<PAGE>

                        UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                   Washington, D.C. 20549
                        
                                       FORM  10-Q

(Mark One)
[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
        SECURITIES EXCHANGE ACT OF 1934
                                                                             
        FOR THE QUARTERLY PERIOD ENDED                JUNE 30, 1997
                                                  ----------------------
                                                                             
                                                                             
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
      SECURITIES EXCHANGE ACT OF 1934
                                                                             
      For the transition period from __________________ to __________________
                                                                             
          Commission File Number          0-22248
                                   -----------------------
                                                                             
                                  ULTRATECH STEPPER, INC.
-------------------------------------------------------------------------------
                (Exact name of registrant as specified in its charter)

             DELAWARE                                 94-3169580
-------------------------------------------------------------------------------
    (State or other jurisdiction                  (I.R.S. employer 
  of incorporation or organization)             identification number)

3050 Zanker Road, San Jose, California                   95134     
-------------------------------------------------------------------------------
(Address of principal executive offices)               (Zip Code)   
                                                                       
Registrant's telephone number, including area code       (408) 321-8835
                                                       ------------------------

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

Indicate the number of shares of the issuer's class of common stock, as of 
the latest practical date:


            Class                          Outstanding as of August  4, 1997
---------------------------------          ---------------------------------
 Common Stock, $.001 par value                       20,613,412



<PAGE>

                            ULTRATECH STEPPER, INC.
                                       
                                     INDEX

                                                                       Page No.
                                                                       --------
PART 1.  FINANCIAL INFORMATION                                      

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                           
                                                                               
         Condensed Consolidated Balance Sheets as of June 30, 1997             
         and December 31, 1996................................................3
                                                                               
         Condensed Consolidated Statements of Income for the three months      
         ended June 30, 1997 and 1996 and six months ended June 30, 1997       
         and 1996.............................................................4

         Condensed Consolidated Statements of Cash Flows for the six months    
         ended June 30, 1997 and 1996.........................................5

         Notes to Condensed Consolidated Financial Statements.................6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF                               
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................8


PART 2.  OTHER INFORMATION                                                   

ITEM 1.  LEGAL PROCEEDINGS...................................................19

ITEM 2.  CHANGES IN SECURITIES...............................................19
                                                                               
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.....................................19
                                                                               
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................19
                                                                               
ITEM 5.  OTHER INFORMATION...................................................19
                                                                               
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K....................................19


SIGNATURES...................................................................20



                                      2

<PAGE>


PART 1.   FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements

                             ULTRATECH STEPPER, INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                       JUNE 30,       DEC. 31,
(In thousands)                                           1997          1996*
------------------------------------------------------------------------------
ASSETS                                               (Unaudited)
<S>                                                  <C>             <C>
Current assets:
   Cash, cash equivalents and
     short-term investments                            $170,132      $167,409
   Accounts receivable, net                              40,847        39,845
   Inventories                                           30,757        35,524
   Current portion of lease receivable, prepaid
     expenses and other current assets                    3,692           848
   Deferred income taxes                                  9,746         8,439
------------------------------------------------------------------------------
Total current assets                                    255,174       252,065

Equipment and leasehold
   improvements, net                                     18,582        19,242

Restricted investments                                    5,279         5,129

Lease receivable                                          7,568           425

Other assets                                              3,565         3,911
------------------------------------------------------------------------------

Total assets                                           $290,168      $280,772
------------------------------------------------------------------------------
------------------------------------------------------------------------------


------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                      $8,205        $9,400
   Other current liabilities                             29,337        29,981
------------------------------------------------------------------------------
Total current liabilities                                37,542        39,381

Other liabilities                                         1,119         1,444

Stockholders' equity                                    251,507       239,947
------------------------------------------------------------------------------

Total liabilities and stockholders' equity             $290,168      $280,772
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>

* The Balance Sheet as of December 31, 1996 has been derived from the audited
financial statements at that date.



    SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
                                       
                                       
                                       3

<PAGE>

                             ULTRATECH STEPPER, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                              Three Months Ended        Six Months Ended
                                             ---------------------    --------------------
                                              JUNE 30     June 30      JUNE 30     June 30
(In thousands, except per share amounts)       1997        1996         1997        1996
-------------------------------------------------------------------------------------------
<S>                                          <C>         <C>          <C>         <C>
Net sales                                    $38,054     $51,793      $76,787     $103,506
Cost of sales                                 18,075      23,691       35,775       47,750
-------------------------------------------------------------------------------------------
Gross profit                                  19,979      28,102       41,012       55,756

Operating expenses:
------------------
  Research, development, and
    engineering                                6,793       7,307       13,013       14,700
  Acquired in-process research      
    and development                                -           -        3,619            -
  Selling, general, and
    administrative                             6,643       8,264       12,921       16,998
-------------------------------------------------------------------------------------------
Operating income                               6,543      12,531       11,459       24,058

Interest expense                                 (43)        (67)         (85)        (131)

Other income, net                              1,799       1,590        3,495        3,220
-------------------------------------------------------------------------------------------
Income before income taxes                     8,299      14,054       14,869       27,147

Income taxes                                   2,572       4,778        4,609        9,230
-------------------------------------------------------------------------------------------
Net income                                    $5,727      $9,276      $10,260      $17,917
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net income per share                           $0.27       $0.44        $0.48        $0.84

Number of shares used in
  per share computations                      21,442      21,279       21,512       21,253
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>


     SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       
                                       4

<PAGE>

                             ULTRATECH STEPPER, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Six Months Ended
                                                 -----------------------------
(In thousands)                                   JUNE 30, 1997   June 30, 1996
------------------------------------------------------------------------------
<S>                                              <C>             <C>
Cash flows from operating activities:
-------------------------------------
Net income                                          $10,260         $17,917
Charges to income not affecting cash                  6,625           1,430
Net effect of changes in operating assets
  and liabilities                                    (8,191)        (21,723)
------------------------------------------------------------------------------
Net cash provided by (used in) operating 
  activities                                          8,694          (2,376)

Cash flows from investing activities:
-------------------------------------
Capital expenditures                                 (3,108)         (5,841)
Net investment in available-for-sale securities      (2,327)          5,832
Purchases of certain assets of Lepton Inc.           (3,101)              -
Segregation of restricted investments                  (151)            (75)
------------------------------------------------------------------------------
Net cash used in investing activities                (8,687)            (84)

Cash flows from financing activities:
-------------------------------------
Repayment of long-term debt                               -            (400)
Proceeds from issuance of short-term debt                99           7,500
Repayment of short-term debt                            (99)         (7,500)
Net proceeds from issuance of common stock              516             684
------------------------------------------------------------------------------
Net cash provided by financing activities               516             284

Net increase (decrease) in cash and cash
  equivalents                                           523          (2,176)
Cash and cash equivalents at beginning 
  of period                                          47,771          30,361
------------------------------------------------------------------------------

Cash and cash equivalents at end of period          $48,294         $28,185
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>

     SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       5
<PAGE>

                            ULTRATECH STEPPER, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                 JUNE 30, 1997

(1)  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have 
been prepared by the Company in accordance with generally accepted accounting 
principles for interim financial information and with the instructions to 
Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include 
all of the information and footnotes required by generally accepted 
accounting principles for complete financial statements.  In the opinion of 
management, all adjustments (consisting of normal recurring adjustments) 
considered necessary for fair presentation have been included.

