    |       | 19,928       |       | 9,236                         |       | 29,164      |       |
| Acquisitions through business combinations                    |       | 62,890       |       | 24,316                        |       | 87,206      |       |
| Acquisitions                                                  |       | 77           |       | 3,869                         |       | 3,946       |       |
| Disposals                                                     |       | 0            |       | 301                           |       | 301         |       |
| Effect of movements in exchange rates                         |       | 8,885        |       | 3,323                         |       | 12,208      |       |
| Balance at December 31, 2005                                  | ** ** | **91,780**   | ** ** | **40,443**                    | ** ** | **132,223** | ** ** |
|                                                          |       |         |       |                          |       |        |       |
| Balance at January 1, 2006                                    |       | 91,780       |       | 40,443                        | ** ** | **132,223** | ** ** |
| Acquisitions                                                  |       | 0            |       | 184                           | ** ** | **184**     | ** ** |
| Subsequent fair value adjustments from business  combinations |       | (397         | )          | 0                             | ** ** | **(397**    | **)**      |
| Disposals                                                     |       | 0            |       | 2                             | ** ** | **2**       | ** ** |
| Effect of movements in exchange rates                         |       | (6,901       | )          | (2,765                        | )          | **(9,666**  | **)**      |
| Balance at December 31, 2006                                  | ** ** | **84,482**   | ** ** | **37,860**                    | ** ** | **122,342** | ** ** |
|                                                          |       |         |       |                          |       |        |       |
| **Amortisation and impairment losses**                        |       |         |       |                          |       |        |       |
| Balance at January 1, 2005                                    |       | 6,295        |       | 4,941                         |       | 11,236      |       |
| Depreciation charge for the year                              |       | 0            |       | 4,281                         |       | 4,281       |       |
| Impairment losses                                             |       | 13,782       |       | 11,247                        |       | 25,029      |       |
| Disposals                                                     |       | 0            |       | 273                           |       | 273         |       |
| Effect of movements in exchange rates                         |       | 701          |       | 481                           |       | 1,182       |       |
| Balance at December 31, 2005                                  | ** ** | **20,778**   | ** ** | **20,677**                    | ** ** | **41,455**  | ** ** |
|                                                          |       |         |       |                          |       |        |       |
| Balance at January 1, 2006                                    |       | 20,778       |       | 20,677                        | ** ** | **41,455**  | ** ** |
| Depreciation charge for the year                              |       | 0            |       | 3,363                         | ** ** | **3,363**   | ** ** |
| Disposals                                                     |       | 0            |       | 2                             | ** ** | **2**       | ** ** |
| Effect of movements in exchange rates                         |       | (1,348       | )          | (1,275                        | )          | **(2,623**  | **)**      |
| Balance at December 31, 2006                                  | ** ** | **19,430**   | ** ** | **22,763**                    | ** ** | **42,193**  | ** ** |
|                                                          |       |         |       |                          |       |        |       |
| **Carrying amounts**                                          |       |         |       |                          |       |        |       |
| At January 1, 2005                                            |       | 13,633       |       | 4,295                         | ** ** | **17,928**  | ** ** |
| At December 31, 2005                                          |       | 71,002       |       | 19,766                        | ** ** | **90,768**  | ** ** |
|                                                          |       |         |       |                          |       |        |       |
| At January 1, 2006                                            |       | 71,002       |       | 19,766                        | ** ** | **90,768**  | ** ** |
| At December 31, 2006                                          |       | 65,052       |       | 15,097                        | ** ** | **80,149**  | ** ** |

 

 

F-27

----

**Major intangible assets**

In 2005 AIXTRON acquiredthe customer base and product and technology know how of Genus. These assetsare included in additions through business combinations for 2005. The customerbase and product and technology know how will be amortised over a remainingperiod of about five and five to six years respectively. The following tableshows the development of net book values of these intangible assets at the balancesheet dates:
| ***in EUR thousands***        | ** ** | **Customer  base** | ** ** | **Product and  technology  know how** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-------------------------------------------------|------------|
| *** ***                            | ** ** | ** **         | ** ** | ** **                                      | ** ** |
| Carrying amount January 1, 2005         |       | 0                  |       | 0                                               |       |
| Additions through business combinations |       | 9,239              |       | 15,076                                          |       |
| Amortisation                            |       | 1,339              |       | 2,094                                           |       |
| Impairment                              |       | 1,866              |       | 5,680                                           |       |
| Effect from currency translation        |       | 1,110              |       | 1,689                                           |       |
| **Carrying amount December 31, 2005**   | ** ** | **7,144**          | ** ** | **8,991**                                       | ** ** |
|                                    |       |               |       |                                            |       |
| Carrying amount January 1, 2006         |       | 7,144              |       | 8,991                                           |       |
| Amortisation                            |       | 1,307              |       | 1,428                                           |       |
| Effect from currency translation        |       | (669               | )          | (851                                            | )          |
| **Carrying  amount December 31, 2006**  | ** ** | **5,168**          | ** ** | **6,712**                                       | ** ** |

 

**Amortisation and impairmentexpenses for other intangible assets**

Amortisation andimpairment expenses for other intangible assets are recognised in the incomestatement as follows:
| *** ***                     | ** ** | **2006**         | ** ** | **2005**       | ** ** | **2004**         | ** ** |
|----------------------------------|------------|------------------|------------|----------------|------------|------------------|------------|
| ***in EUR thousands*** | ** ** | **Amortisation** | ** ** | **Impairment** | ** ** | **Amortisation** | ** ** | **Impairment** | ** ** | **Amortisation** | ** ** | **Impairment** | ** ** |
| *** ***                     | ** ** | ** **       | ** ** | ** **     | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of sales                    |       | 1,300            |       | 0              |       | 2,215            |       | 5,680 |   | 306 |   | 0 |   |
| Selling expenses                 |       | 1,445            |       | 0              |       | 1,414            |       | 1,866 |   | 10 |   | 0 |   |
| General administration expenses  |       | 206              |       | 0              |       | 195              |       | 0 |   | 127 |   | 0 |   |
| Research and development costs   |       | 412              |       | 0              |       | 457              |       | 3,701 |   | 447 |   | 0 |   |
|                             | ** ** | **3,363**        | ** ** | **0**          | ** ** | **4,281**        | ** ** | **11,247** | ** ** | **890** | ** ** | **0** | ** ** |

 

In 2005, an impairment loss of kEUR 3,701 was chargedon intangible assets. It relates to additions to patents and production methodsin 2005. Due to changed market conditions in respect of these intangible assetsit was not possible to reliably determine the economic benefit to be receivedin future periods. As a result an impairment loss was recognised.

Furthermore during 2005, market studies showed thatthe sales markets for specific AIXTRON technologies will be available to theCompany only at a date later than previously anticipated. Considering thisfact, AIXTRON performed an impairment test for developed technologies acquiredfrom Genus in 2005. On the basis of these tests an impairment of kEUR 5,680 tothe lower value in use was recognised in 2005.

F-28

----

In 2005, AIXTRON alsorealised an impairment loss of kEUR 1,866 on the customer base acquired fromGenus as the flows of economic benefit attributable to these customers at thebalance sheet date no longer reflect the original planning at the date ofacquisition.

No reversals were made in2006 or 2005.

The amortisation expectedto be charged on other intangible assets in the future years is as follows:
| ***in EUR thousands*** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| *** ***                     | ** ** | ** ** | ** ** |
| 2007                             |       | 3,103      |       |
| 2008                             |       | 3,015      |       |
| 2009                             |       | 2,990      |       |
| 2010                             |       | 2,974      |       |
| 2011                             |       | 1,692      |       |

 

The actual amortisationcan differ from the expected amortisation.

**Impairment of goodwill**

The carrying amount ofgoodwill at the balance sheet date by entity is as follows:
| ***in EUR thousands***        | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|
|                                    |       |       |       |       |       |
| AIXTRON, Inc. (doing business as Genus) |       | 50,807     |       | 57,032     |       |
| Thomas Swan Scientific Equipment Ltd.   |       | 12,267     |       | 11,992     |       |
| Epigress AB                             |       | 1,791      |       | 1,791      |       |
| AIXTRON KK                              |       | 187        |       | 187        |       |
|                                    | ** ** | **65,052** | ** ** | **71,002** | ** ** |

 

The impairment test forcash generating units is based on projections of cash flows on the basis of thelatest business plan. To evaluate the present value AIXTRON estimated the cashinflows for the period following the planning period of three to five years bycarrying forward an estimated growth rate, which is based on individual marketstudies, for the following years. The value in use for each cash generatingunit was calculated, using a discounted cash flow. A pre-tax discount rate of15% for Genus and 13% for other cash generating units was applied indiscounting the projected cash flows. The resulting value in use was comparedto the carrying amount of the cash generating unit.

In 2006 no impairment ofgoodwill was required.

In 2005 the comparison ofthe carrying amount with the value in use showed that an impairment of theGenus goodwill of kEUR 13,705 was needed. Impairments in respect of thegoodwill of Thomas Swan Scientific Equipment Ltd., Epigress AB and AIXTRON KKwere not necessary.

F-29

----

**14.  Investment property**

The net book value at thebalance sheet date of investment property amounted to kEUR 4,908(2005: kEUR 4,908). Investment property relates to undeveloped landheld for a purpose not yet determined. It may be used for a possible extensionof production capacity. The carrying amount is determined using the cost model.The fair value is equal to the carrying amount. The fair value of the land atDecember 31, 2006 was determined using related standard land values.

**15.  Other non-current assets**

Other non-current assetstotalling kEUR 671 (2005: kEUR 499) include mainly rent deposits for buildings.

**16.  Deferred tax assets and liabilities**

Recognised deferred taxassets and liabilities

Deferred tax assets andliabilities are attributable to the following:
| ** **                        | ** ** | **Assets** | ** ** | **Liabilities** | ** ** | **Net**  | ** ** |
|-----------------------------------|------------|------------|------------|-----------------|------------|----------|------------|
| ***in EUR thousands***            | ** ** | **2006**   | ** ** | **2005**        | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                              |       |       |       |            |       |     |       |   |   |   |   |   |   |
| Property, plant and  equipment    |       | 149        |       | 25              |       | (20      | )          | 0 |   | 129 |   | 25 |   |
| Trade receivables                 |       | 605        |       | 0               |       | (55      | )          | (30 | ) | 550 |   | (30 | ) |
| Inventories                       |       | 1,152      |       | 763             |       | 0        |       | 0 |   | 1,152 |   | 763 |   |
| Employee benefits                 |       | 155        |       | 167             |       | 0        |       | 0 |   | 155 |   | 167 |   |
| Deferred revenues                 |       | 60         |       | 155             |       | (144     | )          | 0 |   | (84 | ) | 155 |   |
| Currency translation  differences |       | 0          |       | 0               |       | 0        |       | 0 |   | 0 |   | 0 |   |
| Provisions and other  liabilities |       | 200        |       | 0               |       | (395     | )          | (209 | ) | (195 | ) | (209 | ) |
| Customer advances                 |       | 0          |       | 27              |       | (220     | )          | 0 |   | (220 | ) | 27 |   |
| Other                             |       | 18         |       | 18              |       | (348     | )          | (150 | ) | (330 | ) | (132 | ) |
| Tax loss  carryforwards           |       | 4,503      |       | 5,481           |       | 0        |       | 0 |   | 4,503 |   | 5,481 |   |
| Derivative financial  instruments |       | 0          |       | 84              |       | (280     | )          | 0 |   | (280 | ) | 84 |   |
| Deferred tax assets/(liabilities) |       | 6,842      |       | 6,720           |       | (1,462   | )          | (389 | ) | 5,380 |   | 6,331 |   |

 

Deferred tax assets arerecognised at the level of individual consolidated companies, in which a losswas realised in the current or preceding financial year, only to the extentthat realisation in future periods is probable. The nature of the evidence usedin assessing the probability of realisation includes forecasts, budgets and therecent profitability of the relevant entity. The carrying amount of deferredtax assets for entities which have made a loss in either the current orpreceding year was kEUR 5,599 (2005: kEUR 5,727).

