##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.
20549







FORM 20-F







| ̈ | Registration Statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934.
|- | -----------------------------------------------------------------------------------------------



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



For the fiscal year ended December 31, 2007



| ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
|- | -----------------------------------------------------------------------------------------



| ̈ | Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
|- | --------------------------------------------------------------------------------------------



Date of event requiring this shell company report



For the transition period fromto



Commission File Number: 0-13355







ASM INTERNATIONAL N.V.

(Exact name of Registrant as specified in its charter)







The Netherlands

(jurisdiction of incorporation or organization)



Jan van Eycklaan 10, 3723 BC Bilthoven, the Netherlands

(Address of principal executive offices)



Securities registered or to be registered pursuant to

Section 12(b) of the Act: Common Shares, par value 
0.04



Securities registered or to be registered pursuant to

Section 12(g) of the Act: None



Securities for which there is a reporting obligation pursuant to

Section 15(d) of the Act: None







Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual
report: 54,005,214 common shares; no preferred shares.



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



If this annual report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes   ̈    No  x



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one):



Large accelerated filer  x                    Accelerated
filer   ̈                    Non-accelerated filer   ̈



Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:



U.S. GAAP  x    International Financial Reporting Standards as issued by the International

Accounting
Standards Board   ̈    Other   ̈



Indicate by
check mark which financial statement item the registrant has elected to follow:

Item 17   ̈    Item 18  x



If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes   ̈    No  x









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TABLE OF CONTENTS



|                                           |  |                                                                             |  |    
|------------------------------------------ |  | --------------------------------------------------------------------------- |  | ---
|PART I.                                    |  |                                                                             |  |    
|                                           |  |                                                                            
|Item 1.                                    |  | Identity of Directors, Senior Management and Advisors                       |  | 3  
|                                           |  |                                                                            
|Item 2.                                    |  | Offer Statistics and Expected Timetable                                     |  | 3  
|                                           |  |                                                                            
|Item 3.                                    |  | Key Information                                                             |  | 3  
|                                           |  |                                                                            
|Item 4.                                    |  | Information on the Company                                                  |  | 16 
|                                           |  |                                                                            
|Item 4a.                                   |  | Unresolved Staff Comments                                                   |  | 35 
|                                           |  |                                                                            
|Item 5.                                    |  | Operating and Financial Review and Prospects                                |  | 35 
|                                           |  |                                                                            
|Item 6.                                    |  | Directors, Senior Management and Employees                                  |  | 46 
|                                           |  |                                                                            
|Item 7.                                    |  | Major Shareholders and Related Party Transactions                           |  | 50 
|                                           |  |                                                                            
|Item 8.                                    |  | Financial Information                                                       |  | 51 
|                                           |  |                                                                            
|Item 9.                                    |  | The Offer and Listing                                                       |  | 52 
|                                           |  |                                                                            
|Item 10.                                   |  | Additional Information                                                      |  | 53 
|                                           |  |                                                                            
|Item 11.                                   |  | Quantitative and Qualitative Disclosures about Market Risk                  |  | 60 
|                                           |  |                                                                            
|Item 12.                                   |  | Description of Securities Other Than Equity Securities                      |  | 63 
|                                           |  |                                                                            
|PART II.                                   |  |                                                                             |  |    
|                                           |  |                                                                            
|Item 13.                                   |  | Defaults, Dividend Arrearages and Delinquencies                             |  | 63 
|                                           |  |                                                                            
|Item 14.                                   |  | Material Modification to the Rights of Security Holders and Use of Proceeds |  | 63 
|                                           |  |                                                                            
|Item 15.                                   |  | Controls and Procedures                                                     |  | 63 
|                                           |  |                                                                            
|Item 16A.                                  |  | Audit Committee Financial Expert                                            |  | 64 
|                                           |  |                                                                            
|Item 16B.                                  |  | Code of Ethics                                                              |  | 64 
|                                           |  |                                                                            
|Item 16C.                                  |  | Principal Accountant Fees and Services                                      |  | 65 
|                                           |  |                                                                            
|Item 16D.                                  |  | Exemptions from the Listing Standards for Audit Committees                  |  | 65 
|                                           |  |                                                                            
|Item 16E.                                  |  | Purchases of Equity Securities by the Issuer and Affiliated Purchasers      |  | 65 
|                                           |  |                                                                            
|PART III.                                  |  |                                                                             |  |    
|                                           |  |                                                                            
|Item 17.                                   |  | Financial Statements                                                        |  | 66 
|                                           |  |                                                                            
|Item 18.                                   |  | Financial Statements                                                        |  | 66 
|                                           |  |                                                                            
|Item 19.                                   |  | Exhibits                                                                    |  | 67 
|                                           |  |                                                                            
|SIGNATURES                                 |  |                                                                             |  | S-1
|                                           | 
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |  | F-1                                                                        
|                                           |  |                                                                            
|EX - 8.1                                   |  |                                                                             |  |    
|                                           |  |                                                                            
|EX - 12.1                                  |  |                                                                             |  |    
|                                           |  |                                                                            
|EX - 12.2                                  |  |                                                                             |  |    
|                                           |  |                                                                            
|EX - 13.1                                  |  |                                                                             |  |    
|                                           |  |                                                                            
|EX - 15.1                                  |  |                                                                             |  |    



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As used in this report, the terms we, us, our, ASMI, and ASM
International mean ASM International N.V. and its subsidiaries, unless the context indicates another meaning, and the term common shares means our common shares, par value  0.04 per share. Since we are a Netherlands company, the par value of our common shares is expressed in euros (). The
terms United States and U.S. refer to the United States of America.



Forward Looking and Safe Harbor Statement



Some of the information in this report constitutes forward-looking statements within the meaning of the United States federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements include, among others, statements regarding future revenue, sales, income, expenditures, sufficiency of cash generated from operations, maintenance of majority interest in ASM Pacific Technology Ltd. (ASM Pacific
Technology), business strategy, product development, product acceptance, market penetration, market demand, return on investment in new products, product shipment dates and outlooks. These statements may be found under Item 5
Operating and Financial Review and Prospects and elsewhere in this report. Forward-looking statements typically are identified by use of terms such as may, could, should, project,
believe, anticipate, expect, plan, estimate, forecast, potential, intend, continue and similar words, although some forward-looking
statements are expressed differently. You should be aware that these statements involve risks and uncertainties and our actual results could differ materially from those contained in the forward-looking statements due to a number of factors,
including the matters discussed in Item 4 Information on the Company and the risks discussed in Item 3.D Risk factors. The risks described are not the only ones facing ASMI. Some risks are not yet known and some
that we do not currently believe to be material could later become material. Each of these risks could materially affect our business, revenues, income, assets, liquidity and capital resources. All statements are made as of the date of this report,
and we assume no obligation and do not intend to update or revise any forward-looking statements to reflect future developments or circumstances.



Item 1. Identity of Directors, Senior Management and Advisors



Not applicable.



Item 2. Offer Statistics and Expected Timetable



Not applicable.



Item 3. Key Information



A. Selected consolidated
financial data.



You should read the following selected financial
data in conjunction with Item 5 Operating and Financial Review and Prospects and Item 18 Financial Statements.



3



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##### Table of Contents

The selected consolidated financial data presented below as of and for the years ended December 31, 2006 and
2007 have been derived from our audited Consolidated Financial Statements included in Item 18. The selected Consolidated Statements of Operations data presented below for the year ended December 31, 2005 have been derived from our audited
Consolidated Statements of Operations as included in Item 18. The selected Consolidated Balance Sheet data presented below as of December 31, 2003, 2004 and 2005, and the selected Consolidated Statements of Operations data presented below
for the years ended December 31, 2003 and 2004, have been derived from our audited Consolidated Financial Statements which are not included in this report.



|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|----------------------------------------------------------------------------- |  | --------------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                                              |  | 2003                                    |          |   | 2004 |   |          | 2005 |  |   | 2006     |   |  | 2007 |         
|                                                                              |  | ( in thousands, except per share data) |         
|Consolidated Statements of Operations data:                                   |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net sales                                                                     |  |                                        | 581,868  |   |      |  | 754,245  |      |  |  | 724,698  |   |  |     | 877,491  |   |  |  | 955,239  |  
|Cost of sales                                                                 |  |                                         | (380,597 | ) |      |   | (472,155 | )    |  |   | (469,321 | ) |  |      | (538,674 | ) |  |   | (594,163 | )
|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Gross profit                                                                  |  |                                         | 201,271  |   |      |   | 282,090  |      |  |   | 255,377  |   |  |      | 338,817  |   |  |   | 361,076  |  
|Operating expenses:                                                           |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Selling, general and administrative                                           |  |                                         | (108,019 | ) |      |   | (105,682 | )    |  |   | (98,073  | ) |  |      | (120,654 | ) |  |   | (129,676 | )
|Research and development, net                                                 |  |                                         | (79,053  | ) |      |   | (80,751  | )    |  |   | (89,829  | ) |  |      | (88,130  | ) |  |   | (83,468  | )
|Amortization of other intangible assets                                       |  |                                         |         |   |      |   | (303     | )    |  |   | (599     | ) |  |      | (553     | ) |  |   | (553     | )
|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total operating expenses                                                      |  |                                         | (187,072 | ) |      |   | (186,736 | )    |  |   | (188,501 | ) |  |      | (209,337 | ) |  |   | (213,697 | )
|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Earnings from operations                                                      |  |                                         | 14,199   |   |      |   | 95,354   |      |  |   | 66,876   |   |  |      | 129,480  |   |  |   | 147,379  |  
|Interest income                                                               |  |                                         | 1,393    |   |      |   | 2,223    |      |  |   | 5,746    |   |  |      | 5,902    |   |  |   | 6,113    |  
|Interest expense                                                              |  |                                         | (11,692  | ) |      |   | (11,364  | )    |  |   | (15,844  | ) |  |      | (11,726  | ) |  |   | (9,866   | )
|Expense resulting from early extinguishment of debt                           |  |                                         |         |   |      |   | (1,206   | )    |  |   | (319     | ) |  |      |         |   |  |   | (10,049  | )
|Foreign currency exchange losses, net                                         |  |                                         | (2,479   | ) |      |   | (111     | )    |  |   | (128     | ) |  |      | (1,250   | ) |  |   | (1,020   | )
|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Earnings from continuing operations before income taxes and minority interest |  |                                         | 1,421    |   |      |   | 84,896   |      |  |   | 56,331   |   |  |      | 122,406  |   |  |   | 132,557  |  
|Income tax expense                                                            |  |                                         | (7,112   | ) |      |   | (10,575  | )    |  |   | (6,666   | ) |  |      | (14,095  | ) |  |   | (19,245  | )
|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Earnings (loss) from continuing operations before minority interest           |  |                                         | (5,691   | ) |      |   | 74,321   |      |  |   | 49,665   |   |  |      | 108,311  |   |  |   | 113,312  |  
|Minority interest                                                             |  |                                         | (24,570  | ) |      |   | (45,608  | )    |  |   | (43,558  | ) |  |      | (54,882  | ) |  |   | (55,345  | )
|Gain on dilution of investment in subsidiary                                  |  |                                         | 941      |   |      |   | 2,656    |      |  |   | 2,781    |   |  |      | 1,255    |   |  |   | 3,010    |  
|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net earnings (loss) from continuing operations                                |  |                                         | (29,320  | ) |      |   | 31,369   |      |  |   | 8,888    |   |  |      | 54,684   |   |  |   | 60,977   |  
|Loss from discontinued operations before income taxes1                        |  |                                         | (2,770   | ) |      |   | (7,330   | )    |  |   | (48,464  | ) |  |      | (20,350  | ) |  |   |         |  
|Income tax expense                                                            |  |                                         |         |   |      |   |         |      |  |   | (641     | ) |  |      |         |   |  |   |         |  
|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net loss from discontinued operations                                         |  |                                         | (2,770   | ) |      |   | (7,330   | )    |  |   | (49,105  | ) |  |      | (20,350  | ) |  |   |         |  
|Net earnings (loss)                                                           |  |                                        | (32,090  | ) |      |  | 24,039   |      |  |  | (40,217  | ) |  |     | 34,334   |   |  |  | 60,977   |  
|                                                                              |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|                                                                              |  |                                         |          |   |     
|                                                                              |  | 2003                                    |          |   | 2004 |   |          | 2005 |  |   | 2006     |   |  | 2007 |         
|Earnings per Share data:                                                      |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Basic net earnings (loss) from continuing operations per share:               |  |                                        | (0.59    | ) |      |  | 0.61     |      |  |  | 0.17     |   |  |     | 1.02     |   |  |  | 1.13     |  
|Basic net loss from discontinued operations per share:                        |  |                                        | (0.06    | ) |      |  | (0.14    | )    |  |  | (0.93    | ) |  |     | (0.38    | ) |  |  |         |  
|Basic net earnings (loss) per share                                           |  |                                        | (0.65    | ) |      |  | 0.47     |      |  |  | (0.76    | ) |  |     | 0.64     |   |  |  | 1.13     |  
|Diluted net earnings (loss) from continuing operations per share:             |  |                                        | (0.59    | ) |      |  | 0.60     |      |  |  | 0.17     |   |  |     | 1.02     |   |  |  | 1.07     |  
|Diluted net loss from discontinued operations per share:                      |  |                                        | (0.06    | ) |      |  | (0.14    | )    |  |  | (0.93    | ) |  |     | (0.38    | ) |  |  |         |  
|Diluted net earnings (loss) per share:                                        |  |                                        | (0.65    | ) |      |  | 0.46     |      |  |  | (0.76    | ) |  |     | 0.64     |   |  |  | 1.07     |  
|Basic weighted average number of shares (thousands)                           |  |                                         | 49,642   |   |      |   | 51,540   |      |  |   | 52,638   |   |  |      | 53,403   |   |  |   | 53,968   |  
|Diluted weighted average number of shares (thousands)                         |  |                                         | 49,642   |   |      |   | 51,858   |      |  |   | 52,638   |   |  |      | 53,575   |   |  |   | 65,076   |  
|                                                                              |  |                                         |          |   |     
|Other data:                                                                   |  |                                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Number of common shares outstanding at year end (in thousands)                |  |                                         | 50,062   |   |      |   | 52,618   |      |  |   | 52,679   |   |  |      | 53,829   |   |  |   | 54,005   |  
|Dividends declared                                                            |  |                                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |  | 0.10     |  



4



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|                                 |  |                  |         |      |   |         |  |      |         |      |   |         |  |   |        
|-------------------------------- |  | ---------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                 |  | December 31,    
|                                 |  | 2003             |         | 2004 |   | 2005    |  | 2006 |         | 2007
|                                 |  | ( in thousands)
|Consolidated Balance Sheet data: |  |                  |         |      |   |         |  |      |         |      |   |         |  |   |        
|Cash and cash equivalents        |  |                 | 154,866 |      |  | 218,619 |  |     | 135,000 |      |  | 193,872 |  |  | 167,923
|Total assets                     |  |                  | 661,978 |      |   | 823,834 |  |      | 812,308 |      |   | 832,297 |  |   | 840,333
|Total debt                       |  |                  | 207,623 |      |   | 297,253 |  |      | 257,400 |      |   | 228,500 |  |   | 186,936
|Total shareholders equity       |  |                  | 204,609 |      |   | 256,716 |  |      | 238,594 |      |   | 276,458 |  |   | 318,878



|(1) | The restructuring of ASM NuTool in 2005 followed by the sale of substantially all of the ASM NuTool patent portfolio to a third party in December 2006 required ASM NuTool to be accounted for
retroactively as discontinued operations under US GAAP in our Consolidated Financial Statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5



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Exchange Rate Information



The following table sets forth, for each period indicated, specified information regarding the U.S. dollar per euro exchange rates
based on the noon buying rate in New York City for cable transfers payable in euros as certified for customs purposes by the Federal Reserve Bank of New York, which is often referred to as the noon buying rate. On March 14, 2008,
the noon buying rate was 1.5561 U.S dollars per euro.



U.S. Dollar
per Euro Exchange Rate



|     |  |               |  |             |  |              |  |              |  |             |  |              |  |            
|---- |  | ------------- |  | ----------- |  | ------------ |  | ------------ |  | ----------- |  | ------------ |  | -----------
|     |  | September2007 |  | October2007 |  | November2007 |  | December2007 |  | January2008 |  | February2008 |  | March2008 1
|High |  | 1.4219        |  | 1.4468      |  | 1.4862       |  | 1.4759       |  | 1.4877      |  | 1.5187       |  | 1.5604     
|Low  |  | 1.3606        |  | 1.4092      |  | 1.4435       |  | 1.4344       |  | 1.4574      |  | 1.4495       |  | 1.5195     



|                       |  |                          |  |        |  |        |  |        |  |       
|---------------------- |  | ------------------------ |  | ------ |  | ------ |  | ------ |  | ------
|                       |  | Years Ended December 31,
|                       |  | 2003                     |  | 2004   |  | 2005   |  | 2006   |  | 2007  
|Average exchange rate2 |  | 1.1411                   |  | 1.2464 |  | 1.2400 |  | 1.2661 |  | 1.3797



|(1) | Through March 14, 2008.
|--- | -----------------------

|(2) | Average of the exchange rates on the last day of each month during the period presented.
|--- | ----------------------------------------------------------------------------------------



B. Capitalization and indebtedness.



Not applicable.



C. Reasons for the offer and use of proceeds.



Not applicable.



D. Risk factors.



RISKS RELATED TO OUR INDUSTRY



Our business could be adversely affected by the cyclical nature of the semiconductor industry.



We sell our products to the semiconductor industry, which is subject to
sudden, extreme, cyclical variations in product supply and demand. The timing, length and severity of these cycles are difficult to predict. Accordingly, the market is volatile and hard to predict. Semiconductor manufacturers may contribute to the
severity of these cycles by misinterpreting the conditions in the industry and over-investing or under-investing in semiconductor manufacturing capacity and equipment. In any event, the lag between changes in demand for semiconductor devices and
changes in demand for our products by semiconductor manufacturers accentuates the intensity of these cycles in both expansion and contraction phases. We may not be able to respond timely and effectively to these industry cycles.



Downturns in the semiconductor industry often occur in connection with, or anticipation
of, maturing product cycles and declines in general economic conditions. Industry downturns have been characterized by reduced demand for semiconductor devices and equipment, production over-capacity and a decline in average selling prices. During a
period of declining demand, we must be able to quickly and effectively reduce expenses and motivate and retain key employees. Our ability to reduce expenses in response to any downturn in the semiconductor industry is limited by our need for
continued investment in engineering and research and development and extensive ongoing customer service and support requirements. In addition, the long lead time for production and delivery of some of our products creates a risk that we may incur
expenditures or purchase inventories for products that we cannot sell. During periods of extended downturn, a portion of our inventory may have to be written down if it is not sold in a timely manner.



Industry upturns have been characterized by fairly abrupt increases in demand for
semiconductor devices and equipment and insufficient production capacity. During a period of increasing demand and rapid growth, we must be able to quickly increase manufacturing capacity to meet customer demand and hire and assimilate a sufficient
number of additional qualified personnel, and fund such increase of manufacturing capacity. Our inability to quickly respond in times of increased demand could harm our reputation and cause some of our existing or potential customers to place orders
with our competitors rather than us.



6



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##### Table of Contents

Our industry is subject to rapid technological change and we may not be able to forecast or respond to commercial and
technological trends in time to avoid competitive harm.



Our future
success depends upon commercial acceptance of products incorporating new technologies we are developing, such as new plasma enhanced and atomic layer deposition processes, rapid thermal processes, dielectric deposition processes of materials with
lower k-values, and low temperature epitaxy processes on silicon based materials. The semiconductor industry and the semiconductor equipment industry are subject to rapid technological change and frequent introductions of enhancements to existing
products which can result in significant write-downs and impairment charges and costs. Technological changes have had and will continue to have a significant impact on our business. Our operating results and our ability to remain competitive are
affected by our ability to accurately anticipate customer and market requirements and develop technologies and products to meet these requirements. Our success in developing, introducing and selling new and enhanced products depends upon a variety
of factors, including, without limitation:



| |  |  | successful innovation of processes and equipment;
| | - |  | -------------------------------------------------



| |  |  | accurate technology and product selection;
| | - |  | ------------------------------------------



| |  |  | timely and efficient completion of product design, development and qualification;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | timely and efficient implementation of manufacturing and assembly processes;
| | - |  | ----------------------------------------------------------------------------



| |  |  | successful product performance in the field;
| | - |  | --------------------------------------------



| |  |  | effective and timely product support and service; and
| | - |  | -----------------------------------------------------



| |  |  | effective product sales and marketing.
| | - |  | --------------------------------------



We may not be able to accurately forecast or respond to commercial and technical trends in the semiconductor industry or to the development of new technologies and
products by our competitors. Our competitors may develop technologies and products that are more effective than ours or that may be more widely accepted. In addition, we may incur substantial unanticipated costs to ensure the functionality,
reliability and quality of our current and future products. If our products are unreliable or do not meet our customers expectations, then we may experience reduced orders, higher manufacturing costs, delays in collecting accounts receivable,
and/or additional service and warranty expense. We have experienced delays from time to time in the introduction of, and some technical and manufacturing difficulties with, some of our systems and enhancements. We may also experience delays and
technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements. Significant delays can occur between a products introduction and the commencement of volume production of that product. Any
of these events could negatively impact our ability to generate the return we intend to achieve on our investments in new products.



If we fail to adequately invest in research and development, we may be unable to compete effectively.



We have limited resources to allocate to research and development, and must allocate our resources among a wide variety of projects in
our front-end and back-end businesses. In 2007, we invested  83.5 million in research and development, or 8.7% of our net sales, of which  53.6 million was invested in our front-end business. Historically we have received substantial cash dividends from our majority-owned subsidiary, ASM Pacific
Technology, some of which we utilized to support our front-end research and development expenses. In November 2006, we stated our commitment that for at least the years 2007, 2008 and 2009 we would not use cash dividends from ASM Pacific Technology
to support our front-end business. See Item 5. Operating and Financial Review and ProspectsManagements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources. If we
have insufficient cash flow from our front-end businesses to support the necessary level of research and development, we will have to fund such expenditures by diminishing our cash balances, or utilizing our credit facilities or reduce our level of
research and development expenses.



Because of intense competition in our
industry, the cost of failing to invest in strategic developments is high. In order to enhance the benefits obtained from our research and development expenditures, we have contractual and other relationships with independent research institutes. If
we fail to adequately invest in research and development or lose our ability to collaborate with these independent research entities, we may be unable to compete effectively in the front-end and back-end markets in which we operate.



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We face intense competition from companies which have greater resources than we do, and potential competition from new companies
entering the market in which we compete. If we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.



We face intense competition in both the front-end and back-end segments of the semiconductor equipment industry from other established companies. Our
primary competitors in the front-end business include amongst others Applied Materials, Novellus Systems, Tokyo Electron, Kokusai, Aviza, and Jusung. Our primary competitors in the back-end business include amongst others Kulicke & Soffa,
ESEC, Shinkawa, Apic Yamada, BE Semiconductor Industries, Towa, Shinko and Mitsui. A number of our competitors have significantly greater financial, technological, engineering, manufacturing, marketing and distribution resources than we do. Their
greater capabilities in these areas may enable them to:



| |  |  | better withstand periodic downturns in the semiconductor industry;
| | - |  | ------------------------------------------------------------------



| |  |  | compete more effectively on the basis of price, technology, service and support;
| | - |  | --------------------------------------------------------------------------------



| |  |  | more quickly develop enhancements to and new generations of products; and
| | - |  | -------------------------------------------------------------------------



| |  |  | more effectively retain existing customers and attract new customers.
| | - |  | ---------------------------------------------------------------------



In addition, new companies may enter the markets in which we compete, further increasing competition in the semiconductor equipment
industry.



We believe that our ability to compete successfully depends on
a number of factors, including, without limitation:



| |  |  | our success in developing new products and enhancements;
| | - |  | --------------------------------------------------------



| |  |  | performance of our products;
| | - |  | ----------------------------



| |  |  | quality of our products;
| | - |  | ------------------------



| |  |  | ease of use of our products;
| | - |  | ----------------------------



| |  |  | reliability of our products;
| | - |  | ----------------------------



| |  |  | cost of ownership of our products;
| | - |  | ----------------------------------



| |  |  | our ability to ship products in a timely manner;
| | - |  | ------------------------------------------------



| |  |  | quality of the technical service we provide;
| | - |  | --------------------------------------------



| |  |  | timeliness of the services we provide;
| | - |  | --------------------------------------



| |  |  | responses to changing market and economic conditions; and
| | - |  | ---------------------------------------------------------



| |  |  | price of our products and our competitors products.
| | - |  | ----------------------------------------------------



Some of these factors are outside our control. We may not be able to compete successfully in the future, and increased competition may result in price reductions,
reduced profit margins, loss of market share, and inability to generate cash flows that are sufficient to maintain or expand our development of new products.



RISKS RELATED TO OUR BUSINESS



Our quarterly revenues and earnings from operations fluctuate due to a variety of market and business factors, which may result in volatility or a decrease in the price of our
common shares.



Our quarterly revenues and earnings from operations
have varied significantly in the past and may vary in the future due to a number of factors, including, without limitation:



| |  |  | cyclicality and other economic conditions in the semiconductor industry;
| | - |  | ------------------------------------------------------------------------



| |  |  | production capacity constraints;
| | - |  | --------------------------------



| |  |  | the timing of customer orders, cancellations and shipments;
| | - |  | -----------------------------------------------------------



| |  |  | the length and variability of the sales cycle for our products;
| | - |  | ---------------------------------------------------------------



| |  |  | the introduction of new products and enhancements by us and our competitors;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the emergence of new industry standards;
| | - |  | ----------------------------------------



| |  |  | product obsolescence;
| | - |  | ---------------------



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| |  |  | disruptions in sources of supply;
| | - |  | ---------------------------------



| |  |  | our ability to time our expenditures in anticipation of future orders;
| | - |  | ----------------------------------------------------------------------



| |  |  | our ability to fund our capital requirements;
| | - |  | ---------------------------------------------



| |  |  | changes in our pricing and pricing by our suppliers and competitors;
| | - |  | --------------------------------------------------------------------



| |  |  | our product and revenue mix;
| | - |  | ----------------------------



| |  |  | seasonal fluctuations in demand for our products;
| | - |  | -------------------------------------------------



| |  |  | foreign currency exchange rate fluctuations; e.g. appreciation of the euro versus the Japanese yen and U.S. dollar, which would negatively affect the competitiveness of those
manufacturing activities that are domiciled in countries whose currency is the euro; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | economic conditions generally or in various geographic areas where we or our customers do business.
| | - |  | ---------------------------------------------------------------------------------------------------



In addition, we derive a substantial portion of our net sales from products that have a
high average selling price and significant lead times between the initial order and delivery of the product. The timing and recognition of net sales from customer orders can cause significant fluctuations in our earnings from operations from quarter
to quarter. Gross margins realized on product sales vary depending upon a variety of factors, including the mix of products sold during a particular period, negotiated selling prices, the timing of new product introductions and enhancements and
manufacturing costs. A delay in a shipment near the end of a fiscal quarter or year, due, for example, to rescheduling or cancellations by customers or to unexpected manufacturing difficulties experienced by us, may cause sales in a particular
period to fall significantly below our expectations and may materially adversely affect our earnings from operations for that period. Further, our need to continue expenditures for research and development and engineering make it difficult for us to
reduce expenses in a particular quarter even if our sales goals for that quarter are not met. Our inability to adjust spending quickly enough to compensate for any sales shortfall would magnify the adverse impact of a sales shortfall on our earnings
from operations. In addition, announcements by us or our competitors of new products and technologies could cause customers to defer purchases of our existing systems, which could negatively impact our financial position and net earnings.



As a result of these factors, our revenues or earnings from operations
may vary significantly from quarter to quarter. Any shortfall in revenues or earnings from operations from levels expected by securities analysts and investors could cause a decrease in the trading price of our common shares.



Our products generally have long sales cycles and implementation periods, which increase our costs
in obtaining orders and reduce the predictability of our earnings.



Our products are technologically complex. Prospective customers generally must commit significant resources to test and evaluate our products and to install and integrate them into larger systems. In addition, customers often require a
significant number of product presentations and demonstrations, in some instances evaluating equipment on site, before reaching a sufficient level of confidence in the products performance and compatibility with the customers
requirements to place an order. As a result, our sales process is often subject to delays associated with lengthy approval processes that typically accompany the design and testing of new products. Accordingly, the sales cycles of our products often
last for many months or even years, thereby requiring us to invest significant resources in attempting to complete sales.



Long sales cycles also subject us to other risks, including customers budgetary constraints, internal acceptance reviews and cancellations. In addition,
orders expected in one quarter could shift to another because of the timing of customers purchase decisions. The time required for our customers to incorporate our products into their systems can vary significantly with the needs of our
customers and generally exceeds several months, which further complicates our planning processes and reduces the predictability of our earnings from operations.



Any acquisitions or investments we may make in the future could disrupt our business and harm our financial condition.