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

The Company's second fiscal quarter in 1997 and 1996 ended on July 5, 1997 
and June 29, 1996, respectively.  For convenience of presentation, the 
Company's financial statements have been shown as ending on June 30, 1997 and 
June 30, 1996.

Operating results for the three month and six month periods ended June 30, 
1997 are not necessarily indicative of the results that may be expected for 
the year ending December 31, 1997, or any future period.

(2) INVENTORIES

Inventories consist of the following:

                                             June 30, 1997     Dec. 31, 1996
                                             -------------     -------------
(In thousands)                                (Unaudited)
Raw materials..............................       $16,811           $17,625
Work-in-process............................         7,755            11,971
Finished products..........................         6,191             5,928
                                             ------------      ------------
                                                  $30,757           $35,524
                                             ------------      ------------
                                             ------------      ------------

(3) OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:


                                             June 30, 1997     Dec. 31, 1996
                                             -------------     -------------
(In thousands)                                (Unaudited)
Salaries and benefits......................        $6,126            $7,132
Warranty reserves..........................         8,568             9,424
Advance billings...........................           671               646
Income taxes payable.......................         6,870             5,406
Other......................................         7,102             7,373
                                             ------------      ------------
                                                  $29,337           $29,981
                                             ------------      ------------
                                             ------------      ------------

(4) NET INCOME PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement 
No. 128, "Earnings per Share", which the Company will be required to adopt on 
December 31, 1997.  At that time, the Company will be required to change the 
method currently used to compute net income  per share and to restate all 
prior periods.  The new requirements will include a calculation of "basic" 
net income per share, which will exclude the 

                                      6
<PAGE>

dilutive effect of stock options.  The calculation of basic net income per 
share for the three months ended June 30, 1997 and 1996, results in basic net 
income per share of $0.28 and $0.46, respectively.  The calculation of basic 
net income per share for the six months ended June 30, 1997 and 1996, results 
in basic net income per share of $0.50 and $0.90, respectively.  A 
calculation of "diluted" net income per share will also be required. However, 
this calculation is not expected to differ materially from the actual net 
income per share amounts reported for the years presented.

(5) ACQUISITION OF LEPTON INC.

In February 1997, the Company completed the acquisition of the assets of 
Lepton Inc., a developer of electron beam lithography systems.  As a result 
of this acquisition, the Company recognized approximately $3.6 million, or 
$0.12 per share, net of related income tax benefits, of in-process research 
and development expense during the first quarter of 1997.

                                       7
<PAGE>

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


OVERVIEW
Ultratech develops, manufactures and markets photolithography equipment 
(steppers) designed to reduce the cost of manufacturing integrated circuits 
(ICs), thin film heads (TFHs) for disk drives and micromachined components. 
The Company supplies step-and-repeat systems based on one-to-one reflective 
and refractive optical technology to customers located throughout the United 
States, Europe, Asia/Pacific and Japan. These products range from low-cost 
systems for high-volume manufacturing to advanced systems for cost-effective 
production of leading-edge devices.

With the exception of historical facts, the statements contained in this 
discussion may include forward-looking statements within the meaning of 
Section 21E of the Securities Exchange Act of 1934, as amended, including, 
but not limited to, future sales, gross margins, the anticipated increase in 
inventories and operating expenses and the sufficiency of financial resources 
to support operations, and are subject to the Safe Harbor provisions created 
by that statute.  Such Statements are based on current expectations that 
involve risks and uncertainties, including those discussed below and under 
the heading "Additional Risk Factors", that could cause actual results to 
differ materially from those expressed.  Readers are cautioned not to place 
undue reliance on these forward-looking statements, which speak only as of 
the date hereof.  The Company undertakes no obligation to publicly release 
the results of any revisions to forward-looking statements which may be made 
to reflect events or circumstances after the date hereof or to reflect the 
occurrence of unanticipated events. This discussion should be read in 
conjunction with the unaudited Condensed Consolidated Financial Statements 
and Notes to the Condensed Consolidated Financial Statements presented on 
pages 3 to 7 of this Quarterly Report and the Company's 1996 Annual Report on 
Form 10-K, available upon request, for a complete understanding of the 
Company's financial position and results of operations.

RESULTS OF OPERATIONS
The Company's operating results have fluctuated significantly in the past and 
will continue to fluctuate significantly in the future depending upon a 
variety of factors, including cyclicality in the Company's target markets; 
the timing of significant orders; the mix of products sold; lengthy 
manufacturing cycles for the Company's products; the timing of new product 
announcements and releases by the Company or its competitors; market 
acceptance of new products and enhanced versions of the Company's products; 
manufacturing inefficiencies associated with the start up of new product 
introductions; lengthy sales cycles for the Company's systems; customer 
concentration; ability to volume produce systems and meet customer 
requirements; patterns of capital spending by customers; product discounts; 
changes in pricing by the Company, its competitors or suppliers; political 
and economic instability; natural disasters; regulatory changes; business 
interruptions related to the Company's occupation of its facilities; and 
various competitive factors including price-based competition and competition 
from vendors employing other technologies. The Company's gross profit as a 
percentage of sales has been and will continue to be significantly affected 
by a variety of factors, including the mix of products sold; the percentage 
of international sales, which typically have lower gross margins than 
domestic sales principally due to higher field service and support costs; 
increased competition in the Company's targeted markets; nonlinearity of 
shipments during the quarter; the introduction of new products, which 
typically have higher manufacturing costs until manufacturing efficiencies 
are realized and are discounted more than existing products until the 
products gain market acceptance; the rate of capacity utilization; and the 
implementation of subcontracting arrangements. As a result of its 
distribution agreement with Innotech Corporation, its Japanese distributor, 
gross profit as a percentage of total net sales may be adversely impacted in 
any particular period by significant system shipments to the Japanese market.

