===============================================================================

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

                               ----------------

                                   FORM 10-Q

              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED JANUARY 30, 1998          COMMISSION FILE NUMBER: 0-26968

                               ----------------

                              ETEC SYSTEMS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                NEVADA                               94-3094580
    (STATE OR OTHER JURISDICTION OF     (I.R.S. EMPLOYER IDENTIFICATION NO.)
    INCORPORATION OR ORGANIZATION)

               26460 CORPORATE AVENUE, HAYWARD, CALIFORNIA 94545
             (ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510)783-9210

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                                 Yes  X  No

  21,965,974 shares of Common Stock were outstanding as of February 27, 1998.




===============================================================================









<PAGE>
Part 1.  Financial Information
Item 1.   Consolidated Financial Statements
                               ETEC SYSTEMS, INC.
                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                     January 31,   July 31,
                                                     1998          1997
                                                     ------------  ------------
<S>                                                  <C>           <C>
                              ASSETS
Current assets:
Cash and cash equivalents..........................      $44,501       $55,975
Marketable securities..............................       52,393        34,262
Accounts receivable, less allowance for
 doubtful accounts of $1,199 and $1,136............       69,448        54,879
Inventory..........................................       79,134        67,202
Deferred tax assets................................       22,822        22,822
Other current assets...............................       13,877         3,322
                                                     ------------  ------------
 Total current assets..............................      282,175       238,462
Property, plant and equipment, net.................       43,667        42,013
Other assets.......................................        3,871         4,068
                                                     ------------  ------------
                                                        $329,713      $284,543
                                                     ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................      $23,061       $20,830
Accrued and other liabilities......................       71,165        53,028
Taxes payable......................................       12,083         8,301
                                                     ------------  ------------
 Total current liabilities.........................      106,309        82,159
Deferred gain on sale of asset.....................        2,737         2,871
Other liabilities..................................        1,609         1,872
                                                     ------------  ------------
 Total liabilities.................................      110,655        86,902
                                                     ------------  ------------
Commitments and contingencies

Stockholders' equity:
Preferred Stock, par value $0.01 per share;
 10,000,000 shares authorized; none outstanding....         --            --
Common Stock, par value $0.01 per share; 60,000,000
 and 40,000,000 shares authorized; 21,957,693 and
 21,679,636 issued and outstanding.................          220           217
Warrants...........................................          600           631
Additional paid-in capital.........................      203,270       198,557
Cumulative translation adjustments.................       (1,955)         (719)
Net unrealized gain on investments.................           89         --
Retained earnings (accumulated deficit)............       16,834        (1,045)
                                                     ------------  ------------
 Total stockholders' equity........................      219,058       197,641
                                                     ------------  ------------
                                                        $329,713      $284,543
                                                     ============  ============
</TABLE>
          See accompanying notes to consolidated financial statements.
<PAGE>
                               ETEC SYSTEMS, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                       Three Months Ended    Six Months Ended
                                            January 31,          January 31,
                                       -------------------  -------------------
                                       1998      1997       1998      1997
                                       --------- ---------  --------- ---------
<S>                                    <C>       <C>        <C>       <C>
Revenue:
  Products...........................   $53,161   $45,309   $112,132   $81,711
  Services...........................     9,007     8,371     18,401    16,856
                                       --------- ---------  --------- ---------
                                         62,168    53,680    130,533    98,567
                                       --------- ---------  --------- ---------
Cost of revenue:
  Products...........................    21,858    21,723     49,605    39,275
  Services...........................     6,633     6,642     13,717    13,194
                                       --------- ---------  --------- ---------
                                         28,491    28,365     63,322    52,469
                                       --------- ---------  --------- ---------
Gross profit.........................    33,677    25,315     67,211    46,098
                                       --------- ---------  --------- ---------
Operating expenses:
  Research, development and
   engineering.......................    13,555     8,115     24,332    14,596
  Selling, general and
   administrative....................     8,096     6,290     17,373    12,185
                                       --------- ---------  --------- ---------
                                         21,651    14,405     41,705    26,781
                                       --------- ---------  --------- ---------
Income from operations...............    12,026    10,910     25,506    19,317
Interest expense.....................      (161)     (266)      (360)     (510)
Other income, net....................     1,124     1,027      2,149     1,821
                                       --------- ---------  --------- ---------
Income before income tax provision...    12,989    11,671     27,295    20,628
Income tax provision.................     4,338     4,085      9,416     6,058
                                       --------- ---------  --------- ---------
Net income...........................    $8,651    $7,586    $17,879   $14,570
                                       ========= =========  ========= =========

Basic earnings per share.............     $0.39     $0.37      $0.82     $0.72
                                       ========= =========  ========= =========

Weighted-average common shares.......    21,906    20,560     21,820    20,140
                                       ========= =========  ========= =========

Diluted earnings per share...........     $0.38     $0.35      $0.78     $0.68
                                       ========= =========  ========= =========