We may consider from time to time additional investments in complementary businesses,
products or technologies. We may not be able to successfully integrate these businesses, products, technologies or personnel that we might acquire in the future, and accordingly we may not realize the anticipated benefits from such acquisitions. In
particular, our operation of acquired businesses involves numerous risks, including without limitation:



| |  |  | problems integrating the purchased operations, technologies or products;
| | - |  | ------------------------------------------------------------------------



| |  |  | unanticipated costs and liabilities for which we are not able to obtain indemnification from the sellers;
| | - |  | ---------------------------------------------------------------------------------------------------------



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| |  |  | diversion of managements attention from our core business;
| | - |  | -----------------------------------------------------------



| |  |  | adverse effects on existing business relationships with customers;
| | - |  | ------------------------------------------------------------------



| |  |  | risks associated with entering markets in which we have no, or limited, prior experience;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | risks associated with installation, service and maintenance of equipment of which we have limited or no prior experience;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | limited technical documentation of the equipment developed in the acquired company; and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | potential loss of key employees, particularly those of the acquired organizations.
| | - |  | ----------------------------------------------------------------------------------



In addition, in the event of any future acquisitions of such businesses, products or technologies, we could:



| |  |  | issue shares that would dilute our current shareholders percentage ownership;
| | - |  | ------------------------------------------------------------------------------



| |  |  | incur debt;
| | - |  | -----------



| |  |  | assume liabilities;
| | - |  | -------------------



| |  |  | incur impairment expenses related to goodwill and other intangible assets; or
| | - |  | -----------------------------------------------------------------------------



| |  |  | incur large and immediate accounting write-offs.
| | - |  | ------------------------------------------------



Substantially all of our equipment orders are subject to operating, performance, safety, economic specifications and other contractual obligations. We occasionally experience
unforeseen difficulties in compliance with these criteria, which can result in increased design, installation and other costs and expenses.



Substantially all of our equipment sales have specific commercial terms and are conditioned on our demonstration, and our customers acceptance, that the
equipment meets specified operating and performance criteria, either before shipment or after installation in a customers facility. We occasionally experience difficulties in adhering to and demonstrating compliance with such terms and other
contractual obligations, which can lead to unanticipated expenses for the performance of the contract or the redesign, modification and testing of the equipment and related software. To the extent this occurs in the future, our cost of goods sold
and earnings from operations will be adversely affected. If we are not able to demonstrate compliance with the particular contract or the performance and operating specifications in respect of specific equipment, we may have to pay penalties to the
customer, issue credit notes to the customer and/or take other remedial action, including payment of damages or adjusted pricing, any one of which could negatively affect our earnings from operations.



We derive a significant percentage of our revenue from sales to a small number of large customers,
and if we are not able to retain these customers, or if they reschedule, reduce or cancel orders, our revenues would be reduced and our financial results would suffer.



Our largest customers account for a significant percentage of our revenues. Our largest customer accounted for 9.6% and our ten
largest customers accounted for 32.4% of our net sales in 2007. Sales to and the relative importance of these large customers have varied significantly from year to year and will continue to fluctuate in the future. These sales also may fluctuate
significantly from quarter to quarter. We may not be able to retain our key customers or they may cancel purchase orders or reschedule or decrease their level of purchases from us, which would reduce our revenues and negatively affect our financial
results. In addition, any difficulty in collecting amounts due from one or more key customers could harm our financial results.



We may need additional funds to finance our future growth and ongoing research and development activities. If we are unable to obtain such funds, we may not be able to expand
our business as planned.



In the past, we have experienced severe
capital constraints that adversely affected our operations and ability to compete, particularly in our front-end business. In November 2006, we stated our commitment that for at least the years 2007, 2008 and 2009 we would not use cash dividends
from our majority-owned subsidiary, ASM Pacific Technology, which represents our back-end business, to support our front-end business. See Item 5. Operating and Financial Review and ProspectsManagements Discussion and Analysis
of Financial Condition and Results of OperationsLiquidity and Capital Resources. We may require additional capital to finance our future growth and fund our ongoing research and development activities beyond 2008 particularly with regard
to our front-end business. Our capital requirements depend on many factors, including acceptance of and demand for our products, and the extent to which we invest in new technology and research and development projects.



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If we raise additional funds through the issuance of equity securities, the percentage ownership of our existing
shareholders would be diluted. If we finance our capital requirements with debt, we may incur significant interest costs. Additional financing may not be available to us when needed or, if available, may not be available on terms acceptable to us.



If we are unable to raise needed additional funds, we may have to reduce
the amount we spend on research and development, slow down our introduction of new products, reduce capital expenditures necessary to support future growth and/or take other measures to reduce expenses which could limit our growth and ability to
compete.



We could be harmed by the loss of key management.



The success of our operations depends in significant part upon the experience of our
management team. We do not have employment agreements with some members of our management team and we do not maintain key man life insurance policies. The unexpected loss of services from our key executives and the transition process
with new management could harm or cause difficulties in our business, prospects, financial position and net earnings.



We may not be able to recruit or retain qualified personnel or integrate qualified personnel into our organization. Consequently, we could experience reduced sales, delayed
product development and diversion of management resources.



Our
business and future operating results depend in part upon our ability to attract and retain qualified management, technical, sales and support personnel for our operations on a worldwide basis. Competition for qualified personnel is intense, and we
cannot guarantee that we will be able to continue to attract and retain qualified personnel particularly during sustained economic upturns in the industry. Availability of qualified technical personnel varies from country to country, and may affect
the operations of our subsidiaries in some parts of the world. Our operations could be negatively affected if we lose key executives or employees or are unable to attract and retain skilled executives and employees as needed. In particular, if our
growth strategies are successful, we may not have sufficient personnel to manage that growth and may not be able to attract the personnel needed. Although we have agreements with some, but not all, employees restricting their ability to compete with
us after their employment terminates, we do not maintain insurance to protect against the loss of key executives or employees. Our future growth and operating results will depend on:



| |  |  | our ability to continue to broaden our senior management group;
| | - |  | ---------------------------------------------------------------



| |  |  | our ability to attract, hire and retain skilled employees; and
| | - |  | --------------------------------------------------------------



| |  |  | the ability of our officers and key employees to continue to expand, train and manage our employee base.
| | - |  | --------------------------------------------------------------------------------------------------------



We have in the past experienced intense competition for skilled personnel during market
expansions and believe competition will be intense if the semiconductor market experiences a sustained expansion. Consequently, we generally attempt to minimize reductions in skilled personnel in reaction to industry downturns, which reduces our
ability to lower costs by payroll reduction.



Although we currently are a majority
shareholder of ASM Pacific Technology, we may not be able to maintain our majority interest, which, if other circumstances are such that we do not control ASM Pacific Technology, would prevent us from consolidating its results of operations with
ours. This event would have a significant negative effect on our consolidated earnings from operations.



We derive a significant portion of our net sales, earnings from operations and net earnings from the consolidation of the results of operations of ASM Pacific
Technology in our results. ASM Pacific Technology is a Cayman Islands limited liability company that is based in Hong Kong and listed on the Hong Kong Stock Exchange. As of December 31, 2007, we owned 53.10% of ASM Pacific Technology through
our wholly-owned subsidiary, Advanced Semiconductor Materials (Netherlands Antilles) N.V., a Netherlands Antilles company, and the remaining 46.90% was owned by the public. If we do not maintain our majority interest in ASM Pacific Technology, and
if other circumstances are such that we do not control it through other means, we would no longer be able to consolidate its results of operations in ours. Any such determination of whether we could continue to consolidate would be based on whether
we still have a controlling financial interest within the meaning of United States generally accepted accounting principles. If we were to become unable to consolidate the results of operations of ASM Pacific Technology with our results,
the results of operations of ASM Pacific Technology would no longer be included in our earnings from operations. Instead, our proportionate share of ASM Pacific Technologys earnings would be reflected as a



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separate line-item called share of results from investments in our Consolidated Statements of Operations. We would no longer be able to consolidate the
assets and liabilities of ASM Pacific Technology and would have to reflect the net investment in ASM Pacific Technology in the line-item investments in our Consolidated Balance Sheet. This event would have a significant negative effect
on our consolidated earnings from operations, although our net earnings would be reduced only to the extent of the reduction of our ownership interest in ASM Pacific Technology.



ASM Pacific Technology has an employee share incentive program pursuant to which it can issue up to an aggregate of 5.0% of its total
issued shares, excluding shares subscribed for or purchased under the program, to directors and employees. When ASM Pacific Technology issues shares pursuant to this program, our ownership interest is diluted. If the current maximum amount of shares
is issued under this program, our ownership interest would continue to be above 50.0%. However, our interest could further be diluted if ASM Pacific Technology issues additional equity. Any such decision by ASM Pacific Technology to issue additional
shares requires the approval of shareholders in general meeting in accordance with the listing rules of the Hong Kong Stock Exchange, which in effect is subject to our approval. Although we could purchase shares of ASM Pacific Technology if
necessary to maintain our majority interest, we may be unable to do so if we do not have sufficient financial resources at that time.



Although we are a majority shareholder, ASM Pacific Technology is not obligated to pay dividends to us and may take actions or enter into transactions that are detrimental to
us.



Three of the ten directors of ASM Pacific Technology are
affiliates of ASM International. However, they are under no obligation to take any actions that are beneficial to us. Issues and conflicts of interest therefore may arise which might not be resolved in our best interest.



In addition, the directors of ASM Pacific Technology are under no obligation to declare
a payment of dividends to shareholders. As a shareholder of ASM Pacific Technology, we cannot compel the payment or amount of dividends. With respect to the payment of dividends, the directors must consider the financial position of ASM Pacific
Technology after the dividend. Cash dividends received from ASM Pacific Technology totaled  37.0 million,  59.0 million and  49.0 million, in 2005, 2006 and 2007, respectively. In the past, we have used
these dividends in our front-end business. In November 2006, we announced our commitment that for at least the years 2007, 2008 and 2009 we would not use these cash dividends to support our front-end business, but instead would use such dividends to
retire outstanding convertible debt, repurchase our common shares, pay dividends on our common shares, or purchase shares of ASM Pacific Technology. See Item 5. Operating and Financial Review and ProspectsManagements
Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.



The directors of ASM Pacific Technology owe their fiduciary duties to ASM Pacific Technology, and may approve transactions to which we are a party only if the
transactions are commercially beneficial to ASM Pacific Technology. Further, under the listing rules of the Hong Kong Stock Exchange, directors who are on the boards of both ASM Pacific Technology and ASM International are not permitted to vote on a
transaction involving both entities. This would disqualify all of the three affiliates of ASM International who currently serve on the board of ASM Pacific Technology from voting on any such transaction.



As a shareholder of ASM Pacific Technology, we can vote our shares in accordance with
our own interests. However, we may not be entitled to vote on transactions involving both us and ASM Pacific Technology under the listing rules of the Hong Kong Stock Exchange and the Hong Kong Takeovers Code. In particular, under the Hong Kong
Takeovers Code we would be excluded from voting on a takeover transaction requiring shareholders approval if we are interested in such transaction.



Our reliance on a limited number of suppliers could result in disruption of our operations.



We outsource a substantial portion of the manufacturing of our front-end business to a limited number of suppliers. We continuously develop
additional internal and external sources of supply for these manufacturing processes, including our front-end manufacturing facility in Singapore. If our suppliers were unable or unwilling to deliver products in a timely manner to us in the
quantities we require for any reason, including natural disaster, labor unrest, capacity constraints, supply chain management problems or contractual disputes, we may be unable to fill customer orders on a timely basis, which could negatively affect
our financial performance and customer relationships.



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Because the costs to semiconductor manufacturers of switching from one semiconductor equipment supplier to another can be high,
it may be more difficult to sell our products to customers having a competing installed base, which could limit our growth in sales and market share.



We believe that once a semiconductor manufacturer has selected a suppliers equipment for a particular product line, that manufacturer generally continues to
rely on that supplier for future equipment requirements, including new generations of similar products. Changing from one equipment supplier to another is expensive and requires a substantial investment of resources by the customer. Accordingly, it
is difficult to achieve significant sales to a customer using another suppliers equipment. Our inability to sell our products to potential customers who use another suppliers equipment could adversely affect our ability to increase
revenue and market share.



Our ability to compete could be jeopardized if we are
unable to protect our intellectual property rights from challenges by third parties; claims or litigation regarding intellectual property rights could require us to incur significant costs.



Our success and ability to compete depend in large part upon protecting our
proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights. These agreements and measures may not be
sufficient to protect our technology from third party infringements or to protect us from the claims of others. In addition, patents issued to us may be challenged, invalidated or circumvented, rights granted to us under patents may not provide
competitive advantages to us, and third parties may assert that our products infringe their patents, copyrights or trade secrets. Third parties could also independently develop similar products or duplicate our products.



In addition, monitoring unauthorized use of our products is difficult and we cannot be
certain that the steps we have taken will prevent unauthorized use of our technology. The laws of some countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products
or intellectual property rights to the same extent as do the laws of the Netherlands and the United States and thus make the possibility of piracy of our technology and products more likely in these countries. If competitors are able to use our
technology as their own, our ability to compete effectively could be harmed.



In recent years, there has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. In the future, litigation may be necessary to enforce patents issued to us, to protect trade
secrets or know-how owned by us or to defend us against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others.



Claims that our products infringe the proprietary rights of others would force us to defend ourselves and possibly our customers or
suppliers against the alleged infringement. Such claims, if successful, could subject us to significant liability for damages and invalidate our proprietary rights. Regardless of the outcome, patent infringement litigation is time-consuming and
expensive to resolve and diverts management time and attention.



Intellectual property litigation could force us to do one or more of the following, any one of which could severely harm our business:



| |  |  | forfeit our proprietary rights;
| | - |  | -------------------------------



| |  |  | stop manufacturing or selling our products that incorporate the challenged intellectual property;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | obtain from the owner of the infringed intellectual property right a license to sell, produce, use, have sold, have produced or have used the relevant technology, which
license may not be available on reasonable terms or at all or may involve significant royalty payments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pay damages, including treble damages and attorneys fees in some circumstances; or
| | - |  | -----------------------------------------------------------------------------------



| |  |  | redesign those products that use the challenged intellectual property.
| | - |  | ----------------------------------------------------------------------



We license the use of some patents from a competitor pursuant to a settlement agreement; if the agreement is terminated, our business could be
adversely affected.



In October 1997, we entered into an agreement
to settle mutual patent infringement litigation with Applied Materials, which was amended and restated in 1998, pursuant to which Applied Materials agreed to grant us a worldwide, non-exclusive and royalty-bearing license to use all of the litigated
patents and certain additional patents that were not part of the litigation. In return we agreed to pay Applied Materials a settlement fee and to grant it a worldwide, non-exclusive and royalty-free license to use a number of our patents including
but not limited to those patents which we were enforcing in the litigation. All licenses



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granted by Applied Materials to us expire at the end of the life of the underlying patents which expire at various times through 2014. Our obligation to pay certain
royalties to Applied Materials continues until the expiration of the corresponding underlying patent. In addition, the settlement agreement included covenants for limited periods during which the parties would not litigate the issue of whether
certain of our products infringe any of Applied Materials patents that were not licensed to us under the settlement agreement. These covenants, which lasted for different periods of time for different products, have expired. Upon the
occurrence of an event of default or other specified events, including, among other things, our failure to pay royalties, a change of control of ASM International, and improper use of the licenses, Applied Materials may terminate the settlement
agreement, including the licenses included in the agreement.



Additional
litigation with Applied Materials regarding other matters or the operation of the settlement agreement itself could occur. Litigation with Applied Materials, which has greater financial resources than we do, could negatively impact our earnings and
financial position.



We must offer a possible change of control transaction to Applied
Materials first.



Pursuant to our 1997 settlement agreement with
Applied Materials, as amended and restated in 1998, if we desire to effect a change of control transaction, as defined in the settlement agreement, with a competitor of Applied Materials, we must first offer the change of control transaction to
Applied Materials on the same terms as we would be willing to accept from that competitor pursuant to a bona fide arms-length offer made by that competitor.



We operate worldwide; economic, political, military or other events in a country where we make significant sales or have significant operations
could interfere with our success or operations there and harm our business.



We market and sell our products and services throughout the world. A substantial portion of our manufacturing employees and operations are in the Peoples Republic of China and the success of our business depends substantially on those
operations. In addition, we have manufacturing facilities in the Netherlands, the United States, Japan, Hong Kong, Singapore, Malaysia and South Korea. Our operations are subject to risks inherent in doing business internationally, including,
without limitation:



| |  |  | unexpected changes in regulatory or legal requirements or changes in one country in which we do business which are inconsistent with regulations in another country in which
we do business;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | fluctuations in foreign currency exchange rates and foreign currency controls;
| | - |  | ------------------------------------------------------------------------------



| |  |  | political conditions and instability, particularly in the countries in which our manufacturing facilities are located;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | economic conditions and instability;
| | - |  | ------------------------------------



| |  |  | terrorist activities;
| | - |  | ---------------------



| |  |  | human health emergencies, such as the outbreak of infectious diseases or viruses, particularly in the countries in which our manufacturing facilities are located;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | tariffs and other trade barriers, including current and future import and export restrictions, and freight rates;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | difficulty in staffing, coordinating and managing international operations;
| | - |  | ---------------------------------------------------------------------------



| |  |  | burden of complying with a wide variety of foreign laws and licensing requirements;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | difficulty in protecting intellectual property rights in some foreign countries;
| | - |  | --------------------------------------------------------------------------------



| |  |  | limited ability to enforce agreements and other rights in some foreign countries;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | longer accounts receivable payment cycles in some countries; and
| | - |  | ----------------------------------------------------------------



| |  |  | business interruption and damage from natural disasters.
| | - |  | --------------------------------------------------------



To the extent that such disruptions slow the global economy or, more particularly, result in delays or cancellations of purchase orders, our business and operating
results could be materially and adversely affected.



Our net earnings could be
negatively impacted by currency fluctuations.



Our assets,
liabilities and operating expenses and those of our subsidiaries are to a large extent denominated in the currency of the country where each entity is established. Our financial statements,



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including our Consolidated Financial Statements, are expressed in euros. The translation exposures that result from the inclusion of financial statements of our
subsidiaries that are expressed in the currencies of the countries where the subsidiaries are located are not hedged. As a result, our assets, liabilities and operating expenses are exposed to fluctuations of various foreign currency exchange rates.



In addition, foreign currency fluctuations may affect the prices of our
products. Prices for our products for sales to our customers throughout the world are currently denominated in various foreign currencies including, but not limited to, U.S. dollar, euro, Japanese yen and Chinese yuan. If there is a significant
devaluation of the currency in a specific country, the prices of our products will increase relative to that countrys currency, and could increase relative to prices of our competitors, and our products may be less competitive in that country.
Also, we cannot be sure that our international customers will continue to be willing to place orders denominated in these currencies. If they do not, our revenue and earnings from operations could be subject to additional foreign exchange rate
fluctuations.



Although we monitor our exposure to currency fluctuations,
these fluctuations could negatively impact our financial position, net earnings and cash flow.



If our products are found to be defective, we may be required to recall and/or replace them, which could be costly and result in a material adverse effect on our business, financial position and net earnings.



One or more of our products may be found to be defective after we have already shipped
the products in volume, requiring a product replacement or recall. We may also be subject to product returns and product liability claims that could impose substantial costs and have a material and adverse effect on our business, financial position
and net earnings.



Environmental laws and regulations may expose us to liability and
increase our costs.



Our operations are subject to many
environmental laws and regulations wherever we operate governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal and the investigation and remediation of soil and groundwater
contamination. As with other companies engaged in similar activities, we face inherent risks of environmental liability in our current and historical manufacturing activities. Costs associated with future environmental compliance or remediation
obligations could adversely affect our business.



In February 2003, the
European Commission published a directive on waste electrical and electronic equipment (WEEE), which has been implemented in the Netherlands. In principle, the rules result in take-back obligations of manufacturers and/or the
responsibility of manufacturers for the financing of the collection, recovery and disposal of electrical and electronic equipment by requiring that European Union Member States adopt appropriate measures to minimize WEEE disposal and achieve high
levels of collection and separation of WEEE. Producers of WEEE must provide for the financing of the collection, treatment, recovery and environmentally sound disposal of WEEE. Another directive of the European Commission (Directive 2002/95/EC)
provides for a ban on the use of lead and some flame retardants in manufacturing electronic components. To the extent these and other similar regulations in other countries apply to our business in Europe and elsewhere throughout the world, these
measures could adversely affect our manufacturing costs or product sales by forcing us or our suppliers to change production processes or use more costly materials.



Our founder and members of our Supervisory Board and Management Board control approximately 22.1% of our voting power which gives them significant
influence over matters voted on by our shareholders, including the election of members of our Supervisory Board and Management Board and makes it substantially more difficult for a shareholder group to remove or elect such members without the
support of our founder and members of the Supervisory Board and Management Board.



Our founder controlled approximately 21.3% of the voting power of our outstanding common shares as of December 31, 2007, and the members of our Supervisory Board and Management Board as a group controlled approximately
0.8% of the voting power of our outstanding common shares as of that date. Accordingly, these persons have significant influence on the outcome of matters submitted to a shareholder vote, such as the election of the members of our Supervisory Board
and Management Board. Persons nominated by the Supervisory Board for appointment by the shareholders to the Supervisory Board or Management Board at a general meeting of shareholders will be elected if they receive a majority of the votes cast at
the meeting. Nominees to the Supervisory Board or Management Board who are not proposed by the Supervisory Board are appointed if they receive the affirmative vote of a majority of the votes cast at the meeting, provided such affirmative votes
represent more than half our issued capital. Members of the



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Supervisory and Management Boards may be removed only by the affirmative vote of a majority of the votes cast at a meeting, and, unless such removal is recommended by
the Supervisory Board, the affirmative votes must represent more than half our issued capital. This makes it difficult for a group of shareholders to remove or elect members of our Supervisory Board or Management Board without the support of our
founder and the Supervisory Board and Management Board.



Our anti-takeover provisions
may prevent a beneficial change of control.



The Company has granted
to Stichting Continuïteit ASM International (Stichting), a non-membership organization with a board composed of three independent members, the right to acquire and vote our preferred shares. The objective of Stichting is to serve
the interests of the Company. To that objective Stichting may, amongst others, acquire, own and vote our preferred shares in order to maintain our independence and/or continuity and/or identity. This may prevent a change of control from occurring.
For additional information regarding Stichting, see Item 7. Major Shareholders and Related Party Transactions.



These provisions may prevent us from entering into a change of control transaction that may otherwise offer our shareholders an opportunity to sell shares at a
premium over the market price.



Our stock price has fluctuated and may continue to
fluctuate widely.



The market price of our common shares has
fluctuated substantially in the past. Between January 1, 2007 and December 31, 2007, the sales price of our common shares, as reported on the NASDAQ Global Select Market, ranged from a low of US$ 20.94 to a high of US$ 30.32. The market
price of our common shares will continue to be subject to significant fluctuations in the future in response to a variety of factors, including the risk factors discussed in this report and the following, without limitation:



| |  |  | future announcements concerning our business or that of our competitors or customers;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the introduction of new products or changes in product pricing policies by us or our competitors;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | litigation regarding proprietary rights or other matters;
| | - |  | ---------------------------------------------------------



| |  |  | changes in analysts earnings estimates and recommendations;
| | - |  | ------------------------------------------------------------



| |  |  | developments in the financial markets;
| | - |  | --------------------------------------



| |  |  | quarterly fluctuations in operating results;
| | - |  | --------------------------------------------



| |  |  | general economic, political and market conditions, such as recessions or foreign currency fluctuations; or
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | general conditions in the semiconductor and semiconductor equipment industries.
| | - |  | -------------------------------------------------------------------------------



In addition, public stock markets frequently experience substantial price and trading volume volatility, particularly in the high
technology sectors of the market. This volatility has significantly affected the market prices of securities of many technology companies for reasons frequently unrelated to or disproportionately impacted by the operating performance of these
companies. These broad market fluctuations may adversely affect the market price of our common shares.



Compliance with Internal Controls Evaluations and Attestation Requirements.



We are subject to United States securities laws, including the Sarbanes-Oxley Act of 2002 and the rules and regulations adopted by the U.S. Securities and Exchange
Commission pursuant to the Act. Under Section 404 of the Sarbanes-Oxley Act and the related regulations, we are required to perform an evaluation of our internal controls over financial reporting and submit a management report on such controls,
beginning with the year ended December 31, 2006 and annually thereafter. In addition, we were required to have our independent auditor publicly attest on our internal controls over financial reporting, beginning with the year ended
December 31, 2007.



If we fail to maintain effective internal
controls over financial reporting, if we do not timely evaluate the effectiveness of internal controls over financial reporting, or if our independent auditor could not timely attest to our evaluation, we could be subject to regulatory scrutiny and
decreased public confidence in our internal controls, which may adversely affect the market price of our common shares.



Item 4. Information on the Company



The
information in this Item 4 should be read in conjunction with the risks discussed under Item 3.D Risk Factors.



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A. History and development of the Company.



ASM International N.V. was incorporated on March 4, 1968 as a Netherlands naamloze vennootschap, or public limited liability company, and
was previously known as Advanced Semiconductor Materials International N.V. Our principal executive offices are located at Jan van Eycklaan 10, 3723 BC Bilthoven, the Netherlands. Our telephone number at that location is +31 30 229 84 11. Our
authorized agent in the United States is our subsidiary, ASM America Inc., a Delaware corporation, located at 3440 East University Drive, Phoenix, Arizona 85034.



B. Business overview.



Introduction



Our Business



As a semiconductor capital equipment supplier, we design, manufacture and sell production systems and services to our customers for the production of semiconductor
devices, or integrated circuits. The semiconductor capital equipment market is composed of three major market segments: wafer processing equipment, assembly and packaging equipment, and test equipment. ASMI is mainly active in the wafer processing
and assembly and packaging market segments. The wafer processing segment is referred to as front-end. Assembly and packaging is referred to as back-end.



Front-end production systems perform processes on round slices of silicon, called a wafer. During these processes, thin films, or
layers, of various materials are grown or deposited onto the wafer, or an existing thin film on a wafer undergoes modification, such as a temperature treatment, or local etching. These films form numerous individual and separable circuits on the
wafer, called dies or chips. After probing and selecting these individual circuits for correct performance, the dies on the processed wafer are separated, with each die of the same wafer containing the same circuitry.
Back-end production systems then assemble and connect one or more of these known good dies, or sometimes several different known good dies in a single package, to form a complex semiconductor device that will perform calculations, store data and
interface with its environment.



Our front-end operations are conducted
through wholly-owned subsidiaries, the most significant being ASM Europe B.V. (ASM Europe), located in the Netherlands, ASM America, Inc. (ASM America), located in the United States, ASM Japan K.K. (ASM Japan),
located in Japan, and ASM Front-End Manufacturing Singapore Pte Ltd. (FEMS), located in Singapore.



Our back-end operations are conducted through our majority-owned subsidiary, ASM Pacific Technology Ltd. (ASM Pacific Technology), with principal
operations in Hong Kong, the Peoples Republic of China, Singapore, and Malaysia. At December 31, 2007, we owned 53.10% of the outstanding equity of ASM Pacific Technology.



The location of our front-end facilities allows us to interact closely with
customers in the worlds major front-end geographic market segments: Europe, North America, and Asia. We address a part of the deposition and related tools market segment, defined by VLSI Research1. Our front-end segment accounted for 46.7% of our net sales in 2006 and 47.2% of our net sales in 2007.



Our back-end facilities are in close proximity to where most customer assembly and packaging operations
are located. We address parts of the bonding equipment and packaging equipment segments as defined by VLSI Research2. We also manufacture and
sell lead-frames. Our back-end segment accounted for 53.3% of our net sales in 2006 and 52.8% of our net sales in 2007.



Industry Background and Major Business Trends



Semiconductor devices are the key enablers of the electronic age. Each semiconductor device can hold many individual components, most of which are transistors. For
over 30 years now, the average number of components per integrated semiconductor device, at the optimum cost-per-component, has been increased by a factor of two, every 18 to 24 months. This trend is generally referred to as Moores law, after
Gordon Moore. Increases in complexity, along with simultaneous reductions in the cost-per-component, have mainly been achieved by reducing the size of individual transistors, so that a larger number of transistors fit within a given size die. Today,
transistors less than 100nm (1 nm is equal to one billionth of a meter) long are manufactured in high volume, and several billion transistors can be manufactured on a single die with an area of a few square centimeters.





|1 | www.vlsiresearch.com, VIC code 460.00000, accessed November 2007.
|- | -----------------------------------------------------------------

|2 | www.vlsiresearch.com, VIC codes 540.00000 and 550.00000, accessed November 2007.
|- | --------------------------------------------------------------------------------



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A second development decreases the cost per device by
increasing the size of the wafer (the silicon substrate upon which semiconductors are built), so that more devices can be produced within one production cycle. Today, most of the newly installed semiconductor device fabrication capacity employs
300mm wafers, with each wafer typically holding between a few dozen to several thousand individual circuits. The simultaneous increase in the complexity of devices, and the substantial decrease in cost-per-component has supported an over US$ 1.5
trillion global electronics industry (VLSI Research, Inc. December, 20073), and behind that, a semiconductor industry of approximately US$ 256 billion (Semiconductor
Industry Association, February 1, 20084). The semiconductor industry in turn, is supported by the US$ 43 billion (Semi, March, 20085) semiconductor capital equipment industry which supplies the needed production systems and services.



The yield, or the fraction of chips (known good dies) on a wafer that operate according to specifications, is usually one of the most important variables that
influences the financial performance of the integrated device manufacturers. Large initial investments are needed to build an automated production line in an ultra-clean environment in order to achieve high yield. The capital equipment in this
production line is increasingly becoming an important determinant for the yield of the factory.



Parallel to the above-mentioned trends of transistor scaling and larger wafer size, another trend is beginning to emerge on the die level: heterogeneous
integration. While the components on a chip that perform calculation and storage can undergo scaling, other components, such as inductors, capacitors, sensors, micromechanical, photonic, or micro-fluidic devices, do not scale as easily as do
transistors and some capacitors. Yet, in order to make devices with these components small and cost-effective enough, they will eventually also have to be integrated into the same semiconductor device. Although several functions can be integrated on
a single die, as in a system on a chip (SoC), for economical reasons this is usually limited to the components that scale with Moores law (more Moore), and use the same base material (silicon). For components that do
not scale, or components that use a different base material it is not always practical or economically feasible to place them on the same die. In that case, integration of several dies, sometimes coming from different supply lines, in a single
package to form a system in a package (SiP) is the alternative solution that provides the desired functionality. This trend is sometimes referred to as more than Moore.