The Company derives a substantial portion of its total net sales from sales 
of a relatively small number of new systems, which typically range in price 
from $800,000 to $2.1 million. As a result, the timing of recognition of 
revenue from a single transaction has had and could continue to have a 
significant impact on the Company's 

                                       8

<PAGE>

net sales and operating results. The Company's backlog at the beginning of a 
period typically does not include all of the sales needed to achieve the 
Company's objectives for that period. In addition, orders in backlog are 
subject to cancellation, delay, deferral or rescheduling by a customer with 
limited or no penalties. Consequently, the Company's net sales and operating 
results for a period have been and continue to depend upon the Company 
obtaining orders for systems to be shipped in the same period in which the 
order is received. The Company's business and financial results for a 
particular period could be materially adversely affected if an anticipated 
order for even one system is not received in time to permit shipment during 
the particular period. Furthermore, a substantial portion of the Company's 
net sales has historically been realized near the end of each quarter. 
Accordingly, the failure to receive anticipated orders or delays in shipments 
near the end of a particular quarter, due, for example, to unanticipated 
shipment reschedulings, cancellations, delays or deferrals by customers or to 
unexpected manufacturing difficulties or delays in deliveries by suppliers 
due to their long production lead times or otherwise, may cause net sales in 
a particular period to fall significantly below the Company's expectations, 
which would materially adversely affect the Company's operating results for 
such period. In particular, the significantly long manufacturing cycles of 
the Company's linear motor-based steppers, which include the Model 2244i 
stepper, Model 4700 stepper, Model 6700 stepper, Titan Wafer Stepper-TM- and 
Saturn Wafer Stepper-TM-, and the long lead time for lenses and other 
materials, could cause shipments of such products to be delayed from one 
quarter to the next, which could materially adversely affect the Company's 
financial condition and results of operations for a particular quarter.

The impact of these and other factors on the Company's sales and operating 
results in any future period cannot be forecast with certainty. The Company's 
business has in prior years been subject to seasonality, although the Company 
believes such seasonality has been masked in recent years by cyclical trends 
within the semiconductor industry. In addition, the need for continued 
expenditures for research and development, capital equipment purchases and 
ongoing training and customer service and support worldwide, among other 
factors, will make it difficult for the Company to reduce its significant 
operating expenses in a particular period if the Company's net sales goals 
for the period are not met. Additionally, the Company has recently 
experienced manufacturing inefficiencies associated with shifts in product 
demand and underutilization of manufacturing capacity and the Company 
presently anticipates that these trends will continue for at least the next 
several quarters.

Due to these and additional factors, historical results and percentage 
relationships discussed below will not necessarily be indicative of the 
results of operations for any future period.

NET SALES
Net sales consist of revenue from system sales, spare parts sales, and 
service. Net sales for the quarter ended June 30, 1997 were $38.1 million, a 
decrease of  27% as compared with net sales of $51.8 million for the 
comparable period in 1996.  For the six months ended June 30, 1997, net sales 
were $76.8 million, a decrease of 26% as compared with net sales of $103.5 
million for the comparable period in 1996. Both the current quarter and 
year-to-date declines, relative to the comparable periods in 1996, were 
primarily attributed to significantly lower unit sales of the Company's Model 
1500 Series steppers, which address the markets for scanner replacement and 
high volume/low cost semiconductor fabrication and lower unit sales of the 
Company's Titan Wafer Stepper, which addresses the market for photosensitive 
polyimide applications as well as the markets for scanner replacement and 
high volume/low cost semiconductor fabrication. These factors were partially 
offset by higher unit sales of the Company's Model 1700 Series steppers with 
machine vision system, which address the market for back-end processing of 
thin film heads. Overall, the Company's system shipments for the quarter 
decreased 38%, relative to the comparable period in 1996, while the weighted 
average selling price of all systems sold was essentially unchanged. For the 
six months ended June 30, 1997, the Company's system shipments decreased 36%, 
relative to the comparable period in 1996, while the weighted average selling 
price of all systems sold was essentially unchanged. Net sales from spare 
parts and service in the second quarter of 1997 decreased 3% over the 
comparable period in 1996. For the six months ended June 30, 1997, net sales 
from spare parts and service decreased 4% over the comparable period in 1996.

The Company believes that its sales have been and continue to be adversely 
impacted by reduced capital capacity spending levels within the semiconductor 
industry. The Company continues to experience shipment 

                                       9

<PAGE>

delays and purchase order restructurings by several of its customers, and has 
also experienced purchase order cancellations. The Company presently 
anticipates that this trend will continue for some time. Accordingly, the 
Company can give no assurance that it will be able to achieve or maintain its 
current or prior level of sales. Based on current market conditions, the 
Company presently expects that future quarterly comparisons, through at least 
the third quarter of 1997, will indicate a period-over-comparable period 
decline in the Company's net sales. Additionally, the third quarter of 1997 
may result in a sequential decline in net sales from the levels achieved for 
the quarter ended June 30, 1997. The Company believes that the current 
strength of the U.S. dollar, particularly in relation to the Japanese yen, 
may place the Company at a competitive disadvantage.

International net sales for the quarter ended June 30, 1997 were $11.1 
million, as compared with $21.7 million for the comparable period in 1996. 
International net sales represented 29% of total net sales for the quarter 
ended June 30, 1997, as compared with 42% for the comparable period in 1996. 
This year-over-year decline, both in absolute dollars and as a percentage of 
total sales, was primarily attributed to decreased system sales to the 
European and Southeast Asia markets. For the six months ended June 30, 1997, 
international net sales were $27.8 million, as compared with $48.5 million 
for the comparable period in 1996. International net sales represented 36% of 
total net sales for the six month period ended June 30, 1997, as compared 
with 47% for the comparable period in 1996. This year-over-year decline, both 
in absolute dollars and as a percentage of total sales, was primarily 
attributed to decreased system sales to the European, Japanese and Korean 
markets, partially offset by increased system sales to the Southeast Asia 
market. The Company's operations in foreign countries are not currently 
subject to significant exchange rate fluctuations, principally because sales 
contracts for the Company's systems are generally denominated in U.S. 
dollars. However, international sales expose the Company to a number of 
additional risk factors, including fluctuations in the value of local 
currencies relative to the U.S. dollar, which, in turn, impact the relative 
cost of ownership of the Company's products.  See "Additional Risk Factors: 
International Sales; Japanese Market; Dependence on Local Distributor."

Because the Company's net sales are subject to a number of risks, including 
intense competition in the capital equipment industry and the timing and 
market acceptance of the Company's products, there can be no assurance that 
the Company will exceed or maintain its current level of net sales for any 
period in the future. Additionally, the Company believes that the market 
acceptance and volume production of the Titan Wafer Stepper and Saturn Wafer 
Stepper are of critical importance to the successful implementation of its 
mix-and-match strategy and its future financial results. To the extent that 
the Company's mix-and-match products do not achieve significant sales due to 
difficulties involving manufacturing or engineering, an inability to reduce 
the long manufacturing cycles, direct competition from mix-and-match systems 
manufactured by the Company's competitors, or any other reason, the Company's 
business, financial condition and results of operations would be materially 
adversely affected.