Dilutive potential common shares.....    22,948    21,806     22,783    21,462
                                       ========= =========  ========= =========
</TABLE>
          See accompanying notes to consolidated financial statements.
<PAGE>
                               ETEC SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                             Six Months Ended
                                                               January 31,
                                                          ---------------------
                                                          1998       1997
                                                          ---------- ----------
<S>                                                       <C>        <C>
Cash flows from operating activities:
Net income...............................................   $17,879    $14,570
Adjustments to reconcile net income to net cash
 used in operating activities:
  Depreciation and amortization..........................     3,684      1,855
  Deferred taxes.........................................        --     (1,162)
  Changes in assets and liabilities:
  Accounts receivable....................................   (21,566)   (28,850)
  Factoring of accounts receivable.......................     6,200         --
  Inventory..............................................   (12,247)   (18,600)
  Other current assets.................................     (10,595)        --
  Other assets...........................................        37        478
  Accounts payable.......................................     2,264      3,272
  Accrued and other liabilities..........................    21,932     23,279
                                                          ---------- ----------
    Net cash provided by (used in) operating activities..     7,588     (5,158)
                                                          ---------- ----------
Cash flows from investing activities:
  Purchases of marketable securities, net................   (18,131)   (10,520)
  Capital expenditures for property and equipment, net...    (5,331)   (11,104)
  Construction costs of new building.....................        --     (3,555)
  Proceeds from sale of plant............................        --      5,000
                                                          ---------- ----------
    Net cash used in investing activities................   (23,462)   (20,179)
                                                          ---------- ----------
Cash flows from financing activities:
  Repayment of debt and capital leases...................       (50)    (1,813)
  Financing from intermediary............................     1,882      1,202
  Repurchase of warrants.................................        --     (2,633)
  Collection of notes receivable from stockholders.......       200         --
  Proceeds from issuance of Common Stock.................     3,025     40,336
                                                          ---------- ----------
    Net cash provided by financing activities............     5,057     37,092
                                                          ---------- ----------
Effect of exchange rate changes on cash..................      (657)       576
                                                          ---------- ----------
Net change in cash and cash equivalents..................   (11,474)    12,331
Cash and cash equivalents at the beginning
  of the period..........................................    55,975     44,472
                                                          ---------- ----------
Cash and cash equivalents at the end of the period.......   $44,501    $56,803
                                                          ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................      $360       $448
                                                          ========== ==========

Cash paid during the period for income taxes.............    $4,175     $6,124
                                                          ========== ==========

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Tax benefits from stock option transactions..............    $1,460       $606
                                                          ========== ==========

</TABLE>
          See accompanying notes to consolidated financial statements.
<PAGE>



NOTE 1-BASIS OF PRESENTATION

        In the opinion of the management of Etec Systems, Inc. 
("Etec" or the "Company"), the unaudited consolidated 
interim financial statements included herein have been 
prepared on the same basis as the July 31, 1997 audited 
consolidated financial statements and include all 
adjustments, consisting of normal recurring adjustments, 
necessary for a fair presentation of the interim period 
results.

        The results of operations for current interim periods 
are not necessarily indicative of results to be expected for 
the current year or for any other period. 

        These consolidated financial statements should be read 
in conjunction with the audited consolidated financial 
statements and notes thereto for the fiscal year ended July 
31, 1997 included in the Company's Annual Report on Form 10-
K (File No. 0-26968).  The July 31, 1997 balance sheet 
included herein was derived from audited consolidated 
financial statements, but does not include all disclosures 
required by generally accepted accounting principles.

        For purposes of presentation, the Company has 
indicated its interim fiscal periods as ending January 31, 
1998 and January 31, 1997.  As the Company's fiscal period 
is accounted for on a 52-53 week year, the interim period 
consolidated financial statements included herein represent 
results for each of the three- and six-month periods ended 
January 30, 1998 and January 31, 1997.

        The preparation of financial statements in conformity 
with generally accepted accounting principles requires 
management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities and disclosures 
of contingent assets and liabilities at the date of the 
financial statements and the reported amounts of revenues 
and expenses during the reporting periods.  Actual results 
could differ from those estimates.


Recent Accounting Pronouncements

        In June 1997, the Financial Accounting Standards Board 
issued Statement of Financial Accounting Standards No. 130, 
"Reporting Comprehensive Income" (SFAS 130) and Statement of 
Financial Accounting Standards No. 131, "Disclosures about 
Segments of an Enterprise and Related Information" (SFAS 
131).  SFAS 130 establishes standards for reporting and 
display of comprehensive income and requires the Company to 
report additional information on comprehensive income to 
supplement the reporting of income.  SFAS 130 is effective 
for fiscal years beginning after December 15, 1997.  
Comparative financial statements must be provided for all 
periods presented and require reclassification adjustments. 
The Company will adopt SFAS 130 in fiscal 1999 and does not 
expect its provisions to have a material effect on the 
Company's presentation of its consolidated financial 
statements.  