Deferred taxes for taxlosses in the amount of kEUR 57,355 (2005: kEUR 72,138) and ondeductible temporary differences in the amount of kEUR 11,748(2005: kEUR 5,400) were not recognised. Tax losses in the amount ofkEUR 18,761 can be used indefinitely (2005: kEUR 19,844),kEUR 8,290 expire by 2011 (2005: 11,783 by 2010) and kEUR 30,304expire after 2011 (2005: kEUR 40,511 after 2010).

F-30

----

The following table showsthe development of temporary differences during the financial year:
| ***in EUR thousands***           | ** ** | **Balance at  Janaury 1,  2005** | ** ** | **Recognised  in income  statement** | ** ** | **Directly  recognised in  equity** | ** ** | **Balance at   December 31,  2005** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------|------------|
|                             | * *   |                                       | * *   |                                      | * *   |                                     | * *   | ** **                                         | * *   |
| Property, plant and equipment    | * *   | 0                                          | * *   | 25                                        | * *   | 0                                        | * *   | **25**                                             | * *   |
| Trade receivables                |       | 197                                        |       | (227                                      | )          | 0                                        | ** ** | **(30**                                            | **)**      |
| Inventories                      |       | 218                                        |       | 545                                       |       | 0                                        | ** ** | **763**                                            | ** ** |
| Provisions for pensions          |       | 62                                         |       | 105                                       |       | 0                                        | ** ** | **167**                                            | ** ** |
| Deferred revenues                |       | 1,748                                      |       | (1,593                                    | )          | 0                                        | ** ** | **155**                                            | ** ** |
| Currency adjustment              |       | 44                                         |       | 0                                         |       | (44                                      | )          | **0**                                              | ** ** |
| Provisions and other liabilities |       | (388                                       | )          | 179                                       |       | 0                                        | ** ** | **(209**                                           | **)**      |
| Customer advances                |       | (460                                       | )          | 487                                       |       | 0                                        | ** ** | **27**                                             | ** ** |
| Other                            |       | (26                                        | )          | (106                                      | )          | 0                                        | ** ** | **(132**                                           | **)**      |
| Derivative financial instruments |       | (1,031                                     | )          | 251                                       |       | 864                                      | ** ** | **84**                                             | ** ** |
| Tax loss carryforward            |       | 5,458                                      |       | 23                                        |       | 0                                        | ** ** | **5,481**                                          | ** ** |
|                             |       | **5,822**                                  |       | **(311**                                  | **)**      | **820**                                  | ** ** | **6,331**                                          | ** ** |

 
| ***in EUR thousands***           | ** ** | **Balance at  January 1,  2006** | ** ** | **Recognised  in income  statement** | ** ** | **Directly  recognised in  equity** | ** ** | **Balance at   December 31,  2006** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------|------------|
|                             | * *   |                                       | * *   |                                      | * *   |                                     | * *   | ** **                                         | * *   |
| Property, plant and equipment    | * *   | 25                                         | * *   | 104                                       | * *   | 0                                        | * *   | **129**                                            | * *   |
| Trade receivables                |       | (30                                        | )          | 580                                       |       | 0                                        | ** ** | **550**                                            | ** ** |
| Inventories                      |       | 763                                        |       | 389                                       |       | 0                                        | ** ** | **1,152**                                          | ** ** |
| Provisions for pensions          |       | 167                                        |       | (12                                       | )          | 0                                        | ** ** | **155**                                            | ** ** |
| Deferred revenues                |       | 155                                        |       | (239                                      | )          | 0                                        | ** ** | **(84**                                            | **)**      |
| Currency adjustment              |       | 0                                          |       | 0                                         |       | 0                                        | ** ** | **0**                                              | ** ** |
| Provisions and other liabilities |       | (209                                       | )          | 14                                        |       | 0                                        | ** ** | **(195**                                           | **)**      |
| Customer advances                |       | 27                                         |       | (247                                      | )          | 0                                        | ** ** | **(220**                                           | **)**      |
| Other                            |       | (132                                       | )          | (198                                      | )          | 0                                        | ** ** | **(330**                                           | **)**      |
| Derivative financial instruments |       | 84                                         |       | (66                                       | )          | (298                                     | )          | **(280**                                           | **)**      |
| Tax loss carryforwards           |       | 5,481                                      |       | (978                                      | )          | 0                                        | ** ** | **4,503**                                          | ** ** |
|                             |       | **6,331**                                  |       | **(653**                                  | **)**      | **(298**                                 | **)**      | **5,380**                                          | ** ** |

 

F-31

----

**17.  Long-term receivables from current tax**

Long-termreceivables from current tax include a receivable from corporate tax which willbe refunded in equal payments over a period of ten years. The payments can beclaimed at the beginning of each calendar year, starting January 1, 2008. Dueto a change in German corporate tax law the receivable was to be recognised asan asset at December 31, 2006.

**18.  Inventories**
| ***in EUR thousands***         | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
|                                     |       |       |       |       |       |
| Raw materials and supplies               |       | 19,993     |       | 13,075     |       |
| Work in process                          |       | 27,701     |       | 14,953     |       |
| Finished goods and services completed    |       | 699        |       | 3,029      |       |
| Inventories at customers’ locations |       | 4,756      |       | 2,056      |       |
|                                     | ** ** | **53,149** | ** ** | **33,113** | ** ** |

 
| ***in EUR thousands***                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |
| Write-down of inventories during the year               |       | 1,915    |       | 3,685    |       |
| Inventories measured at net realisable value            |       | 13,023   |       | 1,308    |       |
| Inventories recognised as an expense during the  period |       | 82,792   |       | 78,487   |       |
| Reversals of write-downs recognised during the  year    |       | 992      |       | 89       |       |

 

Inventories alreadyshipped to customers but for which final customer acceptance is outstanding arepresented as inventory at customers’ locations.

Due to changes in thepossibilities to use inventories, write-downs of kEUR 992 (2005:kEUR 89) on inventories were reversed and recognised in income in the financialyear.

**19.  Trade receivables and other currentreceivables**
| ***in EUR thousands***                              | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                          |       |       |       |       |       |
| Trade receivables                                             |       | 27,988     |       | 24,654     |       |
| Allowances for doubtful accounts                              |       | (311       | )          | (445       | )          |
| **Trade receivables - net**                                   | ** ** | **27,677** | ** ** | **24,209** | ** ** |
|                                                          |       |       |       |       |       |
| Prepaid expenses                                              |       | 1,005      |       | 1,067      |       |
| Reimbursement of research and development costs               |       | 1,080      |       | 648        |       |
| Advance payments for inventory                                |       | 68         |       | 403        |       |
| VAT refund claims                                             |       | 768        |       | 253        |       |
| Other assets                                                  |       | 674        |       | 1,499      |       |
| Fair values of financial derivatives through  profit and loss |       | 142        |       | 5          |       |
| Fair values of financial derivatives through  equity          |       | 713        |       | 0          |       |
| **Total other current receivables**                           | ** ** | **4,450**  | ** ** | **3,875**  | ** ** |
| **Total  current assets**                                     | ** ** | **32,127** | ** ** | **28,084** | ** ** |

 

F-32

----

Additions to allowanceson trade receivables are included in other operating expenses, releases ofallowances are included in other operating income. Allowances on receivablesdeveloped as follows:
| ***in EUR thousands*** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |
| Allowance at January 1           |       | 445      |       | 355      |       |
| Translation adjustments          |       | (17      | )          | 0        |       |
| Additions                        |       | 199      |       | 147      |       |
| Changes in reporting entities    |       | 0        |       | 58       |       |
| Used                             |       | (262     | )          | 0        |       |
| Releases                         |       | (54      | )          | (115     | )          |
| **Allowance at December 31**     | ** ** | **311**  | ** ** | **445**  | ** ** |

 

**20.  Other financial assets**

Other financial assetsinclude fixed deposit with banks with a maturity of six months.

**21.  Cash and cash equivalents**
| ***in EUR thousands***                                   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                               |       |       |       |       |       |
| Cash-in-hand                                                       |       | 5          |       | 6          |       |
| Short term securities                                              |       | 64         |       | 5,032      |       |
| Bank balances                                                      |       | 46,682     |       | 26,397     |       |
| Cash and cash equivalents in the consolidated  cash flow statement | ** ** | **46,751** | ** ** | **31,435** | ** ** |

 

Bankbalances included kEUR 325 given as security (2005: kEUR 214).

F-33

----

 

**22. Shareholders’Equity**

**Subscribed capital**
|                                                   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|
| January  1                                        |       | 87,796,614 |       | 64,831,512 |       |
| Capital  increase as part of Genus acquisition    |       | 0          |       | 20,539,956 |       |
| Shares  for conversion of Genus convertible bonds |       | 0          |       | 2,383,920  |       |
| Shares  for exercise of stock options             |       | 39,540     |       | 41,226     |       |
| Issued  capital at December 31, under IFRS        |       | 87,836,154 |       | 87,796,614 |       |
|                                              |       |       |       |       |       |
| Treasury  shares                                  |       | 1,963,243  |       | 2,002,783  |       |
| Stated share capital at December 31               |       | 89,799,397 |       | 89,799,397 |       |

 

Theshare capital of the company consists of no-par value shares and was fullypaid-up during 2006 and 2005. Each share represents a portion of the sharecapital in the amount of EUR 1.00.

Treasuryshares were contributed into a trust, as part of the Genus acquisition for theexercise of Genus stock and other options and for conversion of bonds.

AIXTRONAG cannot dispose of the trust assets. Contrary to German Commercial Code andCompany Law, IFRS (SIC 12) prescribes an allocation of the trust assets toAIXTRON AG. In the IFRS financial statements the shares held in this trust aretherefore shown as treasury shares and deducted from the stated share capital.

Boththe authorised capital I and the authorised capital II have remained unchangedcompared to December 31, 2005.

AtDecember 31, 2006, AIXTRON AG’s Executive Board is authorised:

-                    to increase, with the consent of theSupervisory Board, AIXTRON’s stated share capital at any time or from time totime on or before May 17, 2010 by up to EUR 35,919,751.00 by issuing againsteither cash contribution or contribution in kind new registered no-par valueshares with a proportional amount of EUR 1.00 per share in the share capital(Authorised Capital I). In this event, the shareholders must be granted apre-emptive right. However, the Executive Board is authorised, with the consentof the Supervisory Board, to exclude, in whole or in part, the shareholders’pre-emptive right.