GROSS PROFIT
Gross margin for the quarter ended June 30, 1997 was 52.5%, as compared with 
54.3% for the comparable period in 1996. For the six months ended June 30, 
1997, gross margin was 53.4%, as compared with 53.9% for the comparable 
period in 1996. Both the current quarter and year-to-date declines in gross 
margin as a percentage of net sales, as compared with the comparable periods 
in 1996, can be primarily attributed to the shift away from the Company's 
more mature product lines toward the Company's more advanced systems; 
manufacturing inefficiencies caused by underutilization of manufacturing 
capacity, changes in the Company's shipment schedule and an unusually high 
degree of nonlinearity of shipments during the 1997 periods; partially offset 
by lower required inventory reserves due to lower inventory levels and 
improved inventory management, improved margins from spare parts and service, 
increased after-sales support efficiencies and fewer system shipments to the 
Japanese market. As a result of its distribution agreement with Innotech 
Corporation, the Company's Japanese distributor, gross profit as a percentage 
of total net sales may be negatively impacted in any particular period by 
significant system shipments to the Japanese market.

The Company believes that increased competition from Canon Inc. and Nikon 
Inc., among others, together with generally weak conditions in the markets 
the Company serves, will make it difficult for the Company to maintain recent 
gross margin percentages. Additionally, the Company may shortly commence 
production of several new products that are outside of the Company's core 
technologies (See "Additional Risk Factors: 


                                       10

<PAGE>

Development of New Product Lines; Management of Growth"). Commencement of 
production of these new products may result in the purchase of significant 
levels of inventory to support manufacturing requirements, hiring of 
additional production and manufacturing support personnel, purchase of 
significant levels of plant and equipment and the incurrence of other related 
manufacturing overhead costs. The purchase of additional inventories would 
result in a significantly higher risk of obsolescence, which would require 
additional inventory reserves. Additionally, new products generally have 
lower gross margins until production and after-sales efficiencies can be 
achieved. Should these new products fail to develop or generate significant 
market demand, the Company's business, financial condition and results of 
operations would be materially adversely affected.

RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company's research, development, and engineering expenses, net of third 
party funding, were $6.8 million for the quarter ended June 30, 1997, a 
decrease of  7% as compared with $7.3  million for the comparable period in 
1996. For the six months ended June 30, 1997, research, development, and 
engineering expenses, net of third party funding, were $13.0  million, a 
decrease of 11% as compared with $14.7 million for the comparable period in 
1996. Both the current quarter and year to date decreases, as compared to the 
comparable period in 1996, were primarily attributed to decreased spending 
for the development, enhancement, manufacturing support and sales 
demonstration support of the Company's Model 2244i stepper, Model 4700 
stepper, Titan Wafer Stepper and Saturn Wafer Stepper; partially offset by 
increased spending for the Company's development of its electron beam 
lithography and its gas immersion laser doping technologies and systems. The 
Company intends to continue to invest significant resources in the 
development of new products and enhancements of existing semiconductor and 
thin film head lithography systems. Due to these and other factors, the 
Company expects the absolute dollar amount of research, development and 
engineering expenses for the remaining quarters of 1997 to increase 
substantially, relative to the current quarter.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
During the first quarter of 1997, the Company completed the acquisition of 
the assets of Lepton Inc., a developer of electron beam lithography systems. 
As a result of this acquisition, the Company recognized a one-time pre-tax 
charge in the quarter ended March 31, 1997 for acquired in-process research 
and development expense of  $3.6 million, or $0.12 per share net of related 
income tax benefits.

SELLING, GENERAL, AND ADMINISTRATIVE
The Company's selling, general, and administrative expenses were $6.6 million 
for the quarter ended June 30, 1997, a decrease of  20% as compared with $8.3 
million for the comparable period in 1996. As a percentage of net sales, 
selling, general, and administrative expenses increased to 17.5% for the 
quarter ended June 30, 1997, as compared with 16.0% for the comparable period 
in 1996. For the six months ended June 30, 1997, selling, general, and 
administrative expenses were $12.9 million, a decrease of 24% as compared 
with $17.0 million for the comparable period in 1996. As a percentage of net 
sales, selling, general, and administrative expenses increased to 16.8% for 
the six months ended June 30, 1997, as compared with 16.4% for the comparable 
period in 1996. The significant dollar decrease in both the current quarter 
and year-to-date periods, relative to the comparable periods in 1996, 
reflects in large part the Company's decrease in sales, service and support 
expenses typically associated with a decrease in sales; cost containment 
measures implemented during 1996; lower required provisions for the Company's 
profit sharing and executive incentive plans and lower commission expense 
resulting from higher direct sales relative to total net sales for the 
period. The Company expects the absolute dollar amount of selling, general, 
and administrative expenses for the remainder of 1997 to increase relative to 
the current quarter. This increase is anticipated, in part, to sales, service 
and support expenses associated with the anticipated future introduction of 
the Company's electron beam lithography and gas immersion laser doping 
systems.

OTHER INCOME, NET
Other income, net, which consists primarily of interest income, was $1.8 
million for the quarter ended June 30, 1997, as compared with $1.6 million 
for the comparable period in 1996. For the six months ended June 30, 1997, 
other income, net, was $3.5 million, as compared with $3.2 million for the 
comparable period in 1996. The improvement in the current quarter and 
year-to-date periods, relative to the comparable periods in 1996, 

                                       11

<PAGE>

was primarily attributed to income generated from increased investments in 
cash equivalents and short-term investments.

INCOME TAXES
Income taxes represented 31% of income before income taxes for both the 
quarter and year-to-date periods ended June 30, 1997, as compared with 34% 
for the comparable periods in 1996. This decrease in the tax rate for 1997, 
relative to 1996, is primarily a result of anticipated tax benefits 
associated with the Company's research and development efforts together with 
higher tax exempt income, relative to total income before income taxes. 
However, this rate may be impacted further by tax legislation and other 
factors. The Company's effective tax rate differs from the U.S. statutory 
rate as a result of state income taxes and benefits associated with the 
Company's foreign sales corporation, tax-exempt income and credits for 
research and development, net of other individually immaterial benefits.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities were $8.7 million for the six 
month period ended June 30, 1997, as compared with $2.4 million used in 
operating activities during the comparable period in 1996. Positive cash 
flows from operating activities during the first six months of 1997 were 
attributed to net income of $10.3 million and non-cash charges to income of 
$6.6 million, which include a $3.6 million pre-tax charge for the write-off 
of in-process research and development associated with the Company's purchase 
of the assets of Lepton Inc., partially offset by changes in operating assets 
and liabilities of $8.2 million. The negative net effect from changes in 
operating assets and liabilities was primarily due to an increase in the 
current and long-term portions of lease receivable and a decrease in accounts 
payable and other current liabilities, partially offset by a $4.8 million 
decrease  in  inventory. The Company anticipates that the current trend of 
nonlinearity of shipments and extended customer payment cycles will continue 
to keep accounts receivable levels at unusually high levels for at least the 
next several quarters. Such trends, should they continue, would expose the 
Company to numerous risks, which could materially adversely affect the 
Company's business, financial condition and results of operations.