        SFAS 131 establishes standards for reporting 
information about operating segments in annual and interim 
financial statements and also establishes standards for 
related disclosures about products and services, geographic 
areas and major customers.  SFAS 131 is effective for fiscal 
years beginning after December 15, 1997.  The Company will 
adopt SFAS 131 in fiscal 1999 and is currently studying its 
provisions. 


NOTE 2-CASH EQUIVALENTS AND MARKETABLE SECURITIES

        At January 31, 1998, the Company's investments were 
classified as available-for-sale.  The difference between 
the cost and fair value of those investments is shown as a 
separate component of stockholders' equity.  At January 31, 
1998, these available-for-sale securities totaling 
approximately $80.3 million were included in cash and cash 
equivalents or marketable securities on the balance sheet.  
The investment portfolio at January 31, 1998 is comprised of 
money market funds, corporate debentures, asset-backed 
obligations, U.S. Government agency securities, certificates 
of deposit, commercial paper, auction-rate preferreds, and 
municipal obligations.  

NOTE 3--CERTAIN BALANCE SHEET COMPONENTS

                                              January 31,   July 31,
                                                 1998         1997
                                              -----------  -----------
                                                   (in thousands)
     Accounts receivable, net:
       Accounts receivable...................    $59,108      $46,421
       Financed receivables*.................     10,340        8,458
                                              -----------  -----------
                                                 $69,448      $54,879
                                              ===========  ===========
------------
*  Financed receivables of $10.3 million and $8.5 million, at January 31,
   1998 and July 31, 1997, respectively, are included in accounts
   receivable, net, and are subject to a third-party financing arrangement
   under which they are offset by liabilities of the same amounts.


                                              January 31,   July 31,
                                                 1998         1997
                                              -----------  -----------
                                                   (in thousands)

     Inventory:
       Purchased parts.......................    $28,032      $20,325
       Work-in-process.......................     37,520       35,972
       Spares................................     13,582       10,905
                                              -----------  -----------
                                                 $79,134      $67,202
                                              ===========  ===========

NOTE 4 -INCOME TAXES 

        The Company recorded provisions for income taxes for 
the six months ended January 31, 1998 and 1997 of $9.4 
million and $6.1 million, respectively. The Company's 
provision for income taxes for the six months ended January 
31, 1998 reflects the utilization of research and 
development tax credits and tax benefits from the use of a 
foreign sales corporation, partially offset by foreign 
earnings taxed at higher rates. During the second quarter of 
fiscal 1998, the Company reduced its fiscal 1998 effective 
tax rate from the 35.5% used in the first quarter to 34.5% 
in order to reflect revised estimates of certain tax 
credits.  The provision for the six months ended January 31, 
1997 includes a $1.2 million benefit which reflects the 
first quarter release of valuation allowances previously 
recorded against the Company's deferred tax assets.  
Management's evaluation of the recoverability of the 
Company's deferred tax assets is based in part upon the 
current product backlog and the Company's presumed ability 
to increase manufacturing capacity.  Management will 
continue to evaluate the recoverability of the deferred tax 
assets in future periods.

NOTE 5-LEASES

        In November 1997, the Company completed the purchase 
of approximately 15.2 acres of land in Hillsboro, Oregon at 
a cost of approximately $2.4 million.  The Company is having 
a new facility constructed on this site to meet development 
and manufacturing requirements for its advanced laser mask 
pattern generation products and to back up its electron-beam 
manufacturing capabilities in Hayward, California.

        In December 1997, the Company entered into an 
agreement to lease the facility to be constructed on the 
land described above.  The lessor of the buildings has 
committed to spend up to $60.0 million for the construction 
and the Company will act as construction agent for the 
lessor. The lease term begins upon completion of 
construction (which is expected in the middle of calendar 
year 1999) and ends in November, 2004.  With the approval of 
the lessor, the Company may extend the lease term for up to 
three one-year periods.  The Company has the option to 
purchase the facility at any time during the lease term at 
the lessor's capitalized cost.  If the Company does not 
elect to purchase the property at the end of the lease term, 
the Company is required to guarantee the minimum residual 
value which shall not exceed $49.8 million.

        In February 1998, the Company entered into an 
agreement to amend the existing lease on its Hayward 
facilities to accommodate a $50.0 million planned expansion 
of product and research and development facilities and up to 
an $11.0 million renovation of production facilities via 
construction lease allowances.  The initial term of the 
lease expires in May, 2014, and, if not cancelled by the 
Company, will be automatically extended for three five-year 
renewal periods and one additional eight-month renewal 
period.


NOTE 6-STOCKHOLDERS' EQUITY

        At the Company's Annual Meeting of Shareholders on 
December 2, 1997, the shareholders approved an amendment to 
the Company's Articles of Incorporation increasing the 
number of authorized shares of Common Stock to 60,000,000 
shares.  The Articles of Incorporation also authorize the 
issuance of up to 10,000,000 shares of Preferred Stock with 
a par value of $0.01 per share, having rights and 
preferences to be designated by the Company's Board of 
Directors.