-                    to increase, with the consent of theSupervisory Board, AIXTRON’s stated share capital at any time or from time totime on or before May 17, 2010 by up to EUR 8,979,937.00 by issuing againstcash contributions new registered shares without par value with a proportionalamount of EUR 1.00 per share in the share capital (Authorised Capital II). Inthis case, the shareholders must be granted a pre-emptive right. However, theExecutive Board is authorised, with the consent of the Supervisory Board, toexclude, in whole or in part, the shareholders’ pre-emptive right.

TheExecutive Board is also authorised, with the consent of the Supervisory Board,to define the rights embodied in a share and the other conditions and terms ofthe issuance of shares.

F-34

----

**Paid-incapital**

Paid-incapital mainly includes the premium on increases of subscribed capital as wellas cumulative expense for share-based payments.

**Incomeand expenses recognised in equity**
| ***in EUR thousands***                  | ** ** | **Currency  translation** | ** ** | **Derivative  financial  instruments** | ** ** | **Total** | ** ** |
|---------------------------------------------------|------------|---------------------------|------------|----------------------------------------|------------|-----------|------------|
|                                              |       |                      |       |                                   |       |      |       |
| Balance at December 31, 2003                      |       | (2,244                    | )          | 1,469                                  |       | (775      | )          |
| Change in currency  translation                   |       | 48                        |       | 0                                      |       | 48        |       |
| Change in unrealised gains/(losses)  before taxes |       | 0                         |       | (308                                   | )          | (308      | )          |
| Deferred taxes                                    |       | 0                         |       | 163                                    |       | 163       |       |
| Balance at December 31, 2004                      |       | (2,196                    | )          | 1,324                                  |       | (872      | )          |
| Change in currency  translation                   |       | 11,616                    |       | 0                                      |       | 11,616    |       |
| Change in unrealised gains/(losses)  before taxes |       | 0                         |       | (2,493                                 | )          | (2,493    | )          |
| Deferred taxes                                    |       | 0                         |       | 864                                    |       | 864       |       |
| Balance at December 31, 2005                      |       | 9,420                     |       | (305                                   | )          | 9,115     |       |
| Change in currency  translation                   |       | (7,871                    | )          | 0                                      |       | (7,871    | )          |
| Change in unrealised gains/(losses)before  taxes  |       | 0                         |       | 1,122                                  |       | 1,122     |       |
| Deferred taxes                                    |       | 0                         |       | (298                                   | )          | (298      | )          |
| Balance at December 31, 2006                      |       | 1,549                     |       | 519                                    |       | 2,068     |       |

 

Theforeign currency translation adjustment comprises all foreign exchangedifferences arising from the translation of the financial statements of foreignsubsidiaries whose functional currency is not the EUR.

Theitem “derivative financial instruments” comprises the effective portion of thecumulative net change in the fair value of cash flow hedging instrumentsrelated to hedged transactions that have not yet occurred. The effect offorward points on currency contracts is excluded from the valuation.

F-35

----

**23. Earnings pershare**

**Basic earnings per share**

The calculation ofthe basic earnings per share at December 31, 2006, is based on theweighted-average number of common shares outstanding during the reporting period.

**Diluted earnings per share**

The calculation of the diluted earnings per share atDecember 31, 2006 is based on the weighted-average number of outstanding commonshares and ADS and of common shares and ADS with a possible dilutive effectresulting from share options being exercised under the share option plan and inconnection with the conversion of issued convertible bonds and other options.
| ** **                                                                 | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|----------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Earnings  per share**                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net profit/loss attributable to the shareholders  of AIXTRON AG in kEUR    |       | 5,857      |       | (53,468    | )          | 7,681      |       |
| Weighted average number of common shares and ADS  at December 31           |       | 87,824,321 |       | 82,111,081 |       | 64,831,512 |       |
| **Earnings  per share in EUR (basic)**                                     | ** ** | **0.07**   | ** ** | **(0.65**  | **)**      | **0.12**   | ** ** |
| ** **                                                                 |       |       |       |       |       |       |       |
| **Earnings  per share (diluted)**                                          |       |       |       |       |       |       |       |
| Net profit/loss attributable to the shareholders  of AIXTRON AG in kEUR    |       | 5,857      |       | (53,468    | )          | 7,681      |       |
| Weighted average number of common shares and ADS  at December 31           |       | 87,824,321 |       | 82,111,081 |       | 64,831,512 |       |
| Dilutive effect of convertible bonds                                       |       | 25,440     |       | 0          |       | 25,440     |       |
| Dilutive effect of share options                                           |       | 52,938     |       | 0          |       | 308,294    |       |
| Weighted average number of common shares and ADS  at December 31 (diluted) |       | 87,902,699 |       | 82,111,081 |       | 65,165,246 |       |
| **Earnings per share in EUR (diluted)**                                    | ** ** | **0.07**   | ** ** | **(0.65**  | **)**      | **0.12**   | ** ** |

 

Thefollowing securities issued were not included in the computation of the dilutedearnings per share, as their effect would be anti-dilutive:
| ***Number of shares*** | ** ** | **2006**      | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|----------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
|                             |       |          |       |          |       |          |       |
| Share options                    |       | 5,681,172     |       | 5,357,986     |       | 3,377,161     |       |
| Convertible bonds                |       | 0             |       | 25,440        |       | 0             |       |
|                             | ** ** | **5,681,172** | ** ** | **5,383,426** | ** ** | **3,377,161** | ** ** |

 

**24.****Employee benefits**

**Definedcontribution plan**

TheCompany grants retirement benefits to qualified employees through variousdefined contribution pension plans. The expenses incurred for definedcontribution plans mainly arise from two pension plans in subsidiaries. Thecontributions made do not exceed 6% or 10% of qualified employees’ basesalaries. In 2006 the expense recognised for defined contribution plansamounted to kEUR 701 

F-36

----

(2005:kEUR 151, 2004: kEUR 0). This includes kEUR 4 (2005: kEUR 4,2004: kEUR 0) contributed for a member of the executive board of thecompany.

In2006 the company contributed kEUR 1,268 (2005: kEUR 1,344,2004:kEUR 1,211) to state pension plans.

**Definedbenefit plan**

TheCompany’s net obligation in respect of defined benefit pension plans reflectscommitments to two former members of the Executive Board of AIXTRON AG. Theseare final salary plans. Provisions for pensions developed as follows:
| *in EUR thousands*                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                            |       |     |       |     |       |
| Present value of net obligations at January 1                                                   |       | 978      |       | 703      |       |
| Expense recognised in consolidated income  statement (see below)                                |       | 5        |       | 275      |       |
| Present value of net  obligations at December 31 = Total provisions for pensions at December 31 | ** ** | **983**  | ** ** | **978**  | ** ** |

 

Theexpense for pensions developed as follows:
| *in EUR thousands* | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                         |       |     |       |     |       |     |       |
| Interest expense             |       | 42       |       | 38       |       | 37       |       |
| Actuarial gains and losses   |       | (37      | )          | 237      |       | 0        |       |
| * *                     | ** ** | **5**    | ** ** | **275**  | ** ** | **37**   | ** ** |

 

Inthe income statement, the expense of kEUR 5 (2005: kEUR 275; 2004: kEUR 37) isrecognised in general administration expense.

**Actuarialgains and losses include:**
| *in EUR thousands*               | ** ** | **2006** | ** ** |
|--------------------------------------------|------------|----------|------------|
|                                       |       |     |       |
| Experience adjustments                     |       | (5       | )          |
| Change in basis for actuarial calculations |       | (32      | )          |
| **Actuarial gain**                         | ** ** | **(37**  | **)**      |

 

**The following table shows the principal actuarial assumptions:**

**Biometrical calculation assumptions**
|                              | ** ** | **2006**                   | ** ** | **2005**                  | ** ** |
|------------------------------|------------|----------------------------|------------|---------------------------|------------|
| ** **                   | ** ** | **Heubeck  tables  2005G** | ** ** | **Heubeck  tables  1998** | ** ** |
| Interest rate at December 31 |       | 4.50                       | %          | 4.35                      | %          |
| Expected salary increase     |       | 0.00                       | %          | 0.00                      | %          |
| Expected pension increase    |       | 1.50                       | %          | 1.50                      | %          |

 

**In the three years ending 2006 no payments were made underthese plans. The Company assumes that there will be no pension payments in thenext ten years. The value of the obligations from pension plans is determinedannually at December 31.**

F-37

----

**25. Share-basedpayment**

TheCompany has different fixed option plans which reserve shares of common stockand AIXTRON American Depository Shares (ADS) for issuance to members of theExecutive Board, management and employees of the Company. Each AIXTRON ADSrepresents the beneficial ownership in one AIXTRON common share. The followingis a description of these plans:

**AIXTRON stock option plan 1999**

In May 1999, options were authorized to purchase3,000,000 shares of common stock (after giving effect to capital increases,stock splits, and the EURO conversion). The options are exercisable in equalinstalments of 25% per year after the second anniversary of the date of grant,subject to certain conditions. Vested options are only permitted to beexercised when the performance of the AIXTRON stock exceeds the performance ofthe Technology AS Price Index (formerly the New Market Index) by at least 5% inthe reference period or when the turnover reported by AIXTRON rises by at least25% per year and the profit/revenue ratio is at least 12%. Regardless offulfilment of these conditions, the stock options can be exercised when 15years have elapsed. Under the terms of the 1999 plan, options are granted atprices equal to the average closing price over the last 20 trading days on theFrankfurt Stock Exchange before the grant date. All options are settled byphysical delivery of shares. Upon exercise of options new shares are issued.Under this plan 1,245,151 options for the purchase of 1,926,005 commons shareswere outstanding as of December 31, 2006.

In 2002, options were granted with the exercise priceslightly less than fair market value. Fair market value is determined basedupon the closing trading price on grant date.

**AIXTRON stock option plan 2002**

In May 2002, options were authorized to purchase3,511,495 shares of common stock. The options are exercisable in equalinstalments of 25% per year after the second anniversary of the date of grant,subject to certain conditions. Options expire ten years from date of grant.Under the terms of the 2002 plan, options are granted at prices equal to theaverage closing price over the last 20 trading days on the Frankfurt StockExchange before the grant date, plus a premium of 20% over the average closingprice. No grants were issued with a strike price less than fair market value.All options are settled by physical delivery of shares. Upon exercise ofoptions new shares are issued. A total of 3,134,560 options to purchase thesame number of common stock were outstanding under this plan as of December 31,2006.