The trends outlined above are the drivers of the broad semiconductor roadmap which
semiconductor equipment companies track in developing new production systems and process technologies. These new systems and technologies must be developed well ahead of volume demand for the semiconductor devices they make. As a result, there is a
large lead time between the investment in a new technology, and its commercial success. With the combination of a long lead time and the short product life-cycles comes the inherent difficulty of matching supply and demand, which results in the high
volatility associated with the semiconductor industry. In this highly cyclical industry, the front-end and back-end market segments have historically reacted differently to market forces. We believe, therefore, that operating in both segments works
in our favor to reduce the impact of business cycles on our operations.



Our
Strategy



Our strategic objective is to realize profitable,
sustainable growth by capitalizing on our technological innovations, manufacturing infrastructure and sales and support offices located close to our global customers. We intend to enhance our market position by providing customers with the advanced,
cost-effective, and reliable products they need, along with excellence in customer service and support. The key elements of our strategy include:



| | a) | Expanding returns on front-end operations while maintaining solid profitability for our back-end segment.
| | -- | ---------------------------------------------------------------------------------------------------------



| | b) | Executing a vertical manufacturing model in front-end that follows the highly successful model of our back-end segment, by systematically increasing our operating efficiency, reducing
manufacturing costs in our supply chain and locating significant parts of our manufacturing capability in more cost efficient countries.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Maintaining our global reach through our operating, sales and customer service facilities in key parts of the world in order to establish and maintain long-term customer relationships.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Leveraging our combined strong front-end and back-end technology leadership and manufacturing capabilities through advancements in our products and processes early in the technology
lifecycle.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|3 | www.vlsiresearch.com, accessed February 11, 2008.
|- | -------------------------------------------------

|4 | http://www.sia-online.org/pre_release.cfm?ID=464, accessed February 11, 2008
|- | ----------------------------------------------------------------------------

|5 | http://wps2a.semi.org/wps/portal/_pagr/103/_pa.103/248?dFormat=application/msword&docName=P043592, accessed March 26, 2008
|- | --------------------------------------------------------------------------------------------------------------------------

|
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| | e) | Expanding the scope and depth of our research and development capabilities through strategic alliances with independent research institutes, universities, customers and suppliers, and
expanding our intellectual property portfolio by filing patent applications for key developments in equipment, processes, materials and software, and by licensing programs for our technologies.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Background of Semiconductor Manufacturing Processes



Overview



The process of manufacturing an integrated semiconductor, from
raw material to finished device, includes amongst others the segments in which we participate: front-end and back-end.



Front-end Manufacturing Process



The front-end manufacturing process, or wafer processing, can be divided in three distinct parts: wafer manufacturing, transistor formation, known as front-end of
the line (FEOL) processing, and interconnect formation, known as back-end of the line (BEOL). We develop and sell technology, develop and manufacture equipment, and provide services used by semiconductor device manufacturers
in each of these sections of front-end manufacturing.



In the wafer
manufacturing process a large single crystal of very pure silicon is grown from molten silicon. The crystal is then sliced into a large number of thin slices, or wafers, of single crystalline silicon. These slices are polished to an atomic level
flatness before the next steps are executed. For advanced applications, some layers are deposited on the wafer for later use, by either epitaxy or diffusion/oxidation (described below). Epitaxial wafers are even flatter and contain fewer defects at
the surface than polished wafers. Some wafers are made with an embedded electrically insulating layer, such as silicon oxide, just below a very thin top layer of pure silicon. These special wafers are called Silicon-on Insulator or SOI wafers and
are used for some of the most advanced microprocessors. The finished wafers, still without pattern on them, are shipped to the integrated device manufacturers and foundries for further processing.



During FEOL and BEOL wafer processing, multiple thin films of either electrically
insulating material, also called dielectrics, or conductive material are modified, grown, or deposited on a silicon wafer. First, several material processing cycles are used in the FEOL to build the basic transistor and other components such as
capacitors and resistors. Second, several processing cycles are used in the BEOL to build additional components such as capacitors, inductors and resistors, and to electrically connect the large amount of transistors and components. Patterning of
deposited layers with lithography and etching (described below) creates the transistors, other components and connecting wires, which together make up the integrated circuit. Each integrated circuit is on a single chip or a
die on the wafer. A finished wafer may contain a few dozen to several thousand individual dies. Front-end processes are performed either one wafer at a time in single wafer processing systems or many wafers at a time in batch processing
systems. Multiple processes are repeated on each layer as the wafer is processed.



The number and precise order of the process steps vary depending upon the complexity and design of the integrated circuit. The performance of the circuit is determined in part by the various electrical characteristics of the materials used
in the layers of the circuit and the wafer. Simple circuits may have as few as ten layers, while complex circuits may have more than one hundred layers. The front-end manufacturing process is capital intensive, requiring multiple units of several
different production systems. Many different but complementary methods are used to modify, grow, or deposit materials on the wafers. ASMI is predominantly active in developing and manufacturing the equipment used by semiconductor device
manufacturers in the deposition processes, i.e., those steps that involve the creation of insulating, conducting and semi-conducting layers on the wafer surface.



The front-end manufacturing process is complete when all of the layers have been deposited and patterned on the wafer. As a last step,
the correct electrical functioning of the integrated circuits on each die is confirmed by probing. Non-functioning circuits are marked so they can be eliminated before the back-end processing. The introduction of even trace levels of foreign
particles or material can make a circuit, or even an entire wafer, unusable. To reduce the level of foreign particles or material, front-end processing is performed in clean rooms with ultra low particle and contamination levels. Once the front-end
processing is complete, the entire wafer with multiple, functioning, integrated circuits is shipped to the back-end facility where it is separated into dies, which are then bonded to a suitable substrate or leadframe, packaged, and tested before
final shipment of the semiconductor device to the end customer. Back-end processes do not require the same level of contaminant control. These processes are performed in facilities that differ from facilities in which front-end processes are
performed.



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The following is an alphabetical list of the principal front-end process technologies used by semiconductor device
manufacturers:



| |  |  | Atomic Layer Deposition (ALD) is an advanced technology that deposits single atomic layers on wafers one at a time, and at low temperatures. This process
is used to create ultra-thin films of exceptional quality and flatness. Plasma is sometimes used to enhance the process further (Plasma Enhanced ALD, PEALD).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Chemical Mechanical Polishing (CMP) is a technology that planarizes, or levels, layers deposited on wafers by polishing them with a chemical solution
called slurry. Planarization reduces the vertical height differences of the various layers. This increases the number of layers that can be processed without introducing reliability problems. Electrochemical Mechanical Polishing
(ECMP) is comparable to CMP aided with an electric current.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Chemical Vapor Deposition (CVD) is a technique in which one or more gaseous reactants are used to form a solid insulating or conducting layer on the
surface of a wafer. Low pressure (Low Pressure CVD, LPCVD) or plasma is sometimes used to enhance the process further (Plasma Enhanced CVD, PECVD).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Clean removes undesirable contaminants from the wafers surface.
| | - |  | ----------------------------------------------------------------



| |  |  | Diffusion and Oxidation are high-temperature processes that change the electrical characteristics of layers. Diffusion is used to move dopants, or impurities,
and make dopants introduced by ion implantation electrically active. Anneal is used as a synonym to diffusion. Oxidation forms a silicon oxide layer on the wafers surface, which acts as an insulating or protective layer over the
wafers surface.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Electroplating or Electrochemical Deposition (ECD)deposits a layer of metal from a complex liquid solution, containing metal salts, and certain
additives, by passing an electrical current through that solution and towards the surface of the wafer. Electrochemical Mechanical Deposition (ECMD) is ECD with concurrent mechanical planarization.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Epitaxy involves the deposition of silicon or silicon compounds on the wafer, continuing and perfecting the crystal structure of the bare wafer underneath. Epitaxy
improves the electrical characteristics of the wafer surface, making it suitable for highly complex microprocessors and memory devices. Selective epitaxyis an epitaxy process that only deposits silicon or a silicon compound on certain
predetermined areas of the wafer.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Etch reproduces the pattern imprinted by lithography by removing excess material from the uppermost layer(s) of the wafer.
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Ion Implantation is a process in which wafers are bombarded with ions to introduce dopant atoms, or impurities, into the wafer to improve its electrical
characteristics. Silicon conducts little or no electricity. In order to have electrical current within a layer, it is necessary to place small amounts of impurities into the layer.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lithography is used to print the various layer patterns of the semiconductor device on the uppermost layer of the wafer. These patterns determine the functions of the
semiconductor device. The lithography process determines the smallest pitch with which components can be placed in the circuit.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Metrology is used to measure the width of lines on semiconductor devices, the thickness of layers, the surface profiles of layers, and certain electrical properties of
layers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Probing is a process in which electrical and functional tests are performed on each die and defective ones are marked on the wafer so that they can be discarded prior
to the back-end processing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rapid Thermal Processing (RTP) is similar to diffusion/oxidation, except that it exposes a single wafer to heat over a short period of time. Rapid
Thermal Anneal (RTA) is a subset of RTP that is restricted to heat treatments in a non-reactive ambient.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Back-end Manufacturing Process



When the wafer with confirmed working integrated circuits is received in the back-end facility, wafers are first cut (diced) into individual dies or
chips by a dicing saw or sometimes a laser. The dies are then separated and a single die is (or for an advanced device several different dies are) picked and attached to a leadframe or other substrate by a bonding process. The leadframe or substrate
provides the interface between the electrical circuit on the die and the system in which the die is incorporated. Leadframes are produced by stamping a pattern through a strip of copper or iron-nickel alloy. For high precision (and fast turnaround
purposes) leadframes are produced by an etching process to achieve a shorter time to market. Stamped frames are typically used for very high volumes on mature designs. In order to allow a wire to be easily attached to its surface, the leadframes are
plated with a thin layer of silver or a stacked layer of nickel, palladium, and gold on appropriate places. The electrical connection of the electrical circuit to the leadframe



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is made by wire bonding. As few as one or as many a thousand or more separate wires are each connected between a terminal connection point on the die and a lead on the
leadframe, through which the device is able to communicate with the printed circuit board. Leadframes and wire bonding are by far the most common technology in use today.



After this assembly and wire bonding interconnection process, the dies are encapsulated to protect them from environmental influences. The
encapsulation process employs high-grade epoxy molding compounds (EMC), automated molding systems, and tooling to enclose the die and wires. The molding compound forms a hard casing around the die and wires after it is cured. For
production efficiency during assembly most leadframes consist of many parts arranged in rows and columns. Each individual part is moved through the multiple assembly process steps connected to other identical parts. After the molding process is
completed, the parts are separated from this array in a series of processes referred to as trim, form, and singulation. Here too, high precision tooling and automation are employed to precisely cut away portions of the substrate or leadframe so that
the packaged unit is freed from the rest. These singulated units will then move through inspection, electrical test, marking and packing to prepare the tested and finished devices for shipment to the customer.



Another method used for chips with high pin count and speed is flip chip. The flip chip
process eliminates the need for die and wire bonding. Instead, it involves populating the electrical interconnect points on a chip with small solder balls made of low melting point materials, a process called bumping. The substrate is designed such
that it has an identical pattern to that of the device. The device is then flipped onto the substrate with precise alignment and the bonding process is completed by the application of heat, force, ultrasonic vibration, or a combination of the three.
Wafer level packaging (WLP) is another emerging technique that places all the protective layers, interconnections and interconnection points directly on the surface of the wafer, such that completely packaged devices are made at wafer
level. After probing and dicing, the die can be separated and may be directly attached to printed circuit boards.



The following is an alphabetical list of the principal back-end processes used by semiconductor manufacturers:



| |  |  | Binningassigns tested, packaged devices to defined performance categories.
| | - |  | --------------------------------------------------------------------------



| |  |  | Die Bonding mounts the die onto carriers such as lead-frames using a die bonder.
| | - |  | --------------------------------------------------------------------------------



| |  |  | Die Separation separates the dies on the wafer into individual units using dicing saws.
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Die Sortingsegregates tested dies into different performance levels.
| | - |  | --------------------------------------------------------------------



| |  |  | Encapsulation or Molding encases the die in a protective housing, often epoxy, using dispensing systems or transfer molds.
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Marking puts product identification information on the semiconductor package using stencil printing or laser inscription techniques.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Product Testing tests the performance of the completed, encapsulated, and singulated semiconductor device.
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Singulation is the separation of the many individual devices attached to a leadframe.
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Trim and Form cuts away the excess portion of the leadframe and bends the leads into the desired shape, resulting in the completed semiconductor device.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wire Bonding attaches extremely thin gold, copper, or aluminum wires between the terminals on the die and the leadframe creating electrical connections using a wire
bonder. Wedge bonding employs only ultrasonic energy, while thermosonic wire bonding employs both heat and ultrasonic energy.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Important Technology Trends for our Business



Technology Trends



The continuous demand for smaller, faster and cheaper semiconductor components drives the technology advances in the semiconductor manufacturing process. As the
transistors in an integrated circuit become smaller, the cost-per-component decreases. Fortuitously, at the same time the operating speed of the transistor increases. Thus the minimum size of a single transistor in an integrated circuit is an
extremely important parameter. This minimum size can be characterized by the so-called half-pitch, which is about equal to the smallest line width in the device. Today, our high volume production systems for leading-edge semiconductor devices
support a half-pitch as small as 90 to 45 nanometers (one nanometer is one billionth of a meter). At ASMI, and in close cooperation with our customers, we are qualifying and testing new critical process equipment for line widths at or below 45 to
32nm. Simultaneously, we are developing new 22 to 16nm technologies in our laboratories. Today, most of the newly installed semiconductor device fabrication capacity employ 300mm wafers. Accordingly, our system and process development and sales
effort is concentrated in 300mm equipment.



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In developing faster and smaller devices, our front-end customers major technology requirements are:



| |  |  | lithography of ever smaller feature sizes, now much smaller than the wavelength of light;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | new thin film materials and device designs that can reduce the amount of power consumed in the device, increase the speed and reliability of the circuit, and increase the
amount of charge that can be stored;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | new manufacturing processes that reduce device variability and increase yield; and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | reliable manufacturing of taller three-dimensional structures in devices.
| | - |  | -------------------------------------------------------------------------



Technological developments in the front-end process have resulted in new requirements for the back-end manufacturing process. The
ability to place millions of transistors onto a thumbnail-size device with vastly increased functionality has created the first major trend: the need for more input/output terminals in the same or smaller space. The challenge for back-end equipment
suppliers is to connect this increasing number of terminals in a package that sometimes is barely larger than the chip. Wire bonding has been at the forefront of this transition, but for integrated circuits with very high terminal count, the
industry has developed ball grid array (BGA) and flip chip packaging that use the entire surface of a die, and not just the perimeter.



A second major trend in the back-end market segment is driven by the strong growth in demand for hand held devices. There is an ongoing need to build ever smaller
and more complex packages at lower cost for this market. Individual dies must be packaged in areas that are just slightly larger than the individual dies they contain. These chip scale packages minimize the amount of space occupied by the end
product on the circuit board.



A third major trend relates to the
industry demand for a much higher level of integration, but still at lower cost and optimized yield. This has resulted in a requirement to place multiple dies into the same package. The assembly of a combination of known good dies in a
package can lead to higher yield than the combination of the same functionality blocks on a single chip. Such a System-in-Package (SiP) is more than a simple collection of multiple dies: SiP products are fully functional systems or
sub-systems. Moreover, devices from different supply chains, with sometimes entirely different feature sizes or technologies can be integrated this way. Dies can be placed next to and/or on top of each other, using stacked die bonding techniques and
sometimes mixing flip chip and wire bonding techniques in the same package. It appears that in the near future an increasing fraction of the value of the device will be in the package, at the cost of the fraction that is on the wafer.



ASMIs Response to Technology Trends



ASMI develops and manufactures wafer processing systems and new thin film materials
that enable our customers to produce devices that consume less power, are faster, show less variability, are more reliable and are able to store more electrical charge. In order to meet our customers needs, we have developed, and are still
developing many new materials. For example, in the FEOL, high-k dielectrics and novel metal electrodes can reduce the power consumption of a device, thereby enhancing battery life. This same class of materials can also lead to larger charge storage
in a smaller capacitor, critical for memories and RF circuits. Another example of new materials in the FEOL is our silicon germanium (SiGe) and Siliciumcarbon (SiC) epitaxial materials that can increase the switching speed of
the transistors and the circuit in which they are embedded by engineering the strain, and resulting amplification of the transistor. This can be done without negatively affecting the power these transistors consume. This same class of epitaxial
material is also used in wafer manufacturing, where low defect density silicon on insulator (SOI), and strained SOI substrates are being developed for use in very advanced microprocessors. SOI decreases power consumption, and strained
SOI, like strained silicon, enhances the switching speed of transistors.



In the BEOL or interconnect process, a continued demand to improve the speed at which signals travel through thin copper wires has lead to the development of a full suite of low-k materials. These low-k materials can decrease the amount of
delay in signal propagation, resulting in, for example, faster microprocessors. ASMI has been one of the leaders in successfully introducing all these low-k materials in the market.



We have also developed and sold new processes and wafer processing equipment to reduce the variability of the devices our customers
make. ASMIs proprietary RTA process, based on conduction rather than radiation heating, can decrease variability in individual transistors in a circuit, and also on a wafer, thereby significantly enhancing top-speed bin yield of
microprocessors. In addition, in order to aid repeatable lithography and etch of very narrow lines and small, but tall capacitors, we have developed plasma-polymerization processes and thin film materials that can both reduce line roughness and
increase the yield of dynamic random access memories (DRAM).



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For our back-end customers, leadframe and wire bond technology continues to offer the most flexible method of
connecting the die to the printed circuit board. Increasing pressure on the number of input/output (I/O) terminals per unit area of silicon continues to drive down the distance between two adjacent interconnect points or pads, reducing
the bond pad pitch and allowable wire diameter. The increasing I/O requirement has also resulted in the use of several rows of these pads on a single die. Production is now ongoing with a bond pad pitch of 37 microns. Wire bonding must not only
address decreasing wire diameters and pitch, but also address the throughput to reduce the overall cost of the device. Future wire bonding platforms will be able to operate in an environment that requires the bond pad pitch to be at 25 microns. The
increasing row count will require better control of the wire shapes to maintain signal integrity at high communication speeds. All of this must be achieved with the highest possible speed and reliability. In addition, semiconductor manufacturers are
looking to automation and integration of back-end equipment as ways to reduce costs and increase productivity.



Increasing pressure on the level of integration and reduction in size of handheld or mobile devices has given rise to several alternative assembly and bonding
techniques and materials, such as flip chips and several chip-scale packaging methods. Stacked die packages, in which more than one die is stacked on top of another, to form a single device, play a major role in the handheld appliance market. We are
responding to the need of stacked die packages by developing better wire bonding techniques, for example, by controlling the shape of the wire loop. We are currently developing methods of working with insulated wires, which will allow for more
crossed connections in a device.



Products



Market Coverage



The table below indicates the major market segments of the semiconductor equipment
industry. The principal market segments in which we participate are underlined.



| |  |  |  |                  |  | 
| |  |  |  | ---------------- |  | 
| |  |  |  | Market Segment 1 |  | 

|                              |  |                                        |  |                                            
|----------------------------- |  | -------------------------------------- |  | -------------------------------------------
|                              |  | Major Market Segment 1                 |  |                                            
|Test and relatedSystems       |  | Wafer Processing Equipment orFront-end |  | Assembly and PackagingEquipment or Back-end
|Automated Test
Systems        |  | Lithography Equipment                  |  | Inspection                                 
|Material Handling
Systems     |  | CMP Equipment                          |  | Dicing                                     
|Process Diagnostic Equipment  |  | Ion Implanters                         |  | Bonding                                    
|Production Management Systems |  | Deposition and Related Tools2          |  | Packaging                                  
|                              |  | Etching and Clean                      |  | Integrated Assembly Systems                
|                              |  |                                        |  | Leadframes3                                

|(1) | Based on VLSI Research Industry Segmentation.
|--- | ---------------------------------------------

|(2) | This segment also includes diffusion and oxidation furnaces and RTP tools.
|--- | --------------------------------------------------------------------------

|(3) | While the materials segment is not included by VLSI Research in this market segment, leadframes are a significant component of our revenues.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



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Front-end Segment Products



ASMIs front-end segment products come from a number of product platforms, with each platform designed to host and enable specified process technologies.
The products in each product platform are linked through common technology elements of the platform, for example a common in-system software framework, common critical components, similar logistics (batch or single wafer processing), or a similar
wafer processing environment (wet or dry). The following table lists our principal product platforms for the front-end market, the main process technology that they enable, and the semiconductor device manufacturing application for which the
products from that platform are used.



|                   |  |                                      |  |                                                           |  |                                                              |  |              |  |               |  |               |  |                   |  |            
|------------------ |  | ------------------------------------ |  | --------------------------------------------------------- |  | ------------------------------------------------------------ |  | ------------ |  | ------------- |  | ------------- |  | ----------------- |  | -----------
|Product Platform 1 |  | ASMI ProcessTechnology 1             |  | Products 1                                                |  | Currently participates in the Manufacturing
Solution for 2 :
|                   |  |                                      |  |                                                           |  | SiStartingMaterial                                           |  | FEOL-Logic 3 |  | FEOL-Memory 4 |  | FEOL-RF/AMS 5 |  | BEOL-Interconnect |  | BEOL- SoC 6
|                   |  |                                      |  |                                                           |  |                                                              |  |             
|Advance 400 Series |  | ALD, CVD, diffusion/oxidation, LPCVD |  | A400 and A412 Vertical Furnace Systems                    |  | ü                                                            |  | ü            |  | ü             |  | ü             |  | ü                 |  | ü          
|                   |  |                                      |  |                                                           |  |                                                              |  |             
|Levitor            |  | RTA                                  |  | Single Wafer Rapid Thermal Processing Systems             |  |                                                              |  | ü            |  | ü             |  |               |  |                   |  |            
|                   |  |                                      |  |                                                           |  |                                                              |  |             
|Epsilon            |  | Epitaxy, LPCVD                       |  | Single Wafer Epitaxy Systems                              |  | ü                                                            |  | ü            |  | ü             |  | ü             |  |                   |  |            
|                   |  |                                      |  |                                                           |  |                                                              |  |             
|Polygon            |  | ALD, PEALD                           |  | Single Wafer Atomic Layer Deposition Systems              |  |                                                              |  | ü            |  | ü             |  |               |  |                   |  |            
|                   |  |                                      |  |                                                           |  |                                                              |  |             
|Eagle              |  | PECVD, ALD, PEALD                    |  | Eagle, Dragon and Stellar7Single Wafer
Processing Systems |  |                                                              |  |              |  | ü             |  |               |  | ü                 |  | ü          



|(1) | Advance, Levitor, Epsilon, Polygon, PEALD, Eagle, Dragon, A400, A412, and Stellar are used, registered or pending ASMI trademarks.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(2) | A checkmark in the boxes under the manufacturing application indicates one or more systems sold to a customer.
|--- | --------------------------------------------------------------------------------------------------------------

|(3) | This includes CMOS transistor formation.
|--- | ----------------------------------------

|(4) | Includes the formation of the capacitor structure in a DRAM or Flash memory cell.
|--- | ---------------------------------------------------------------------------------

|(5) | Radio Frequency/Analog Mixed Signal, including bipolar transistor formations in a BiCMOS chip.
|--- | ----------------------------------------------------------------------------------------------

|(6) | Includes integrated passives, such as capacitors on a chip, used in, for example, single chip radio devices (radio on a chip).
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(7) | Despite different configurations and capabilities, the Eagle, Dragon and Stellar are considered one product platform because they share the same software framework, many critical components,
and product structure.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Description of our Front-end
Segments Product Platforms



Advance 400



The Advance 400 is ASMIs Vertical Furnace, batch processing platform.
Products built on this product platform are used for diffusion, oxidation, (LP)CVD and ALD. The product platform is used in many manufacturing steps, from the production of silicon wafers to the final anneal in interconnect. The A400 is a system for
150 and 200mm wafers, while the A412 is a 300mm Vertical Furnace. The A412 can also be used as a bridge tool for 200mm wafers. The A412 systems feature two reactors above a rotating carousel, a dual-boat concept, and a wide range of process
applications with load sizes up to 150 wafers in a single run. In this series, ASMI also offers the A412 SmartBatch, featuring a flexible load size of 1 to 50 wafers, and the A4ALD, for atomic layer deposition of dielectrics, targeted mainly for
DRAM capacitor applications and other high volume, low variability and operating cost applications.



Levitor



The Levitor is our single-wafer RTP platform. The Levitors conductive heating technology is radically different from competing radiative systems with lamps.
In the Levitor, the wafer floats on a very thin cushion of gas between two coated graphite blocks maintained at the desired process temperature. The result is very precise wafer heating, which is independent from the emissivity, or color, of the
wafer. The Levitor 4300



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is configurable for rapid thermal anneal of either 200 or 300mm wafers in high-volume semiconductor manufacturing. Two reactors can be integrated into one system for
optimum cost and production efficiency. The Levitor can perform most RTA processes, including low temperature nickel-silicide and cobalt-silicide anneals and high temperature, ultra-short spike activation anneals. Low temperature copper
anneal for BEOL interconnect application is currently in development. The Levitor is designed to participate in all manufacturing applications, and is currently installed in FEOL logic and memory manufacturing.



Epsilon



The Epsilon is our platform for single wafer epitaxy. The Epsilon product platform offers a wide range of epitaxy products and
materials for many applications, ranging from high temperature silicon used in silicon starting material manufacturing, to low temperature, selective or non-selective silicon germanium (SiGe) and silicon germanium carbon
(SiGeC) used in bipolar devices. More recently, low temperature selective SiGe, silicon carbon (SiC) and pure silicon processes for recessed and raised source-drain applications have been developed on this platform. The
Epsilon 2000 is a single wafer, single reactor system for 150mm and 200mm wafers. The Epsilon 3000 was the first epitaxy system that was used for 300mm production of recessed source/drains with selective silicon-germanium. Our newest system, the
Epsilon 3200, features several productivity enhancements. We expect that the continued demands from our customers to increase device speed and reduce power consumption will drive an increased use of advanced epitaxial layers in the device,
particularly when deviations from planar CMOS occur.



Polygon



The Polygon is a single wafer atomic layer deposition platform. It
features a six-sided central vacuum handler, capable of hosting up to four reactors. One or more Pulsar 3000 modules, the latest generation of the industrys first ALD reactor, or EmerALD modules with PEALD technology, can also be integrated
into the system platform. Products built on this product platform are currently being used in ALD high-k gate dielectrics for FEOL logic, (embedded) DRAM capacitor dielectrics for SoC, blocking layers for non-volatile memories, magnetic head gap
fill, and MIM capacitor applications for SoC. Products can be configured for either 200mm or 300mm wafer processing. Processes for the SoC related applications will in the future be offered on the Eagle product platform.



Eagle



The Eagle is our single-wafer plasma processing platform. The basic Eagle 10 systems for 200mm, and the Eagle 12 systems for 300mm
systems each have two reactors, and are utilized in high volume manufacturing for PECVD of insulators (such as silicon oxide, silicon nitride, silicon oxi-nitride) mainly for interconnect applications. Plasma polymerization processes released on the
Eagle and Dragon product platform include a full series of Aurora low-k dielectrics for interconnect applications, and Nano Carbon Polymer (NCP), a hard mask layer for deep UV lithography to improve formation of deep and small structures
for FEOL memory. The Eagle 10 TRIDENT (200mm) and Eagle 12 Rapidfire (300mm) systems feature three reactors for larger productivity. From this same product platform also the Dragon and the Stellar product lines have been launched in 2003
and 2006, respectively. The Dragon 2300 is a dual reactor PECVD system that is configured for high wafer throughput. The Dragon has what we consider to be the smallest footprint of any high volume, 300mm PECVD production tool. The Stellar 2300 is a
dual reactor ALD or PEALD system, intended mainly for the SoC capacitor market.



Description of our Front-end Segments Process Technology Platforms



Depending on application, a process technology can be used in more than one product platform. Process technologies that are intended for use across multiple product
platforms are called a process technology platform. The technologies in a process technology platform share a common knowledge base and patent portfolio. ALCVD, for example, is enabled on both ASMIs single wafer and batch product platforms.
This gives us the ability to provide a single wafer tool for a certain application when short development cycle times are needed initially, then switch to a batch tool for efficiencies in high volume production, sometimes using the same chemistry.



ALCVD: Atomic Layer Deposition and Plasma Enhanced Atomic Layer
Deposition



ALCVD is one of the newest technologies to deposit
ultra-thin films of exceptional flatness and uniformity. This technology was brought into ASMI in 1999 with the acquisition of ASM Microchemistry, who first developed the thermal ALD technology. PEALD is an extension of this original ALD technology
that uses plasma, which was brought into ASMI in 2001 through a partnership with Genitech and a subsequent acquisition in 2004. Collectively ASMI refers to it these two technologies as its ALCVD process technology platform. The current process
development effort is focused mainly on providing new, higher quality,



25



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dielectric materials with higher throughput. Several dielectric processes are released on our Polygon, Eagle and Advance 400 product platforms. A relatively smaller
but steadily increasing effort is directed towards the process development for conductors. A TiN (a special high temperature resistant conductor) process is released on our Advance 400 product platform. We have hundreds of issued patents that relate
to this process technology platform. In addition, ALCVD, Atomic Layer CVD, and PEALD are our trademarks. We expect that the trends of continued scaling, and evolution towards three dimensional device structures plays into the strength of our ALCVD
process technology.