NOTE 7-NET INCOME PER SHARE

        The Company adopted Statement of Financial Accounting 
Standards No. 128, "Earnings Per Share" (SFAS 128) during 
the second quarter of fiscal 1998.  This statement 
simplifies the standards for computing earnings per share 
(EPS) previously defined in Accounting Principles Board 
Opinion No. 15, "Earnings Per Share".  All prior-period 
earnings per share data have been presented in accordance 
with SFAS 128.  SFAS 128 requires presentation of both basic 
EPS and diluted EPS on the face of the statement of income.  
Basic EPS is computed by dividing net income available to 
common stockholders (numerator) by the weighted-average 
common shares (denominator) during the period.  Diluted EPS 
gives effect to all dilutive potential common shares 
outstanding during the period including stock options and 
warrants, using the treasury stock method.  In computing 
diluted EPS, the average stock price for the period is used 
in determining the number of shares assumed to be purchased 
from the exercise of stock options and warrants.

The following is a reconciliation of the numerators and 
denominators of the basic and diluted earnings per share 
computations under SFAS 128:

NOTE 7-NET INCOME PER SHARE
<TABLE>
<CAPTION>

                                                  Three Months Ended         Six Months Ended
                                                       January 31,               January 31,
                                                  -----------  -----------  ---------  ---------
                                                  1998         1997         1998       1997
                                                  -----------  -----------  ---------  ---------
                                                  (In thousands, except per share amounts)
<S>                                               <C>          <C>          <C>        <C>
BASIC EPS COMPUTATION
       Net income.................................    $8,651       $7,586    $17,879    $14,570
                                                  ===========  ===========  =========  =========

       Weighted-average common shares.............    21,906       20,560     21,820     20,140
                                                  ===========  ===========  =========  =========

       Basic earnings per share...................     $0.39        $0.37      $0.82      $0.72
                                                  ===========  ===========  =========  =========

DILUTED EPS COMPUTATION
       Net income.................................    $8,651       $7,586    $17,879    $14,570
                                                  ===========  ===========  =========  =========

       Weighted-average common shares.............    21,906       20,560     21,820     20,140
       Plus shares from assumed conversion:
         Effect of dilutive options and warrants..     1,042        1,246        963      1,322
                                                  -----------  -----------  ---------  ---------
       Dilutive potential common shares...........    22,948       21,806     22,783     21,462
                                                  ===========  ===========  =========  =========

       Diluted earnings per share.................     $0.38        $0.35      $0.78      $0.68
                                                  ===========  ===========  =========  =========

ANTIDILUTIVE SECURITIES*
       Options outstanding at end of period.......       247           87        153         91
                                                  ===========  ===========  =========  =========

       Weighted-average exercise price............    $55.35       $36.02     $59.14     $35.71
                                                  ===========  ===========  =========  =========
</TABLE>
------------
*  Antidilutive securities consist of options not included in the
   computation of diluted earnings per share because the exercise price of
   each of these options was greater than the average market price of the  
   Company's Common Stock during the period.  Options outstanding during
   the three- and six-month periods ended January 31, 1998 expire during
   fiscal years 2007 and 2008.  Options outstanding during the three- and
   six-month periods ended January 31, 1997 expire during fiscal years 2006
   and 2007.



Item 2.  Management's Discussion and Analysis of Financial Condition and
  Results of Operations

A.      Results of Operations


Quarters Ended January 31, 1998 and January 31, 1997

        Revenue. Revenues are primarily comprised of sales of 
ALTA, MEBES, and CORE systems, accessories and upgrades, and 
the provision of technical support, maintenance and other 
services.  The Company derives most of its revenues from the 
sale of a small number of systems and upgrades.  As such, 
any delay in the recognition of revenue for a single system 
or upgrade can have a material adverse effect on the 
Company's consolidated results of operations in a particular 
period.  For example, one system, originally scheduled to be 
shipped late in the second quarter of fiscal 1998, was 
delayed until the third quarter of fiscal 1998 due to a 
failure in a critical subassembly. 

        Product revenue increased 17% to $53.2 million from 
$45.3 million for the quarters ended January 31, 1998 and 
1997, respectively.  This increase reflects a shift in 
product mix toward higher-priced products and generally 
higher average selling prices.

        Service revenue increased 8% to $9.0 million from $8.4 
million for the quarters ended January 31, 1998 and 1997, 
respectively, due primarily to generally higher service 
activity caused by an increase in the number of systems 
under service contracts.