 

F-38

----

**Genusstock option plan 2000**

**With theacquisition of Genus, Inc. the company adopted the Genus Incentive Stock OptionPlan 2000. Under this plan at the date of acquisition options were authorizedto purchase 3,948,014 shares of common stock. At the date of acquisition thesewere converted into options to purchase 2,013,487 AIXTRON ADS. Options grantedbefore October 3, 2003 vest over a three-year-period and expire five years fromthe date of grant. Options granted after October 3, 2003 vest over a four-year-periodand expire in ten years from the date of grant.**

**A totalof 994,469 options to purchase AIXTRON ADS were outstanding under this plan asof December 31, 2006. Upon exercise of options new shares are issued from thetrust (see note 22).**

**Summaryof stock option transactions**

**AIXTRON share options**
| ** **                  | ** ** | **Number of  shares** | ** ** | **Average exercise  price (EUR)** | ** ** | **Number of  shares** | ** ** | **Average exercise  price (EUR)** | ** ** |
|-----------------------------|------------|----------------------------|------------|---------------------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|
| ** **                  | ** ** | **2006**                   | ** ** | **2005**                                    | ** ** |
|                        |       |                       |       |                                        |       |                       |       |                                        |       |
| Balance at January 1        |       | 3,932,501                  |       | 16.46                                       |       | 4,254,331                  |       | 16.12                                       |       |
| Granted during the year     |       | 1,616,100                  |       | 3.83                                        |       | 0                          |       | 0.00                                        |       |
| Exercised during the year   |       | 0                          |       | 0.00                                        |       | 0                          |       | 0.00                                        |       |
| Expired during the year     |       | 0                          |       | 0.00                                        |       | 0                          |       | 0.00                                        |       |
| Forfeited during the year   |       | 488,036                    |       | 11.23                                       |       | 321,830                    |       | 11.99                                       |       |
| Outstanding at December 31  |       | 5,060,565                  |       | 12.93                                       |       | 3,932,501                  |       | 16.46                                       |       |
| Exercisable at December  31 |       | 1,073,466                  |       | 15.80                                       |       | 716,480                    |       | 21.85                                       |       |

 

**Genus share options**
| ** **                 | ** ** | **Number of  shares** | ** ** | **Average exercise  price (USD)** | ** ** | **Number of  shares** | ** ** | **Average exercise  price (USD)** | ** ** |
|----------------------------|------------|----------------------------|------------|---------------------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|
| ** **                 | ** ** | **2006**                   | ** ** | **2005**                                    | ** ** |
|                       |       |                       |       |                                        |       |                       |       |                                        |       |
| Balance at January 1       |       | 1,365,076                  |       | 5.47                                        |       | 0                          |       | 0.00                                        |       |
| Addition Genus options     |       | 0                          |       | 0.00                                        |       | 2,013,487                  |       | 6.19                                        |       |
| Granted during the year    |       | 0                          |       | 0.00                                        |       | 0                          |       | 0.00                                        |       |
| Exercised during the year  |       | 39,540                     |       | 2.61                                        |       | 41,226                     |       | 2.53                                        |       |
| Expired during the year    |       | 179,669                    |       | 5.51                                        |       | 178,413                    |       | 13.11                                       |       |
| Forfeited during the year  |       | 151,398                    |       | 5.98                                        |       | 428,772                    |       | 5.95                                        |       |
| Outstanding at December 31 |       | 994,469                    |       | 5.47                                        |       | 1,365,076                  |       | 5.47                                        |       |
| Exercisable at December 31 |       | 766,051                    |       | 5.54                                        |       | 938,036                    |       | 5.37                                        |       |

 

F-39

----

Theweighted-average share price of the options exercised was US$ 4.54. Theintrinsic value of options exercised amounted to kUSD 76.

Theemployees of Genus Inc. held 1,949,939 stock options representing the right toreceive 994,469 ADS of AIXTRON AG as of December 31, 2006. As part of theGenus, Inc. transaction, a trust for the employee stock options of Genus Inc.was set up, into which ADS of AIXTRON AG were deposited after the capital increaseon March 14, 2005.

**AIXTRON stock options as of December 31, 2006**
| **Exercise price (EUR)** | ** ** | **Outstanding** | ** ** | **Exercisable** | ** ** | **Average option  life (in years)** | ** ** |
|------------------------------------|------------|-----------------|------------|-----------------|------------|----------------------------------------------------|------------|
| 3.10                               |       | 681,330         |       | 340,665         |       | 6.5                                                |       |
| 3.83                               |       | 1,559,900       |       | 0               |       | 9.5                                                |       |
| 6.17                               |       | 893,330         |       | 223,333         |       | 7.5                                                |       |
| 7.48                               |       | 684,005         |       | 0               |       | 10.5                                               |       |
| 18.70                              |       | 406,824         |       | 406,824         |       | 7.5                                                |       |
| 26.93                              |       | 424,600         |       | 0               |       | 9.5                                                |       |
| 67.39                              |       | 410,576         |       | 102,644         |       | 8.5                                                |       |
|                               |       | 5,060,565       |       | 1,073,466       |       |                                               |       |

 

**Genusstock options as of December 31, 2006**
| **Range of exercise  prices (USD)** | ** ** | **Average exercise  price (USD)** | ** ** | **Outstanding** | ** ** | **Exercisable** | ** ** | **Average option  life (in years)** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|-----------------|------------|-----------------|------------|----------------------------------------------------|------------|
| 2.10 to 2.53                                       |       | 2.52                                        |       | 106,662         |       | 106,662         |       | 0.8                                                |       |
| 3.45 to 4.84                                       |       | 3.63                                        |       | 298,565         |       | 162,140         |       | 7.5                                                |       |
| 5.00 to 6.90                                       |       | 5.14                                        |       | 233,262         |       | 220,477         |       | 1.7                                                |       |
| 7.20 to 9.41                                       |       | 8.01                                        |       | 346,290         |       | 269,451         |       | 6.9                                                |       |
| 11.53 to 12.73                                     |       | 11.99                                       |       | 9,690           |       | 7,321           |       | 6.9                                                |       |
|                                               |       |                                        |       | 994,469         |       | 766,051         |       |                                               |       |

 

**Assumptionsused to calculate fair values and share-based payment expenses**

Thefair value of services received in return for stock options granted is measuredby reference to the fair value of the stock options granted. The fair value ofthe stock options is determined on the basis of a binomial lattice model. Inaccordance with IFRS 2 the measurement includes only options which were grantedafter November 7, 2002. In 2006, the personnel expenses from share-basedpayments were kEUR 1,450 (2005: kEUR 1,801; 2004: kEUR 1,041). As at December31, 2006 an amount of kEUR 3,126 relating to stock options granted priorto that date has not yet been recognised as a personnel expense. This amount willbe charged over the period to 2011. The expected allocation of the expense isas follows: 2007: kEUR 1,404, 2008: kEUR 937,2009: kEUR 487 and after 2009: kEUR 298.

F-40

----

 
| ** **                                   | ** ** | **AIXTRON share options granted** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                   | ** ** | **in 2006**                                 | ** ** | **in 2004** | ** ** | **in 2003** | ** ** |
| ** **                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fair value on grant date | ** ** | 1.53 €                                      |       | 3.08 € |   | 1.78 € |   |
|                                         | ** ** |                                             |       |   |   |   |   |
| Price per share                              |       | 2.71 €                                      |       | 4.84 € |   | 2.79 € |   |
| Exercise price                               |       | 3.83 €                                      |       | 6.17 € |   | 3.10 € |   |
| Expected volatility                          |       | 65.59%                                           |       | 73.54% |   | 73.76% |   |
| Option life                                  |       | 10.5 years                                       |       | 10.5 years |   | 10.5 years |   |
| Expected dividend payments                   |       | 0.00 €                                      |       | 0.00 € |   | 0.00 € |   |
| Risk-free interest rate                      |       | 3.90%                                            |       | 4.38% |   | 4.40% |   |

 

 
| ** **                         | ** ** | **Genus share options granted** | ** ** |
|------------------------------------|------------|------------------------------------------------|------------|
| ** **                         | ** ** | **in 2005**                               | ** ** | **in 2004** | ** ** | **before 2004** | ** ** |
| ** **                         | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Average fair value on grant date   |       | 1.30 $                                         |       | 1.65 $ |   | 2.68 $  |   |
|                               |       |                                           |       |   |   |   |   |
| Average price per share            |       | 2.04 $                                         |       | 2.51 $ |   | 3.97 $ |   |
| Average exercise price             |       | 2.04 $                                         |       | 2.51 $ |   | 3.97 $ |   |
| Average expected volatility        |       | 91.76%                                         |       | 95.38% |   | 104.20% |   |
| Average option life                |       | 10 years                                       |       | 10 years |   | 9.53 years |   |
| Average expected dividend payments |       | 0.00 $                                         |       | 0.00 $ |   | 0.00 $ |   |
| Average risk-free interest rate    |       | 4.11%                                          |       | 4.27% |   | 4.18% |   |

 

The expectedvolatility is based on historic volatility.

F-41

----

 

**26. Provisions**

Developmentand breakdown of provisions:

 
| ***In EUR thousands***  | ** ** | **01/01/  2006** | ** ** | **Exchange  rate  differences** | ** ** | **Usage**  | ** ** | **Reversal** | ** ** | **Addition**          | ** ** | **12/31/ 2006** | ** ** | **thereof  short  term** | ** ** |
|-----------------------------------|------------|------------------|------------|---------------------------------|------------|------------|------------|--------------|------------|-----------------------|------------|----------------------|------------|--------------------------|------------|
| ** **                        | ** ** | ** **       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** **   | ** ** | ** **            | ** ** | ** **           | ** ** | ** **               | ** ** |
| Provisions for pensions           |       | 978              |       | 0                               |       | 0          |       | 0            |       | 5                     |       | 983                  |       | 0                        |       |
| Provisions for personnel expenses |       | 1,885            |       | (73                             | )          | 1,495      |       | 116          |       | 2,373                 |       | 2,574                |       | 2,574                    |       |
| Warranties                        |       | 2,195            |       | (46                             | )          | 1,390      |       | 473          |       | 1,708                 |       | 1,994                |       | 1,994                    |       |
| Onerous contracts                 |       | 3,940            |       | (265                            | )          | 1,219      |       | 0            |       | 111                   |       | 2,567                |       | 605                      |       |
| Provisions for commissions        |       | 1,266            |       | (31                             | )          | 1,009      |       | 84           |       | 1,605                 |       | 1,747                |       | 1,747                    |       |
| Hedges                            |       | 1,567            |       | 22                              |       | 1,300      |       | 289          |       | 0                     |       | 0                    |       | 0                        |       |
| Other                             |       | 6,301            |       | (383                            | )          | 4,972      |       | 633          |       | 5,426                 |       | 5,739                |       | 5,671                    |       |
|                              |       |             |       |                            |       |       |       |         |       |                  |       |                 |       |                     |       |
| **Total**                         | ** ** | **18,132**       | ** ** | **(776**                        | **)**      | **11,385** | ** ** | **1,595**    | ** ** | **11,228**            | ** ** | **15,604**           | ** ** | **12,591**               | ** ** |
|                              |       |             |       |                            |       |       |       |         |       |                  |       |                 |       |                     |       |
|                              | ** ** | ** **       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** **   | ** ** | **thereof long term** | ** ** | **3,013**            | ** ** |
|                              | ** ** | ** **       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** **   | ** ** | ** **            | ** ** | **15,604**           | ** ** |

 

**Provisions forpensionss**

Theprovisions for pensions are commented on in note 24.

**Provisionsfor personnel expenses**

Theseinclude mainly provisions for holiday not yet taken and bonuses.

**Provisionsfor onerous contracts**

Theseinclude provisions for contracts connected with obligations, including e.g.rent payable and contract risks.

**Provisionsfor hedge transactions**

Forfurther details on the provisions for hedge transactions, please see note 29.