CVD and LPCVD: novel chemistries and New
Technology



On our CVD process technology platform we have developed
processes with new chemistries (under the trademark Silcore) that enable the deposition of silicon and silicon containing materials at low temperatures. Collectively the necessary system hardware and software is called New Technology
(NT). Processes are released on our Epsilon product platform for non-selective epitaxy and single wafer LPCVD, and on our Advance 400 product platform for silicon nitride spacer applications. We are continuing to develop potential
applications of NT with our supplier partner Voltaix, and our research partner IMEC. Our strategy for the CVD process technology platform as a whole is to continue to qualify new chemistries developed by, and with, our chemical suppliers for all of
our product platforms, in advance of the development of our customers needs. We have about 10 issued patents related to special LPCVD process chemistries, including NT.



26



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##### Table of Contents

Back-end Segment Products



The following table lists our principal products for back-end market, the main technologies that they enable, and the semiconductor device manufacturing
application for which the products are used.



|                               |  |                                                                          |                |                                                                                                              |        |                                                            |                      |   |     |   |     |   |              |   |     |   |           |   |          |   |        |   |  |  
|------------------------------ |  | ------------------------------------------------------------------------ | -------------- | ------------------------------------------------------------------------------------------------------------ | ------ | ---------------------------------------------------------- | -------------------- | - | --- | - | --- | - | ------------ | - | --- | - | --------- | - | -------- | - | ------ | - |  | -
|ProductPlatform
1              |  | ASMI ProcessTechnology                                                   |                | Products1                                                                                                    |        | Currently participates in the Manufacturing
Solution for2:
|                               |  |                                                                          | HighSpeedLogic |                                                                                                              | Memory |                                                            | Discretes(LED,Power) |   | LED |   | SIP |   | ImageSensors |   | COB |   | SmartCard |   | RFIDTags |   | RF/AMS
|                               |  |                                                                          |                |                                                                                                              |        |                                                            |                      |   |     |   |     |  
|Die Bonding Products           |  | Die Bonding                                                              |                | AD898/8912 epoxy/eutectic, SD890 soft solder, IS898 glass attach Systems                                     |        | ü                                                          |                      | ü |     | ü |     | ü |              | ü |     | ü |           | ü |          | ü |        | ü |  | ü
|                               |  |                                                                          |                |                                                                                                              |        |                                                            |                      |   |     |   |     |  
|Die Sorting Products           |  | Die Sorting                                                              |                | WP808A WLP sorting Systems, WS896, AS896A, MS899 die sorting Systems                                         |        |                                                            |                      |   |     | ü |     | ü |              |   |     |   |           | ü |          |   |        |   |  |  
|                               |  |                                                                          |                |                                                                                                              |        |                                                            |                      |   |     |   |     |  
|AD9xxx Series                  |  | Flip Chip Bonding                                                        |                | AD900, AD900TS AD9012, AD9012TS flip chip bonding Systems                                                    |        |                                                            |                      |   |     | ü |     | ü |              |   |     |   |           | ü |          |   |        |   |  | ü
|                               |  |                                                                          |                |                                                                                                              |        |                                                            |                      |   |     |   |     |  
|Eagle60 Series                 |  | Thermosonic Wire Bonding                                                 |                | Eagle Extreme, Eagle60AP TS and TwinEagle and Harrier dual head Wirebonders
Hummingbird stud bumping Systems |        | ü                                                          |                      | ü |     | ü |     | ü |              | ü |     | ü |           | ü |          | ü |        | ü |  | ü
|                               |  |                                                                          |                |                                                                                                              |        |                                                            |                      |   |     |   |     |  
|AB5xx Series                   |  | Ultrasonic Wedge Bonding                                                 |                | AB520, AB530, AB559A                                                                                         |        |                                                            |                      |   |     | ü |     | ü |              |   |     |   |           | ü |          |   |        |   |  |  
|                               |  |                                                                          |                |                                                                                                              |        |                                                            |                      |   |     |   |     |  
|Encapsulation Products         |  | Encapsulation                                                            |                | IDEALmold and Osprey transfer molding Systems, DS898, DS500 dam-and-fill Systems                             |        | ü                                                          |                      | ü |     | ü |     | ü |              | ü |     |   |           |   |          | ü |        |   |  | ü
|                               |  |                                                                          |                |                                                                                                              |        |                                                            |                      |   |     |   |     |  
|Post Encapsula-lation Products |  | Ball Placement, Testing and Marking, Trim and Form, Singulation, Binning |                | MP209, BG289, FT2030, CS8000, BP2000                                                                         |        | ü                                                          |                      | ü |     | ü |     | ü |              | ü |     | ü |           |   |          | ü |        | ü |  | ü



|(1) | Eagle60, Harrier, Hummingbird, IDEALmold, Osprey, and TwinEagle are used, registered, or pending ASM Pacific Technology trademarks.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(2) | A checkmark in the boxes under the manufacturing application indicates one or more systems sold to a customer.
|--- | --------------------------------------------------------------------------------------------------------------



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Die and Flip Chip Bonding, and Die Sorting Products



We manufacture several die bonding models as well as die sorting equipment to address
various markets including semiconductors and light emitting diodes (LED). The latest epoxy die bonder platform for 300mm wafers continues the path undertaken by ASMI to provide customers with the highest quality and best cost/performance systems on
the market. With its capability of handling up to 300mm wafers, fully automatic operation, epoxy writer, pre and post bond inspection and wafer mapping, this platform is able to provide customers with exceptional operational results. Variations on
this platform have been developed to address the requirements of the growing stacked die market. The ability to handle silicon devices down to 25 microns in thickness is a key feature for the future.



Packaged device performance is continually pushed to higher levels. In critical
applications, devices are increasingly utilizing flip chip interconnect methods to provide higher levels of electrical performance. Our flip chip platform provides high speed flip chip die bonding for IC applications. Variations of this platform
have evolved to provide for the use of ultrasonics, heat force or the combination of these to affect the process. There continues to be a very large market in which the die and wafer sizes are relatively small, under 30 mils square. A mil is 1/1000
of an inch. Many of these devices are attached directly to printed circuit boards (Chip on Board, COB) or very large arrays. Therefore, many different handling methods are required. We have several systems addressing the various form
factors represented in the market.



LEDs represent a separate but very
large category of the small die business. This segment requires both high speed and high precision manipulation of very small devices. Many of these devices are assembled in arrays with a die attach process. In these arrays brightness and color must
match. We have developed several platforms for sorting these devices and segregating them according to the customers requirements. The high power LED market for general purpose illumination continues to grow. These devices have unique thermal
and electrical requirements that must be met by the die attach process. We have a new platform that addresses the use of soft solder in a special atmosphere that facilitates this special process. Machines may be configured to operate stand-alone or
connected to epoxy curing ovens and wire bonders.



Wire Bonding
Products



The Eagle Extreme gold wire bonder has successfully
completed field trials begun in late 2007 and we expect to begin revenue shipments within the first half of 2008. This is the successor to our award-winning Eagle60AP generation bonder. The Eagle Extreme and Eagle60 AP gold wire bonders continue to
extend the productivity of the process as well as exceed the industry roadmaps for required bond pad pitch. Additional features on the Eagle Extreme allow it to deal with the complex wire geometries and extreme height variations that are prevalent
in the stacked die packages being built today at higher productivity rates. The productivity envelope was enlarged with the introduction in 2005 of our latest dual head platform, the TwinEagle. This tool provides all the capabilities of our standard
Eagle60AP but with higher output per floor space required. We also extended our product portfolio in the wedge bonder area with newer, faster, more flexible systems to address the consumer products market that focuses on cost effective solutions.
The expansion of the flip chip process has also provided us with opportunities to take advantage of our wire bonder technology to provide platforms capable of applying gold or copper stud bumps on wafers up to 300mm in diameter.



Encapsulation Products



Our auto molding product line continues to build on the success of our earlier
automated multi-plunger molding systems. The IDEALmold serves the industry segment that requires very high throughput with production flexibility. The recent shift in lot sizes and package variability also required a new platform. We have met this
requirement with our Osprey single strip molding system. With this platform, the emphasis is on quick material and package conversions for low volume, high mix situations. As with all ASMI products, it can be configured for stand alone or integrated
in line operations with our other back end platforms.



Post
Encapsulation Products



Ball placement systems have seen strong
growth as the ball grid array (BGA) package types continue to expand. These are the mainstream packages for microprocessors and other high performance chips found in computer systems today. Our early work in this area has allowed us to
be the exclusive supplier of ball placement systems to the major provider of such components. As the number of package variants continues to increase along with the leadframe unit density, our post encapsulation products (PEP) have also
evolved. The variation requires systems that are more flexible and faster to convert. The increased density has reduced the need for press speed but increased the emphasis on precision. The decrease in package thickness has dictated a change in the
tooling methodology to provide more support throughout the



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trim, form, and singulation processes. Significant changes have been made in design to migrate to turret handling and offloading for small packages. These changes
allow the incorporation of faster handling across more processes in a smaller footprint than the conventional linear approach. Significant inroads have been made in the incorporation of test heads into these lines so that units emerge ready to ship.



Automated Systems



The IDEALine integrates back-end assembly, packaging, and test handling equipment.
Such lines can be fully controlled by computers minimizing operator intervention and providing better quality through more stringent process recipe control. We believe we are the only manufacturer of back-end equipment capable of offering such an
extensive integrated line using our own equipment. These lines integrate serial process steps with mechanical and software linkages. Offered in a modular format, customers may integrate some or all of the following processes that we supply: die
bonding and inspection, epoxy curing, wire bonding and inspection, encapsulation, post mold curing, package singulation, test handling, inspection, and packing.



Intellectual Property and Trademarks



Intellectual Property



Because of the rapid technological advances in the microelectronics field, we believe that our products will be subject to continuing change and enhancement.
Accordingly, we believe that our success will depend upon the technical competence and creative ability of our personnel as well as the ownership of and the ability to enforce our intellectual property rights.



We own and license patents that cover some of the key technologies, features and
operations of our major front-end products and are registered in the principal countries where semiconductor devices or equipment are manufactured or sold. The acquisitions of NuTool and Genitech in 2004 resulted in an expansion of our patent
portfolio in the areas of ECD, ECMD, ECMP, ALD, PEALD and metal organic CVD. In December 2006, we sold substantially all of the ASM NuTool patent portfolio to a third party, with granting of a license to ASMI in the field of packaging technology.
The following table shows the number of patents for which we made an initial filing during the indicated year and the number of patents in force by us at the end of the indicated year.



|          |                            |                        |     |      |     |      |     |      |     |       |     |     
|--------- | -------------------------- | ---------------------- | --- | ---- | --- | ---- | --- | ---- | --- | ----- | --- | ----
|Segment   |                            | For year:              |     | 2003 |     | 2004 |     | 2005 |     | 20061 |     | 2007
|Front-end |                            | Initial patent filings |     | 93   |     | 112  |     | 107  |     | 94    |     | 93  
|          | Issued patents at year end |                        | 453 |      | 638 |      | 768 |      | 722 |       | 793
|          |                            |                        |     |      |     |     
|Back-end  |                            | Initial patent filings |     | 31   |     | 25   |     | 18   |     | 25    |     | 26  
|          | Issued patents at year end |                        | 33  |      | 77  |      | 112 |      | 186 |       | 256



|(1) | The numbers from 2006 on exclude the ASM NuTool patents that were sold in December 2006. Included in this sale were 6 initial patent filings and 133 issued patents.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have entered into worldwide, non-exclusive, non-transferable and non-assignable
licenses with Applied Materials for patents related to epitaxy and some chemicals used to deposit insulating layers for PECVD. We pay Applied Materials a royalty on sales of equipment that use the patented technology. A number of the licensed
patents have already expired. The remaining royalty bearing patents expire at various times through 2012. Upon expiration of the patents, the technology may be used royalty-free by the public, including us.



In 2005, we started to actively license out intellectual property in our ALCVD process
technology platform. Non-exclusive, restricted field of use license agreements were entered into with Veeco Instruments and Oxford Instrument Plasma Technology. At the end of 2007 we entered into a non-exclusive, restricted field of use license
agreement with Hitachi Kokusai Electric Inc. In addition to generating revenue, licensing is expected to accelerate market acceptance of our ALCVD technology. We expect licensing revenue to increase once the market addressed by these licensees comes
to further development and maturity. We will continue to seek other licensees for this important process technology platform in complementary markets.



In the back-end market, companies generally compete based on their cumulative expertise in applying well known technologies to improve productivity and
cost-efficiency. As a result, we have historically filed fewer patents related to our back-end operations. Due to increasing pressure on new technology development in the back-end market, and the increasing fractional value of the package in the
device, we expect the back-end patent intensity to increase over the following years. Wherever deemed necessary, ASM Pacific Technology will file for protection of its innovations.



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Trademarks



ASM, the ASM International logo, A600 UHV, Advance, Aurora, Carbonspeed, Coppermine, Dragon, Eagle, EmerALD, Epsilon, Levitor, Polygon, Pulsar, Rapidfire,
SiGePLUS, and Silcore are our registered trademarks. A400, A412, A4ALD, ALCVD, Atomic Layer CVD, CarbonPLUS, Eagle TRIDENT, NCP, New Technology, PEALD, Pore Builder, SmartBatch, Stellar and Superfill CVD are our trademarks, and The Process of
Innovation is our service mark.



AB500B, DRYLUB, EQUIPMANAGER, EQUIPMGR,
IDEALine, IDEALsystem, IDEALab, IDEALNet, PGS, SMARTWALK, and SOFTEC are registered trademarks of ASM Pacific Technology Ltd. Cheetah, Eagle60, Harrier, Hummingbird, IDEALCompress, IDEALmold, Osprey, SmartSurf and TwinEagle are trademarks of ASM
Pacific Technology.



Litigation



There has been substantial litigation regarding patent and other intellectual property
rights in semiconductor-related industries. Although we have been involved in significant litigation in the past, we are at present not involved in any litigation which we believe is likely to have a material adverse effect on our financial
position. In the future, additional litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend ASMI against claimed infringement of the rights of others and to determine the scope and
validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of effort by us, which could have a material adverse effect on our business, financial condition, and earnings from operations. Adverse
determinations in such litigation could result in our loss of proprietary rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our products, any of
which could have a material adverse effect on our business, financial condition and earnings from operations.



Research and Development



We believe
that our future success depends to a large extent upon our ability to develop new products and add improved features to existing products. Accordingly, our global product development policies and local activities are for the most part directed
toward expanding and improving present product lines to incorporate technology advances and reduce product cost, while simultaneously developing new products that can penetrate new markets. These activities require the application of physics,
chemistry, materials science, electrical engineering, precision mechanical engineering, software engineering, and system engineering.



Our net research and development expenses were  89.8 million,  88.1 million and  83.5 million in 2005, 2006 and 2007,
respectively. We expect to continue investing significant resources in research and development in order to enhance our product offerings. Our research and development activities are chiefly conducted in the principal semiconductor markets of the
world, which enables us to draw on innovative and technical capabilities on an international basis. Each geographic center provides expertise for specific products and/or technologies. This approach, combined with the interactions between the
individual centers, permits efficient allocation of technical resources and customer interaction during development.



|          |                                 |                                           |     |                                                                           
|--------- | ------------------------------- | ----------------------------------------- | --- | --------------------------------------------------------------------------
|SEGMENT   |                                 | LOCATION                                  |     | NUMBER OF R&DEMPLOYEES AS OFDECEMBER 31, 2007,EXCLUSIVE OFTEMPORARYWORKERS
|Front-end |                                 | Almere and Bilthoven, the Netherlands     |     | 60                                                                        
|          | Leuven, Belgium                 |                                           | 27 
|          | Espoo, Finland                  |                                           | 7  
|          | Phoenix, Arizona, United States |                                           | 104
|          | Cheonan, South Korea            |                                           | 31 
|          | Tama, Japan                     |                                           | 79 
|          | Mainz, Germany                  |                                           | 11 
|Back-end  |                                 | Hong Kong, the Peoples Republic of China |     | 375                                                                       
|          | Singapore                       |                                           | 274
|Total     |                                 |                                           |     | 968                                                                       



As part of our research and
development activities, we are engaged in various formal and informal arrangements with customers and institutes. Our front-end segment currently is engaged in formal joint development programs with customers for 300mm applications of our Eagle,
Polygon, Epsilon, Levitor,



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Stellar and Advance A412 products. As part of these efforts, we may sell new products to customers at a significantly reduced margin, and invest significant resources
in the joint development and subsequent product qualification. We sometimes also cooperate with other semiconductor capital equipment suppliers in complementary fields, in order to gain knowledge on the performance of our own processes, in
cooperation with other processes. In addition to cooperating with customers and other capital equipment suppliers, we also enter into research projects with technical universities.



We participate also in publicly funded programs, mainly in Europe, to develop the production technology for semiconductor devices with
line widths of 45, 32, 22nm and below. Among our current cooperative efforts are projects awarded under the Information Society Technologies (IST) sixth framework program. In 2007 we participated in several discussions for the follow-on seventh
framework program, which program will start in 2008. We are also a partner in several developmental programs in the Eureka initiative by MEDEA+, Micro Electronics Development for European Applications.



As part of these projects, we may sell our equipment to customers who will use grants
or research loans to acquire these products or we may receive research and development grants or credits directly. We have received such credits in the past from the government of the Netherlands, of which  3.0 million was outstanding at December 31, 2007, including accrued interest. This credit has to be repaid only from the sales proceeds, during an agreed upon time period, of the
products developed with this assistance at repayment rates of up to 100% of the amounts of the credit. This amount has not been recognized as a liability in the Consolidated Balance Sheet since we have not recognized sales of products to which the
credit is related.



In October 2004, we commenced a strategic partnership
with the Interuniversity MicroElectronics Center (IMEC) in Belgium for their 300mm, 45nm and 32nm FEOL technology development program. ASMIs Epsilon, Advance 400 Series, Levitor and Polygon based products are involved in this partnership. In
September 2005 we complemented this FEOL partnership with a partnership in BEOL for advanced on-chip interconnect which will utilize ASMIs Eagle based products. This gives ASMI the opportunity to investigate, both jointly and independently,
the integration of individual process steps in process modules and electrically active devices. The partnerships are now extended to include 22nm, to the end of 2009 for FEOL and to the middle of 2010 for BEOL. These partnerships may be further
extended, and their scope may be changed, continuously adjusting the project portfolio to emerging market needs. ASMI has been partnering with IMEC since 1990.



Manufacturing and Suppliers



Our manufacturing operations consist of the fabrication and assembly of various critical components, product assembly, quality control and testing.



In the second half of 2004, in order to reduce manufacturing costs in our front-end
operations we established FEMS, a manufacturing facility in Singapore, to manufacture certain generic subsystems and subassemblies for our Vertical Furnaces that we previously outsourced. At the end of 2007, generic subassemblies for Vertical
Furnaces and Epitaxy systems are manufactured in this facility. We also work closely with our suppliers to achieve mutual cost reduction through joint design efforts.



Our back-end operations are vertically integrated. The manufacturing activities in Hong Kong and Singapore consist primarily of
assembling and testing components and subassemblies manufactured at our main manufacturing facilities in the Peoples Republic of China and Malaysia.



Marketing and Sales



We market and sell our products with the objective of developing and maintaining an ongoing, highly interactive service and support relationship with our customers.
Our marketing strategy includes advertising and participating in various industry trade shows. We provide prospective customers with extensive process and product data, provide opportunities for tests on demonstration equipment and, if required,
install evaluation equipment at the customers site. Once equipment has been installed, we support our customers with, among other things, extensive training, on-site service, spare parts and process support. All of this is further supported by
in-house development to enhance the productive life of existing equipment. We make hardware improvements available in the form of retrofit kits as well as joint development of new applications with our customers. We encourage our engineers to submit
technical papers to relevant magazines and to give lectures in symposia.



Because of the significant investment required to purchase our systems and their highly technical nature, the sales process is complex, requiring interaction with several levels of a customers organization and extensive technical
exchanges, product demonstrations and commercial negotiations. As a result, the full sales cycle can be as long as 12 to 18 months for sales of front-end equipment and three to six months



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for sales of back-end equipment. Purchase decisions are generally made at a high level within a customers organization, and the sales process involves broad
participation across our organization, from senior executive management to the engineers who designed the product.



Our sales process usually starts with high-level introduction meetings. Early in the process we also meet with operational personnel to discuss the intended uses of
our equipment, technical requirements, solutions, and the overall production process of the customer. Demonstrations and evaluation of test results take time. Once we agree upon the technology elements of the sale, the process continues with price
and delivery negotiations and, when completed successfully, with the issuance by the customer of a letter of intent to secure a slot in the manufacturing and assembly planning schedule, followed by a purchase order.



To market our products, we operate demonstration and training centers where customers
can examine our equipment in operation and can, if desired, process their wafers or individual dies for further in-house evaluation. Customers are also trained to properly use purchased equipment.



Each of our major product lines has a dedicated product manager, responsible for
positioning the product in the market, developing it over time and evaluating its relative performance compared to the competition. Each product manager sets priorities in terms of technical development and sales support.



To execute the sales and service functions, we have established a direct, integrated
sales force for front-end products reporting on a geographical basis to the managers in charge of Europe, North America, South Korea, Taiwan, Peoples Republic of China, Southeast Asia and Japan. Dedicated support and sales forces are
maintained for our various geographic units, enabling us to serve our global customers with an equally global organization. Each of our geographic front-end units is responsible for sales of all of our front-end products in its region. We believe
the integration of our sales force promotes cross selling of front-end products. In addition to the sales activities undertaken at the principal offices of our various manufacturing units, we have sales offices located in Europe (in the United
Kingdom, France, Ireland, Italy and Germany), in the United States (in California, Texas and Pennsylvania), in Israel, and in Japan (in Tokyo and Osaka). We use an independent sales agent in Taiwan for front-end products. At the end of 2007, 150
employees were employed in sales and marketing of front-end products, representing 8% of total front-end segment staff.



Sales of back-end equipment and materials are provided by our principal offices in Hong Kong and Singapore, through direct sales offices in the Peoples
Republic of China, Taiwan, the Philippines, Malaysia, Thailand, Japan, Europe and North America, and through sales representatives in South Korea and some parts of the United States. At the end of 2007, 301 employees were employed in sales and
marketing of back-end products, representing 3% of total back-end staff.



Customers



We sell our products predominantly to manufacturers of
semiconductor devices and manufacturers of silicon wafers. Our customers include most of the leading semiconductor and wafer manufacturers. Our customers vary from independent semiconductor manufacturers that design, manufacture, and sell their
products on the open market, to large electronic systems companies that design and manufacture semiconductor devices for their own use, to semiconductor manufacturers, known as foundries, that manufacture devices on assignment of other companies,
including fabless companies that design chips but do not have wafer processing factories.



Our largest customer accounted for approximately 17.2%, 11.4% and 9.6% of our net sales in 2005, 2006 and 2007, respectively. Our ten largest customers accounted
for approximately 43.7%, 33.9% and 32.4% of our net sales in 2005, 2006 and 2007, respectively. Historically, a significant percentage of our net sales in each year has been attributable to a limited number of customers; however, the largest
customers for our products may vary from year to year depending upon, among other things, a customers budget for capital expenditures, timing of new fabrication facilities and new product introductions.



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The following table shows the distribution of net sales, by segment and geographic destination of the product:



|     |          |           |       |                        |  |  |        |  |               |                        |      |                         |   |     |          |  
|---- | -------- | --------- | ----- | ---------------------- |  |  | ------ |  | ------------- | ---------------------- | ---- | ----------------------- | - | --- | -------- | -
|     |          |           |       |                        |  | 
|     |          | SEGMENT   |       | PERCENTAGEOF NET SALES |  |  |        |  |               | GEOGRAPHIC DESTINATION |      | PERCENTAGE OF NET SALES |  
|     |          |           |       |                        |  |  |        |  |               |                        |      | Front-end               |   |     | Back-end |  
|2007 |          | Front-end |       | 47.2%                  |  |  |        |  |               | S.E. Asia              |      | 18.7                    | % |     | 49.5     | %
|     |          |           |       |                        |  |  | Europe |  | 8.5           | %                      |      | 0.8                     | %
|     | Back-end |           | 52.8% |                        |  |  |        |  | United States |                        | 11.8 | %                       |   | 1.6 | %       
|     |          |           |       |                        |  |  | Japan  |  | 8.2           | %                      |      | 0.9                     | %



|     |          |           |       |                        |  |  |        |  |               |                        |      |                         |   |     |          |  
|---- | -------- | --------- | ----- | ---------------------- |  |  | ------ |  | ------------- | ---------------------- | ---- | ----------------------- | - | --- | -------- | -
|     |          |           |       |                        |  | 
|     |          | SEGMENT   |       | PERCENTAGEOF NET SALES |  |  |        |  |               | GEOGRAPHIC DESTINATION |      | PERCENTAGE OF NET SALES |  
|     |          |           |       |                        |  |  |        |  |               |                        |      | Front-end               |   |     | Back-end |  
|2006 |          | Front-end |       | 46.7%                  |  |  |        |  |               | S.E. Asia              |      | 13.8                    | % |     | 48.3     | %
|     |          |           |       |                        |  |  | Europe |  | 10.3          | %                      |      | 1.4                     | %
|     | Back-end |           | 53.3% |                        |  |  |        |  | United States |                        | 16.0 | %                       |   | 2.3 | %       
|     |          |           |       |                        |  |  | Japan  |  | 6.6           | %                      |      | 1.3                     | %



|     |          |           |       |                        |  |  |        |  |               |                        |      |                         |   |     |          |  
|---- | -------- | --------- | ----- | ---------------------- |  |  | ------ |  | ------------- | ---------------------- | ---- | ----------------------- | - | --- | -------- | -
|     |          |           |       |                        |  | 
|     |          | SEGMENT   |       | PERCENTAGEOF NET SALES |  |  |        |  |               | GEOGRAPHIC DESTINATION |      | PERCENTAGE OF NET SALES |  
|     |          |           |       |                        |  |  |        |  |               |                        |      | Front-end               |   |     | Back-end |  
|2005 |          | Front-end |       | 49.4%                  |  |  |        |  |               | S.E. Asia              |      | 10.7                    | % |     | 40.7     | %
|     |          |           |       |                        |  |  | Europe |  | 13.4          | %                      |      | 1.5                     | %
|     | Back-end |           | 50.6% |                        |  |  |        |  | United States |                        | 18.4 | %                       |   | 2.1 | %       
|     |          |           |       |                        |  |  | Japan  |  | 6.9           | %                      |      | 6.3                     | %



Customer Service



We provide responsive customer technical assistance to support our marketing and
sales. Technical assistance is becoming an increasingly important factor in our business as most of our equipment is used in critical phases of semiconductor manufacturing. Field engineers install the systems, perform preventive maintenance and
repair services, and are available for assistance in solving customer problems. Our global presence permits us to provide these functions in proximity to our customers. We also maintain local spare part supply centers to facilitate quick support.



We provide maintenance during the product warranty period, usually one
to two years, and thereafter perform maintenance pursuant to individual orders issued by the customer. In addition to providing ongoing service, our customer service operations are responsible for customer training programs, spare parts sales and
technical publications. In appropriate circumstances, we will send technical personnel to customer locations to support the customer for extended periods of time in order to optimize the use of the equipment for the customers specific
processes. For our front-end operations, where the availability of field support is particularly important for a sale, 620 employees were employed in customer service at the end of 2007, representing 34% of total front-end segment staff.



Competition



The semiconductor equipment industry is intensely competitive, and is fragmented among companies of varying size, each with a limited
number of products serving a particular segment of the semiconductor process. Technical specifications of the individual products are an important competitive factor, especially concerning capabilities for manufacturing of new generations of
semiconductor devices. As each product category encompasses a specific blend of different technologies, our competitive position from a technology standpoint may vary within each category. Customers are evaluating manufacturing equipment based on a
mixture of technical performance and cost of ownership over the life of the product. Main competitive factors include overall product performance, yield, reliability, maintainability, service, support and price. We believe that we are competitive
with respect to each of these factors, and that our products are cost effective.



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As the variety and complexity of available machinery increases, some semiconductor manufacturers are attempting to
limit their suppliers. In addition, semiconductor manufacturers are located throughout the world, and expect their equipment suppliers to have offices worldwide to meet their supply and service needs. Semiconductor equipment manufacturers with a
more limited local presence are finding it increasingly difficult to compete in an increasingly global industry.



Our primary competitors in the front-end market are from the United States and Japan. Our primary competitors in the back-end market are from the United States,
Europe and Japan. In each of our product lines, we compete primarily with two or three companies which vary from small to large firms in terms of the size of their net sales and range of products. Our primary competitors in the front-end market
include amongst others Applied Materials, Novellus Systems, Tokyo Electron, Kokusai, Aviza, and Jusung. Our primary competitors in the back-end market include amongst others Kulicke & Soffa, ESEC, Shinkawa, Apic Yamada, BE Semiconductor
Industries, Towa, Shinko and Mitsui.