        Gross Profit.  The Company's gross profit on product 
revenue increased 33% to $31.3 million from $23.6 million 
for the quarters ended January 31, 1998 and 1997, 
respectively.  The increase in gross profit on product 
revenue was due to an increase in product revenue and a 
higher gross margin on product revenue, which increased to 
59% for the quarter ended January 31, 1998 from 52% for the 
quarter ended January 31, 1997.  The increase in product 
gross margin is primarily attributable to changes in product 
mix and generally higher average selling prices for the 
Company's products.  There can be no assurance that the 
Company will be able to maintain an increase in gross margin 
on product revenue in future periods.

        The Company's gross profit on service revenue 
increased 37% to $2.4 million from $1.7 million for the 
quarters ended January 31, 1998 and 1997, respectively.  
Gross margin on service revenue was 26% and 21% for the 
quarters ended January 31, 1998 and 1997, respectively.  The 
increases in gross profit and gross margin reflect increased 
revenues from an increase in the number of systems under 
service contract and higher productivity. There can be no 
assurance that the Company will be able to maintain an 
increase in gross margin on service revenue in future 
periods.

        Research, Development and Engineering.  The Company's 
research, development and engineering expenses continue to 
reflect its commitment to increased levels of product 
development.  These expenses, net of third-party funding 
under cooperative development agreements, increased to $13.6 
million, representing 22% of revenue, from $8.1 million, 
representing 15% of revenue, for the quarters ended January 
31, 1998 and 1997, respectively. The Company recorded 
expenses of approximately $2.8 million during the second 
quarter of fiscal 1998 which were associated with preparing 
beta tools for shipment from the Company's facility in 
Tucson, Arizona, and with developing the new MEBES 0.18 
micron system.  These additional costs were partially offset 
by an increase in funding of $1.8 million in the second 
quarter of fiscal 1998 over the second quarter of fiscal 
1997.  This increase is primarily attributable to the 
achievement of milestones under a multimillion dollar cost 
reimbursement and development agreement with a private 
consortium.  The Company expects future increases in net
spending due to its commitment to product development,
but net spending is expected to decline in the near term.

        Selling, General and Administrative.  Selling, general 
and administrative expenses increased 29% to $8.1 million, 
representing 13% of revenue, from $6.3 million, representing 
12% of revenue, for the quarters ended January 31, 1998 and 
1997, respectively.  Selling, general and administrative 
expenses increased primarily due to increased headcount, and 
also due to increased market development fees and sales 
commissions associated with increased laser beam system 
sales in Asia.  During the quarter ended January 31, 1998, 
the Company shipped its final system under this market 
development fee contract.  As such, no market development 
fees will be due with respect to future sales.

        Income Tax Provision.  The Company recorded provisions 
for income taxes for the quarters ended January 31, 1998 and 
1997 of $4.3 million and $4.1 million, respectively. The 
Company's provision for income taxes for the quarter ended 
January 31, 1998 reflects the utilization of research and 
development tax credits and tax benefits from the use of a 
foreign sales corporation, partially offset by foreign 
earnings taxed at higher rates. During the second quarter of 
fiscal 1998, the Company reduced its fiscal 1998 effective 
tax rate from the 35.5% used in the first quarter to 34.5% 
in order to reflect revised estimates of certain tax 
credits.  The provision for the six months ended January 31, 
1997 includes a $1.2 million benefit which reflects the 
first quarter release of valuation allowances previously 
recorded against the Company's deferred tax assets. 
Management's evaluation of the recoverability of the 
Company's deferred tax assets is based in part upon the 
current product backlog and the Company's presumed ability 
to increase manufacturing capacity.  Management will 
continue to evaluate the recoverability of the deferred tax 
assets in future periods.

Six Months Ended January 31, 1998 and January 31, 1997

        Revenue. Product revenue increased 37% to $112.1 
million from $81.7 million for the six months ended January 
31, 1998 and 1997, respectively.  This increase reflects the 
sale of four additional systems, changes in product mix 
toward higher-priced products, and generally higher average 
selling prices.

        Service revenue increased 9% to $18.4 million from 
$16.9 million for the six months ended January 31, 1998 and 
1997, respectively, due primarily to generally higher 
service activity caused by an increase in the number of 
systems under service contracts.

        Gross Profit.  The Company's gross profit on product 
revenue increased 47% to $62.5 million from $42.4 million 
for the six months ended January 31, 1998 and 1997, 
respectively.  The increase in gross profit on product 
revenue was due to an increase in product revenue and a 
higher gross margin on product revenue, which increased to 
56% for the six months ended January 31, 1998 from 52% for 
the six months ended January 31, 1997.  The increase in 
product gross margin is primarily attributable to changes in 
product mix and generally higher average selling prices for 
the Company's products.  There can be no assurance that the 
Company will be able to maintain the increase in gross 
margin on product revenue in future periods.