The Company believes that because of the relatively long manufacturing cycle 
of certain of its systems, particularly newer products, and its plan to 
increase demonstration units, the Company's investment in inventories will 
continue to represent a significant portion of working capital. Additionally, 
the Company may incur significant additional levels of inventory as a result 
of the anticipated introduction of its electron beam lithography and gas 
immersion laser doping systems. As a result of such investment in 
inventories, the Company may be subject to an increased risk of inventory 
obsolescence and other factors, which could materially adversely affect the 
Company's operating results.

At June 30, 1997, the Company had working capital of $217.6 million. The 
Company's principal sources of liquidity at June 30, 1997 consisted of $170.1 
million in cash, cash equivalents and short-term investments and $29 million 
in various unsecured lines of credit. As of June 30, 1997, there were no 
outstanding amounts under these facilities.

For the six month period ended June 30, 1997, cash provided by financing 
activities was $0.5 million, principally as a result of the issuance of 
common stock pursuant to the exercise of employee stock options.

During the quarter, the Company used $8.7 million of cash in its investing 
activities, including $2.3 million for the net investment of cash in 
short-term investments, $3.1 million for the purchase of  the assets of 
Lepton Inc. and $3.1 million for capital expenditures. The Company intends to 
continue to make significant capital expenditures throughout the remainder of 
1997 related to the expansion of its manufacturing facilities, the 
manufacture of its steppers for sales demonstration and engineering 
development purposes and additional capital expenditures related to research, 
development and engineering, sales and service and management information 
systems. As a result of these capital expenditures, the Company's 
depreciation and amortization

                                       12

<PAGE>

costs are anticipated to increase significantly and may negatively impact the 
Company's results of operations in the event of a further downturn in the 
Company's business cycles.

The development and manufacture of new lithography systems and enhancements 
are highly capital intensive.  In order to remain competitive, the Company 
must continue to make significant expenditures for capital equipment, sales, 
service, training and support capabilities, investments in systems, 
procedures and controls, expansion of operations and research and 
development, among many items.  The Company expects that cash flow from 
operations, its cash, cash equivalents and short-term investments and funds 
available under its lines of credit will be sufficient to meet the Company's 
cash requirements for the next twelve months. Beyond the next twelve months, 
the Company may require additional equity or debt financing to address its 
working capital or capital equipment needs. Additionally, the Company may in 
the future pursue acquisitions of complementary product lines, technologies, 
or businesses such as the acquisition of the assets of Lepton. Future 
acquisitions by the Company may result in potentially dilutive issuances of 
equity securities, the incurrence of debt and contingent liabilities and 
amortization expenses related to goodwill and other intangible assets, which 
could materially adversely affect any Company profitability. In addition, 
acquisitions involve numerous risks, including difficulties in the 
assimilation of the operations, technologies and products of the acquired 
companies; the diversion of management's attention from other business 
concerns; risks of entering markets in which the Company has no or limited 
direct prior experience; and the potential loss of key employees of the 
acquired company. In the event that such an acquisition does occur, there can 
be no assurance as to the effect thereof on the Company's business or 
operating results. Additionally, the Company is experiencing increased 
interest in its equipment leasing program. Continued success of this strategy 
may result in the further formation of significant long-term receivables and 
would require the use of substantial amounts of working capital. To the 
extent that the Company's financial resources are insufficient to fund the 
Company's activities, additional funds will be required. There can be no 
assurance that additional financing will be available on reasonable terms or 
at all.

ADDITIONAL RISK FACTORS

CYCLICALITY OF SEMICONDUCTOR AND MAGNETIC RECORDING HEAD INDUSTRIES     The 
Company's business depends in significant part upon capital expenditures by 
manufacturers of semiconductors and thin film head magnetic recording 
devices, which in turn depend upon the current and anticipated market demand 
for such devices and products utilizing such devices. The semiconductor 
industry is highly cyclical and historically has experienced recurring 
periods of oversupply, as evidenced by the current downturn in the 
semiconductor capital equipment industry. This has, from time to time, 
resulted in significantly reduced demand for capital equipment including the 
systems manufactured and marketed by the Company. The Company believes that 
markets for new generations of semiconductors will also be subject to similar 
fluctuations. In recent years, the semiconductor industry has experienced 
significant growth which, in turn, has caused significant growth in the 
capital equipment industry. However, the semiconductor industry has more 
recently experienced a cyclical downturn, and this has resulted in a 
significant reduction in capital spending. The Company has recently 
experienced cancellation of purchase orders, shipment delays and purchase 
order restructurings by several of its semiconductor customers and 
anticipates that this trend will continue for some time. Accordingly, the 
Company can give no assurance that it will be able to achieve or maintain its 
current level of sales. Based on present market conditions, the Company 
presently expects that future quarterly comparisons, through at least the 
third quarter of 1997, will indicate a period-over-comparable period decline 
in the Company's net sales. Additionally, the third quarter of 1997 may 
result in a sequential decline in net sales from the levels achieved for the 
quarter ended June 30, 1997.

During 1996 and 1995, approximately 35% and 30%, respectively, of the 
Company's net sales were derived from sales to thin film head manufacturers 
and micromachining customers. During the six month period ended June 30, 
1997, sales to thin film head manufacturers and micromachining customers 
represented approximately 65% of the Company's net sales, as compared with 
35% during the comparable period a year ago. Although the thin film head 
segment of the magnetic recording head industry has recently experienced 
significant growth, the Company expects that the thin film head market 
segment may not sustain such a growth rate in the future. Accordingly, sales 
of its steppers to thin film head manufacturers may decrease in the future. 
Additionally, the Company is experiencing increased competition in this 
market from Canon and Nikon. The 

                                       13

<PAGE>

Company's business and operating results would be materially adversely 
affected by downturns or slowdowns in the thin film head market or by loss of 
market share.

The Company attempts to mitigate the risk of cyclicality by participating in 
both the semiconductor and magnetic recording head markets, as well as 
diversifying into new markets such as photolithography for micromachining. 
Nevertheless, there can be no assurance that the Company's net sales and 
operating results will not be materially adversely affected if downturns or 
slowdowns in either market occur in the future; such effects are likely to be 
particularly severe if both markets experience a downturn or slowdown at the 
same time.