C. Organizational structure.



The following chart presents the jurisdiction of incorporation
of our significant subsidiaries and our percentage of ownership interest in those subsidiaries as of March 14, 2008:



|                                                                      |  |                         |  |                                           
|--------------------------------------------------------------------- |  | ----------------------- |  | ------------------------------------------
|SUBSIDIARY NAME AND LOCATION                                          |  | COUNTRY OFINCORPORATION |  | PERCENTAGE OWNED BY ASM INTERNATIONAL N.V.
|                                                                      |  |                        
|ASM Europe B.V. Almere, the Netherlands                               |  | The Netherlands         |  | 100%                                      
|                                                                      |  |                        
|ASM America, Inc. Phoenix, Arizona, United States                     |  | United States           |  | 100%                                      
|                                                                      |  |                        
|ASM Japan K.K. Tama, Japan                                            |  | Japan                   |  | 100%                                      
|                                                                      |  |                        
|ASM Front-End Manufacturing Singapore Pte. Ltd., Singapore            |  | Singapore               |  | 100%                                      
|                                                                      |  |                        
|ASM Pacific Technology Ltd.
Hong Kong, the Peoples Republic of China |  | Cayman Islands          |  | 53.10%                                    



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D. Property, plant and equipment.



To develop and manufacture products to local specifications and to market and service products more effectively in the worldwide semiconductor market, our
front-end facilities are located in the Netherlands, the United States, Japan and Singapore and our back-end facilities are located in Hong Kong, the Peoples Republic of China, Singapore and Malaysia. Our principal facilities are summarized
below:



|          |  |                                       |  |                                                                                                              |  |                                     
|--------- |  | ------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ------------------------------------
|SEGMENT   |  | LOCATION                              |  | PRIMARY USES                                                                                                 |  | APPROXIMATE AGGREGATE SQUARE FOOTAGE
|          |  | Bilthoven, the Netherlands            |  | Executive offices of ASMI                                                                                    |  | 11,000                              
|          |  | Tama and Nagaoka, Japan               |  | Wafer processing equipment manufacturing, marketing, research and offices                                    |  | 425,000                             
|          |  | Phoenix, Arizona, United States       |  | Wafer processing equipment manufacturing, marketing, research and offices                                    |  | 176,000                             
|Front-end |  | Almere, the Netherlands               |  | Wafer processing equipment manufacturing, marketing, research and offices                                    |  | 160,000                             
|          |  | Singapore                             |  | Wafer processing equipment manufacturing and offices                                                         |  | 169,000                             
|          |  | Cheonan, South Korea                  |  | Wafer processing equipment manufacturing, marketing, research and offices                                    |  | 23,000                              
|          |  | Espoo, Finland                        |  | Wafer processing equipment research and offices                                                              |  | 5,000                               
|          |  | Hong Kong, Peoples Republic of China |  | Semiconductor assembly and encapsulation equipment manufacturing, marketing, research and offices            |  | 250,000                             
|          |  | Shenzhen, Peoples Republic of China  |  | Semiconductor assembly equipment parts and modules manufacturing, leadframe manufacturing and offices        |  | 1,237,000                           
|Back-end  |  | Singapore                             |  | Semiconductor assembly equipment and etched leadframe manufacturing, marketing, research and offices         |  | 333,000                             
|          |  | Johor Bahru, Malaysia                 |  | Semiconductor assembly equipment parts and modules manufacturing, etched leadframe manufacturing and offices |  | 312,000                             



Our principal facilities in the
Netherlands, the United States, Finland, Hong Kong, the Peoples Republic of China, Singapore and Malaysia are subject to leases expiring at various times from 2008 to 2024. Some facilities we own are subject to mortgages. We believe that our
facilities are maintained in good operating condition and are adequate for our present level of operations.



Item 4A. Unresolved Staff Comments



None



Item 5. Operating and Financial Review and Prospects



Managements Discussion and Analysis of Financial Condition and Results of Operations



Overview



We design, manufacture and sell
equipment and systems used to produce semiconductor devices, or integrated circuits. Our production equipment and systems are used by both the front-end and back-end segments of the semiconductor market. Front-end equipment performs various
fabrication processes in which multiple thin films of electrically insulating or conductive material are grown or deposited onto a round slice of silicon, called a wafer. Back-end equipment separates these processed wafers into numerous individual
dies, each containing the circuitry of a single semiconductor device, and assembles packages and tests the dies in order to create semiconductor devices. We conduct our front-end business, which accounted for 47.2% of our net sales in 2007, through
our principal facilities in the Netherlands, the United States, Japan and Singapore. We conduct our back-end business, which accounted for 52.8% of our net sales in 2007, through our principal facilities in Hong Kong, the Peoples Republic of
China, Singapore and Malaysia. Our back-end operations are conducted through our 53.10% majority-owned subsidiary, ASM Pacific Technology.



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We sell our products worldwide to the semiconductor industry, which is subject to sudden and extreme cyclical
variations in product supply and demand. In the period 2001 - 2003, the semiconductor industry experienced a severe cyclical downturn characterized by overcapacity and reduced demand for products, lower average selling prices across certain product
lines, reduced investments in semiconductor capital equipment and other factors, all of which led to lower sales and earnings for our business, in particular for capacity-driven purchases.



To improve our margins in our front-end segment, we established a manufacturing
facility in Singapore to manufacture certain generic subsystems and subassemblies for our Vertical Furnaces that we previously outsourced. This facility was launched in the third quarter of 2004 and is expected to further improve cost-effectiveness
and strengthen our gross profit margin. At the end of 2007, generic subassemblies for Vertical Furnaces and Epitaxy systems are manufactured in this facility. We intend eventually to manufacture generic systems and parts for all of our front-end
products in our manufacturing base in Singapore.



In our back-end segment
we continued to benefit from our cost advantage due to the location of our manufacturing facilities and our high vertical integration allowing us to adjust labor costs quickly in volatile market conditions.



The transitions in the industry to new processes and materials require equipment
providers to develop sometimes entirely new sets of tools and processes and continue to present us with an opportunity to displace existing suppliers to major semiconductor manufacturers. We believe that we are well positioned and that our firm
commitment to research and development, our readiness in new technologies and design-in wins at top-tier customers provide us with a broad basis for substantial long-term market share gains. We have participated fully in the transition to 300mm
wafers, as evidenced by the large portion of sales volume of 300mm products.



Sales



Our front-end sales are concentrated in the United States, Europe,
Japan and Southeast Asia and our back-end sales are concentrated in Southeast Asia.



The following table shows the geographic distribution of our front-end and back-end sales for the years 2005, 2006 and 2007:



|                           |  |                         |       |  |       |   |  |      |       |  |       |   |  |   |       |  |       |  
|-------------------------- |  | ----------------------- | ----- |  | ----- | - |  | ---- | ----- |  | ----- | - |  | - | ----- |  | ----- | -
|                           |  | Year ended December 31, |      
|(amounts in millions)      |  | 2005                    |       |  | 2006  |   |  | 2007 |      
|Front-end:                 |  |                         |       |  |       |   |  |      |       |  |       |   |  |   |       |  |       |  
|Taiwan                     |  |                        | 58.7  |  | 16.4  | % |  |     | 84.7  |  | 20.8  | % |  |  | 122.3 |  | 27.1  | %
|United States              |  |                         | 133.1 |  | 37.2  |   |  |      | 139.7 |  | 34.1  |   |  |   | 113.1 |  | 25.1  |  
|Europe                     |  |                         | 96.7  |  | 27.0  |   |  |      | 90.0  |  | 22.0  |   |  |   | 81.2  |  | 18.0  |  
|Japan                      |  |                         | 50.2  |  | 14.0  |   |  |      | 58.0  |  | 14.2  |   |  |   | 78.2  |  | 17.3  |  
|Other                      |  |                         | 19.2  |  | 5.4   |   |  |      | 37.0  |  | 8.9   |   |  |   | 56.1  |  | 12.5  |  
|                           |  |                         |       |  |       |   |  |      |       |  |       |   |  |   |       |  |       |  
|                           |  |                        | 357.9 |  | 100.0 | % |  |     | 409.4 |  | 100.0 | % |  |  | 450.9 |  | 100.0 | %
|Back-end:                  |  |                         |       |  |       |   |  |      |       |  |       |   |  |   |       |  |       |  
|Peoples Republic of China |  |                        | 80.4  |  | 21.9  | % |  |     | 116.9 |  | 25.0  | % |  |  | 161.9 |  | 32.1  | %
|Taiwan                     |  |                         | 77.0  |  | 21.0  |   |  |      | 96.2  |  | 20.6  |   |  |   | 112.9 |  | 22.4  |  
|Malaysia                   |  |                         | 46.2  |  | 12.6  |   |  |      | 72.0  |  | 15.4  |   |  |   | 65.8  |  | 13.0  |  
|South Korea                |  |                         | 33.5  |  | 9.1   |   |  |      | 24.0  |  | 5.1   |   |  |   | 37.3  |  | 7.4   |  
|Hong Kong                  |  |                         | 26.6  |  | 7.3   |   |  |      | 39.7  |  | 8.5   |   |  |   | 34.7  |  | 6.9   |  
|Thailand                   |  |                         | 25.6  |  | 7.0   |   |  |      | 31.4  |  | 6.7   |   |  |   | 24.4  |  | 4.8   |  
|Philippines                |  |                         | 26.5  |  | 7.2   |   |  |      | 25.6  |  | 5.5   |   |  |   | 21.1  |  | 4.2   |  
|United States              |  |                         | 15.0  |  | 4.1   |   |  |      | 20.0  |  | 4.3   |   |  |   | 14.9  |  | 3.0   |  
|Singapore                  |  |                         | 15.6  |  | 4.2   |   |  |      | 13.1  |  | 2.8   |   |  |   | 11.0  |  | 2.2   |  
|Other                      |  |                         | 20.4  |  | 5.6   |   |  |      | 29.2  |  | 6.1   |   |  |   | 20.3  |  | 4.0   |  
|                           |  |                         |       |  |       |   |  |      |       |  |       |   |  |   |       |  |       |  
|                           |  |                        | 366.8 |  | 100.0 | % |  |     | 468.1 |  | 100.0 | % |  |  | 504.3 |  | 100.0 | %
|                           |  |                         |       |  |       |   |  |      |       |  |       |   |  |   |       |  |       |  



The sales cycle from quotation
to shipment for our front-end equipment generally takes several months, depending on capacity utilization and the urgency of the order. The acceptance period after installation may be as short as four to five weeks. However, if customers are
unfamiliar with our equipment or are receiving new product models, the acceptance period may take as long as several months. The sales cycle is longer for equipment which is installed at the customers site for evaluation prior to sale. The
typical trial period ranges from six months to one year after installation.



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The sales cycle for back-end products is typically shorter than for front-end products. Generally, the majority of
our back-end equipment is built in standard configurations. We build back-end products that are approximately 85% complete in anticipation of customer orders. Upon receipt of a customers order and specifications, the remaining 15% of the
manufacturing is completed. This allows us to complete the assembly of our equipment in a short period of time. We therefore require between two to six weeks for final manufacturing, testing, crating, and shipment of our back-end equipment. Our
back-end customers acceptance periods generally are shorter than those for front-end equipment. We provide installation, training and technical support to our customers with local staff in all of our major markets.



A substantial portion of our front-end sales is for equipping new or upgraded
fabrication plants where device manufacturers are installing complete fabrication equipment. As a result our front-end sales tend to be uneven across customers and financial periods. Sales to our ten largest front-end customers accounted for 67.6%,
60.5% and 59.7% of front-end net sales in 2005, 2006 and 2007, respectively. The composition of our ten largest front-end customers changes from year to year. The largest front-end customer accounted for 32.9%, 22.7% and 19.7% of front-end net sales
in 2005, 2006 and 2007, respectively.



Back-end sales per customer tend
to be more level over time than front-end sales, because back-end operations can be scaled up in smaller increments at existing facilities. Sales to our ten largest back-end customers accounted for 40.0%, 28.2% and 29.4% of back-end net sales in
2005, 2006 and 2007, respectively. Because our back-end customers needs are more level over time, the composition of our ten largest customers is more stable from year to year than in the front-end. Our largest back-end customer accounted for
7.9%, 4.4% and 5.3% of back-end net sales in 2005, 2006 and 2007, respectively.



Research and Development



We continue to invest in
research and development at a high level. As part of our research and development activities, we are engaged in various development programs with customers and research institutes that allow us to develop products that meet customer requirements and
to obtain access to new technology and expertise. Research and development costs are expensed as incurred. We charge to cost of sales the costs relating to prototype and experimental models, which we may subsequently sell to customers.



For a further discussion of research and development expenses see Item 4.B
Business OverviewResearch and Development and Results of Operations, below.



Our research and development operations in the Netherlands, Germany and the United States receive research and development grants and credits from various sources.
The research and development grants and credits received from governmental sources in the Netherlands include a credit which is contingently repayable to the extent we recognize sales of products to which the credit is related within an agreed upon
time period. We do not recognize a liability on our Consolidated Balance Sheet in respect of this credit until we recognize sales of products to which the credit is related, within the agreed upon time period and is then charged to cost of sales
when such sales are recorded. The repayment amounts to 4.0% of the realized sales of these products. In 2005, 2006 and 2007 we accounted for repayments with respect to these credits of  0.2 million,  0.2 million and  0.1 million respectively. Interest on the contingent repayments is accrued at an interest rate of 6.05% per annum. The contingent repayment, including accrued interest, was  3.1 million at December 31, 2006 and  3.0 million at December 31, 2007.
This amount has not been recognized as a liability in the Consolidated Balance Sheet since we have not recognized sales of products to which the credit is related.



Discontinued Operations



Due to continued negative cash flows and the expected future returns on the invested capital employed, we decided in 2005 to reduce our 100% subsidiary ASM NuTool
to a small operation, focusing on process and intellectual property development with the intention of licensing these technologies in the future. In December 2006, we sold substantially all of the ASM NuTool patent portfolio to a third party. At
December 31, 2006, this caused ASM NuTool to be accounted for retroactively as discontinued operations in our Consolidated Financial Statements, in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets. See Note 2 to our Consolidated Financial Statements, which is incorporated herein by reference.



Critical Accounting Policies



Our
discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America
(US GAAP). We apply the going concern basis in preparing our Consolidated Financial Statements. Historical cost is used as the measurement basis unless



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otherwise indicated. The preparation of these Consolidated Financial Statements requires us to make estimates, judgments and assumptions that we believe are reasonable
based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the
periods presented. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:



Revenue Recognition.We recognize revenue when all four revenue recognition
criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; sellers price to buyer is fixed or determinable; and collectibility is reasonably assured.



Our revenue includes revenue from contractual arrangements consisting of multiple
deliverables, such as equipment and installation. The revenue from the undelivered element of the arrangement is deferred at fair value until delivery of the element.



In general, we recognize revenue from sales of equipment upon shipment of equipment, only if testing at the factory has proven that
the equipment has met substantially all of the customers criteria and specifications. The outcome of the test is signed-off by the customer (factory acceptance). Instead of signing-off, the customer may choose to provide a waiver,
e.g. with respect to repeat orders.



We recognize revenue from
installation of equipment upon completion of installation at the customers site. At the time of shipment, we defer that portion of the sales price related to the fair value of installation. The fair value of the installation process is
measured based upon the per-hour amounts charged by third parties for similar installation services. Installation is completed when testing at the customers site has proven that the equipment has met all of the customers criteria and
specifications. The completion of installation is signed-off by the customer (final acceptance). At December 31, 2006 and December 31, 2007 we have deferred revenues from fair value of installations in the amount of  13.7 million and  12.4 million respectively.



Our sales frequently involve complex equipment, which may include customer-specific
criteria, sales to new customers or equipment with new technology. For each sale, the decision whether to recognize revenue is, in addition to shipment and factory acceptance, based on the contractual agreement with a customer, the experience with a
particular customer, the technology and the number of similarly configured equipment previously delivered. Instead of recognizing revenue, we could decide to defer revenue recognition until completion of installation at the customers site and
obtaining final acceptance from the customer. At December 31, 2006 we had deferred revenues from sales of equipment in the amount  1.5 million. At
December 31, 2007 we had no deferred revenue from sales of equipment.



We provide training and technical support service to customers. Revenue related to such services is recognized when the service is rendered. Revenue from the sale of spare parts and materials is recognized when the goods are shipped.



Valuation of Goodwill.We perform an annual impairment test at
December 31 of each year or if events or changes in circumstances indicate that the carrying amount of goodwill exceeds its fair value. Our impairment test and the determination of the fair value is based on a discounted future cash flow
approach that uses our estimates of future revenues, driven by assumed market growth and estimated costs as well as appropriate discount rates. These estimates are consistent with the plans and estimated costs we use to manage the underlying
business. For the years ended December 31, 2005 and December 31, 2006, we recorded impairment charges of  31.0 million and  11.4 million with respect to goodwill resulting from the acquisition of ASM NuTool. For the year ended December 31, 2007, we did not record an impairment
charge to goodwill as a result of our tests performed. The calculation of the fair value involves certain management judgments and was based on our best estimates and projections at the time of our review, and the value may be different if other
assumptions are used. In future periods we may be required to record an impairment loss based on the impairment test performed, which may significantly affect our results of operations at that time.



Valuation of Long-Lived Assets.Long-lived assets and certain recognized
intangible assets (except those not being amortized) are reviewed by us for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, we
estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. In 2005 we recorded an impairment charge of  5.4 million related to the reduction of ASM NuTool and the consolidation of platforms used in our Capacitor Product group. In 2006 we recorded an impairment charge of  0.3 million related to the discontinuation of ASM NuTool. In



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2007 we did not record an impairment charge to long-lived assets. Our cash flow estimates used include certain management judgments and were based on our best
estimates and projections at the time of our review, and may be different if other assumptions are used. In future periods, however, we may be required to record impairment losses, which may significantly affect our results of operations at that
time.



Valuation of Inventory.Inventories are valued at the lower
of cost or market value. We regularly evaluate the value of our inventory of components and raw materials, work in progress and finished goods, based on a combination of factors including the following: forecasted sales, historical usage, product
end of life cycle, estimated current and future market values, service inventory requirements and new product introductions, as well as other factors. Purchasing requirements and alternative uses for the inventory are explored within these processes
to mitigate inventory exposure. We record write downs for inventory based on the above factors and take into account worldwide quantities and demand into our analysis. In the year ended December 31, 2007 we have charged  6.3 million to cost of sales as a result of our analysis of the value of inventory. At December 31, 2007 our allowance for inventory obsolescence
amounted to  27.5 million, which is 11.8% of our total inventory. If circumstances related to our inventories change, our estimate of the values of
inventories could materially change. At December 31, 2007, an increase of our overall estimate for obsolescence and lower market value by 10% of our total inventory balance would result in an additional charge to cost of sales of  20.6 million.



Warranty.We provide maintenance on our systems during the warranty period, usually one to two years. Costs of warranty include the cost of labor, material
and related overhead necessary to repair a product during the warranty period. We accrue for the estimated cost of the warranty on products shipped in a provision for warranty, upon recognition of the sale of the product. The costs are estimated
based on actual historical expenses incurred and on estimated future expenses related to current sales, and are updated periodically. Actual warranty costs are charged against the provision for warranty. The actual warranty costs may differ from
estimated warranty costs, as a result of which we adjust our provision for warranty accordingly. Future warranty costs may exceed our estimates, which could result in an increase of our cost of sales.



Income Taxes. We currently have significant deferred tax assets, which resulted
primarily from operating losses incurred in prior years as well as other temporary differences. We have established a valuation allowance to reflect the likelihood of the realization of deferred tax assets. Based on available evidence, we regularly
evaluate whether it is more likely than not that the deferred tax assets will not be realized. This evaluation includes our judgment on the future profitability and our ability to generate taxable income, changes in market conditions and other
factors. At December 31, 2007, we believe that there is insufficient evidence to substantiate recognition of substantially all net deferred tax assets with respect to net operating loss carry forwards, and we have established a valuation
allowance in the amount of  90.9 million. Future changes in facts and circumstances, if any, may result in a change of the valuation allowance to these
deferred tax asset balances which may significantly influence our results of operations at that time. If our evaluation of the realization of deferred tax assets would indicate that an additional 10% of the net deferred tax assets as of
December 31, 2007 is not realizable, this would result in an additional valuation allowance and an income tax expense of  0.5 million.



Until December 31, 2006, we accounted for income tax contingencies in accordance
with Statement of Financial Accounting Standard (SFAS) No. 5, Accounting for Contingencies. We provided for these tax contingencies for the duration of the statute of limitation which differs per tax jurisdiction. As of
December 31, 2006, the tax contingencies amount to  8.3 million and are included in income taxes payable in the consolidated balance sheet.



On January 1, 2007, we adopted Interpretation 48, Accounting
for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet, before being recognized in the financial statements. FIN
48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods and disclosure regarding income taxes.



Our net operating losses for tax purposes decreased by  5.4 million as a result of the adoption of FIN 48. Since a valuation allowance was recorded against the net deferred tax assets with respect to these net operating losses, the adoption of FIN 48 did not impact our financial
position and results of operations.



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A reconciliation of the beginning and ending balance of the liability for unrecognized tax benefits is as follows:



|                                              |  |      |  
|--------------------------------------------- |  | ---- | -
|(euro millions)                               |  |      |  
|Balance January 1, 2007                       |  | 8.3  |  
|                                              |  |      |  
|Gross increasestax positions in prior period |  | 10.3 |  
|Gross decreasestax positions in prior period |  | (5.5 | )
|Gross increasestax positions in current year |  | 1.1  |  
|Foreign currency translation effect           |  | (1.3 | )
|                                              |  |      |  
|Balance December 31, 2007                     |  | 12.9 |  
|                                              |  |      |  



Unrecognized tax benefits mainly
relate to transfer pricing positions, operational activities in countries where we are not tax registered and tax deductible costs.



We estimate that no interest and penalties are related to these unrecognized tax benefits.



Unrecognized tax benefits of  12.9 million
would, if recognized, impact the Companys effective tax rate. We estimate that the liability for unrecognized tax benefits will change with 
12.9 million within the next 12 months, following the expected outcome of investigations by local tax authorities.



The calculation of our tax positions involves dealing with uncertainties in the application of complex tax laws. Our estimate for the potential outcome of any
uncertain tax position is highly judgmental. Settlement of uncertain tax positions in a manner inconsistent with our estimates could have a material impact on the Companys earnings, financial position and cash flows.



Results of Operations



The following table shows certain Consolidated Statement of Operations data as a percentage of net sales for our front-end and
back-end segments for the years 2005, 2006 and 2007:



|                                                                                     |  |                         |    |  |          |    |  |       |    |  |       |   |  |       |   |  |       |   |  |       |    |  |       |   |  |       |  
|------------------------------------------------------------------------------------ |  | ----------------------- | -- |  | -------- | -- |  | ----- | -- |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | -- |  | ----- | - |  | ----- | -
|                                                                                     |  | Year ended December 31, |   
|                                                                                     |  | Front-end               |    |  | Back-end |    |  | Total |   
|                                                                                     |  | 2005                    |    |  | 2006     |    |  | 2007  |    |  | 2005  |   |  | 2006  |   |  | 2007  |   |  | 2005  |    |  | 2006  |   |  | 2007  |  
|Net sales                                                                            |  | 100.0                   | %  |  | 100.0    | %  |  | 100.0 | %  |  | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %  |  | 100.0 | % |  | 100.0 | %
|Cost of sales                                                                        |  | (74.9                   | )  |  | (68.8    | )  |  | (67.8 | )  |  | (54.9 | ) |  | (54.9 | ) |  | (57.2 | ) |  | (64.8 | )  |  | (61.4 | ) |  | (62.2 | )
|Gross profit                                                                         |  | 25.1                    |    |  | 31.2     |    |  | 32.2  |    |  | 45.1  |   |  | 45.1  |   |  | 42.8  |   |  | 35.2  |    |  | 38.6  |   |  | 37.8  |  
|                                                                                     |  |                         |    |  |          |    |  |       |   
|Selling, general and administrative expenses                                         |  | (15.9                   | )  |  | (16.4    | )  |  | (16.8 | )  |  | (11.2 | ) |  | (11.4 | ) |  | (10.8 | ) |  | (13.5 | )  |  | (13.8 | ) |  | (13.5 | )
|Research and development expenses                                                    |  | (17.9                   | )  |  | (14.3    | )  |  | (11.9 | )  |  | (7.0  | ) |  | (6.3  | ) |  | (5.9  | ) |  | (12.4 | )  |  | (10.0 | ) |  | (8.7  | )
|Amortization of other intangible assets                                              |  | (0.2                    | )  |  | (0.2     | )  |  | (0.1  | )  |  |      |   |  |      |   |  |      |   |  | (0.1  | )  |  | (0.1  | ) |  | (0.1  | )
|                                                                                     |  |                         |    |  |          |    |  |       |    |  |       |   |  |       |   |  |       |   |  |       |    |  |       |   |  |       |  
|Earnings (loss) from continuing operations                                           |  | (8.9                    | )  |  | 0.3      |    |  | 3.4   |    |  | 26.9  |   |  | 27.4  |   |  | 26.1  |   |  | 9.2   |    |  | 14.7  |   |  | 15.5  |  
|Net interest income (expense)                                                        |  | (3.2                    | )  |  | (2.2     | )  |  | (1.4  | )  |  | 0.4   |   |  | 0.7   |   |  | 0.5   |   |  | (1.3  | )  |  | (0.7  | ) |  | (0.4  | )
|Expense resulting from early extinguishment of debt                                  |  | (0.1                    | )  |  |         |    |  | (2.2  | )  |  |      |   |  |      |   |  |      |   |  | (0.1  | )  |  |      |   |  | (1.1  | )
|Foreign currency exchange gains (losses)                                             |  |                        |    |  | (0.3     | )  |  | (0.4  | )  |  | (0.1  | ) |  |      |   |  | 0.2   |   |  |      |    |  | (0.1  | ) |  | (0.1  | )
|                                                                                     |  |                         |    |  |          |    |  |       |    |  |       |   |  |       |   |  |       |   |  |       |    |  |       |   |  |       |  
|Earnings (loss) from continuing operations before income taxes and minority interest |  | (12.2                   | )  |  | (2.2     | )  |  | (0.6  | )  |  | 27.2  |   |  | 28.1  |   |  | 26.8  |   |  | 7.8   |    |  | 13.9  |   |  | 13.9  |  
|Income tax benefit (expense)                                                         |  | (0.3                    | )  |  | (0.2     | )  |  | (0.6  | )  |  | (1.6  | ) |  | (2.8  | ) |  | (3.3  | ) |  | (1.0  | )  |  | (1.6  | ) |  | (2.0  | )
|                                                                                     |  |                         |    |  |          |    |  |       |    |  |       |   |  |       |   |  |       |   |  |       |    |  |       |   |  |       |  
|Earnings (loss) from continuing operations before minority interest                  |  | (12.5                   | )  |  | (2.4     | )  |  | (1.2  | )  |  | 25.6  |   |  | 25.3  |   |  | 23.5  |   |  | 6.8   |    |  | 12.3  |   |  | 11.9  |  
|Minority interest                                                                    |  |                        |    |  |         |    |  |      |    |  | (11.8 | ) |  | (11.7 | ) |  | (11.0 | ) |  | (6.0  | )  |  | (6.2  | ) |  | (5.8  | )
|Gain on dilution of investment in subsidiary                                         |  | 0.8                     |    |  | 0.3      |    |  | 0.7   |    |  |      |   |  |      |   |  |      |   |  | 0.4   |    |  | 0.1   |   |  | 0.3   |  
|                                                                                     |  |                         |    |  |          |    |  |       |    |  |       |   |  |       |   |  |       |   |  |       |    |  |       |   |  |       |  
|Net earnings (loss) from continuing operations                                       |  | (11.7                   | )  |  | (2.1     | )  |  | (0.5  | )  |  | 13.8  |   |  | 13.6  |   |  | 12.5  |   |  | 1.2   |    |  | 6.2   |   |  | 6.4   |  
|                                                                                     |  |                         |    |  |          |    |  |       |   
|Loss from discontinued operations before income taxes                                |  | (13.5                   | )  |  | (5.0     | )  |  |      |    |  |      |   |  |      |   |  |      |   |  | (6.6  | )  |  | 2.3   |   |  |      |  
|Income tax benefit (expense)                                                         |  | (0.2                    | )  |  |         |    |  |      |    |  |      |   |  |      |   |  |      |   |  | (0.1  | )  |  |      |   |  |      |  
|                                                                                     |  |                         |    |  |          |    |  |       |    |  |       |   |  |       |   |  |       |   |  |       |    |  |       |   |  |       |  
|Net loss from discontinued operations                                                |  | (13.7                   | )  |  | (5.0     | )  |  |      |    |  |      |   |  |      |   |  |      |   |  | (6.7  | )  |  | 2.3   |   |  |      |  
|                                                                                     |  |                         |    |  |          |    |  |       |    |  |       |   |  |       |   |  |       |   |  |       |    |  |       |   |  |       |  
|Net earnings (loss)                                                                  |  | (25.4                   | )% |  | (7.1     | )% |  | (0.5  | )% |  | 13.8  | % |  | 13.6  | % |  | 12.5  | % |  | (5.5  | )% |  | 3.9   | % |  | 6.4   | %
|                                                                                     |  |                         |    |  |          |    |  |       |    |  |       |   |  |       |   |  |       |   |  |       |    |  |       |   |  |       |  



40



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Year Ended December 31, 2007 Compared to Year Ended December 31, 2006



Net Sales.The following table shows net sales of our front-end and back-end
segments and the percentage change between the years 2006 and 2007:



|                |  |       |  |       |  |          |  
|--------------- |  | ----- |  | ----- |  | -------- | -
|(euro millions) |  | 2006  |  | 2007  |  | % Change |  
|Front-end       |  | 409.4 |  | 450.9 |  | 10       | %
|Back-end        |  | 468.1 |  | 504.3 |  | 8        | %
|                |  |       |  |       |  |          |  
|Total net sales |  | 877.5 |  | 955.2 |  | 9        | %
|                |  |       |  |       |  |          |  



In 2007, net sales of wafer
processing equipment (front-end segment) represented 47% of total net sales. Net sales of assembly and packaging equipment and materials (back-end segment) represented 53% of total net sales in 2007.