        The Company's gross profit on service revenue 
increased 28% to $4.7 million from $3.7 million for the six 
months ended January 31, 1998 and 1997, respectively.  Gross 
margin on service revenue was 25% and 22% for the six months 
ended January 31, 1998 and 1997, respectively.  The 
increases in gross profit and gross margin reflect increased 
revenues from an increase in the number of systems under 
service contracts and increased productivity, partially 
offset by headcount additions below plan. There can be no 
assurance that the Company will be able to maintain an 
increase in gross margin on service revenue in future 
periods.

        Research, Development and Engineering.  The Company's 
research, development and engineering expenses continue to 
reflect its commitment to increased levels of product 
development.  These expenses, net of third-party funding 
under cooperative development agreements, increased to $24.3 
million, representing 19% of revenue, from $14.6 million, 
representing 15% of revenue, for the six months ended 
January 31, 1998 and 1997, respectively.  The Company 
recorded expenses of approximately $2.0 million associated 
with the write-down of certain inventories related to the 
Company's Tucson, Arizona operations to net realizable value 
and incurred costs of approximately $1.9 million associated 
with the new MEBES 0.18 micron system.  These increased 
expenses were partially offset by an increase in funding of 
$3.1 million in the first six months of fiscal 1998 over the 
first six months of fiscal 1997.  This increase in funding 
is attributable to the achievement of milestones under a 
multimillion dollar cost reimbursement and development 
agreement with a private consortium.  The Company expects 
future increases in net spending due to its commitment to 
product development, but net spending is expected to decline 
in the near term.

        Selling, General and Administrative.  Selling, general 
and administrative expenses increased 43% to $17.4 million, 
representing 13% of revenue, from $12.2 million, 
representing 12% of revenue, for the six months ended 
January 31, 1998 and 1997, respectively. Selling, general 
and administrative expenses increased primarily due to 
increased headcount and increased market development fees 
and sales commissions associated with increased laser beam 
system sales in Asia.  During the quarter ended January 31, 
1998, the Company shipped its final system under the market 
development fee contract.

        Income Tax Provision.  The Company recorded provisions 
for income taxes for the six months ended January 31, 1998 
and 1997 of $9.4 million and $6.1 million, respectively. The 
Company's provision for income taxes for the six months 
ended January 31, 1998 reflects the utilization of research 
and development tax credits and tax benefits from the use of 
a foreign sales corporation, partially offset by foreign 
earnings taxed at higher rates.  The Company's provision for 
income taxes for the six months ended January 31, 1997 
includes a $1.2 million benefit which reflects the first 
quarter release of valuation allowances previously recorded 
against the Company's deferred tax assets.  Management's 
evaluation of the recoverability of the Company's deferred 
tax assets is based in part upon the current product backlog 
and the Company's presumed ability to increase manufacturing 
capacity.  Management will continue to evaluate the 
recoverability of the deferred tax assets in future periods.

B.  Liquidity and Capital Resources

        In addition to its operational cash flows, in fiscal 
1997 and fiscal 1996, the Company raised approximately 
$108.0 million from its initial public offering, two 
additional public offerings, and a private placement.  In 
fiscal 1997, the Company received $5.0 million from the sale 
and leaseback of its headquarters campus.  In fiscal 1998, 
the Company received commitments of up to $121.0 million for 
the construction of additional manufacturing facilities 
during fiscal 1998 and fiscal 1999 under operating lease 
arrangements.  The Company believes that approximately $53.0 
million will be used in fiscal 1998 and approximately $68.0 
million will be used in fiscal 1999.

        The Company's capital budget for fiscal 1998 of $80.0 
million included the $53.0 million in facility construction 
which was subsequently converted to a construction allowance 
under an operating lease.  The remaining $27.0 million is 
planned for other capital expenditures.  The Company spent 
approximately $5.3 million for net capital expenditures in 
the first six months of fiscal 1998 primarily to purchase 
testing, process lab and other equipment. In addition, the 
Company spent approximately $8.6 million for renovation of 
existing production facilities at the Company's Hayward 
campus in the first six months of fiscal 1998, and was 
reimbursed for these costs by the lessor in February, 1998.

        In October 1997, the Company purchased approximately 
4.2 acres of land in Hayward, California for $0.9 million.  
This site provides the Company flexibility for future 
expansion of its Hayward-based operations.  In addition, in 
November 1997, the Company completed the purchase of 
approximately 15.2 acres of land in Hillsboro, Oregon for 
approximately $2.4 million.   The Company is having a new 
facility constructed on this site to meet development and 
manufacturing requirements for its advanced laser mask 
pattern generation products and to back up its electron-beam 
manufacturing capabilities in Hayward, California.  The new 
facilities in Hayward and Hillsboro are expected to be 
completed in the middle of calendar year 1999.

        As of January 31, 1998, the Company had cash and cash 
equivalents and marketable securities of $96.9 million.  The 
Company believes that existing cash balances (including cash 
equivalents and marketable securities), together with 
existing sources of liquidity, including cash flows from 
operating activities and amounts available under the 
existing $50.0 million revolving line of credit, will 
provide adequate cash to fund its operations for at least 
the next twelve months.  The Company also believes that 
success in its industry requires substantial capital in 
order to maintain the flexibility to take advantage of 
opportunities as they arise.  As such, the Company may 
effect additional equity or debt financings in the future to 
fund such activities.