**Otherprovisions**

Otherprovisions include auditors fees in the amount of kEUR 987.

**27. Tradepayables and other current liabilities**

The liabilities consist of the following:

 
| ***in EUR thousands***                        | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                    |       |       |       |       |       |
| Trade payables                                          |       | 29,926     |       | 17,479     |       |
|                                                    |       |       |       |       |       |
| Other liabilities from grants                           |       | 570        |       | 1,427      |       |
| Wage and church tax due, social security  contributions |       | 434        |       | 839        |       |
| VAT due                                                 |       | 221        |       | 1,329      |       |
| Other liabilities                                       |       | 218        |       | 354        |       |
|                                                    |       |       |       |       |       |
|                                                    |       | 1,443      |       | 3,949      |       |
|                                                    | ** ** | **31,369** | ** ** | **21,428** | ** ** |

 

F-42

----

**28. Convertiblebonds and options**

Liabilitiesfrom convertible bonds remain unchanged from the previous year and amount tokEUR 3.

InNovember 1997, the Company issued 6% convertible bonds toemployees, due November 2007, with a principal amount of kEUR 320, interestpayable annually in arrears. The bonds are not transferable and must berepurchased at par if the employee leaves the Company. The notes are convertible,at the option of the holder, into shares of common stock, initially at aconversion rate of 480 shares (after the effects of share splits) of commonstock for each EUR 51.13 principal amount of notes plus payment of anadditional EUR 971.45, subject to adjustment in certain circumstances. Theright to convert expires at the end of the life of the bond in November 2007.The conversion feature was not deemed to be beneficial at issuance.

During2006 and 2005 no bonds were converted into common stock.

The remainingoutstanding convertible bonds as of December 31, 2006, amounting to kEUR 3 canbe converted, at the optionof the holders, into 25,440 shares of common stock through November 2007.

Aspart of the acquisition of Genus the Company assumed liabilities fromconvertible bonds at total par value of kEUR 4,807 (kUS$ 6,450) and at an interestrate of 7%. The convertible bonds were issued by Genus in August 2002 and had amaturity term of three years. The interest was due every six months in Februaryand in August and could be paid, at the option of Genus, Inc. either in cash orin shares of common stock. The holder of the notes had the option to eitherconvert the note into shares of Genus common stock at a conversion rate of oneGenus share for each USD 1.42 principal amount of notes, or to demand thatthere be a repayment in cash at the due date in August 2005. The option ofconversion into Genus stock shares was changed, at the date of the Genus acquisition,into a right to convert each Genus stock share into a 0.51 AIXTRON ADS. Forthis purpose the required AIXTRON ADS were contributed into the trust propertyas part of the acquisition (see note 22).

InAugust 2005, the convertible bonds and the interest incurred since March 13,2005 were completely settled by way of conversion into AIXTRON ADS. In thisconversion 2,383,920 ADS from the trust were issued to the holder of theconvertible bonds. As a result no liability from the Genus convertible bondexisted at December 31, 2005 or December 31, 2006.

Aspart of the acquisition of Genus, liabilities for additional options over  60,409 ADS were assumed. These options werestill outstanding as of December 31, 2005. The options were held by unrelatedthird parties. Their weighted-average exercise price was US$ 9.95 per ADS. Theoptions expired on May 13, 2006 without being exercised.

**29.****Financial****instruments**

Exposureto credit risk, interest rate risks and currency risks arises in the normalcourse of the Company’s business. Derivative financial instruments are used tohedge exposure to fluctuations in foreign exchange rates.

F-43

----

**Creditrisks**

Financialassets generally exposed to a credit risk are trade receivables and cash andcash equivalents. Management has a credit policy in place and the exposure tocredit risk is monitored on an ongoing basis.

Dueto the worldwide spread of risks, there is a diversification of the credit riskfor trade receivables. Generally, the Company demands no securities forfinancial assets. However, a credit rating takes place for customers whosedebts exceed a specific amount. In accordance with usual business practice,irrevocable letters of credit are requested from customers in Asia after awardof the contract. Allowances are recognised for the risk of bad debt losses. Inthe opinion of the management, the risk of further bad debt losses from customercontracts is low.

In2006, sales to AIXTRON’s two largest customers accounted for 16.0% and 13.2% ofrevenues respectively (2005: one customer, 16.5%; 2004: one customer, 14.6%).No other customers accounted for more than 10% of sales in any of these threeyears.

TheCompany’s cash and cash equivalents are kept with banks which have a goodreputation.

**Interestrate risk**

TheCompany is subject only to minor interest rate fluctuations relating tointerest rate influenced cash and cash equivalents, short term investments,bank loans and convertible bonds.

**Foreigncurrency risk**

TheCompany’s activities expose it to the financial risks of changes in foreigncurrency exchange rates. The Company enters into a variety of derivativefinancial instruments to manage its exposure to foreign currency risk,including forward exchange contracts to hedge the exchange rate risk arising onthe export of equipment. The main exchange rates giving rise to the risk arethose between the U.S. dollar, pound sterling and Euro.

TheCompany’s use of derivative financial instruments is governed by the Company’spolicies approved by the board of directors which provide principles on foreignexchange rate risk and the use of derivative financial instruments. Exposuresare reviewed on a regular basis. The Company does not enter derivativefinancial instruments for trading purposes. Exposure to exchange rate risk ismanaged by the Company through sensitivity analysis.

Itis the Company’s policy to enter into forward foreign exchange contracts tocover specific foreign currency receipts within the range of 80 to 90 per centof the expected exposure. The Company also enters forward foreign exchangecontracts to manage the risk associated with anticipated sales transactions outto 15 months within 50 to 60 per cent of the exposure generated. All foreign exchangecontracts mature before the end of 2007.

**Cashflow hedges**

Thecriteria that AIXTRON applies when determining whether a hedge is effective andqualifies for cash flow hedge accounting under IAS 39 are, that the requireddocumentation is in place and that the hedges are effective and continue to beeffective. Effectiveness is measured both prospectively and retrospectivelyeach quarter. The measurement of hedge effectiveness is the extent to which thefair value of the hedging instrument is effective in hedging movements in theexpected values of the hedged item. This calculation is done using a simpleratio analysis. To be effective the ratio must fall within the range of 80% to125%. The forward point element of the fair value of hedging instruments

F-44

----

isexcluded from the assessment of effectiveness and is recorded in the incomestatement as a financing cost. Hedge contracts and its changes in fair valuesthat cease to qualify for cash flow hedge accounting are accounted for throughprofit and loss.

Theamount of the gain on cash flow hedges classified as effective was kEUR 745 asof December 31, 2006 (2005: kEUR (377); 2004: kEUR 2,116) and wasrecognised in income and expenses recognised in equity.

Thefollowing table shows the development of the fair values, taking into accountdeferred taxes.

| *in EUR thousands*                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004**  | ** ** |
|---------------------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
|                                                                            |       |     |       |     |       |      |       |
| Notional amount of forward exchange contracts                                   |       | 14,414   |       | 5,419    |       | 32,911    |       |
| Unrealised gains/(losses) on forward exchange contracts  before taxes           |       | 745      |       | (377     | )          | 2,116     |       |
| Deferred taxes                                                                  |       | (226     | )          | 72       |       | (792      | )          |
| Unrealised gains/(losses) included in income and  expenses recognised in equity | ** ** | **519**  | ** ** | **(305** | **)**      | **1,324** | ** ** |

 

Theunrealised losses (kEUR 377) included in income and expenses recognised inequity as of December 31, 2005 were fully reversed and recognised in incomestatement at maturity date of the contract in 2006. The losses actually realisedin 2006 were kEUR 149.

Cashflow hedges existing at December 31, 2006 that qualified for cash flow hedgeaccounting were 100% effective; for these transactions no gain or loss isrecognised in income statement.

In2005 losses from ineffective cash flow hedges in the amount of kEUR 258were recognised in income statement. The nominal value of these financialinstruments were kEUR 6,325.

Thenominal value of the cash flow hedges to which no hedge accounting was appliedat the balance sheet date was kEUR 30,340 (2005: kEUR 12,101).The gains from the market assessment as of December 31, 2006, werekEUR 142 (2005: kEUR (522)).

**Fairvalue hedges**

At December 31, 2006 no fair value hedges existed. AtDecember 31, 2005 losses arising on the measurement of fair value hedges(nominal value kEUR 6,135) were kEUR 410 and were included in otheroperating expenses (see note 7). Furthermore, gains of kEUR 5 recognisedas income arose from forward exchange contracts with a nominal value ofkEUR 1,335.

**Fairvalues**

Thefair values and the carrying amounts of the financial instruments shown in thebalance sheet are as follows:

F-45

----

 
| ** **                                                    | ** ** | **Carrying  amount** | ** ** | **Fair value** | ** ** | **Carrying  amount** | ** ** | **Fair value** | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|----------------------|------------|---------------------|------------|
| ***in EUR thousands***                              | ** ** | **2006**             | ** ** | **2006**            | ** ** | **2005**             | ** ** | **2005**            | ** ** |
|                                                          |       |                 |       |                |       |                 |       |                |       |
| Cash and cash equivalents                                     |       | 46,751               |       | 46,751              |       | 31,435               |       | 31,435              |       |
| Other financial assets                                        |       | 2,781                |       | 2,781               |       | 0                    |       | 0                   |       |
| Other non-current assets                                      |       | 671                  |       | 671                 |       | 499                  |       | 499                 |       |
| Trade receivables                                             |       | 27,677               |       | 27,677              |       | 24,209               |       | 24,209              |       |
| Other current assets                                          |       | 1,754                |       | 1,754               |       | 2,147                |       | 2,147               |       |
| Other current liabilities                                     |       | 76                   |       | 76                  |       | 176                  |       | 176                 |       |
| Fair values of financial derivatives through profit  and loss |       | 142                  |       | 142                 |       | (1,185               | )          | (1,185              | )          |
| Fair values of financial derivatives through  equity          |       | 713                  |       | 713                 |       | (377                 | )          | (377                | )          |
| Trade payables                                                |       | 29,926               |       | 29,926              |       | 17,479               |       | 17,479              |       |
| Current liabilities                                           |       | 218                  |       | 218                 |       | 354                  |       | 354                 |       |
| Convertible bonds                                             |       | 3                    |       | 3                   |       | 3                    |       | 3                   |       |
| Gains/(losses) not recognised                                 |       |                 |       | 0                   |       |                 |       | 0                   |       |

 

**Estimationof fair values**

The following summarises the majormethods and assumptions used in estimating the fair values of financial instrumentsreflected in the table.

**Derivatives**

Thefair value is the estimated amount that a bank would receive or pay toterminate the derivative contracts at the reporting date, taking into accountcurrent exchange rates, volatility and the credit-worthiness of thecounterparties (mark-to-market).

**Convertiblebonds**

Thefair value is based on quoted market prices, if available.

**Tradereceivables/payables**

Fortrade receivables/payables due within less than one year, the fair value istaken to be the face value. All other receivables/payables are discounted todetermine the fair value.