The weakening of foreign currencies (amongst others the Yen, US dollar and US dollar
related currencies) against the euro in 2007 as compared to 2006 impacted total sales negatively by 7%. The impact on front-end sales was 5%, the impact on back-end sales was 9%.



Gross Profit Margin. The following table shows our gross profit and gross profit margin for front-end and back-end segments and
the percentage point increase or decrease in gross profit as a percentage of net sales between the years 2006 and 2007:



|                   |  |                 |  |                 |  |                       |   |  |                       |   |  |                                       |  
|------------------ |  | --------------- |  | --------------- |  | --------------------- | - |  | --------------------- | - |  | ------------------------------------- | -
|(euro millions)    |  | Grossprofit2006 |  | Grossprofit2007 |  | Grossprofitmargin2006 |   |  | Grossprofitmargin2007 |   |  | Increase or(decrease)percentagepoints |  
|Front-end          |  | 127.8           |  | 145.0           |  | 31.2                  | % |  | 32.2                  | % |  | 1.0                                   |  
|Back-end           |  | 211.0           |  | 216.1           |  | 45.1                  | % |  | 42.8                  | % |  | (2.3                                  | )
|                   |  |                 |  |                 |  |                       |   |  |                       |   |  |                                       |  
|Total gross profit |  | 338.8           |  | 361.1           |  | 38.6                  | % |  | 37.8                  | % |  | (0.8                                  | )
|                   |  |                 |  |                 |  |                       |   |  |                       |   |  |                                       |  



The gross profit margin of our
front-end segment for 2007 is positively impacted by increased margins of our product lines in developments, by changes in the product mix, and by cost reduction programs. In addition, revenue from a licensing agreement which commenced in the fourth
quarter of 2007 contributed to the higher gross profit margin in 2007. Increased manufacturing of generic subassemblies and components by ASM Front-End Manufacturing Singapore (FEMS) also contributed to the higher gross profit margin in
2007. At the end of 2007, generic subassemblies for Vertical Furnaces and Epitaxy systems are manufactured in this facility. These positive factors more than compensated pressure on sales prices mainly resulting from foreign currency developments.



The gross profit margin of our back-end segment decreased due to the
cost of increasing manufacturing capacity.



Selling, General and
Administrative Expenses. The following table shows selling, general and administrative expenses for our front-end and back-end segments and the percentage change between the years 2006 and 2007:



|                                                   |  |       |  |       |  |          |  
|-------------------------------------------------- |  | ----- |  | ----- |  | -------- | -
|(euro million)                                     |  | 2006  |  | 2007  |  | % Change |  
|Front-end                                          |  | 67.3  |  | 75.4  |  | 12       | %
|Back-end                                           |  | 53.3  |  | 54.3  |  | 2        | %
|                                                   |  |       |  |       |  |          |  
|Total selling, general and administrative expenses |  | 120.6 |  | 129.7 |  | 7        | %
|                                                   |  |       |  |       |  |          |  



Selling, general and
administrative expenses of our front-end segment increased as a result of increased effort to achieve the sales recorded in 2007 and to position our front-end segment product lines in the market for future sales.



Selling, general and administrative expenses were 14% of net sales, in 2006 and 2007.



Research and Development Expenses.The following table shows
research and development expenses for our front-end and back-end segments and the percentage change between the years 2006 and 2007:



|                                        |  |      |  |      |  |          |   
|--------------------------------------- |  | ---- |  | ---- |  | -------- | --
|(euro millions)                         |  | 2006 |  | 2007 |  | % Change |   
|Front-end                               |  | 58.6 |  | 53.6 |  | (9       | )%
|Back-end                                |  | 29.5 |  | 29.8 |  | 1        | % 
|                                        |  |      |  |      |  |          |   
|Total research and development expenses |  | 88.1 |  | 83.4 |  | (5       | )%
|                                        |  |      |  |      |  |          |   



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The decrease in the front-end segment was the result of increased focus in the research and development project
portfolio.



As a percentage of net sales, research and development
expenses decreased from 10% for the year 2006 to 9% in 2007.



Earnings
from Operations.The following table shows net earnings from operations for our front-end and back-end segments and the percentage change between the years 2006 and 2007:



|                                      |  |       |  |       |  |          |  
|------------------------------------- |  | ----- |  | ----- |  | -------- | -
|(euro millions)                       |  | 2006  |  | 2007  |  | % Change |  
|Front-end                             |  | 1.4   |  | 15.5  |  | 1,007    | %
|Back-end                              |  | 128.1 |  | 131.9 |  | 3        | %
|                                      |  |       |  |       |  |          |  
|Consolidated earnings from operations |  | 129.5 |  | 147.4 |  | 14       | %
|                                      |  |       |  |       |  |          |  



NetInterest
Expense amounted to  3.8 million in 2007 compared to  5.8 million in
2006. The decrease is due to less debt, the repurchase of US$ 35.4 million in convertible subordinated notes in 2007 and increased interest income resulting from increased interest rates.



Income Tax Expense amounted to  19.3
million in 2007 compared to  14.1 million in 2006. The increase is caused by increased earnings from operations and an increase of the liability for unrecognized
tax benefits.



Net Loss from Discontinued Operations.In 2006, ASM
NuTools operations were accounted for as discontinued operations.



Net Earnings.The following table shows net earnings for our front-end and back-end segments and the percentage change between the years 2006 and 2007:



|                          |  |       |   |  |      |   |  |          |   
|------------------------- |  | ----- | - |  | ---- | - |  | -------- | --
|(euro millions)           |  | 2006  |   |  | 2007 |   |  | % Change |   
|Front-end                 |  | (29.0 | ) |  | (2.3 | ) |  | (92      | )%
|Back-end                  |  | 63.3  |   |  | 63.3 |   |  |         |   
|                          |  |       |   |  |      |   |  |          |   
|Consolidated net earnings |  | 34.3  |   |  | 61.0 |   |  | 78       | % 
|                          |  |       |   |  |      |   |  |          |   



Net earnings for the front-end
segment for 2007 and 2006 include a gain on dilution of our investment in ASM Pacific Technology of  3.0 million, respectively  1.3 million.



Net earnings for the front-end segment for 2007 includes the expense resulting from early extinguishment of convertible debt of  10.0 million.



Net earnings for the front-end segment for 2006 includes a net loss of
discontinued operations of  20.4 million.



Net earnings for the back-end segment reflects our 53.10% ownership of ASM Pacific Technology.



Year Ended December 31, 2006 Compared to Year Ended December 31, 2005



Net salesThe following table shows net sales of our front-end and back-end segments and the percentage change between the
years 2005 and 2006:



|                |  |       |  |       |  |          |  
|--------------- |  | ----- |  | ----- |  | -------- | -
|(euro millions) |  | 2005  |  | 2006  |  | % Change |  
|Front-end       |  | 357.9 |  | 409.4 |  | 14       | %
|Back-end        |  | 366.8 |  | 468.1 |  | 28       | %
|                |  |       |  |       |  |          |  
|Total net sales |  | 724.7 |  | 877.5 |  | 21       | %
|                |  |       |  |       |  |          |  



In 2006, net sales of wafer
processing equipment (front-end segment) represented 46.7% of total net sales. Net sales of assembly and packaging equipment and materials (back-end segment) represented 53.3% of total net sales in 2006.



In the second half of 2006, net sales in the front-end segment increased by 3% compared
to the first half of 2006, while net sales in the back-end segment for the second half of 2006 decreased 4% compared to the first half of 2006. In total, net sales decreased by 1% compared to the first half of 2006.



42



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##### Table of Contents

The weakening of the US dollar and US dollar related currencies against the euro in 2006 as compared to 2005
impacted sales negatively by 0.4%.



Gross Profit Margin.The
following table shows our gross profit and gross profit margin for front-end and back-end segments and the percentage point increase or decrease in gross profit as a percentage of net sales between the years 2005 and 2006:



|                   |  |        |  |        |  |        |   |  |        |   |  |                                       |  
|------------------ |  | ------ |  | ------ |  | ------ | - |  | ------ | - |  | ------------------------------------- | -
|(euro millions)    |  |  2005 |  |  2006 |  | % 2005 |   |  | % 2006 |   |  | Increase or(decrease)percentagepoints |  
|Front-end          |  | 89.8   |  | 127.8  |  | 25.1   | % |  | 31.2   | % |  | 6.1                                   |  
|Back-end           |  | 165.6  |  | 211.0  |  | 45.2   | % |  | 45.1   | % |  | (0.1                                  | )
|                   |  |        |  |        |  |        |   |  |        |   |  |                                       |  
|Total gross profit |  | 255.4  |  | 338.8  |  | 35.2   | % |  | 38.6   | % |  | 3.4                                   |  
|                   |  |        |  |        |  |        |   |  |        |   |  |                                       |  



The gross profit margin of our
front-end segment increased steadily in 2006. Increased manufacturing of generic subassemblies and components by ASM Front-End Manufacturing Singapore (FEMS) contributed to this development. At the end of 2006, most generic subassemblies
for 300mm Vertical Furnaces and 200mm Epitaxy systems were manufactured in this facility, as well as a number of generic subassemblies for the 200mm Vertical Furnaces. FEMS is expected to further lower our manufacturing costs and mitigate the impact
of foreign currency results on our margins. Focus on other cost reduction programs as well as the growing maturity and sales volume of our Vertical Furnace product group contributed positively to the increased gross profit margin in our front-end
segment. The gross profit margin of our front-end segment in 2005 included one-time charges of  2.6 million related to the consolidation of platforms used in
our Capacitor Product group, which impacted the gross profit margin by 0.7 percentage points.



Although the gross profit margin of our back-end segment decreased 2.6% in the second half of 2006 as compared to the first half of 2006 due in part to higher copper prices, the gross profit margin in 2006 remained at a level
similar to 2005.



Selling, General and Administrative Expenses.
The following table shows selling, general and administrative expenses for our front-end and back-end segments and the percentage change between the years 2005 and 2006:



|                                                   |  |      |  |       |  |          |  
|-------------------------------------------------- |  | ---- |  | ----- |  | -------- | -
|(euro millions)                                    |  | 2005 |  | 2006  |  | % Change |  
|Front-end                                          |  | 57.1 |  | 67.3  |  | 18       | %
|Back-end                                           |  | 41.0 |  | 53.4  |  | 30       | %
|                                                   |  |      |  |       |  |          |  
|Total selling, general and administrative expenses |  | 98.1 |  | 120.7 |  | 23       | %
|                                                   |  |      |  |       |  |          |  



The increase from 2005 is,
besides general price increases, due to increased sales and marketing activity, demo activity, increased expenditures in preparing to meet the requirements under section 404 of the Sarbanes-Oxley Act, and corporate expenses related to discussions
with shareholders. In addition, the adoption of Statement of Financial Accounting Standards No. 123R Share-Based Payment, effective January 1, 2006, required us to recognize costs of employee stock options of  1.4 million.



As a percentage of net sales, selling, general and administrative expenses were 14%, both in 2006 and 2005.



Research and Development Expenses.The following table shows research and development expenses for our front-end and back-end segments and the percentage
change between the years 2005 and 2006:



|                                        |  |      |  |      |  |          |   
|--------------------------------------- |  | ---- |  | ---- |  | -------- | --
|(euro millions)                         |  | 2005 |  | 2006 |  | % Change |   
|Front-end                               |  | 63.9 |  | 58.6 |  | (8       | )%
|Back-end                                |  | 25.9 |  | 29.5 |  | 14       | % 
|                                        |  |      |  |      |  |          |   
|Total research and development expenses |  | 89.8 |  | 88.1 |  | (2       | )%
|                                        |  |      |  |      |  |          |   



The decrease in the front-end
segment was the result of increased focus in the research and development project portfolio. The year 2005 included one-time charges of  4.4 million related
to the consolidation of platforms used in our Capacitor Product group.



The increase in the back-end segment was the result of increased research and development activities supporting more value-innovative products.



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As a percentage of net sales, research and development expenses decreased from 12% for the year 2005 to 10% in
2006.



Earnings from Operations amounted to earnings of  129.5 million in 2006 compared to earnings of  66.9 million in 2005. The
increase is mainly caused by higher sales levels and gross profit margin, only partially offset by increased operating expenses. Earnings from operations in 2005 included one-time charges of  7.0 million related to the consolidation of platforms used in our Capacitor Product group.



Net Interest Expense amounted to  5.8 million in 2006 compared to
 10.1 million in 2005. Net interest expenses decreased due to less debt, the repayment of US$ 94.3 million in convertible subordinated notes in November
2005 and more favorable interest income resulting from increased interest rates.



Income Tax Expense amounted to  14.1 million in 2006 compared to  6.7 million in 2005. The increase is mainly caused by increased earnings from operations.



Backlog



Our backlog includes orders for which purchase orders or letters of intent have been accepted, typically for up to one year. Historically, orders have been subject to cancellation or rescheduling by customers. In
addition, orders have been subject to price negotiations and changes in specifications as a result of changes in customers requirements. Due to possible customer changes in delivery schedules and requirements and to
cancellation of orders, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period.



The following table shows the level of new orders during 2006 and 2007 and the backlog at December 31, 2006 and December 31, 2007 and the percentage
change:



|                                                     |  |       |  |       |  |          |   
|---------------------------------------------------- |  | ----- |  | ----- |  | -------- | --
|(euro millions)                                      |  | 2006  |  | 2007  |  | % Change |   
|Front-end:                                           |  |       |  |       |  |          |   
|New orders for the year                              |  | 429.5 |  | 394.6 |  | (8       | )%
|Backlog at the end of the year                       |  | 155.5 |  | 99.2  |  | (36      | )%
|Book-to-bill ratio (new orders divided by net sales) |  | 1.05  |  | 0.88  |  |          |   
|Back-end:                                            |  |       |  |       |  |          |   
|New orders for the year                              |  | 460.4 |  | 526.7 |  | 14       | % 
|Backlog at the end of the year                       |  | 78.8  |  | 101.2 |  | 28       | % 
|Book-to-bill ratio (new orders divided by net sales) |  | 0.98  |  | 1.04  |  |          |   
|Total                                                |  |       |  |       |  |          |   
|New orders for the year                              |  | 889.9 |  | 921.3 |  | 4        | % 
|Backlog at the end of the year                       |  | 234.3 |  | 200.4 |  | (14      | )%
|Book-to-bill ratio (new orders divided by net sales) |  | 1.01  |  | 0.96  |  |          |   



Liquidity and Capital Resources



Our liquidity is affected by many factors, some of which are
related to our ongoing operations and others of which are related to the semiconductor and semiconductor equipment industries and to the economies of the countries in which we operate. Although our cash requirements fluctuate based on the timing and
extent of these factors, we believe that cash generated by operations, together with the liquidity provided by our existing cash resources and our financing arrangements, will be sufficient to fund working capital, capital expenditures and other
ongoing business requirements for at least the next twelve months. The cyclicality of the industry could result in lower customer demand and continued fixed costs and as a result, cash generated by operations may be lower than forecasted. In such a
situation we might need to further utilize our short-term credit facilities or investigate additional financing.



For the year 2007, net cash provided by operations was  105.6 million as
compared to  143.8 million for 2006. The decrease noticed in 2007 is primarily the result of increased working capital.



For the year 2007, net cash used in investing activities was  44.5 million as compared to  30.1 million for 2006. Net cash used in
investing activities for the year 2006 was positively impacted by the proceeds of  11.0 million of the sale of substantially all of ASM NuTools patent
portfolio. Our capital expenditures increased from  39.4 million in 2006 to  47.2 million in 2007. We expect capital expenditures to be between  40 million and  50 million in 2008. Our capital expenditure commitments at December 31, 2007 were  8.6 million.



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Net cash used in financing activities for 2007 was  81.3 million. During that period, we repaid  2.0 million of short term bank facilities, repaid  42.3 million of long-term debt and convertible subordinated debt, received  14.5 million in new long-term debt, purchased treasury shares of  8.2 million, paid  5.4 million dividend and received  5.0 million from the issuance of common shares. In
2007, ASM Pacific Technology paid  42.9 million in dividends to its minority shareholders. With the purchase of treasury shares, the buy back of
convertible debt and the payment of dividend, we have completed the distribution of  49.0 million cash dividend received from ASM Pacific Technology in
2007. In 2006 net cash used in financing activities was  41.8 million. During that period, we received  1.1 million in short term bank facilities, repaid  6.3 million of long-term debt,
received proceeds of  2.7 million in new long-term debt and received  11.8 million from the issuance of common shares. In 2006, ASM Pacific Technology paid  51.1 million in dividends to its
minority shareholders.



Net working capital, consisting of accounts
receivable, inventories, other current assets, accounts payable, accrued expenses, advance payments from customers and deferred revenue, increased from  227.1 million at December 31, 2006 to  271.9 million at December 31, 2007. The increase is primarily the result of
increased sales and manufacturing levels. The number of outstanding days of working capital, measured based on annual sales, increased from 94 days at December 31, 2006 to 104 days at December 31, 2007. For the same period, our front-end
segment increased from 121 days to 125 days and our back-end segment increased from 71 days to 85 days.



At December 31, 2007, our principal sources of liquidity consisted of  167.9 million in cash and cash equivalents and  102.2 million in undrawn bank lines. Approximately  67.8 million of the cash and cash equivalents and  26.2 million of the undrawn bank lines are restricted to use in our back-end operations and  11.4 million of the cash and cash
equivalents and  25.8 million in undrawn bank lines are restricted to use in our front-end operations in Japan. We believe that our cash on hand at the
end of 2007 is adequate to fund our operations, our investments in capital expenditures and to fulfill our existing contractual obligations for the next 12 months.



As of December 31, 2007 we have entered into purchase commitments with suppliers for delivery in 2008 in the amount of  65.3 million and for delivery in 2009 in the amount of  0.2
million.



We historically relied on dividends from ASM Pacific Technology
for a portion of our cash flow for use in our front-end operations. Cash dividends received from ASM Pacific Technology during 2005, 2006 and 2007 were  37.0 million,  59.0 million and  49.0 million, respectively. In November 2006, we announced our commitment that for at least the next three years we would not use these cash dividends to support our front-end business, but instead would use such dividends
to retire outstanding convertible debt, purchase our common shares, pay cash dividends on our common shares or, in the event of dilution resulting from the exercise of employee stock options in ASM Pacific Technology, purchase shares of ASM Pacific
Technology to maintain our percentage ownership at its current level. We will determine the most appropriate use or combination of uses, of these funds, from time to time.



Our back-end segment, which is conducted through ASM Pacific Technology, our 53.10%-owned subsidiary, is entirely self-financed. The
cash resources and borrowing capacity of ASM Pacific Technology are not available to our front-end segment due to restrictions imposed by the Hong Kong Stock Exchange, on which the ASM Pacific Technology common shares are listed.



Although three of the ten directors of ASM Pacific Technology are affiliates of ASM
International, ASM Pacific Technology is under no obligation to declare dividends to shareholders or enter into transactions that are beneficial to us. As a majority shareholder, we can approve the payment of dividends, but cannot compel their
payment or size.



The market value of our investment in ASM Pacific
Technology at the end of 2007 was approximately  1,036.2 million, which is higher than the market value of approximately  876.8 million at the end of 2006.



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Contractual Obligations, Contingent Liabilities and Commitments



The following table summarizes our contractual obligations as at December 31,
2007 aggregated by type of contractual obligation:



|                                        |  |       |  |                 |  |           |  |           |  |                 
|--------------------------------------- |  | ----- |  | --------------- |  | --------- |  | --------- |  | ----------------
|Contractual obligations (euro millions) |  | Total |  | Less than1 year |  | 1-3 years |  | 3-5 years |  | More than5 years
|Notes payable to banks1                 |  | 17.0  |  | 17.0            |  |          |  |          |  |                
|Long-term debt1, 2                      |  | 32.4  |  | 16.0            |  | 10.4      |  | 6.0       |  |                
|Convertible subordinated debt1          |  | 159.5 |  | 6.3             |  | 57.3      |  | 95.9      |  |                
|Operating leases                        |  | 22.6  |  | 6.9             |  | 9.0       |  | 3.6       |  | 3.1             
|Purchase obligations:                   |  |       |  |                 |  |           |  |           |  |                 
|Purchase commitments to suppliers       |  | 65.5  |  | 65.3            |  | 0.2       |  |          |  |                
|Capital expenditure commitments         |  | 8.6   |  | 8.6             |  |          |  |          |  |                
|Unrecognized tax benefits (FIN 48)      |  | 12.9  |  | 12.9            |  |          |  |          |  |                
|                                        |  |       |  |                 |  |           |  |           |  |                 
|Total contractual obligations           |  | 318.5 |  | 133.0           |  | 76.9      |  | 105.5     |  | 3.1             
|                                        |  |       |  |                 |  |           |  |           |  |                 



|(1) | Including interest expense based on the percentages at the reporting date.
|--- | --------------------------------------------------------------------------

|(2) | Capital lease obligations of  2.2 million are included in long-term debt.
|--- | --------------------------------------------------------------------------



For a further discussion of our contractual obligations see Notes 10, 13, 14, 17,
and 21 to our Consolidated Financial Statements, which are incorporated herein by reference.



We outsource a substantial portion of the manufacturing of our front-end operations to certain suppliers. As our products are technologically complex, the leadtimes for purchases from our suppliers can vary and can be as long
as nine months. Generally contractual commitments are made for multiple modules or systems in order to reduce our purchase prices per module or system. For the majority of our purchase commitments, we have flexible delivery schedules depending on
the market conditions, which allow us, to a certain extent, to delay delivery beyond originally planned delivery schedules.



At December 31, 2007 we had contingent payables of  3.0 million,
including accrued interest, related to a research and development credit received. The credit received is repayable only to the extent we recognize sales of products to which the credit is related within an agreed upon time period.



New Accounting Pronouncements



For information regarding new accounting pronouncements, see Note 1 to our Consolidated Financial Statements, which is incorporated
herein by reference.



Safe Harbor



Please refer to Forward Looking and Safe Harbor Statement on page 3 which
is incorporated herein as well as all other items in this report.



Item 6. Directors, Senior Management and Employees



A. Directors and senior management.



The names of the
current members of our Supervisory Board and Management Board and the years of their birth are as follows:



|                             |  |               |  |                                                                                                         
|---------------------------- |  | ------------- |  | --------------------------------------------------------------------------------------------------------
|Name                         |  | Year of Birth |  | Position                                                                                                
|Paul C. van den Hoek2        |  | 1939          |  | Chairman of the Supervisory Board (Expiring 2009)                                                       
|Eric A. van Amerongen2       |  | 1953          |  | Member of the Supervisory Board (Expiring 2010)                                                         
|Leon P.E.M. van den Boom1    |  | 1952          |  | Member of the Supervisory Board (Expiring 2009)                                                         
|Berend C. Brix1              |  | 1949          |  | Member of the Supervisory Board (Will resign May 21, 2008)                                              
|Johan M.R. Danneels2         |  | 1949          |  | Member of the Supervisory Board (Expiring 2008)                                                         
|Heinrich W. Kreutzer1        |  | 1949          |  | Member of the Supervisory Board (Expiring 2010)                                                         
|Charles D. (Chuck) del Prado |  | 1961          |  | Chairman of the Management Board, President and Chief Executive Officer                                 
|W.K. Lee                     |  | 1954          |  | Member of the Management Board of the Company and Chief Executive Officer of ASM Pacific Technology Ltd.
|A. (Naud) J.M. van der Ven   |  | 1959          |  | Member of the Management Board and Chief Financial Officer                                              
|J. (Han) F.M. Westendorp     |  | 1956          |  | Member of the Management Board and Vice President Front-end Products                                    



|(1) | Member of Audit Committee
|--- | -------------------------

|(2) | Member of Nomination, Selection and Remuneration Committee
|--- | ----------------------------------------------------------



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Paul. C. van den Hoek became a member of the Supervisory Board in March 1981 and is currently Chairman of
the Supervisory Board. Mr. van den Hoek is a partner in the European law firm of Stibbe, which is our general legal counsel, and has been with Stibbe since 1965. Mr. van den Hoek also serves on the board of directors of various European
companies. At December 31, 2007, Mr. van den Hoek owned 300,000 of our common shares. Mr. van den Hoek holds a Masters Degree in law from the University of Amsterdam, the Netherlands.



Eric A. van Amerongen was elected a member of the Supervisory Board in May 2002
and is currently Vice-Chairman of the Supervisory Board.Mr. van Amerongen served as Chief Executive Officer of Koninklijke Swets & Zeitlinger and later as member of its Supervisory Board. Prior to that, he was active for
over 10 years in the position of Group Director of Thomson-CSF (France), Chief Executive Officer of Hollandse Signaal Apparaten B.V. and President and Chief Executive Officer Europe, Middle East and Africa for Lucent Technologies. Mr. van
Amerongen also serves on the boards of directors of various European companies.



Leon P.E.M. van den Boomwas elected a member of the Supervisory Board in May 2005. Mr. van den Boom is a managing partner of Park Corporate Finance B.V., and before that he worked for, among others, Catalyst Advisors B.V., as a
senior partner from 2004 to 2005, NIB Capital Bank N.V., as a member of the executive committee from 2000 to 2002 and as the Managing Director at the Van den Boom Groep from 1989 to 2000. Mr. van den Boom serves on the board of directors of
various companies. Mr. van den Boom holds a degree in Business Administration from Rijksuniversiteit Groningen, the Netherlands and a degree in Accountancy from the Vrije Universiteit, Amsterdam, the Netherlands.



Berend C. Brix was elected a member of the Supervisory Board in May 2006. He is
a partner in Lesuut Finance B.V. since October 2003. Prior to that, he was appointed as a member of the Management Board of Volmac Software Group N.V. in 1990, which company was renamed Cap Gemini N.V. in 1993, and as Chairman of the Management
Board in 1998. From 2000 to 2003 he was a member of the Group Executive Committee of Cap Gemini Ernst & Young. Mr. Brix is a non-executive director of Computer Patent Annuities Holdings Limited and a member of its Remuneration
Committee and Nominations Committee. Mr. Brix holds a degree in Business Administration from Erasmus University, Rotterdam, the Netherlands.



Johan M.R. Danneels was elected a member of the Supervisory Board in May 2000. Currently Mr. Danneels serves as Chief Executive Officer at Essensium. In
January 2005 Mr. Danneels founded Essensium N.V., a spin-off from the research institute IMEC of which he was chairman since 2000. Mr. Danneels served recently as Groups Vice President of STMicroelectronics. Prior to that, he was Corporate
Executive Vice President of Alcatel NV and Chief Executive Officer of Alcatel Microelectronics. He spent 25 years in Alcatel in different management functions of all major productlines. Mr. Danneels holds a Ph.D. degree in engineering from
the KULeuven, Belgium and a MBA degree from Boston University.



Heinrich W. Kreutzer was elected a member of the Supervisory Board in November 2006. Mr. Kreutzer is currently a member of the Board of Directors of Micronas Semiconductor AG in Zurich, Switzerland, chairman of the Supervisory
Board of Micronas Semiconductor GmbH in Freiburg, Germany and chairman of the Supervisory Board of BKtel communications GmbH, Germany. He worked at several companies, including General Telephone & Electronics in Waltham, USA, and
Alcatel in Stuttgart, Germany. From 2004 to April 2006, he was Managing Director of Kabel Deutschland GmbH in Munich, Germany. From 1999 to 2003, Mr. Kreutzer was a member of the Management Board, and was the Chief Operating Officer and Chief
Technology Officer of Alcatel SEL AG. Mr. Kreutzer is Diplom-Ingenieur and Diplom-Ökonom. He studied at the Technical University of Berlin and the University of Hagen.



Charles D. (Chuck) del Prado became a member of the Management Board in May 2006
and the President and Chief Executive Officer on March 1, 2008. From January 1, 2008 until February 29, 2008, he was the Executive Vice President Front-end Operations. He was President and General Manager of ASM America from
February 2003 until August 2007. In March 2001, he was appointed Director Marketing, Sales & Service of ASM Europe. From February 1996 to 2001, he held various management positions at ASM Lithography in manufacturing and
sales in Taiwan and in the Netherlands. Mr. del Prado worked at IBM Nederland N.V. from 1989 to 1996 in several marketing and sales positions. Mr. del Prado received a Master of Science degree in Industrial Engineering and Technology
Management from the University of Twente, the Netherlands.



W.K. Leebecame a member of the Management Board of the Company and Chief Executive Officer of ASM Pacific Technology Ltd. effective January 1, 2007 and has been General Manager Southern Region of ASM Pacific Technology since 1990. He has been
employed by ASM Pacific Technology for over 25 years. Prior to becoming in 1990 General Manager of ASM Pacific Technologys activities in Singapore, Mr. W.K. Lee was involved in product development. Mr. W.K. Lee studied at the Chinese
University of Hong Kong (Bachelor of Science and Master of Philosophy in Electronics) and has a Master Degree in Business Administration from the National University of Singapore.



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A. (Naud) J.M. van der Ven became Chief Financial Officer and a member of the Management Board in June 2005.
Prior to his joining ASM International, Mr. van der Ven was Chief Financial Officer and Member of the Executive Board of Novamedia Holding B.V. from 2001 to 2004 and of Vedior N.V. from 1997 to 2000. He was Chief Financial Officer of Axxicon
Group N.V. from 1991 to 1997 and started his career at McKinsey & Company in 1985. Mr. van der Ven holds a MBA degree from the University of Chicago, United States, and a law degree from the University of Leiden, the Netherlands.