Operating Activities

        Net cash provided by operating activities for the six 
months ended January 31, 1998 was $7.6 million.  Net cash 
used in operating activities for the six months ended 
January 31, 1997 was $5.2 million.

        Cash flows from operating activities for the six 
months ended January 31, 1998 primarily reflected net income 
of $17.9 million; increases in noncash items (which include 
depreciation and amortization) of $3.7 million; increases in 
accounts receivable of $21.6 million; factoring of accounts 
receivable of $6.2 million; and increases in inventory of 
$12.2 million, other current assets (consisting of reimbursable
renovation costs of $8.6 million) of $10.6 million, accounts
payable of $2.3 million, and accrued and other liabilities of $21.9
million (primarily due to increases in advances from customers of
approximately $16.0 million).

        Cash flows from operating activities for the six 
months ended January 31, 1997 primarily reflected net income 
of $14.6 million; increases in noncash items of $0.7 million 
(which include depreciation and amortization of $1.9 
million, largely offset by $1.2 million of deferred taxes);
and increases in accounts receivable of $28.9 million,
inventory of $18.6 million, accounts payable of $3.3 million,
and accrued and other liabilities of $23.3 million.     

        Fluctuations in accounts receivable, inventory, and 
current liabilities for the above periods were caused 
primarily by the timing of system orders, the timing of 
revenue recognition, the increase in unit shipments, the 
factoring of accounts receivable and the timing of payments 
to vendors.  Prior to the shipment of a system, the Company 
receives payment for a portion of the system sales price.  
Such payments are generally received when the Company 
accepts an order and at various points when the system is 
being installed and thereafter.  Therefore, the amount of 
customer advances at each reporting period fluctuates based 
on the number of systems that are on order, the timing of 
when orders are accepted, and each system's status within 
the manufacturing cycle.  Advances from customers increased 
to $27.5 million at January 31, 1998 from $11.5 million at 
July 31, 1997. 


Investing Activities

        Net cash used in investing activities for the six 
months ended January 31, 1998 was $23.5 million compared to 
$20.2 million for the six months ended January 31, 1997. 
Cash flows from investing activities for the six months 
ended January 31, 1998 reflected net purchases of marketable 
securities of $18.1 million and net capital expenditures of 
$5.3 million.  Cash flows from investing activities for the 
six months ended January 31, 1997 primarily reflected net
purchases of marketable securities of $10.5 million and net
capital expenditures of $11.1 million.


Financing Activities

        Net cash provided by financing activities for the six 
months ended January 31, 1998 was $5.1 million compared to 
the six months ended January 31, 1997 of $37.1 million.  
Cash flows from financing activities for the six months 
ended January 31, 1998 primarily reflected proceeds from 
issuance of Common Stock of $3.0 million.  Cash flows from 
financing activities for the six months ended January 31, 
1997 primarily reflected proceeds from issuance of Common 
Stock of $40.3 million.  The decrease in net cash provided 
by financing activities is primarily attributable to the 
fact that there was no public offering of the Company's 
Common Stock during the first six months of fiscal 1998 as 
there was during the first six months of fiscal 1997.

C.  Certain Factors that May Affect Future Results

        Statements in this report which are prefaced with 
words such as "expects," "anticipates," "believes" and 
similar words and other statements of similar sense, are 
forward-looking statements.  These statements are based on 
the Company's current expectations and estimates as to 
prospective events and circumstances which may or may not be 
within the Company's control and as to which there can be no 
firm assurances given.  These forward-looking statements, 
like any other forward-looking statements, involve risks and 
uncertainties that could cause actual results to differ 
materially from those projected or anticipated.

        In addition to other risks and uncertainties that may 
be described elsewhere in this document, certain risks and 
uncertainties that could affect the Company's financial 
results include, but are not limited to, the following: 
reduced orders or backlog due to changes in capital spending 
decisions of customers or potential customers; the timely 
development, market acceptance and successful production of 
new products and enhancements in an environment of rapid 
technological change; limitations on the Company's ability 
to carry out a rapid expansion of its manufacturing 
capabilities; significant variations in quarterly or annual 
results due to factors affecting even a small number of 
systems, such as a delay in completion of manufacturing or 
testing of a single system to a future fiscal period; and 
risks associated with foreign operations, such as foreign 
exchange risk, general market conditions, import-export 
controls, and political risks.  

Year 2000 Issue

        The Company has formed a project team to review its 
existing products, services, processes, systems, facilities 
and key business partners to ensure they are adequately able 
to address the issues expected to arise in connection with 
the upcoming change in the century. The Company's project to 
achieve this is based on the Government Accounting Office 
model.  Using this model, the Company is developing an 
action plan to implement the system and programming changes 
necessary to address, on an enterprise-wide basis, year 2000 
issues, and is in the process of assessing the schedule for 
and cost of implementing this plan.  