LENGTHY SALES CYCLE    Sales of the Company's systems depend, in significant 
part, upon the decision of a prospective customer to increase manufacturing 
capacity or to restructure current manufacturing facilities, either of which 
typically involve a significant commitment of capital. In view of the 
significant investment involved in a system purchase, the Company has 
experienced and may continue to experience delays following initial 
qualification of the Company's systems as a result of delays in a customer's 
approval process. For this and other reasons, the Company's systems typically 
have a lengthy sales cycle during which the Company may expend substantial 
funds and management effort in securing a sale. Lengthy sales cycles subject 
the Company to a number of significant risks, including inventory 
obsolescence and fluctuations in operating results, over which the Company 
has little or no control.

HIGHLY COMPETITIVE INDUSTRY   The capital equipment industry in which the 
Company competes is intensely competitive. A substantial investment is 
required to install and integrate capital equipment into a semiconductor or 
thin film head production line. The Company believes that once a device 
manufacturer has selected a particular vendor's capital equipment, the 
manufacturer generally relies upon that equipment for the specific production 
line application and, to the extent possible, subsequent generations of 
similar products. Accordingly, it is difficult to achieve significant sales 
to a particular customer once another vendor's capital equipment has been 
selected. The Company experiences intense competition worldwide from a number 
of leading foreign and domestic manufacturers, such as Nikon, Canon, ASM 
Lithography, Ltd. and Silicon Valley Group, Inc., all of which have 
substantially greater financial, marketing, technical and other resources 
than the Company. Nikon supplies a 1X stepper for use in the manufacture of 
liquid crystal displays and both Canon and Nikon offer reduction steppers for 
thin film head fabrication. In addition, Nikon and Canon  are shipping their 
own widefield mix-and-match lithography systems (See: "Importance of 
Mix-and-Match Strategy"). The Company believes that the high cost of 
developing new lithography tools has caused its competitors to collaborate 
with customers and other parties in various areas such as research and 
development, manufacturing and marketing. Ultratech expects its competitors 
to continue to improve the performance of their current products. In 
addition, these competitors have stated that they will introduce new products 
with improved price and performance characteristics that will compete 
directly with the Company's products. This could cause a decline in sales or 
loss of market acceptance of the Company's steppers, and thereby materially 
adversely affect the Company's business, financial condition and results of 
operations. There can be no assurance that enhancements to, or future 
generations of, competitive products will not be developed that offer 
superior cost of ownership and technical performance features. The Company 
believes that to be competitive, it will require significant financial 
resources in order to continue to invest in new product development, features 
and enhancements, to introduce next generation stepper systems on a timely 
basis, and to maintain customer service and support centers worldwide. In 
marketing its products, the Company will also face competition from vendors 
employing other technologies, such as excimer lasers and phase-shift mask 
technology, which may extend the capabilities of competitive products beyond 
their current limits or increase their productivity. In addition, increased 
competitive pressure could lead to intensified price-based competition, 
resulting in lower prices and margins, which would materially adversely 
affect the Company's business, financial condition and operating results. 
There can be no assurance that the Company will be able to compete 
successfully in the future.

Japanese IC manufacturers have a dominant share of the worldwide market for 
certain types of integrated circuits for which the Company's systems are 
used. In addition, the Japanese stepper manufacturers are well-established in 
the Japanese stepper market, and it is extremely difficult for non-Japanese 
lithography equipment companies to penetrate the Japanese stepper market. To 
date, the Company has not established itself as a major competitor in the 
Japanese IC equipment market and there can be no assurance that the

                                       14

<PAGE>

Company will be able to achieve significant sales to Japanese IC 
manufacturers in the future. See "International sales; Japanese market; 
Dependence on Local Distributor."

IMPORTANCE OF MIX-AND-MATCH STRATEGY     A principal element of the Company's 
strategy is to sell its systems to advanced semiconductor fabrication 
facilities for mix-and-match applications.  This strategy depends, in 
significant part, upon the recognition by semiconductor manufacturers that 
costs can be reduced by using the Company's systems to perform exposure on 
semiconductor process layers requiring feature sizes of 0.65 microns or 
greater and the willingness of such manufacturers to implement processes to 
lower manufacturing costs. Many semiconductor fabrication facilities have 
limited or no experience with integrating lithography tools in the manner 
necessary for full implementation and acceptance of a mix-and-match 
manufacturing strategy, and there can be no assurance that semiconductor 
manufacturers will adopt such a strategy. The Company has designed certain of 
its systems to operate in a compatible manner with its competitors' reduction 
steppers, which are used to process layers with feature sizes below 0.65 
microns. The successful implementation of the Company's strategy, however, 
will result in a loss of sales by manufacturers of reduction steppers and 
will cause these competitors to respond with lower prices, productivity 
improvements or new technical designs for their systems that eliminate the 
need for the Company's steppers or make it difficult for Ultratech's systems 
to attain compatibility with such systems. Also, certain of the Company's 
competitors which also manufacture widefield systems, including Nikon and 
Canon, are shipping their own widefield mix-and-match lithography systems. 
The introduction, development and sales of such competitive systems could 
materially adversely affect the Company's business, financial condition and 
results of operations.

To facilitate its mix-and-match strategy, the Company has developed and is 
continuing to develop a family of products. The Company shipped its first 
Model 2244i stepper during 1993, and commenced volume production in 1994. In 
1995, the Company commenced shipment and volume production of the Titan Wafer 
Stepper and commenced shipment of the Saturn Wafer Stepper. As is typical 
with newly introduced systems in the capital equipment industry, the Company 
has experienced and may continue to experience technical or other 
difficulties with its mix-and-match family of products. The Company believes 
that the market acceptance and process verification combined with volume 
production of the mix-and-match family of products is of critical importance 
to the successful implementation of its mix-and-match strategy and its future 
financial results. Recently, this market segment of the Company's business 
has experienced a pronounced downturn due, in part, to the recent cyclical 
downturn in the semiconductor industry. To the extent that the mix-and-match 
family of products does not achieve or maintain significant sales due to a 
cyclical downturn in the semiconductor industry; technical, manufacturing or 
other difficulties associated with these products; lack of customer 
acceptance; an inability to reduce the significantly long manufacturing cycle 
of these products; an inability to increase capacity for the production of 
the mix-and-match family of products; direct competition from other widefield 
mix-and-match systems from Nikon and Canon, among others; or any other 
reason, the Company's business, financial condition and results of operations 
would be materially adversely affected. In addition, the increase in 
mix-and-match stepper production has resulted and will continue to result in 
higher inventory levels and operating expenses. Failure to achieve or 
maintain significant sales of these steppers could lead, among other things, 
to an increase in inventory obsolescence and an increase in expenses without 
corresponding sales, either of which could materially adversely affect the 
Company's business, financial condition and results of operations.