**30.          Operating leases**

**Leasesas lessee**

Non-cancellable operating lease rentals are payableas follows:

**Operatingleases**

**Leases aslessee**

Non-cancellable operatinglease rentals are payable as follows:

** **

| *in EUR thousands* | *** *** | *** *** | ** ** | **2006** | ** ** |
|------------------------------|--------------|--------------|------------|----------|------------|
| * *                     | ** **   | ** **   | ** ** |
| 2007                         |         | 2.262        |       |
| 2008                         |         | 2.140        |       |
| 2009                         |         | 1.883        |       |
| 2010                         |         | 1.932        |       |
| 2011                         |         | 1.911        |       |
| after  2011                  |         | 2.180        |       |
| ** **                   | ** **   | **12.308**   | ** ** |

 

The Company leases certain office and plantfacilities, office furniture and motor vehicles under various operating leases.Under most of the lease commitments for office and plant facilities the Companyhas options to renew the leasing contracts. The leases typically run for aperiod between one and fifteen years. None of the leases include contingentrentals. The expenses for leasing contracts were kEUR 2,004,kEUR 2,075 and kEUR 746 for 2006, 2005 and 2004, respectively.

F-46

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**31.****                               Capitalcommitments**

Asof December 31, 2006, the Company had entered into purchase commitments withsuppliers in the amount of kEUR 23,377 (2005: kEUR 10,745) for purchaseswithin the next 12 months. Commitments for capital expenditures arekEUR 44 (2005: kEUR 0) as of December 31, 2006.

**32.****                              ****Contingencies**

TheCompany is involved in various legal proceedings or can be exposed to a threatof legal proceedings in the normal course of business. The Executive Boardregularly analyses these matters, considering any possibilities of avoidinglegal proceedings or of covering potential damages under insurance contractsand has recognised, where required, appropriate provisions. The Company grantsto individual customers advance payment guarantees generally existing only fora limited period of time and reflecting normal business conduct. It is notexpected that such matters will have a material effect on the Company’s netassets, results of operations and financial position.

**33.****                              ****Related parties**

**Identityof related parties**

Relatedparties of the Company are members of the executive board and members of thesupervisory board.

**Remunerationof Executive Board**

Activemembers of the executive board are remunerated as follows:

| *in EUR thousands* | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|
|                         |       |      |       |      |       |
| Short-term employee benefits |       | 1,538     |       | 1,078     |       |
| Post-employment benefits     |       | 128       |       | 120       |       |
| Other long-term benefits     |       | 0         |       | 220       |       |
| **Total cash remuneration**  | ** ** | **1,666** | ** ** | **1,418** | ** ** |
| Share-based payment          |       | 184       |       | 295       |       |
| **Total remuneration**       | ** ** | **1,850** | ** ** | **1,713** | ** ** |

 

Thefollowing table shows the remuneration of the Executive Board for eachindividual member in 2006:

F-47

----

 
| ***in EUR thousands*** | ** ** | **Fixed**  | ** ** | **Premium  for  Pension  Provision** | ** ** | **Other*** | ** ** | **Variable** | ** ** | **Total Cash  Remu-  neration** | ** ** | **Stock-based  Remuneration** | ** ** | **Total  Executive  Board  Remuneration** | ** ** |
|----------------------------------|------------|------------|------------|--------------------------------------|------------|------------|------------|--------------|------------|--------------------------------------|------------|-------------------------------|------------|-------------------------------------------|------------|
| *** ***                     | ** ** | ** ** | ** ** | ** **                           | ** ** | ** ** | ** ** | ** **   | ** ** | ** **                           | ** ** | ** **                    | ** ** | ** **                                | ** ** |
| Executive Board Member           |       |       |       |                                 |       |       |       |         | ** ** | ** **                           |       |                          | ** ** | ** **                                | ** ** |
|                             |       |       |       |                                 |       |       |       |         | ** ** | ** **                           |       |                          | ** ** | ** **                                | ** ** |
| Paul Hyland                      |       | 311        |       | 40                                   |       | 10         |       | 176          | ** ** | **537**                              |       | 52                            | ** ** | **589**                                   | ** ** |
| Wolfgang Breme                   |       | 223        |       | 40                                   |       | 9          |       | 88           | ** ** | **360**                              |       | 13                            | ** ** | **373**                                   | ** ** |
| Dr. Bernd Schulte                |       | 260        |       | 40                                   |       | 11         |       | 88           | ** ** | **399**                              |       | 52                            | ** ** | **451**                                   | ** ** |
| Dr. William W.R. Elder           |       | 287        |       | 8                                    |       | 16         |       | 59           | ** ** | **370**                              |       | 67                            | ** ** | **437**                                   | ** ** |
| **Total**                        | ** ** | **1,081**  | ** ** | **128**                              | ** ** | **46**     | ** ** | **411**      | ** ** | **1,666**                            | ** ** | **184**                       | ** ** | **1,850**                                 | ** ** |

----

* benefits in kind

Post-employmentbenefits include benefits granted for private retirement arrangements.

Furthermoremembers of the executive board received 220,000 stock options in 2006. The fairvalue at grant date was EUR 1.53.

Share-basedpayment as shown in the above table is based on the fair value at grant date.As set out in IFRS 2, the fair value of the options issued after November 7,2002 is also the basis for the recognition of share-based payment expense inthe income statement. For share options issued prior to November 7, 2002, thefair value was calculated using the Black-Scholes model. Share-based payment asshown in the above table is included in IFRS income statement only in theamount of kEUR 155 (2005: 190). The additional amounts ofkEUR 29 (2005: 105) are not included as expense in the IFRS incomestatement but are included in the table to complete the presentation ofExecutive Board remuneration. All other forms of executive board remunerationis included as personnel expense in the IFRS income statement (see note 8).

**Remunerationof Supervisory Board**

Remunerationof the members of the supervisory board consists of the following:
| in EUR thousands                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
|                                        |       |     |       |     |       |
| Fixed remuneration                          |       | 153      |       | 153      |       |
| Variable remuneration                       |       | 0        |       | 0        |       |
| Attendance fee                              |       | 30       |       | 15       |       |
| **Remuneration of Supervisory Board total** | ** ** | **183**  | ** ** | **168**  | ** ** |

 

Thefollowing table shows the remuneration of the Supervisory Board in 2006 foreach individual member:
| *in EUR thousands*                                                     | ** ** | ** ** | ** ** | ** **   | ** ** | ** **          | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|--------------|------------|---------------------|------------|------------|------------|
| ** **                                                             | ** ** | ** ** | ** ** | ** **   | ** ** | ** **          | ** ** | ** ** | ** ** |
| **Supervisory  Board Member**                                          | ** ** | **Fixed**  | ** ** | **Variable** | ** ** | **Attendance  Fee** | ** ** | **Total**  | ** ** |
| Kim Schindelhauer*  (Chairman of the Supervisory Board)                |       | 54         |       | 0            |       | 6                   | ** ** | **60**     | ** ** |
| Dr. Holger Jürgensen*  (Deputy Chairman of the Supervisory Board) |       | 27         |       | 0            |       | 6                   | ** ** | **33**     | ** ** |
| Prof. Dr. Wolfgang Blättchen*  (Chairman of the Audit Committee)  |       | 18         |       | 0            |       | 12                  | ** ** | **30**     | ** ** |
| Karl-Hermann Kuklies                                                   |       | 18         |       | 0            |       | 0                   | ** ** | **18**     | ** ** |
| Prof. Dr. Rüdiger von  Rosen                                      |       | 18         |       | 0            |       | 0                   | ** ** | **18**     | ** ** |
| Joachim Simmroß*                                                  |       | 18         |       | 0            |       | 6                   | ** ** | **24**     | ** ** |
| ** **                                                             | ** ** | **153**    | ** ** | **0**        | ** ** | **30**              | ** ** | **183**    | ** ** |

----

* member of the audit committee

F-48

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Theremuneration of the Supervisory Board is included in other operating expenses(see note 7).

TheRemuneration Report which is included in the audited Corporate Governancereport contains further details regarding the remuneration of Executive Boardand Supervisory Board (see pages 22 ff of the Annual Report).

**34.****                              ****Consolidated entities**

AIXTRON AG controlsthe following subsidiaries:
| ** **                            | ** ** | ** **  | ** ** | **Share of capital in %** | ** ** |
|---------------------------------------|------------|-------------|------------|-----------------------------------------------|------------|
| ** **                            | ** ** | **Country** | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
|                                  |       |        |       |                                          |       |   |   |
| AIXTRON, Inc. *                       |       | USA         |       | 100                                           |       | 100 |   |
| Thomas Swan Scientific Equipment Ltd. |       | UK          |       | 100                                           |       | 100 |   |
| AIXTRON Korea Co. Ltd. **             |       | South Korea |       | 100                                           |       | 100 |   |
| AIXTRON Taiwan Co. Ltd.               |       | Taiwan      |       | 100                                           |       | 100 |   |
| Dotron GmbH                           |       | Germany     |       | 100                                           |       | 100 |   |
| Epigress AB                           |       | Sweden      |       | 100                                           |       | 100 |   |
| AIXTRON KK                            |       | Japan       |       | 100                                           |       | 100 |   |
| Genus Europa Ltd.                     |       | UK          |       | 100                                           |       | 100 |   |
| Genus GmbH                            |       | Germany     |       | 100                                           |       | 100 |   |
| Genus srl                             |       | Italy       |       | 100                                           |       | 100 |   |
| Genus trust ***                       |       | USA         |       | 0                                             |       | 0 |   |
| Genus Korea cshs **                   |       | South Korea |       | 0                                             |       | 100 |   |
| Genus-Japan, Inc.                     |       | Japan       |       | 0                                             |       | 100 |   |

----

*AIXTRON Inc . resulted from the merger of the former AIXTRON Inc. and GenusInc.

**  AIXTRON Korea Co. Ltd. resulted from themerger of AIXTRON Korea cshs and Genus Korea cshs

***The shares in the Genus trust are attributed, as beneficial owner, to AIXTRON,as control exists due to the trust relationship with AIXTRON AG (see note 22).

F-49

----

** **

**35.    Events after the balance sheet date**

There are no events after the balance sheet, of whichthe directors have knowledge, which would result in a different assessment ofthe Company’s net assets, results of operation and financial position.

**36.    Auditors’ fees**

Fees expensed in the income statement for the servicesof the group auditor Deloitte & Touche are as follows:

| ***in EUR thousands***                             | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------------------|------------|------------|------------|------------|------------|
| *** ***                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| for audit                                                    |       | 1,366      |       | 784        |       |
| for audit 2004 and audit of the Genus opening  balance sheet |       | 0          |       | 369        |       |
| for other confirmation and valuation services                |       | 41         |       | 29         |       |
| for tax advisory services                                    |       | 54         |       | 66         |       |
| for other services                                           |       | 12         |       | 24         |       |
|                                                         | ** ** | **1,473**  | ** ** | **1,272**  | ** ** |

 

Included in the total amount of fees are fees forDeloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft, Hanover, in theamount of kEUR 750 for audit (2005: kEUR 495), kEUR 38 forother confirmation and valuation services (2005: kEUR 5),kEUR 43 for tax services (2005: kEUR 16) and kEUR 5 forother services (2005: kEUR 8).