J. (Han) F.M. Westendorpbecame a member of the Management Board
in May 2006 and Vice President Front-end Products since January 1, 2008. He was Chief Operating Officer front-end operations of ASM International since February 2003 until January 1, 2008. He was appointed General Manager of ASM
Europe in July 1999. Mr. Westendorp held various management positions at Tokyo Electron Massachusetts from 1991 to mid-1999, most recently as General Manager. Prior to that, he worked on developing ion implant technology at ASM International.
Mr. Westendorp has a doctorate in physics and mathematics from the University of Utrecht, the Netherlands.



B. Compensation.



For information regarding remuneration of members of our Management Board and Supervisory Board, see Note 25 to our Consolidated Financial Statements, which is incorporated herein by reference.



For further information regarding remuneration of members of our Management Board, see
our Remuneration Policy and Remuneration Report 2007, which are posted on our website (www.asm.com).



We have granted stock options to certain key employees. For information regarding such options see Note 16 to our Consolidated Financial Statements, which is
incorporated herein by reference.



C. Board practices.



Under Netherlands law, Supervisory Board members have the duty to supervise and advise
the Management Board members. Persons nominated by the Supervisory Board to be appointed by the shareholders to the Supervisory Board are elected if they receive a majority of the votes cast at a meeting of shareholders. Nominees to the
Supervisory Board who are not proposed by the Supervisory Board are appointed if they receive the affirmative vote of a majority of the votes cast at a meeting, which affirmative votes represent more than half our issued capital. A resolution to
remove a member of the Supervisory Board, other than in accordance with a proposal of the Supervisory Board, shall require the affirmative vote of a majority of the votes cast, which affirmative votes represent more than half our issued capital. The
Supervisory Board members serve a four year term. The Supervisory Board members may be re-elected twice.



The Management Board is entrusted with our management under the supervision of the Supervisory Board and has the general authority to enter into binding agreements
with third parties. Persons nominated by the Supervisory Board to be appointed by the shareholders to the Management Board are elected if they receive a majority of the votes cast at a meeting of shareholders. Nominees to the Management
Board who are not proposed by the Supervisory Board are appointed if they receive the affirmative vote of a majority of the votes cast at a meeting, if such affirmative votes represent more than half our issued capital. A Management Board member may
at any time be suspended by the Supervisory Board. A Management Board member may, in accordance with a proposal of the Supervisory Board, be dismissed by the General Meeting of Shareholders with a majority of the votes cast. A resolution to suspend
or to dismiss a member of the Management Board, other than in accordance with a proposal of the Supervisory Board, shall require the affirmative vote of a majority of the votes cast at a meeting, which affirmative votes represent more than half our
issued capital. There is no statutory term of office for Management Board members.



The Audit Committee of the Supervisory Board has a supervisory task with regard to monitoring the integrity of our financial reports and risk management. The Audit Committee consists of Mr. van den Boom (Chairman),
Mr. Brix and Mr. Kreutzer. The Audit Committee supervises the activities of the Management Board with respect to:



| |  |  | the operation of the internal risk management and control systems, including supervision of the enforcement of the relevant legislation and regulations, and supervising the
operation of codes of conduct;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our release of financial information;
| | - |  | -------------------------------------



| |  |  | compliance with recommendations and observations of external auditors;
| | - |  | ----------------------------------------------------------------------



| |  |  | our policy on tax planning;
| | - |  | ---------------------------



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| |  |  | relations with the external auditor, including, in particular, its independence, remuneration and any non-audit services performed for us;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our financing; and
| | - |  | ------------------



| |  |  | the applications of information and communication technology (ICT).
| | - |  | -------------------------------------------------------------------



The Audit Committee meets periodically to nominate a firm to be appointed as independent auditors to audit the financial statements and to perform services
related to the audit, review the scope and results of the audit with the independent auditors, review with management and the independent auditors our annual operating results and consider the adequacy of the internal accounting procedures and the
effect of the procedures relating to the auditors independence.



The Nomination, Selection and Remuneration committee of the Supervisory Board advises the Supervisory Board on matters relating to the selection and nomination of the members of the Management Board and Supervisory Board. The committee
further monitors and evaluates the remuneration policy for the Management Board. This committee consists of Mr. van Amerongen (Chairman), Mr. Danneels and Mr. van den Hoek.



We have entered into indemnity agreements with each of our Supervisory Board and Management Board members in which we agree to hold
each of them harmless, to the extent permitted by law, from damage resulting from a failure to perform or a breach of duties by our board members, and to indemnify each of them for serving in any capacity for the benefit of the Company, except in
the case of willful misconduct or gross negligence in certain circumstances.



D.
Employees.



As of December 31, 2007, we had 11,832 employees,
including 968 employees primarily involved in research and development activities, 451 in marketing and sales, 1,150 in customer service, 573 in finance and administration, and 8,690 in manufacturing.



The following table lists the total number of our employees and the number of our
employees in our front-end and back-end business at the dates indicated, exclusive of temporary workers:



|                    |           |                   |          |                   |       |                   |           |       |          |       |       |        |           |       |          |       |       |       
|------------------- | --------- | ----------------- | -------- | ----------------- | ----- | ----------------- | --------- | ----- | -------- | ----- | ----- | ------ | --------- | ----- | -------- | ----- | ----- | ------
|Geographic Location |           | December 31, 2005 |          | December 31, 2006 |       | December 31, 2007
|                    | Front-end |                   | Back-end |                   | Total |                   | Front-end |       | Back-end |       | Total |        | Front-end |       | Back-end |       | Total
|Europe              |           |                   |          |                   |       |                   |           |       |          |       |       |        |           |       |          |       |       |       
|The Netherlands     |           | 327               |          | 12                |       | 339               |           | 326   |          | 10    |       | 336    |           | 338   |          | 10    |       | 348   
|EMEA                |           | 166               |          | 10                |       | 176               |           | 179   |          | 11    |       | 190    |           | 204   |          | 11    |       | 215   
|United States       |           | 617               |          | 12                |       | 629               |           | 641   |          | 11    |       | 652    |           | 515   |          | 10    |       | 525   
|Japan               |           | 279               |          | 18                |       | 297               |           | 284   |          | 19    |       | 303    |           | 294   |          | 24    |       | 318   
|Southeast Asia      |           | 302               |          | 7,708             |       | 8,010             |           | 430   |          | 8,957 |       | 9,387  |           | 492   |          | 9,934 |       | 10,426
|                    |           |                   |          |                   |       |                   |           |       |          |       |       |        |           |       |          |       |       |       
|Total               |           | 1,691             |          | 7,760             |       | 9,451             |           | 1,860 |          | 9,008 |       | 10,868 |           | 1,843 |          | 9,989 |       | 11,832
|                    |           |                   |          |                   |       |                   |           |       |          |       |       |        |           |       |          |       |       |       



Our Netherlands operations,
which employs 348 persons, is subject to standardized industry bargaining under Netherlands law, and is required to pay wages and meet conditions established as a result of negotiations between all Netherlands employers in their industry and unions
representing employees of those employers. Additionally, management personnel in the Netherlands facilities meet as required by Netherlands law with a works council consisting of elected representatives of the employees to discuss working conditions
and personnel policies as well as to explain major corporate decisions and to solicit their advice on major issues.



Many of our employees are highly skilled, and our continued success will depend in part upon our ability to continue to attract and retain these employees, who are
in great demand. We believe that our employee relations are good.



E. Share ownership.



Information with respect to shares and options held by members of
our Supervisory Board and Management Board is included in Item 7, Major Shareholders and Related Party Transactions and Notes 25 and 26 to our Consolidated Financial Statements, which are incorporated herein by reference. With the
exception of Chuck del Prado, as of March 1, 2008, none of the members of our Supervisory Board or Management Board owned beneficially more than 1% of our outstanding common shares.



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We maintain various stock option plans for the benefit of our employees. For information about our stock option
plans, see Note 16 to our Consolidated Financial Statements, which is incorporated herein by reference.



Item 7. Major Shareholders and Related Party Transactions



A. Major shareholders.



The following table sets forth
information with respect to the ownership of our common shares as of March 28, 2008 by each beneficial owner of more than 5% of our common shares:



|                                   |  |                 |  |         
|---------------------------------- |  | --------------- |  | --------
|                                   |  | Number ofShares |  | Percent1
|Arthur H. del Prado2               |  | 11,476,878      |  | 21.3    
|                                   |  |                
|Hermes Focus Asset Management Ltd3 |  | 7,000,000       |  | 13.0    
|                                   |  |                
|Fursa Alternative Strategies LLC4  |  | 5,320,396       |  | 9.9     
|                                   |  |                
|The Goldman Sachs Group, Inc.5     |  | 3,606,696       |  | 6.7     



|(1) | Calculated on the basis of 54,005,214 Common Shares outstanding as of March 28, 2008, and without regard to options.
|--- | --------------------------------------------------------------------------------------------------------------------

|(2) | Includes 7,692,039 common shares owned by Stichting Administratiekantoor ASMI, a trust controlled by Arthur H. del Prado, of which 713,000 common shares are beneficially owned by Chuck D. del
Prado.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Derived from share ownership certification provided by Hermes as of March 19, 2008.
|--- | -----------------------------------------------------------------------------------

|(4) | Derived from Disclosure of Major Holdings and Capital Interests in Securities-Issuing Institutions 2006 filed March 11, 2008 with the Netherlands Authority for the Financial Markets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Derived from Schedule 13G filed February 11, 2008 with the SEC.
|--- | ---------------------------------------------------------------



A beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or
otherwise has or shares (i) voting power which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security. In
addition, a person shall be deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security, as defined above, within 60 days, including but not limited to any right to acquire:
(i) through the exercise of any option, warrant or right; (ii) through the conversion of a security; or (iii) pursuant to the power to revoke, or pursuant to the automatic termination of, a trust, discretionary account, or similar
arrangement.



On May 28, 1997, we entered into an agreement with
Stichting Continuïteit ASM International (Stichting), pursuant to which Stichting was granted an option to acquire up to a number of our preferred shares corresponding with a total par value equal to 50% of the par value of our common shares
issued and outstanding at the date of the exercise of the option. Stichting is a non-membership organization organized under Netherlands law. The objective of Stichting is to serve the interests of the Company. To that objective Stichting may,
amongst others, acquire, own and vote our preferred shares in order to maintain our independence and/or continuity and/or identity. The members of the board of Stichting are:



|                                  |  |                                                 
|--------------------------------- |  | ------------------------------------------------
|Michiel J.C. van Galen (chairman) |  | Retired Managing Director, Breevast N.V.        
|                                  | 
|Rinze Veenenga Kingma             |  | President Archeus Consulting B.V.               
|                                  | 
|Laurus Traas                      |  | Emeritus Professor, Vrije Universiteit Amsterdam



We are unaware of any
arrangement which we anticipate will result in a change in control of ASM International. All shares of our common stock entitle the holder to the same voting rights.



Of our 54,005,214 outstanding common shares at March 1, 2008, 8,092,039 are registered with us in the Netherlands, 38,321,733 are
registered with our transfer agent in the Netherlands, ABN AMRO Bank N.V., and 7,591,442 are registered with our transfer agent in the United States, Citibank, N.A., New York. Our common shares registered with Citibank, N.A., New York are listed on
the NASDAQ Global Select Market under the symbol ASMI. As of March 1, 2008 there were approximately 197 record holders of our common shares registered with Citibank. The common shares registered with ABN AMRO Bank N.V., are in
bearer form and are traded on Euronext Amsterdam under the symbol ASM.



B.
Related party transactions.



For information regarding related party
transactions, see Note 26 to our Consolidated Financial Statements, which is incorporated herein by reference.



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Item 8. Financial Information



A. Consolidated
statements and other financial information



Consolidated
financial statements



See Item 18. Financial
Statements.



Legal proceedings



See Item 4.B. Business Overview and Note 18 to our Consolidated
Financial Statements, which is incorporated herein by reference.



Dividend policy



In 2007, we paid an interim dividend of
 0.10 per share. We have not paid dividends in any year prior to 2007.



In November 2006, we announced a flexible stance with respect to our utilization of dividends received from ASMPT. We believe that
future dividends received from ASM Pacific Technology, our 53.10% owned subsidiary (ASMPT), are no longer required for investment in our front-end business. The front-end business is now considered financially independent based on the
positive momentum in the front-end business and our confidence in its future performance.



Dividends received from ASMPT in 2007 were used to:



| |  |  | reduce our outstanding convertible debt,
| | - |  | ----------------------------------------



| |  |  | repurchase of our shares,
| | - |  | -------------------------



| |  |  | payment of cash dividends to our common shareholders ( 0.10 per share).
| | - |  | ------------------------------------------------------------------------



For dividends received in the years 2008 through at
least 2009, we intend to use ASMPT dividends for one or more of the following:



| |  |  | reduction in our outstanding convertible debt,
| | - |  | ----------------------------------------------



| |  |  | repurchase of our shares,
| | - |  | -------------------------



| |  |  | payment of cash dividends to our common shareholders,
| | - |  | -----------------------------------------------------



| |  |  | purchase of ASMPT shares to maintain our ownership at the November 2006 level.
| | - |  | ------------------------------------------------------------------------------



The Management Board and Supervisory Board will determine the most appropriate use or combination of uses, of these funds, from time to time.



B. Significant changes



No significant changes have occurred since the date of our Consolidated Financial
Statements.



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Item 9. The Offer and Listing



A. Offer and listing
details.



The following table sets forth, for the periods indicated,
the high and low closing prices of our common shares as reported on the NASDAQ Global Select Market and the high and low closing prices as reported on Euronext Amsterdam:



Price Range of Common Shares



|                      |  |                      |       |                        |   |       |  |     |       |  |   |      
|--------------------- |  | -------------------- | ----- | ---------------------- | - | ----- |  | --- | ----- |  | - | -----
|                      |  | NASDAQClosing Prices |       | EuronextClosing Prices
|                      |  | High                 |       | Low                    |   | High  |  | Low
|Annual Information    |  |                      |       |                        |   |       |  |     |       |  |   |      
|2003                  |  | $                    | 20.40 |                        | $ | 9.71  |  |    | 17.05 |  |  | 8.78 
|2004                  |  |                      | 27.61 |                        |   | 12.80 |  |     | 22.10 |  |   | 10.47
|2005                  |  |                      | 19.15 |                        |   | 12.83 |  |     | 14.50 |  |   | 10.37
|2006                  |  |                      | 21.34 |                        |   | 13.72 |  |     | 16.97 |  |   | 10.95
|2007                  |  |                      | 30.32 |                        |   | 20.94 |  |     | 21.08 |  |   | 15.08
|                      |  |                      |       |                       
|Quarterly Information |  |                      |       |                        |   |       |  |     |       |  |   |      
|2006:                 |  |                      |       |                        |   |       |  |     |       |  |   |      
|First Quarter         |  | $                    | 20.37 |                        | $ | 16.48 |  |    | 16.80 |  |  | 13.46
|Second Quarter        |  |                      | 20.95 |                        |   | 14.93 |  |     | 16.97 |  |   | 11.88
|Third Quarter         |  |                      | 18.51 |                        |   | 13.72 |  |     | 14.58 |  |   | 10.95
|Fourth Quarter        |  |                      | 21.34 |                        |   | 17.63 |  |     | 16.44 |  |   | 13.91
|                      |  |                      |       |                       
|2007:                 |  |                      |       |                        |   |       |  |     |       |  |   |      
|First Quarter         |  | $                    | 24.00 |                        | $ | 20.94 |  |    | 18.12 |  |  | 16.00
|Second Quarter        |  |                      | 27.11 |                        |   | 22.47 |  |     | 20.37 |  |   | 16.76
|Third Quarter         |  |                      | 29.06 |                        |   | 26.62 |  |     | 21.08 |  |   | 18.21
|Fourth Quarter        |  |                      | 30.32 |                        |   | 21.43 |  |     | 21.08 |  |   | 15.08
|                      |  |                      |       |                       
|Monthly Information   |  |                      |       |                        |   |       |  |     |       |  |   |      
|September 2007        |  | $                    | 28.58 |                        | $ | 26.62 |  |    | 20.51 |  |  | 19.22
|October 2007          |  |                      | 30.32 |                        |   | 27.94 |  |     | 21.08 |  |   | 19.25
|November 2007         |  |                      | 27.54 |                        |   | 22.59 |  |     | 18.88 |  |   | 15.35
|December 2007         |  |                      | 23.95 |                        |   | 21.43 |  |     | 16.75 |  |   | 15.08
|January 2008          |  |                      | 24.30 |                        |   | 17.84 |  |     | 16.56 |  |   | 11.70
|February 2008         |  |                      | 21.05 |                        |   | 18.70 |  |     | 14.20 |  |   | 12.79
|March 20081           |  |                      | 19.52 |                        |   | 17.87 |  |     | 12.76 |  |   | 11.72



|(1) | Through March 14, 2008
|--- | ----------------------



B. Plan of distribution.



Not applicable.



C. Markets.



Our common shares are listed on the NASDAQ Global Select Market under the symbol ASMI and listed on Euronext Amsterdam
under the symbol ASM.



D. Selling shareholders.



Not applicable.



E. Dilution.



Not applicable.



F. Expenses of the issue.



Not applicable.



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Item 10. Additional Information



A. Share capital.



Not applicable.



B. Memorandum and articles of association.



The information required by Item 10.B. is incorporated by reference to Exhibit
1.1 in our Form 20-F filed with the United States Securities and Exchange Commission on March 16, 2007 and the Form 6-K filed on April 30, 2007.



C. Material contracts.



None.



D. Exchange controls.



There are no foreign exchange
controls or other governmental laws, decrees or regulations in the Netherlands restricting the import or export of capital or affecting the remittance of dividends, interest or other payments to non-resident shareholders. Neither the laws of the
Netherlands nor the Articles of Association of ASM International restrict remittances to non-resident shareholders or the right to hold or vote such securities.



E. Taxation.



Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on U.S. Shareholders



The statements below briefly summarize the current Dutch tax laws, based on the laws as in force at January 1, 2008. The description is limited to the tax
implications for shareholders who neither are nor are deemed to be a resident of the Netherlands for purposes of the relevant tax codes. The description does not address special rules that may apply to holders of special classes of shares and should
not be interpreted as extending by implication to matters not specifically referred to in this document. As to individual tax consequences, shareholders are advised to consult their own tax advisors.



Withholding Tax



Dividends distributed by us generally are subject to a withholding tax imposed by the
Netherlands at a rate of 15%. The expression dividends distributed includes, among other things:



| |  |  | distributions in cash or in kind, deemed and constructive distributions and repayments of paid-in capital which is not recognized as such for Dutch dividend withholding tax
purposes;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | liquidation proceeds, proceeds of redemption of ordinary shares or consideration for the repurchase of ordinary shares by us, or one of our subsidiaries, to the extent that
such consideration exceeds the average paid-in capital which is recognized as such for Dutch dividend withholding tax purposes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the par value of ordinary shares issued to a holder of ordinary shares or an increase in the par value of ordinary shares, as the case may be, to the extent that it does not
appear that a contribution, which is recognized as such for Dutch dividend withholding tax purposes, has been made or will be made; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | partial repayments of paid-in capital, which is recognized as such for Dutch dividend withholding tax purposes, if and insofar as there are net profits (zuivere winst)
unless the general meeting of our shareholders has resolved in advance to make such repayment and provided that the par value of the ordinary shares concerned has been reduced by an equal amount by way of an amendment to the articles of association.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If a holder of ordinary shares resides in a country
that signed a double taxation convention with the Netherlands and such convention is in effect, such holder of ordinary shares may, depending on the terms of that double taxation convention, be eligible for a full or partial exemption from,
reduction or refund of Dutch dividend withholding tax. The Netherlands has concluded such a convention with the United States, among other countries.



Under the Convention between the United States of America and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income (the US Tax Treaty) currently in effect, dividends we pay to a corporate holder of our common shares who



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is not, or is not deemed to be, a resident of the Netherlands for Dutch tax purposes but who is a resident of the United States as defined in the U.S. Tax Treaty may
be eligible for a reduction of the 15% Netherlands withholding tax. In the case of certain U.S. corporate shareholders owning at least 10% of ASM International voting power, the Netherlands withholding tax may be reduced to 5%, provided that such
shareholder does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or permanent representative in the Netherlands to which the dividends are attributable. A full
exemption of Netherlands withholding tax is applicable for a U.S. corporate shareholder owning at least 80% of voting power in the Company for a period of at least twelve months prior to the distribution, provided that this shareholder meets
specific tests of the limitation of benefits clause of the U.S. Tax Treaty. The U.S. Tax Treaty provides for complete exemption from tax on dividends received by exempt pension trusts and exempt organizations, as defined therein. Except in the case
of exempt organizations, the reduced dividend withholding rate can be applied at the source upon payment of the dividends, provided that the proper forms have been filed prior to the payment. Exempt organizations remain subject to the statutory
withholding rate of 15% and are required to file an application for a refund of such withholding.



A holder who is not, or is not deemed to be, a resident of the Netherlands may not claim the benefits of the U.S. Tax Treaty unless:



| |  |  | the holder is a resident of the United States as defined therein; and
| | - |  | ---------------------------------------------------------------------



| |  |  | the holders entitlement to such benefits is not limited by the provisions of Article 26 (limitation on benefits) of the U.S. Tax Treaty.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



Under current Dutch law, we may be permitted under
limited circumstances to deduct and retain from the withholding a portion of the amount that otherwise would be required to be remitted to the Dutch Tax Authorities. That portion generally may not exceed 3% of the total dividend distributed by us.
If we retain a portion of the amount withheld from the dividends paid, the portion (which is not remitted to the tax authorities) might not be creditable against your domestic income tax or corporate income tax liability. We will endeavor to provide
you with information concerning the extent to which we have applied the reduction described above to dividends paid to you and advise you to check the consequences thereof with your local tax advisor.



A refund, reduction, exemption or credit of Dutch dividend withholding tax on the basis
of Dutch tax law or on the basis of a tax treaty between the Netherlands and another state, will be granted only if the dividends are paid to the beneficial owner of the dividends. A receiver of a dividend is not considered to be the
beneficial owner of a dividend in an event of dividend stripping in which he has paid a consideration related to the receipt of such dividend. In general terms, dividend stripping can be described as the situation in which a
foreign or domestic person (usually, but not necessarily, the original shareholder) has transferred his shares or his entitlement to the dividend distributions to a party that has a more favorable right to a refund or reduction of Dutch dividend
withholding tax than the foreign or domestic person. In these situations, the foreign or domestic person (usually the original shareholder), by transferring his shares or his entitlement to the dividend distributions, avoids Dutch dividend
withholding tax while retaining his beneficial interest in the shares and the dividend distributions. This regime may also apply to the transfer of shares or the entitlement to dividend distributions as described above, if the avoidance
of dividend withholding tax is not the main purpose of the transfer.



Income Tax and Corporate Income Tax on Dividends



A nonresident individual or corporate shareholder will not be subject to Dutch income tax with respect to dividends distributed by us or with respect to capital gains derived from the sale, disposal or deemed disposal of our common shares,
provided that:



| |  |  | such holder is neither resident nor deemed to be resident in the Netherlands nor has made an election for the application of the rules of the Dutch 2001 Income Tax Act as
they apply to residents of the Netherlands; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | such holder does not have, and is not deemed to have, an enterprise or an interest in an enterprise which is, in whole or in part, carried on through a permanent
establishment, a deemed permanent establishment, or a permanent representative in the Netherlands and to which enterprise or part of an enterprise the shares are attributable, nor does such holder carry out any other activities in the Netherlands
that exceed regular asset management;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | such holder does not have a profit share in, or any other entitlement to the assets or income of an enterprise, other than by way of securities, which enterprise is
effectively managed in the Netherlands and to which enterprise the shares are attributable;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | such holder does not carry out and has not carried out employment activities with which the holding of the shares is connected directly or indirectly; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | such holder, individuals relating to such holder and some of their relations by blood or marriage in the direct line (including foster children) do not have a substantial
interest or deemed substantial interest in us, or, if such holder has a substantial interest or a deemed substantial interest in us, it forms part of the assets of an enterprise.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Generally, a nonresident holder will have a substantial interest if he, his partner,
certain other relatives (including foster children) or certain persons sharing his household, alone or together, directly or indirectly:



| |  |  | hold shares representing 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | hold or have rights to acquire shares (including the right to convert notes or stock options into shares), whether or not already issued, that at any time (and from time to
time) represent 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares); or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | hold or own certain profit-participating rights that relate to 5% or more of our annual profit and/or to 5% or more of our liquidation proceeds.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



The same criteria apply to a nonresident entity, save for the extension to partners,
certain other relatives, and certain persons sharing the holders household.



Gift and Inheritance Tax



In principle, liability
for Dutch gift tax or inheritance tax arises in respect of any gifts of common shares by or inheritance of common shares from any person who resides in the Netherlands at the time of the gift or death.



A gift or inheritance of common shares from a nonresident shareholder will not be
subject to Dutch gift and inheritance tax, provided that:



| |  |  | the nonresident shareholder does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a
permanent representative in the Netherlands to which or to whom the common shares are attributable;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the nonresident shareholder is not entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands other than by way of securities or
through an employment contract, the common shares being attributable to that enterprise; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the nonresident shareholder makes a gift of shares and dies within 180 days after the date of the gift, while being resident or deemed to be resident in the Netherlands at
the time of his death.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the purposes of Dutch gift
and inheritance tax, a Dutch national is deemed to be a resident of the Netherlands if he resided in that country at any time during a period of ten years preceding the date of the gift or death, as the case may be. In addition, for the purposes of
Dutch gift tax, a person not possessing Dutch nationality is also deemed to be a Dutch resident, irrespective of his nationality, if he was a Dutch resident at any time during a period of twelve months preceding the time at which the gift was made.
The Netherlands has concluded a treaty with the United States, based on which double taxation on inheritances may be avoided if the inheritance is subject to Netherlands and/or U.S. inheritance tax and the deceased was a resident of either the
Netherlands or the United States.



United States Federal Income Taxation



The following is a general description of select U.S. federal income
tax consequences of the ownership and disposition of our common shares by a U.S. Holder (as defined below). This summary only applies to U.S. Holders (as defined below) that hold their shares as capital assets. This discussion does not
purport to be a comprehensive description of all U.S. federal income taxation considerations that may be relevant to holders of shares in view of their particular circumstances (for example, persons subject to the alternative minimum tax provisions
of the Internal Revenue Code of 1986 (Internal Revenue Code)), and does not deal with holders subject to special rules, such as, but not limited to dealers in securities or foreign currencies, traders in securities that elect to use a
mark-to-market method of accounting, certain financial institutions, tax-exempt organizations, tax-qualified employer plans and other tax-qualified accounts, insurance companies, persons that actually or constructively own 10% or more of our voting
stock, persons holding common shares as part of a straddle, hedging, conversion or constructive sale transaction or holders of common shares whose functional currency is not the U.S. dollar.



This discussion is based on the Internal Revenue Code, as amended to the date hereof,
final, temporary and proposed U.S. Treasury Department regulations promulgated thereunder, and administrative and judicial interpretations thereof, changes to any of which subsequent to the date of this summary,



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possibly with retroactive effect may affect the tax consequences described in this summary. We will not update this summary for any law changes after the date of this
annual report. In addition, there can be no assurance that the Internal Revenue Service will not challenge one or more of the tax consequences described in this summary, and we have not obtained, nor do we intend to obtain, a ruling from the
Internal Revenue Service or an opinion of counsel with respect to the U.S. federal income tax consequences of acquiring or holding shares. Prospective holders of shares should consult their own tax

advisors as to the application of the U.S. federal income tax laws to their particular situation as well as any tax consequences that may arise under the U.S. federal estate or
gift tax and any state, local and foreign tax laws from the ownership and disposition of our shares.



The following discussion is a summary of the tax rules applicable to U.S. Holders of shares and does not consider any U.S. federal income tax consequences to
non-U.S. Holders. As used in this summary, U.S. Holder means a beneficial owner of shares that is (i) an individual who is a citizen or resident of the United States (as defined for U.S. federal income tax purposes), (ii) a
corporation (or any other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any of its political subdivisions, (iii) an estate the income of which is subject
to U.S. federal income taxation regardless of its source, (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control
all substantial decisions of the trust, or a trust if a valid election is in place to treat the trust as a U.S. person, or (v) any other person or entity that would be subject to U.S. federal income tax on a net income basis in respect of the
shares. A non-U.S. Holder is a beneficial owner of shares that is not a U.S. Holder as so defined herein.



Taxation of Dispositions



A U.S. Holder will recognize gain or loss for U.S. federal income tax purposes upon the sale or other disposition of shares in an amount equal to the difference
between the amount realized and the U.S. Holders adjusted tax basis in the shares. For these purposes, a U.S. Holders adjusted tax basis in the shares generally will equal the U.S. dollar cost of the shares to the U.S. Holder. Subject to
the passive foreign investment company rules described below, gain or loss realized by a U.S. Holder on a sale or other disposition generally will be treated as capital gain or loss, and will be long-term capital gain or loss if the shares were held
for more than one year as of the date of the sale or other disposition. Any such gain generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Net long-term capital gain recognized by a U.S. Holder who is an individual
generally is subject to reduced rates of taxation. The deduction of capital losses is subject to certain limitations. Prospective investors should consult their own tax advisors in this regard.



If we repurchase shares, the repurchase generally will be treated as a sale or exchange
of the shares subject to the rules discussed above. However, under certain circumstances as provided in Section 302 of the Internal Revenue Code, the repurchase may be treated fully or partially as a dividend taxable as described below under
Taxation of Distributions. U.S. Holders should consult their own tax advisors concerning the U.S. federal income tax consequences of our repurchase of their shares.