INTERNATIONAL SALES; JAPANESE MARKET; DEPENDENCE ON LOCAL DISTRIBUTOR     
International sales accounted for approximately 53% and 55% of total net 
sales in 1996 and 1995, respectively. For the first six months of 1997, 
international sales accounted for 36% of total net sales, as compared with 
47% during the comparable period a year ago. The Company anticipates that 
international sales, which typically have lower gross margins than domestic 
sales, principally due to higher field service and support costs, will 
continue to account for a majority of total net sales on an annual basis.  As 
a result, a significant portion of the Company's sales will be subject to 
certain risks, including unexpected changes in regulatory requirements, 
difficulty in satisfying existing regulatory requirements, exchange rates, 
tariffs and other barriers, political and economic instability, difficulties 
in accounts receivable collections, natural disasters, difficulties in 
staffing and managing foreign subsidiary and branch operations and 
potentially adverse tax consequences.  The Company is also subject to the 
risks associated with the imposition of legislation and regulations relating 
to the import or export of 

                                       15

<PAGE>

semiconductors and magnetic recording head products.  The Company cannot 
predict whether quotas, duties, taxes or other charges or restrictions will 
be implemented by the United States, Japan or any other country upon the 
importation or exportation of the Company's products in the future.  There 
can be no assurance that any of these factors or the adoption of restrictive 
policies will not have a material adverse effect on the Company's business, 
financial condition and results of operations.

Although the Company has sold a number of its systems to Japanese thin film 
head manufacturers, to date, the Company has made limited sales of its 
systems to Japanese semiconductor manufacturers.  The Japanese semiconductor 
market segment is large, represents a substantial percentage of the worldwide 
semiconductor manufacturing capacity, and is difficult for foreign companies 
to penetrate. The Company is at a competitive disadvantage with respect to 
Japanese semiconductor capital equipment suppliers that have been engaged for 
some time in collaborative efforts with Japanese semiconductor manufacturers. 
The Company believes that the Japanese companies with which it competes have 
a competitive advantage because of their dominance of the Japanese market 
segment. The Company believes that increased penetration of the Japanese 
market is critical to its financial results and intends to continue to invest 
significant resources in Japan in order to meet this objective.  As part of 
its strategy to penetrate the Japanese market, in 1993, the Company entered 
into a distribution agreement with Innotech Corporation, a local distributor 
of products. Such agreement can be terminated upon notice of termination by 
either party. Accordingly, there can be no assurance that this agreement will 
continue on present terms, or at all. If Innotech is not successful in 
selling such systems or such agreement is terminated, the Company's strategy 
to increase product sales into the Japanese market may be adversely affected 
in the near term. The Company is presently reviewing its relationship with 
Innotech and evaluating marketing and sales alternatives. In addition, 
recently, Japanese semiconductor manufacturers substantially reduced their 
levels of capital spending on new fabrication facilities and equipment, 
thereby increasing competitive pressures in the Japanese market segment.  
There can be no assurance, however, that the Company will be able to achieve 
significant sales to, or will be able to compete successfully in, the 
Japanese semiconductor market segment.

RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION      
The semiconductor and magnetic recording head manufacturing industries are 
subject to rapid technological change and new product introductions and 
enhancements. The Company's ability to be competitive in these and other 
markets will depend in part upon its ability to develop new and enhanced 
systems and related software tools and to introduce these systems and related 
software tools at competitive prices and on a timely and cost-effective basis 
to enable customers to integrate them into their operations either prior to 
or as they begin volume product manufacturing. The Company will also be 
required to enhance the performance of its existing systems and related 
software tools. Any success of the Company in developing new and enhanced 
systems and related software tools depends upon a variety of factors, 
including product selection, timely and efficient completion of product 
design, timely and efficient implementation of manufacturing and assembly 
processes, product performance in the field and effective sales and 
marketing. In particular, the Company has not yet fully defined the markets 
and applications for the Titan Wafer Stepper and the Saturn Wafer Stepper. 
Because new product development commitments must be made well in advance of 
sales, new product decisions must anticipate both future demand and the 
technology that will be available to supply that demand. There can be no 
assurance that the Company will be successful in selecting, developing, 
manufacturing and marketing new products and related software tools or 
enhancing its existing products and related software tools. Any such failure 
would materially adversely affect the Company's business, financial condition 
and results of operations.

Because of the large number of components in the Company's systems, 
significant delays can occur between a system's introduction and the 
commencement by the Company of volume production of such systems. Ultratech 
has experienced delays from time to time in the introduction of, and 
technical and manufacturing difficulties with, certain of its systems and 
enhancements and related software tools and may experience delays and 
technical and manufacturing difficulties in future introductions or volume 
production of new systems or enhancements and related software tools. There 
can be no assurance that the Company will not encounter technical, 
manufacturing or other difficulties that could delay future introductions or 
volume production of systems or enhancements. The Company's inability to 
complete the development or meet the technical specifications of any of its 
systems or enhancements and related software tools or to manufacture and ship 

                                       16

<PAGE>

these systems or enhancements and related software tools, such as the Model 
4700 stepper, the Model 6700 stepper, the Titan Wafer Stepper and the Saturn 
Wafer Stepper, in volume and in time to meet the requirements for 
manufacturing the future generation of semiconductor or thin film head 
devices would materially adversely affect the Company's business, financial 
condition and results of operations. In addition, the Company may incur 
substantial unanticipated costs to ensure the functionality and reliability 
of its steppers early in the products' life cycles. If new products have 
reliability or quality problems, reduced orders or higher manufacturing 
costs, delays in collecting accounts receivable and additional service and 
warranty expenses may result. Any of such events may materially adversely 
affect the Company's business, financial condition and results of operations.

DEVELOPMENT OF NEW PRODUCT LINES; MANAGEMENT OF GROWTH   Currently, the 
Company is devoting significant resources to the development of new products 
and technologies that are outside of the Company's core businesses (see 
"Research, Development and Engineering"). The Company anticipates that its 
expenditures for research, development and engineering will increase 
significantly during the remainder of 1997, relative to the first half of 
1997, principally as a result of the continued development of these new 
product lines. During 1997, the Company will conduct evaluations of these 
products and may decide to invest significant additional resources in plant 
and equipment, inventory, personnel and other costs, to begin production of 
these products and to provide the marketing, administration and after-sales 
support required to support these new products. Accordingly, there can be no 
assurance that gross profit margins and inventory levels will not be 
adversely impacted in the future by start-up costs associated with the 
initial production of these new product lines. These start-up costs include, 
but are not limited to, additional manufacturing overhead, additional 
inventory reserve requirements and the creation of after-sales support 
organizations. Additionally, there can be no assurance that operating 
expenses will not increase, relative to sales, as a result of adding 
additional marketing and administrative personnel, among other costs, to 
support the Company's additional products. If the Company is unable to 
achieve significantly increased net sales or its sales fall below 
expectations, the Company's operating results will be materially adversely 
affected until, among other factors, inventory levels and expenses can be 
reduced.