        The Company believes that its Year 2000 project will 
be completed on a timely basis; however, there can be no 
assurance that unexpected delays or increased costs 
associated with implementation will not have an adverse 
effect on the Company's operations.

        In addition, the Company has not yet fully determined 
the extent to which its business may be impacted by third 
parties whose products and services may not be ready for the 
year 2000.  There can be no assurance that the systems of 
other companies which the Company deals with, or on which 
the Company's systems rely, will be able to adequately 
address the year 2000 issue, or that the failure to do so 
will not have an adverse effect on the Company's operations.

Part II-Other Information

Item 2.  Changes in Securities

        Registrant's Eighth Amended and Restated Articles of 
Incorporation were amended on December 2, 1997 to provide 
for the issuance of 70,000,000 shares of stock.  Of said 
shares, 60,000,000 shares are Common Stock with a par value 
of $0.01 per share and 10,000,000 shares are Preferred Stock 
with a par value of $0.01 per share.  The Board of Directors 
has the authority, without any action by the shareholders, 
to fix the number of shares to be included in any series of 
Preferred Stock.

Item 4.  Submission Of Matters To a Vote of Security Holders

The Company held its Annual Meeting of Stockholders on December 2, 1997.
Matters voted upon at the meeting included:

  1)Election of directors (listed below)
    The following directors were elected to hold office until the next
    Annual Meeting of Stockholders of the Company:

            Directors          Affirmative  Negative   Withheld
    -------------------------  -----------  ---------  ---------
    Stephen E. Cooper          19,505,207          0    118,557
    Takeshi (John) Suzuki      19,542,694          0     81,070
    Edward L. Gelbach          19,541,874          0     81,890
    John M. McBennett          19,537,986          0     85,778
    William Ryan               19,541,624          0     82,140
    William Siegle             19,541,024          0     82,740
    Thomas M. Trent            19,538,336          0     85,428
    Robert L. Wehrli           19,541,006          0     82,758


  2)Approval of amendment to Registrant's Eight Amended and Restated
    Articles of Incorporation to increase the authorized number of
    shares of Common Stock from 40,000,000 to 60,000,000 shares:

    Votes in the affirmative:  17,039,880
    Votes in the negative:        437,818
    Votes withheld:                18,410


  3)Approval of increase in number of shares of Common Stock available
    for issuance under the 1995 Omnibus Incentive Plan from 1,975,000 to
    2,975,000 shares:

    Votes in the affirmative:  12,242,029
    Votes in the negative:      5,226,298
    Votes withheld:                27,781


  4)Ratification of the appointment of Price Waterhouse LLP as
    independent public accountants for the Company for the fiscal
    year ended July 31, 1998:

    Votes in the affirmative:  17,473,795
    Votes in the negative:          6,625
    Votes withheld:                15,688


Item 6.  Exhibits and Reports on Form 8-K

(a)     The following exhibits are filed herewith:

Exhibit 
No.                               Description

2     Certificate of Amendment to Articles of Incorporation dated December
      2, 1997.

10.1  Lease Agreement by and between Registrant and Lease Plan North
      America and the Participants Named Therein and ABN Amro N.V. dated
      December 5, 1997.

10.2  Participation Agreement by and between Etec Systems, Inc. and Lease
      Plan North America, Inc. and the Participants Name Herein and ABN
      Amro Bank N.V., as Agent for the Participants dated December 5, 1997

10.3  Amendment dated November 12, 1997 to Purchase and Sale Agreement by
      and between Registrant and Standard Insurance Corporation dated
      August 13, 1997.

27    Financial Data Schedule.



(b)     Reports on Form 8-K.


None.



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 16, 1998.



                     ETEC SYSTEMS, INC.
                      (Registrant)


                    By  /s/  William D. Snyder                   


                             William D. Snyder
                             Vice President and Chief Financial Officer
                             (Principal Financial Officer and Principal
                              Accounting  Officer)




<PAGE>

                               ETEC SYSTEMS, INC.

                               INDEX OF EXHIBITS

 EXHIBIT
   NO.                             DESCRIPTION 

2     Certificate of Amendment to Articles of Incorporation dated December
      2, 1997.

10.1  Lease Agreement by and between Registrant and Lease Plan North
      America and the Participants Named Therein and ABN Amro N.V. dated
      December 5, 1997.

10.2  Participation Agreement by and between Etec Systems, Inc. and Lease
      Plan North America, Inc. and the Participants Name Herein and ABN
      Amro Bank N.V., as Agent for the Participants dated December 5, 1997

10.3  Amendment dated November 12, 1997 to Purchase and Sale Agreement by
      and between Registrant and Standard Insurance Corporation dated
      August 13, 1997.

27    Financial Data Schedule.