**37.    Employees**

Compared to last year, the average number of employeesduring the current year was as follows:

|                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |
| Sales and service          |       | 175      |       | 163      |       |
| Research & development |       | 181      |       | 188      |       |
| Production                 |       | 128      |       | 129      |       |
| Administration             |       | 78       |       | 88       |       |
|                       | ** ** | **562**  | ** ** | **568**  | ** ** |

 

**38.    Additional information about the cash flowstatement**

**(i)      Investing activity**

The item “investments in property, plant and equipment”includes government grants of kEUR 170 (2005: kEUR 422). Such grantswere accounted for as a reduction of cost. Furthermore, grants of kEUR 94(2005: kEUR 648) were accrued as receivable and included in the lineitem “investment in property, plant and equipment” as a non-cash transaction.

F-50

----

In return for the sale of a production plant,intangible assets of kEUR 3,701 were acquired in the financial year 2005.

Additional costs of kEUR 5,775 already incurred in2004 in connection with the acquisition of Genus in 2005 were shown as othernon-current assets in 2004 and were therefore included in cash flows fromoperating activities. In 2005, further purchase related costs ofkEUR 3,628 were capitalised. These are recognised in cash flows frominvesting activities.

**(ii)     Financing activity**

The liabilities from convertible bonds assumed as partof the acquisition of Genus Inc. were fully settled in 2005 by issuing equityinstruments (ADS) (see note 28). In this context, no payments were required.

**39.    Statement of compliance with the GermanCorporate Governance Code**

In 2006, Executive and Supervisory Boards have madethe declaration of compliance in accordance with Section 161 of AktG and thisis permanently available to shareholders on the Company’s web sitewww.AIXTRON.com.

**40.    Reconciliation to US GAAP**

The consolidated financial statements of AIXTRON AGwere prepared in accordance with International Financial Reporting Standards(IFRS) and the related interpretations. There are some accounting differencesbetween IFRS and US GAAP. The effect of these differences on the consolidatedprofit and equity is shown in the following reconciliation:
| ***in EUR thousands***            | ** **   | **Note**     | ** ** | **2006**   | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|---------------------------------------------|--------------|--------------|------------|------------|------------|-------------|------------|------------|------------|
| * *                                    | *** *** | *** *** | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Net income/(loss) under IFRS**            | *** *** | *** *** | ** ** | **5,857**  | ** ** | **(53,468** | **)**      | **7,681**  | ** ** |
| ** **                                  | *** *** | *** *** | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** |
| Property, plant and equipment               | * *     | *a*          |       | (2         | )          | 380         |       | (380       | )          |
| Inventories                                 | * *     | *a*          |       | (393       | )          | 371         |       | (2,176     | )          |
| Provisions for pensions - employee benefits | * *     | *b*          |       | 0          |       | 108         |       | 2          |       |
| Share-based payments                        | * *     | *c*          |       | (622       | )          | 1,769       |       | 977        |       |
| Change in deferred tax assets               | * *     | *d*          |       | 340        |       | (902        | )          | 1,042      |       |
| Impairment Genus                            | * *     | *f*          |       | 0          |       | (44,227     | )          | 0          |       |
| **Net  income/(loss) under US GAAP**        |         |         | ** ** | **5,180**  | ** ** | **(95,969** | **)**      | **7,146**  | ** ** |

** **

F-51

----

** **

| *in EUR thousands*                 | ** ** | **Note** | ** ** | **December  31, 2006** | ** ** | **December  31, 2005** | ** ** | **December  31, 2004** | ** ** |
|----------------------------------------------|------------|----------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| * *                                     |       |     | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **Shareholders’ equity under IFRS**     |       |     | ** ** | **183,942**                 | ** ** | **183,599**                 | ** ** | **136,967**                 | ** ** |
| ** **                                   |       |     |       |                        |       |                        |       |                        |       |
| Property, plant and equipment                | * *   | *a*      |       | (2                          | )          | 0                           |       | (380                        | )          |
| Inventories                                  | * *   | *a*      |       | (2,197                      | )          | (1,804                      | )          | (2,175                      | )          |
| Provisions for pensions - employee benefits  | * *   | *b*      |       | 0                           |       | 0                           |       | (108                        | )          |
| Share-based payments                         | * *   | *c*      |       | 0                           |       | 0                           |       | 0                           |       |
| Change in deferred tax assets                | * *   | *d*      |       | 538                         |       | 198                         |       | 1,100                       |       |
| Effects from Genus acquisition               | * *   | *e*      |       | 0                           |       | 44,227                      |       | 0                           |       |
| Impairment of Genus                          | * *   | *f*      |       | 0                           |       | (44,227                     | )          | 0                           |       |
| **Shareholders’  equity under US GAAP** | * *   | * * | ** ** | **182,281**                 | ** ** | **181,993**                 | ** ** | **135,404**                 | ** ** |

 

The adjustmenteffects are attributable to the following differences in accounting policiesbetween US-GAAP and IFRS:

**(a)    Property, plant and equipment andinventories**

When the circumstances that previouslycaused fixed assets or inventories to be written down below cost no longerexist or when there is clear evidence of an increase in net realisable valuebecause of changed economic circumstances, the amount of the write-down isreversed under IFRS (i.e. the reversal is limited to the amount of the originalwrite-down) so that the new carrying amount is the lower of the cost and therevised net realisable value. Under US GAAP, any reversal of impairment isprohibited. As a result expenses under US GAAP are lower to the extend that noreversal of losses is recognised. In subsequent periods there will be higherexpenses under IFRS, when the assets for which a reversal of losses had beenrecognised are used and expensed. In 2006 an additional reversal of losses ofinventories in the amount of kEUR 393 was realised as income under IFRS.Additional expenses for inventories of kEUR 371 were booked under IFRS in2005 due to the usage of inventories for which a reversal of losses had beenrecognised in prior periods. In 2004 an additional income of kEUR 2,176was realised under IFRS for reversal of losses. In 2006 a reversal of losses ofkEUR 2 was realised in income for fixed assets. In 2005 the usage ofpreviously revalued fixed assets led to additional expenses under IFRSamounting to kEUR 380, whereas in 2004 losses of kEUR 380 were reversedunder IFRS.

**(b)     Provisions for pensions — employee benefits**

Since January 1, 2005, actuarial gains and losses fromthe measurement of provisions for pensions have been recognised directly in theincome statement under both IFRS and US GAAP. No differences arise thereforebetween IFRS and US GAAP for the business years 2006 and 2005. Until the end of2004 the corridor approach under US GAAP was applied.

**(c)     Share-based Payments**

As described in note 2(o), all share options grantedsince November 7, 2002 are accounted for under IFRS 2. Under US GAAP SFAS 123 R“Stock-Based Compensation” was applied in 2006, applying the modified,prospective method. Prior to the application of SFAS 123 R the share optionprograms were accounted for at intrinsic value as required in APB 25. Since January1, 2006, the rules under US GAAP and those under IFRS have been similar.However, there remains a reconciliation item due to the fact that the optionsgranted in 2001 and 2002 were not adjusted retrospectively under IFRS 2.Moreover, the calculation of fair values under IFRS and US-GAAP are different.Under IFRS the fair value of options have been valued using a Binomial modelwhereas under US-GAAP the fair values, which had already been published inprior years’ consolidated financial statements filed in the United States (Form20-F) and which were calculated under Black-Scholes were used. For optionsgranted in 2006 the Binomial model was used both under IFRS and US-GAAP. UnderUS-GAAP additional expenses of kEUR 622 were recognised in 2006. In 2005and 2004 the expense under US-GAAP had been considerably lower than under IFRSbecause the expense was not measured using fair value.

 

F-52

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**(d)           Incometax effects from reconciliation to US-GAAP**

The tax expenses resulting from the above changes hadthe effect that there was an increase in deferred tax assets in the group underUS-GAAP. At a tax rate of 39.45% (2005: 39.45%; 2004: 39.28%) the increase waskEUR 538 as of December 2006 (December 31, 2005: kEUR 198, December31, 2004: kEUR 1,100).

**(e)     Purchase price Genus acquisition**

Under IFRS the consideration paid for an acquiree isdetermined at the date of acquisition. The date of acquisition of Genus, Incwas March 13, 2005. Therefore a share price of 3.72 EUR was used to measure theAIXTRON shares issued to acquire Genus. The fair value of stock options includedin the purchase price was 2,494 kEUR.

Under US GAAP the consideration paid for an acquireeis defined at the date the transaction is announced. The merger between Genus,Inc and AIXTRON AG was announced on July 2, 2004. The share price at that date was5.60 EUR. This price was used to measure the shares given to the Genusshareholders. The fair value of stock options included in the purchase pricewas 4,499 kEUR.

Further differences result from the valuation ofconvertible bonds.

In total the difference in equity resulting from theGenus acquisition amounted to kEUR 44,227 as at December 31, 2005. Nofurther differences resulted from this transaction in 2006.

**(f)     Impairment of Genus Goodwill**

The differences in the valuation of the Genusacquisition between IFRS and US-GAAP as described under (e) resulted in ahigher Goodwill under US-GAAP than under IFRS and therefore in a higherimpairment charge at the end of 2005 in the amount of kEUR 44,227. Nofurther differences resulted from this transaction in 2006.

**Presentation of material adjustments to the cash flowstatement**

No material differences exist between the cash flowstatement under IFRS and US GAAP. In accordance with regulation S-X of the U.S.Securities and Exchange Commission no reconciliation to US GAAP was performed.

F-53

----

**41.    Additional US GAAP Information**

**Accumulated other changes in equity**

SFAS 130, “Reporting ComprehensiveIncome” prescribes the presentation of changes in the Company’s equity which donot result from transactions with shareholders. Other changes in equity arestated below:

| *in EUR thousands*                                                    | ** ** | **2006**   | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|------------|------------|
| * *                                                                        | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Net income/(loss) under US GAAP**                                             | ** ** | **5,180**  | ** ** | **(95,969** | **)**      | **7,146**  | ** ** |
| * *                                                                        |       |       |       |        |       |       |       |
| Currency translation adjustment under IFRS                                      |       | (7,871     | )          | 11,616      |       | 48         |       |
| after  reconciliation to US-GAAP                                                |       | (37        | )          | 3,607       |       | 0          |       |
| Unrecognised gains/(losses) from derivative  financial instruments before taxes |       | 1,122      |       | (2,493      | )          | (308       | )          |
| Deferred taxes                                                                  |       | (298       | )          | 864         |       | 163        |       |
| **Other comprehensive income, net of tax**                                      | ** ** | **(7,084** | **)**      | **13,594**  | ** ** | **(97**    | **)**      |
| **Comprehensive income, net of  tax**                                           | ** ** | **(1,904** | **)**      | **(82,375** | **)**      | **7,049**  | ** ** |

 

**Share-based payments under SFAS 123 R**

As described in note 40 the Company adoptedSFAS 123 R in 2006. The following tables summarises the effect on net profitafter taxes and earnings per share under US GAAP from the application of SFAS123 R compared to APB 25:

| *in EUR thousands*                                    | ** ** | **2006**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|
|                                                  |       |       |       |
| **Net profit under US GAAP (as  reported)**           | ** ** | **5,180**  | ** ** |
|                                                  |       |       |       |
| Stock Option expense under SFAS 123 R                 |       | 2,072      |       |
|                                                  |       |       |       |
| Stock Option expense under APB 25                     |       | (15        | )          |
|                                                  |       |       |       |
| **Net profit US-GAAP as if APB 25  had been applied** | ** ** | **7,237**  | ** ** |
|                                                  |       |       |       |
|                                                  |       |       |       |
| **Earnings per share (basic):**                       | ** ** | ** ** | ** ** |
| as reported (EUR)                                     |       | 0.06       |       |
| under APB 25 (EUR)                                    |       | 0.08       |       |
|                                                  |       |       |       |
| **Earnings per share (diluted):**                     | ** ** | ** ** | ** ** |
| as reported (EUR)                                     |       | 0.06       |       |
| under APB 25 (EUR)                                    |       | 0.08       |       |

 

F-54

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The effect of SFAS 123 R is to reduce the reportedUS-GAAP net profit before taxes for 2006 by kEUR 2,057. It reduces thepost tax profit by the same amount. The application of SFAS 123 R has no impacton the cash flow from operating activities or from financing activities.