CUSTOMER CONCENTRATION   Historically, Ultratech has sold a substantial 
number of its systems to a limited number of customers. In 1996, sales to two 
customers accounted for 17%, and 12% of the Company's net sales. In 1995, 
sales to one customer accounted for approximately 12% of the Company's net 
sales. The Company expects that sales to relatively few customers will 
continue to account for a high percentage of its net sales in the foreseeable 
future and believes that the Company's financial results depend in 
significant part upon the success of these major customers and the Company's 
ability to meet their future capital equipment needs. Although the 
composition of the group comprising the Company's largest customers may vary 
from period to period, the loss of a significant customer or any reduction in 
orders by any significant customer, including reductions due to market, 
economic or competitive conditions in the semiconductor or magnetic recording 
head industries or in the industries that manufacture products utilizing 
integrated circuits or thin film heads, may have a material adverse effect on 
the Company's business, financial condition and results of operations. The 
Company's ability to maintain or increase its sales in the future will depend 
in part upon its ability to obtain orders from new customers as well as the 
financial condition and success of its customers and the general economy, of 
which there can be no assurance.

DEPENDENCE ON KEY PERSONNEL     The Company's future operating results depend 
in significant part upon the continued contributions of its Chairman and 
Chief Executive Officer, Arthur W. Zafiropoulo, as well as other  officers 
and other key personnel, many of whom would be difficult to replace. None of 
such persons has an employment or noncompetition agreement with the Company. 
The Company does not maintain any life insurance on any of its key persons. 
The loss of Mr. Zafiropoulo or other key personnel would have a material 
adverse effect on the business, financial condition and results of operations 
of the Company.  In addition, the Company's future operating results depend 
in significant part upon its ability to attract and retain other qualified 
management, manufacturing, technical, sales and support personnel for its 
operations. There may be only a limited number of persons with the requisite 
skills to serve in these positions and it may become increasingly difficult 
for the Company to hire such personnel over time. Competition for such 
personnel is intense, and there can be no assurance that the Company will be 
successful in attracting or retaining such 


                                       17

<PAGE>

personnel. The failure to attract or retain such persons would materially 
adversely affect the Company's business, financial condition and results of 
operations.

Recently, the Company has experienced an increased level of employee 
turnover. The Company believes that this increase is due to several factors, 
including: the recent semiconductor industry slowdown, which resulted in a 
planned reduction in the Company's workforce during the fourth fiscal quarter 
of 1996, and which has further resulted in an increased level of uncertainty 
within the workforce; an expanding economy within the geographic area that 
the Company maintains its principal business offices, making it more 
difficult for the Company to retain its employees; and the declining value of 
stock options granted to employees, relative to their total compensation, as 
a result of the full vesting of options granted prior to the Company's 
initial public offering and significant numbers of options granted at prices 
well in excess of the current market value of the Company's stock. Due to 
these and other factors, the Company may continue to experience high levels 
of employee turnover, which could adversely impact the Company's business, 
financial condition and results of operations.

EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS   Certain provisions of the 
Company's Certificate of Incorporation, equity incentive plans, Shareholder 
Rights Plan, Bylaws and Delaware law may discourage certain transactions 
involving a change in control of the Company.  In addition to the foregoing, 
the Company's classified board of directors, the shareholdings of the 
Company's officers, directors and persons or entities that may be deemed 
affiliates and the ability of the Board of Directors to issue "blank check" 
preferred stock without further stockholder approval could have the effect of 
delaying, deferring or preventing a change in control of the Company and may 
adversely affect the voting and other rights of holders of Common Stock.

VOLATILITY OF  STOCK PRICE      The Company believes that factors such as 
announcements of developments related to the Company's business, fluctuations 
in the Company's operating results, sales of  securities of the Company into 
the marketplace, general conditions in the semiconductor and magnetic 
recording head industries or the worldwide economy, an outbreak of 
hostilities, a shortfall in revenue or earnings from or changes in analysts' 
expectations, announcements of technological innovations or new products or 
enhancements by the Company or its competitors, developments in patents or 
other intellectual property rights and developments in the Company's 
relationships with its customers and suppliers could cause the price of the 
Company's Common Stock to fluctuate, perhaps substantially. In addition, in 
recent years the stock market in general, and the market for shares of small 
capitalization stocks in particular, including the Company's, have 
experienced extreme price fluctuations, which have often been unrelated to 
the operating performance of affected companies.  There can be no assurance 
that the market price of the Company's Common Stock will not continue to 
experience significant fluctuations in the future, including fluctuations 
that are unrelated to the Company's performance.

                                       18
<PAGE>

PART 2: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.                                   None.

ITEM 2. CHANGES IN SECURITIES.                               None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.                     None.

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

  The following proposals were voted upon by the Company's stockholders at 
  the Annual Stockholders' Meeting held on May 15, 1997.

  1. The following persons were elected as directors of the Company to serve
     for a term ending upon the Annual Stockholders' Meeting indicated beside 
     their respective names and until their successors are elected and 
     qualified:

                    Term Ending Upon the Annual 
                       Stockholders' Meeting      Votes for     Votes Withheld
                  ------------------------------------------------------------
 Gregory Harrison            1999                 15,159,362       3,390,586
 Kenneth Levy                1999                 15,159,462       3,390,486

  2. A proposal for a series of amendments to the Company's 1993 Stock 
     Option/Stock Issuance Plan was approved by the vote of  12,126,112 
     shares for, 6,349,590 shares withheld or voted against the proposal and  
     74,246 shares abstained.

  3. A proposal to amend to the Company's Employee Stock Purchase Plan to 
     increase the number of shares of Common Stock available for issuance 
     thereunder by an additional 250,000 shares was approved by the vote of 
     17,800,371 shares for, 697,160 shares withheld or voted against the 
     proposal and  52,417 shares abstained.

  4. A proposal to ratify the appointment of Ernst & Young LLP as the 
     Company's independent auditors for the fiscal year ending December 31, 
     1997 was approved by the vote of 18,485,448 shares for, 38,983 
     shares withheld or voted against the proposal and 25,517 shares 
     abstained.


ITEM 5. OTHER INFORMATION.                                   None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) EXHIBITS

        Exhibit 11.1    Statement of Computation of Net Income Per Share.

        Exhibit 27      Financial Data Schedule

        Exhibit 21.1    Subsidiaries of Registrant

        (b) REPORTS ON FORM 8-K

        The Company did not file any reports on Form 8-K during the three
        months ended June 30, 1997.


                                      19
<PAGE>
                                       
                                  SIGNATURES



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.


                             ULTRATECH STEPPER, INC.
----------------------------------------------------------------------------
                                 (Registrant)
                                       


Date:    August 7, 1997                By:  /s/William G. Leunis, III
      ----------------------               ---------------------------------
                                            William G. Leunis, III
                                            Senior Vice President Finance and 
                                            Chief Financial Officer (Duly 
                                            Authorized Officer and Principal
                                            Financial and Accounting Officer)



                                  20