In 2005 and 2004 APB 25 was applied to calculate theexpense from stock options (intrinsic value method). The following tablesummarises the effects on net income/loss and earnings per share if the fairvalue method had been applied:

| *in EUR thousands*                  | ** ** | **2005**    | ** ** | **2004**   | ** ** |
|-----------------------------------------------|------------|-------------|------------|------------|------------|
|                                          | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Net (loss)/profit under US GAAP**           | ** ** | **(95,969** | **)**      | **7,146**  | ** ** |
|                                          |       |        |       |       |       |
| Stock option expense under APB 25             |       | 32          |       | 63         |       |
|                                          |       |        |       |       |       |
| Stock Option expense under SFAS 123           |       | (3,569      | )          | (4,685     | )          |
|                                          |       |        |       |       |       |
| **Pro forma net (loss)/profit under US GAAP** | ** ** | **(99,506** | **)**      | **2,524**  | ** ** |
|                                          |       |        |       |       |       |
| **Earnings per share (basic):**               |       |        |       |       |       |
| as reported (EUR)                             |       | (1.17       | )          | 0.11       |       |
| pro forma (EUR)                               |       | (1.21       | )          | 0.04       |       |
|                                          |       |        |       |       |       |
| **Earnings per share (diluted):**             |       |        |       |       |       |
| as reported (EUR)                             |       | (1.17       | )          | 0.11       |       |
| pro forma (EUR)                               |       | (1.21       | )          | 0.04       |       |
|                                          |       |        |       |       |       |

 

**Segment reporting**

The difference between segment assets ofkEUR 202,965 (2005: kEUR 199,549) and total assets ofkEUR 263,482 (2005: kEUR 237,317) are reconciled by assets whichare not allocated to segments as operating assets in the amount ofkEUR 54,440 (2005: kEUR 31,435) and tax assets in the amount ofkEUR 6,077 (2005: kEUR 6,333).

**Recent accounting pronouncements**

In September 2006, the Financial Accounting StandardsBoard (FASB) issued Statement No. 158, “Employer’s Accounting for DefinedBenefit Pension and Other Postretirement Plans, an amendment of FASB StatementsNo. 87, 88, 106, and 132R” (SFAS 158). SFAS 158 requires an entity to recognizein its statement of financial condition the funded status of its definedbenefit post-retirement plans, measured as the difference between the fairvalue of the plan assets and the benefit obligation. SFAS 158 also requires anentity to recognize changes in the funded status of a defined benefitpost-retirement plan directly to accumulated other comprehensive income, net oftax, to the extent such changes are not recognised in earnings as components ofperiodic net benefit cost. SFAS 158 is effective for AIXTRON in fiscal 2006.AIXTRON implemented this standard in fiscal year 2006 and it did not have amaterial effect on its financial position or results of operations.

In September 2006, the FASB issued Statement No. 157, “FairValue Measurements” (SFAS 157). SFAS 157 defines fair value, establishes aframework for measuring fair value in accordance with generally acceptedaccounting principles, and expands disclosures about fair value measurements.SFAS 157 becomes effective for AIXTRON in fiscal 2008. AIXTRON AG is evaluatingthe potential impact of the implementation of SFAS 157 on its financialposition and results of operations.

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In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin No. 108, “Considering the Effectsof Prior Year Misstatements When Quantifying Misstatements in Current YearFinancial Statements” (SAB 108), which provides interpretive guidance on howthe effects of the carryover or reversal of prior year misstatements should beconsidered in quantifying a current year misstatement. SAB 108 is effective forAIXTRON in fiscal 2006. AIXTRON implemented this staff accounting bulletin infiscal 2006 and it did not have a material effect on its financial position orresults of operations.

In June 2006, the FASB issued FASB Interpretation 48, “Accountingfor Income Tax Uncertainties” (FIN 48). FIN 48 defines the threshold forrecognizing the benefits of tax return positions in the financial statements as“more-likely-than-not” to be sustained by the taxing authority. The recentlyissued literature also provides guidance on the derecognition, measurement andclassification of income tax uncertainties, along with any related interest andpenalties. FIN 48 also includes guidance concerning accounting for income taxuncertainties in interim periods and increases the level of disclosuresassociated with any recorded income tax uncertainties. FIN 48 will becomeeffective for AIXTRON  beginning infiscal 2007. Any differences between the amounts recognised in the statementsof financial position prior to the adoption of FIN 48 and the amounts reportedafter adoption will be accounted for as a cumulative effect adjustment recordedto the beginning balance of retained earnings. AIXTRON is evaluating thepotential impact of the implementation of FIN 48 on its financial position andresults of operations.

In February 2006, the FASB issued SFAS No. 155, “Accountingfor Certain Hybrid Financial Instruments — an amendment of FASB Statements No.133 and 140” (SFAS 155). SFAS 155 amends SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities”, and No. 140, “Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities”.SFAS 155 also resolves issues addressed in SFAS 133 Implementation Issue No.D1, “Application of Statement 133 to Beneficial Interests in SecuritizedFinancial Assets”.

Regulation SFAS 155

(a)           permits fair value remeasurement forany hybrid financial instrument that contains an embedded derivative thatotherwise would require bifurcation;

(b)           clarifies which interest-only stripsand principal-only strips are not subject to the requirements of SFAS 133;

(c)           establishes a requirement to evaluateinterests in securitized financial assets to identify interests that arefreestanding derivatives or that are hybrid financial instruments that containan embedded derivative requiring bifurcation;

(d)           clarifies that concentrations ofcredit risk in the form of subordination are not embedded derivatives, and

(e)           amends SFAS No. 140 to eliminate theprohibition on a qualifying special-purpose entity from holding a derivativefinancial instrument that pertains to a beneficial interest other than anotherderivative financial instrument.

SFAS 155 is effective for all financial instrumentsacquired or issued after the beginning of AIXTRONs 2007 fiscal year. AIXTRON iscurrently assessing the impact of SFAS 155, however, it does not anticipatethat SFAS 155 will have a material impact on its financial position and resultsof operations.

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections”, a replacement of APB Opinion No. 20, “AccountingChanges”, and SFAS No. 3, “Reporting Accounting Changes in Interim FinancialStatements”. SFAS No. 154 changes the requirements for the accounting for andreporting of a change in accounting principle. Previously, most voluntarychanges in

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accounting principles required recognition via acumulative effect adjustment within net income of the period of the change.SFAS No. 154 requires retrospective application to prior periods’ financialstatements, unless it is impracticable to determine either the period-specificeffects or the cumulative effect of the change. SFAS No. 154 is effective forAIXTRON for accounting changes made in fiscal years beginning December 15,2005; however, the Statement does not change the transition provisions of anyexisting accounting pronouncements. AIXTRON adopted SFAS in fiscal year 2006and the adoption of SFAS No. 154 did not have a material effect on AIXTRONsconsolidated financial position, results of operations or cash flows.

**42.    Supervisory Board and Executive Board**

Composition of the Supervisory Board as of December31, 2006

·      Dipl.-Kfm.Kim Schindelhauer, Aachen, businessman (Chairman of the Supervisory Board since2002)

·       Membershipin Supervisory Boards and controlling bodies:

·       MEDIONAG, Essen — member of the Supervisory Board until May 2006

·       DeutschesAktieninstitut e.V., Frankfurt/Main — member of the Executive Board

·      Dr.Holger Jürgensen, Aachen, physicist (Deputy Chairman of the Supervisory Boardsince 2002)

·                 Prof. Dr. Wolfgang Blättchen,Leonberg, business consultant, Executive Board of Blättchen & Partner AG,Leonberg (member of the Supervisory Board since 1998)

·       membershipin Supervisory Boards and controlling bodies:

·       MarcO’Polo AG, Stephanskirchen — Chairman of the Supervisory Board

·       HorváthAG, Stuttgart — Deputy Chairman of the Supervisory Board until September 2006

·       HAUBROKAG, Düsseldorf — Deputy Chairman of the Supervisory Board

·       APCOAParking AG, Stuttgart — member of the Supervisory Board

·       GardenaAG, Ulm — member of the Supervisory Board

·       tec2bAG, Plietzhausen — Chairman of the Supervisory Board until March 2006

·                  Datagroup IT Services Holding AG,Pliezhausen — member of the Supervisory Board since July 2006

·                 Karl-Hermann Kuklies, Duisburg,businessman (member of the Supervisory Board since 1997)

·                 Prof. Dr. Rüdiger von Rosen,Frankfurt/Main, businessman, Deutsches Aktieninstitut e.V., Frankfurt/Main,Managing member of the Executive Board (member of the Supervisory Board since2002)

·       Membershipin Supervisory Boards and other controlling bodies:

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·       PriceWaterhouseCoopersAG, Frankfurt/Main — member of the Supervisory Board

·                 Dipl.-Kfm. Joachim Simmroß, Hannover,businessman (member of the Supervisory Board since 1997)

·       Membershipin Supervisory Boards and controlling bodies:

·                  CommerzUnternehmensbeteiligungs-Aktiengesellschaft, Frankfurt/Main — member of theSupervisory Board

·       GBKBeteiligungen AG, Hanover — member of the Supervisory Board

·       technotransAG, Sassenberg — Chairman of the Supervisory Board

·                  WeHaCoUnternehmensbeteiligungs-Aktiengesellschaft, Hanover — member of theSupervisory Board

·       BAG-BiologischeAnalysensystemGmbH,Lich — member of the Advisory Board

·       HANNOVERFinanz GmbH, Hanover — member of the Advisory Board

·       KAPPAopto-electronics GmbH, Gleichen — member of the Advisory Board

·                  Astyx GmbH, Ottobrunn (before: MTSMikrowellen Technologie und Sensoren GmbH, Ottobrunn) — member of the AdvisoryBoard

The following gentlemen are members of the Company’s ExecutiveBoard:

·                 Paul Hyland, Aachen, businessman, Chairman, President and ChiefExecutive Officer

·                 Dr. Bernd Schulte, Aachen, physicist,Chief Operating Officer, Compound Semiconductor Technologies

·                 Dipl.-Kfm. Wolfgang Breme, Aachen,businessman, Chief Financial Officer

·                 Dr. William W. R. Elder, Sunnyvale, Chief Operating Officer, Siliconsemiconductor Technologies

 

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