Taxation of Distributions



Subject to the anti-deferral tax rules described below, the gross amount of any distribution (actually or constructively) paid (before reduction for Netherlands
withholding taxes) with respect to shares, will be included in the gross income of a U.S. Holder as foreign source dividend income to the extent the distributions are paid out of our current or accumulated earnings and profits, as determined under
U.S. federal income tax principles. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. To the extent that the amount of any distribution exceeds our current and
accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital to the extent of the U.S. Holders adjusted tax basis in the shares (thereby increasing the amount of gain and
decreasing the amount of loss to be recognized on the subsequent disposition of the shares), and to the extent that such distribution exceeds the U.S. Holders adjusted tax basis in the shares such excess will be taxed as capital gain. We do
not maintain calculations of our earnings and profits under U.S. federal income tax principles, and therefore it may not be possible to determine that a distribution should not be treated as a dividend.



Distributions treated as dividends generally will not be eligible for the dividends
received deduction allowed to corporations under the Internal Revenue Code. The availability of this deduction is subject to several complex limitations which are beyond the scope of this summary.



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If a U.S. Holder receives a dividend in euros, the amount of the dividend for U.S. federal income tax purposes will
be the U.S. dollar value of the dividend, determined at the spot rate in effect on the date of such payment, regardless of whether the payment is later converted into U.S. dollars. In the case of such later conversion, the U.S. Holder may recognize
U.S. source ordinary income or loss as a result of currency fluctuations between the date on which the dividend is paid and the date the dividend amount is converted to U.S. dollars.



Recently enacted U.S. tax legislation has extended the reduced 15% maximum tax rate for certain dividends received by individuals
through taxable years beginning on or before December 31, 2010, so long as certain holding period requirements are met. Dividends received from qualified foreign corporations generally qualify for the reduced rate. A non-U.S.
corporation (other than a passive foreign investment company) generally will be considered to be a qualified foreign corporation if (I) the shares of the non-U.S. corporation are readily tradable on an established securities market
in the United States or (II) the non-U.S. corporation is eligible with respect to substantially all of its income for the benefits of a comprehensive income tax treaty with the United States which contains an exchange of information program. We
believe that we are, and will continue to be, a qualified foreign corporation. Individual U.S. Holders should consult their tax advisors regarding the impact of distributions paid with respect to their shares of our common stock in light
of their particular situations.



Foreign Tax Credit



Dividends distributed by us generally are subject to a
withholding tax imposed by the Netherlands at a rate of 15% (see Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on U.S. ShareholdersWithholding Tax).Subject to certain
conditions and limitations set forth in Sections 901 and 904 of the Internal Revenue Code, including certain holding period requirements, foreign tax withheld or paid with respect to dividends on common shares generally will be eligible for credit
against a U.S. Holders U.S. federal income tax liability. Alternatively, a U.S. Holder may claim a deduction for the amount of withheld foreign taxes, but only for a year for which the U.S. Holder elects to do so with respect to all foreign
income taxes. Under current Dutch law, we may be permitted, under limited circumstances, to retain a portion of Netherlands taxes we withhold from dividends paid to our shareholders, rather than pay that portion of the withheld taxes to the taxing
authorities in the Netherlands (see Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on U.S. ShareholdersWithholding Tax). This amount generally may not exceed 3% of the total dividend
distributed by us. If we retain a portion of the Netherlands withholding taxes, the retained amount in all likelihood will not qualify as a creditable tax for U.S. federal income tax purposes. We will endeavor to provide U.S. Holders with
information concerning the extent to which we retain any Netherlands taxes on dividends paid to U.S. Holders.



The overall limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income such as passive income,
high withholding tax interest, financial services income, shipping income, and certain other classifications of income. For this purpose, dividends distributed by us generally will be passive income,
or, in the case of certain U.S. Holders, financial services income. To the extent such dividends on common shares are treated as capital gains, such gain would be U.S. source. Accordingly, a U.S. Holder would not be able to use the
foreign tax credit arising from any Netherlands withholding taxes imposed on such distribution unless such credit can be applied (subject to applicable limitations) against U.S. tax due on other foreign source income in the appropriate category for
foreign tax credit purposes.



Recent legislation will significantly
modify the foreign tax credit rules discussed above. Effective for tax years beginning after December 31, 2006, there will be only two specific classes of income for purposes of calculating foreign tax credit limitations (a passive category and
a general category). Other income that would have been included in one of the current categories will be included in one of these two categories.



The rules relating to the determination of the U.S. foreign tax credit are complex. U.S. Holders should consult their own tax advisors with respect to the
availability of a foreign tax credit or deduction for foreign, including Netherlands, taxes withheld.



Anti-Deferral Tax Rules



The Internal Revenue Code contains various provisions that impose current U.S. federal income tax on certain foreign corporations or their U.S. shareholders if such
corporations derive certain types of passive income and fail to make adequate distribution of profits to their U.S. shareholders. These provisions include the passive foreign investment company and controlled foreign corporation rules. While we do
not believe that any of these rules should apply to us, we are not certain that we can avoid these tax rules because we



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cannot predict with any degree of certainty the amount and character of our future income or the amount of our shares any particular U.S. Holder will own. Accordingly,
we will only briefly summarize those provisions and then only the rules that we believe would have the greatest likelihood of applying to us in the future.



Passive Foreign Investment Company. As a foreign corporation with U.S. Holders, we could potentially be treated as a passive foreign investment
company (PFIC) as defined in the Internal Revenue Code. The PFIC provisions of the Internal Revenue Code can have significant tax effects on U.S. Holders. In general, a foreign corporation will be a PFIC in a particular tax year
and for all succeeding tax years if:



| |  |  | 75% or more of its gross income (including the foreign corporations pro rata share of the gross income of any U.S. or foreign company in which the corporation owns or
is considered to own 25% or more of the shares by value) in a taxable year is passive income (which generally includes interest, dividend and certain rents and royalties); or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | at least 50% of the average value of the corporations gross assets in a taxable year (average determined as of the end of each quarter of the corporations taxable
year and ordinarily determined based on gross fair market value, including the proportionate share of the assets of any U.S. or foreign company in which the corporation owns or is considered to own 25% or more of the shares by value) produce, or are
held for the production of, passive income.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If we were
a PFIC for a taxable year during which a U.S. Holder owned our shares, then a U.S. Holder would likely incur increased tax liabilities (possibly including an interest charge) upon the sale or other disposition of our shares of our common stock or
upon receipt of excess distributions. In other words, gain recognized by a U.S. Holder on a sale or other disposition of our shares would be allocated ratably over the U.S. Holders holding period for the shares. The amounts
allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for
individuals or corporations, as appropriate, and an interest charge would be imposed on the amount allocated to that taxable year. Further, any distribution in excess of 125 percent of the average of the annual distributions on shares received by
the U.S. Holder during the preceding three years or the U.S. Holders holding period, whichever is shorter, would be subject to taxation as described above.



Certain elections may be available (including a qualified electing fund election and a mark to market election) to U.S. Holders that
may mitigate the adverse consequences resulting from PFIC status. In addition, if we were a PFIC in a taxable year in which we pay a dividend or the prior year, the 15% dividend rate discussed above with respect to dividends paid to certain U.S.
Holders would not apply.



We believe that we are not a PFIC, and we do
not expect to become a PFIC. However, we cannot assure that we will not qualify as a PFIC in the future. The PFIC rules are very complex and U.S. Holders should consult their own tax advisors on this issue.



Controlled Foreign Corporation Rules. If more than 50% of the voting power or
total value of all classes of our shares is owned, directly or indirectly, by U.S. Holders, each of which owns 10% or more of the total combined voting power of all classes of our shares, we could be treated as a controlled foreign corporation
(CFC) under Subpart F of the Internal Revenue Code. This classification would result in many complex consequences, including the required inclusion into income by such 10% or greater shareholders of their pro rata shares of our
Subpart F Income, as defined in the Internal Revenue Code. In addition, under Section 1248 of the Internal Revenue Code, gain from the sale or exchange of shares by any U.S. Holder who is or was a 10% or greater shareholder at any
time during the five-year period ending with the sale or exchange will be dividend income to the extent of our earnings and profits attributable to the shares sold or exchanged and accumulated during the periods that we were a CFC. Under certain
circumstances, a U.S. Holder that directly owns 10% or more of our voting shares and is a corporation may be entitled to an indirect foreign tax credit for amounts characterized as dividends under Section 1248 of the Internal Revenue Code. We
believe that we are not a CFC and we will not become a CFC, however, we can not assure you that we will not become a CFC in the future.



United States Backup Withholding Tax and Information Reporting



Under certain circumstances, a U.S. Holder may be subject to information reporting and backup withholding with respect to certain
payments made in respect of the shares and the proceeds received on the disposition of the shares paid within the U.S. (and in certain cases, outside the U.S.). Such amounts may be subject to a 28% U.S. backup withholding tax unless the U.S. Holder
otherwise establishes an exemption. For example, backup withholding will not apply to a U.S. Holder who (1) is a corporation or comes within certain other exempt categories and, when required, demonstrates that fact, or (2) furnishes a
correct taxpayer identification number and makes certain other required certifications as provided by the backup withholding rules.



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Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder
will be allowed as a credit against the U.S. Holders U.S. federal income tax liability and may entitle a U.S. Holder to a refund, provided that the required information is furnished to the Internal Revenue Service.



* * *



The discussion set forth above is included for general information only and may not be applicable depending upon a holders particular situation.
Holders should consult their tax advisors with respect to the tax consequences to them of the purchase, ownership and disposition of shares including the tax consequences under state, local and other tax laws and the possible effects of changes in
U.S. federal and other tax laws.



F. Dividends and paying agents.



Not Applicable.



G. Statement by experts.



Not Applicable.



H. Documents on display.



Whenever a
reference is made in this Form 20-F to any contract, agreement or other document, the reference may not be complete and you should refer to the copy of that contract, agreement or other document filed as an exhibit to one of our previous SEC
filings.



We file annual and special reports and other information with
the SEC. You may read and copy any document we file with the SEC at the SECs public reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public
reference room. The SEC maintains an Internet site at http://www.sec.gov that contains reports, registration statements and other information regarding issuers that file electronically with the SEC, including ASM International.



I. Subsidiary information.



Not Applicable.



Variation in Practices Required by NASDAQ Marketplace Rules.



Because we are a Netherlands public limited liability company, with principal executive offices outside of the U.S., some of our corporate practices vary from those
required by the NASDAQ Marketplace Rules, as follows:



(i)
Marketplace Rule 4350(f): Quorum



Pursuant to Dutch corporate law
(section 2:120 sub 2 Dutch Civil Code) the validity of a resolution by the general meeting of shareholders does not depend on the proportion of the capital or shareholders represented at the meeting (i.e. quorum), unless the law or articles of
association of a company otherwise provide. It is the generally accepted business practice for Dutch companies not to provide for a quorum requirement in their articles, and there is no contrary requirement in the Dutch securities laws or under the
rules of Euronext Amsterdam. Accordingly, our Articles of Association do not provide for a quorum, and provide that a resolution of the general or any extraordinary meeting of shareholders will be adopted upon the favorable vote of a majority of the
votes cast at the meeting, except in the case of the shareholder appointment of persons to, or dismissal of persons from, our Supervisory Board and Management Board not proposed by our Supervisory Board, which require the affirmative vote of a
majority of the votes cast at an annual or extraordinary shareholders meeting, which affirmative votes represent more than half our issued capital. To this extent, our practice varies from the requirement of Marketplace Rule 4350(f), which requires
an issuer to provide in its bylaws for a quorum, and that such quorum may not be less than one-third of the outstanding voting stock.



(ii) Marketplace Rule 4350(g): Proxies



The solicitation of proxies and the distribution of proxy statements for meetings of shareholders are not required under European law, the Dutch Civil Code, the
Dutch securities laws or by the rules of



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Euronext Amsterdam. It is still business practice for Dutch companies not to solicit proxies or distribute proxy statements in respect of European shareholders. In
part this is because a substantial portion of shares held by these shareholders are held in bearer form. This is the case for our common shares traded on Euronext Amsterdam and, accordingly, it is impractical to solicit proxies as to these shares.
As a result, our practice in respect of the holders of shares other than our common shares listed on the NASDAQ Global Select Market varies from that required by Marketplace Rule 4350(g), which provides that issuers shall solicit proxies and provide
proxy statements for all meetings of shareholders.



As to our common
shares listed on the NASDAQ Global Select Market, which we refer to as New York registry shares, we prepare a proxy statement and solicit proxies from the holders of such shares since there are procedures in place under the Securities Exchange Act
of 1934, as amended, for soliciting proxies from beneficial owners. Our practice in this regard, however, differs from the typical practice of U.S. corporate issuers in that the advance record date for determining the holders of record entitled to
attend and vote at our shareholder meetings may not be more than 30 days prior to the meeting under applicable Dutch corporate law (section 2:119 sub 2 of Dutch Civil Code). As an administrative necessity, we establish a mailing record date in
advance of each meeting of shareholders for purposes of determining the shareholders to which the proxy statement and form of proxy will be sent. However, only shareholders of record on the specified record date are entitled to attend and vote,
directly or by proxy, at the meeting.



(iii) Marketplace Rule
4350(b)(1): Distribution of Annual Reports



The distribution of
annual reports to shareholders is not required under Dutch corporate law, Dutch securities laws, or by Euronext Amsterdam. Furthermore, it is the generally accepted business practice for Dutch companies not to distribute annual reports. In part,
this is because the Dutch system of bearer shares has made it impractical to keep a current list of holders of the bearer shares in order to distribute the annual reports.



Similar to our approach with respect to the solicitation of proxies and distribution of proxy statements, we deliver our annual report
to each shareholder that holds our New York registry shares along with our proxy statement. We do not, however, distribute our annual report to holders of our bearer shares, which are traded on Euronext Amsterdam. In accordance with our Articles of
Association and Dutch corporate law, we make our annual report available at our corporate head office in the Netherlands (and at the offices of our Netherlands listing agent as stated in the convening notice for the meeting). In addition, we post a
copy of our annual report on our website (www.asm.com).



Our practice in
respect of the distribution of our annual report to holders of shares other than New York registry shares varies from that required by Marketplace Rule 4350(b)(1), which provides that issuers must distribute copies of their annual report to all
shareholders a reasonable amount of time prior to the annual general meeting of shareholders.



Item 11. Quantitative and Qualitative Disclosures about Market Risk



We are exposed to market risks (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. We use forward exchange contracts to hedge
foreign exchange risk. We do not enter into financial instrument transactions for trading or speculative purposes.



Foreign exchange risk management



We conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the functional currency of the Company (Euro)
or one of its subsidiaries conducting the business. The purpose of the Companys foreign currency management is to manage the effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in
selected foreign currencies, in particular denominated in U.S. dollar.



Our front-end segment uses forward exchange contracts to hedge its foreign exchange risk of anticipated sales or purchase transactions in the normal course of business, which occur within the next twelve months, for which it has a firm
commitment from a customer or to a supplier. The terms of these contracts are consistent with the timing of the transactions being hedged. The hedges related to forecasted transactions are designated and documented at the inception of the hedge as
cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income in Shareholders Equity, and is reclassified into
earnings when the hedged transaction affects earnings.



The majority of
revenues and costs of our back-end segment are denominated in Hong Kong dollars, Chinese Yuan and U.S. dollar. The functional currency of our back-end segment (Hong Kong dollar) is linked to the U.S. dollar. Since foreign currency exposure is not
significant, no forward exchange contracts are used. The effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in foreign currencies is periodically reviewed.



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Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective
portion of any hedges, are recognized in earnings. The Company records all derivatives, including forward exchange contracts, on the balance sheet at fair value in other current assets or accrued expenses.



We expect that substantially all of the  0.1 million unrealized gains included in accumulated other comprehensive income as of December 31, 2007 will be reclassified to net earnings within the next twelve months, upon completion of the
underlying transactions. If the underlying transaction being hedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss is immediately recognized in earnings under foreign currency exchange gains (losses) in the
Consolidated Statement of Operations. Unrealized losses included in other comprehensive income as of December 31, 2006 of  0.1 million were reclassified to
earnings in 2007. Hedge ineffectiveness was insignificant for the years ended December 31, 2006 and December 31, 2007.



Furthermore, we manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts (fair value
hedges) and currency swaps, and non-derivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on receivables and payables denominated in foreign
currencies. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations. Receivables and payables denominated in
foreign currencies are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of
Operations.



We do not use forward exchange contracts for trading or
speculative purposes.



To the extent that foreign currency fluctuations
affect the value of our investments in our foreign affiliates, they are not hedged. The cumulative effect of these fluctuations is separately reported in Consolidated Shareholders Equity. For the year ended December 31, 2006, we recorded
an unfavorable movement of  12.2 million. For the year ended December 31, 2007, we recorded an unfavorable movement of  12.1 million. See Note 15 to our Consolidated Financial Statements, which is incorporated herein by reference.



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The following table summarizes our financial instruments as of December 31, 2007 and analyzes the sensitivity
of the fair value of our financial instruments to an immediate change in foreign currency rates. Fair values represent the present value of forecasted future cash flows at market foreign currency exchange rates. The sensitivity analysis assumes an
immediate 10% favorable or unfavorable change in all foreign currency exchange rates against the euro from their levels as of December 31 with all other variables kept constant. A favorable 10% change indicates a strengthening of the currency
in which our financial instruments are denominated, primarily the U.S. dollar, against the euro and an unfavorable change indicates a weakening of the currency in which our financial instruments are denominated, primarily the U.S. dollar, against
the euro. The selection of 10% favorable or unfavorable change in foreign currency exchange rates should not be construed as a prediction by us of future market events, but rather, to illustrate the potential impact of such an event. The modeling
technique used to calculate the exposure does not take into account correlation among foreign currency exchange rates, or correlation among various markets (i.e., the foreign exchange, equity and fixed-income markets). Even though we believe it to
be possible that all of the foreign currency exchange rates to which we are exposed would simultaneously change by more than 10%, we find it meaningful to stress test our exposure under this 10% fluctuation scenario and other
hypothetical adverse market scenarios. Our actual experience may differ from the results in the table below due to the correlation assumptions utilized, or if events occur that were not included in the methodology, such as significant liquidity or
market events.



|                                                                      |  |                            |  |                       |  |                  |  |                        |  |                          |  |                 
|--------------------------------------------------------------------- |  | -------------------------- |  | --------------------- |  | ---------------- |  | ---------------------- |  | ------------------------ |  | ----------------
|                                                                      |  |                            |  |                       |  |                  |  |                        |  | Sensitivity analysis    
|                                                                      |  | Currency andnotionalamount |  | Carryingamount        |  | Fair value       |  | Favorablechange of 10% |  | Unfavorablechange of 10%
|                                                                      |  | (in millions)              |  | (in millions of euro)
|As of December 31, 2007:                                              |  |                            |  |                      
|Notes payable to banks, due withintwelve months                       |  | yen                        |  | 2,600.0               |  | 15.8             |  | 15.8                   |  | 14.2                     |  | 17.3            
|                                                                      |  | SG$                        |  | 2.0                   |  | 0.9              |  | 0.9                    |  | 0.8                      |  | 1.0             
|Long-term debt with maturities:                                       |  |                            |  |                       |  |                  |  |                        |  |                          |  |                 
|due from 2008  2012 due from 2010 due from 2008  2011 due from 2008 |  | yen euro SG$ KRW           |  | 4,662.5 0.6 4.9 50.0  |  | 28.3 0.6 2.3 0.1 |  | 28.3 0.6 2.3 0.1       |  | 25.4 0.6 2.1 0.1         |  | 31.1 0.6 2.6 0.1
|                                                                      |  |                            |  |                       |  |                 
|Convertible subordinated debt:                                        |  |                            |  |                       |  |                  |  |                        |  |                          |  |                 
|due May 15, 2010 due December 6, 2011                                 |  | US$ US$                    |  | 69.2 135.4            |  | 47.0 92.0        |  | 62.3 112.2             |  | 56.1 101.0               |  | 68.5 123.4      
|                                                                      |  |                            |  |                       |  |                 
|Foreign exchange contracts:                                           |  |                            |  |                       |  |                  |  |                        |  |                          |  |                 
|purchase of currency contracts to be settled within twelve months:    |  | US$ euro                   |  | 42.5 1.4              |  | 28.9 1.3         |  | 28.9 1.3               |  | 26.0 1.3                 |  | 31.8 1.3        
|sale of currency contracts to be settled within twelve months:        |  | US$                        |  | 21.8                  |  | 14.8             |  | 14.8                   |  | 13.4                     |  | 16.3            



For long-term debt, the
estimated fair values of our long-term debt are based on current interest rates available to us for debt instruments with similar terms and remaining maturities. The fair values of our convertible subordinated debt borrowings are based on our
estimates. For forward exchange contracts, market values based on external quotes from banks have been used to determine the fair value.



The following table analyzes our sensitivity to a hypothetical 10% strengthening respectively 10% weakening of the U.S. dollar, Hong Kong dollar or Japanese yen
against the Euro as of December 31, 2007. This analysis includes foreign currency denominated monetary items and adjusts their translation at year end for a 10% increase respectively 10% decrease of the U.S. dollar, Hong Kong dollar or Japanese
yen against the Euro. A positive amount indicates an increase in equity. Recognized in equity is the revaluation effect of subsidiaries denominated in U.S. dollar, Hong Kong dollar and Japanese yen.



|                                             |  |                 |   |  |                 |  
|-------------------------------------------- |  | --------------- | - |  | --------------- | -
|                                             |  | 2006            |   |  | 2007            |  
|                                             |  | Impact onequity |   |  | Impact onequity |  
|10% increase of U.S. dollar versus euro      |  | (6,698          | ) |  | (8,279          | )
|10% decrease of U.S. dollar versus euro      |  | 6,698           |   |  | 8,279           |  
|10% increase of Hong Kong dollar versus euro |  | 13,316          |   |  | 13,647          |  
|10% decrease of Hong Kong dollar versus euro |  | (13,316         | ) |  | (13,647         | )
|10% increase of Japanese yen versus euro     |  | 3,100           |   |  | 3,162           |  
|10% decrease of Japanese yen versus euro     |  | (3,100          | ) |  | (3,162          | )
|                                             |  |                 |   |  |                 |  



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A hypothetical 10% strengthening or 10% weakening of any other currency than the U.S. dollar, Hong Kong dollar and
Japanese yen against the Euro as of December 31, 2007 would not result in a material impact on equity.



A hypothetical 10% strengthening or 10% weakening of the U.S. dollar, Hong Kong dollar, Japanese yen or any other currency against the Euro as of December 31,
2007 would not result in a material impact on net earnings.



Interest risk



We are exposed to interest rate risk primarily through our
borrowing activities. We do not enter into financial instrument transactions for trading or speculative purposes or to manage interest rate exposure. At December 31, 2007 we had convertible subordinated debt borrowings outstanding of  47,016 at a fixed interest rate, maturing in May 2010 and  91,977 at a fixed
interest rate, maturing in December 2011 and  31,266 in long-term debt at fixed interest rates and  16,667 in other borrowings with variable short-term interest rates. A hypothetical change in the average interest rate by 10% on the portion of debt bearing interest at variable rates would not result in a material
change in interest expense at December 31, 2006 and December 31, 2007 borrowing levels.



Credit risk



Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and derivative instruments. These instruments contain a risk of counterparties failing to discharge their obligations. We
monitor credit risk and manages credit risk exposure by type of financial instrument by assessing the creditworthiness of counterparties. We do not anticipate nonperformance by counterparties given their high creditworthiness.



Our customers are semiconductor device manufacturers located throughout the world. We
generally do not require collateral or other security to support financial instruments with credit risk.



Concentrations of credit risk (whether on or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have
similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.



A significant percentage of our revenue is derived from a small number of large customers. Our largest customer accounted for
approximately 9.6% of net sales in 2007 (2006: 11.4%; 2005: 17.2%) and the ten largest customers accounted for approximately 32.4% of net sales in 2007 (2006: 33.9%; 2005: 43.7%). Sales to these large customers also may fluctuate significantly from
time to time depending on the timing and level of purchases by these customers. Significant orders from such customers may expose us to a concentration of credit risk and difficulties in collecting amounts due, which could harm our financial
results. At December 31, 2007 one customer accounted for 7.8% of the outstanding balance in accounts receivable (2006: 8.8%; 2005: 12.4%).



We place our cash and cash equivalent and derivative instruments with high quality financial institutions to limit the amount of credit risk exposure.



The maximum credit exposure is equal to the carrying values of cash and cash
equivalent and accounts receivable.



Item 12. Description of Securities Other Than Equity Securities



Not applicable.



Item 13. Defaults, Dividend Arrearages and Delinquencies



None.



Item 14. Material Modification to the Rights of Security Holders and Use of Proceeds



None.



Item 15. Controls and Procedures



(a)
Disclosure Controls and Procedures: Our CEO and CFO, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Form 20-F, have concluded that
as of December 31, 2007 our disclosure controls and procedures were effective.



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(b) Report of Management on Internal Control Over Financial Reporting: Our management is responsible for
establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for
external purposes in accordance with applicable generally accepted accounting principles. Internal control over financial reporting includes policies and procedures for maintaining records that in reasonable detail accurately and fairly
reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance
with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
Management, including our CEO and CFO, conducted an evaluation of the effectiveness of our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) based on the framework in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Companys internal control over financial reporting
was effective as of December 31, 2007.



(c) Attestation Report of
the Registered Public Accounting Firm: Deloitte Accountants B.V., an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this annual report on Form 20-F and, as part of the audit, has issued a
report, included herein, on the effectiveness of ASMIs internal control over financial reporting.



(d) Changes in Internal Control Over Financial Reporting: There were no changes to our internal control over financial reporting that occurred during the period
covered by this Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Inherent Limitations on Effectiveness of Controls



All internal control systems no matter how well designed and implemented have inherent limitations. Even systems determined to be effective may not prevent or
detect misstatements or fraud and can only provide reasonable assurance with respect to disclosure and financial statement presentation and reporting. Additionally, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changed conditions and the degree of compliance with the policies or procedures may deteriorate.



|Item 16A. | Audit Committee Financial Expert
|--------- | --------------------------------



The Supervisory Board has determined that Mr. van den Boom, an independent member of the Supervisory Board, qualifies as the Audit Committee Financial Expert. For
Mr. van den Booms experience see Item 6 Directors, Senior Management and Employees.



|Item 16B. | Code of Ethics
|--------- | --------------



We have a code of ethics applicable to all of our employees. The code of ethics, which is also applicable to our CEO, CFO and controllers, is designed to promote honest and ethical conduct and timely and accurate disclosure in
our periodic financial reports.



Our whistleblower policy provides for
the reporting of alleged violations of the code of ethics and alleged irregularities of a financial nature by Company employees or other stakeholders to the Management Board and/or the Supervisory Board without any fear of reprisal against the
individual that reports the violation or irregularity.



Our anti-fraud
policy provides specific rules to promote ethical and legal conduct regarding anti-corruption matters (such as bribery and corruption of governmental officials) and anti-fraud matters (such as maintaining accurate and complete Company records,
protection and use of Company resources, information security, and conflicts of interest).



For further information, see the Code of Ethics, Whistleblower Policy, Anti-Fraud Policy and other related policies including our Rules Concerning Insider Trading, which are all posted on our website (www.asm.com).



64



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##### Table of Contents

|Item 16C. | Principal Accountant Fees and Services
|--------- | --------------------------------------



Audit fees.



Deloitte Accountants B.V., its affiliates, and its member firms (Deloitte) billed us an aggregate  1,448,218 and  2,902,577 for the audit of our Consolidated Financial Statements for the years ended December 31, 2006 and 2007, respectively, and certain agreed upon procedures
regarding our quarterly financial results. These amounts accounted for 48% and 76% of the total fees billed to us by Deloitte in 2006 and 2007, respectively.



Audit-related fees.



Deloitte billed us an aggregate of  1,188,353 and  14,327 for fees for audit related services for the years ended December 31, 2006 and 2007, respectively. The services for the year ended December 31, 2006 consisted of
consultations related to Section 404 of the Sarbanes-Oxley Act. These amounts accounted for 39% and 1% of the total fees billed to us by Deloitte in 2006 and 2007, respectively.



Tax fees.



Deloitte billed us an aggregate of  383,276 and  863,141 in 2006 and 2007, respectively, for tax services relating to tax compliance, tax planning and advice. These amounts accounted for 12% and 22% of the total fees billed to us by
Deloitte in 2006 and 2007, respectively.



All other fees.



Deloitte billed us an aggregate of  27,676 and  54,245 in 2006 and 2007, respectively, for all other services. These amounts accounted for 1%
and 1% of the total fees billed to us by Deloitte in 2006 and 2007, respectively.



Audit Committee pre-approval policies.



The Audit
Committee has determined that the provision of services by Deloitte described in the preceding paragraphs is compatible with maintaining Deloittes independence. All audit and permitted non-audit services provided by Deloitte during 2007 were
pre-approved by the Audit Committee.



The Audit Committee has adopted the
following policies and procedures for pre-approval of all audit and permitted non-audit services provided by our independent registered public accounting firm:



Audit Services. Management submits to the Audit Committee for pre-approval the scope and estimated fees for specific services directly related to
performing the independent audit of our Consolidated Financial Statements for the current year.



Audit-Related Services.The Audit Committee may pre-approve expenditures up to a specified amount for services included in identified service categories that
are related extensions of audit services and are logically performed by the auditors. Additional services exceeding the specified pre-approved limits require specific Audit Committee approval.



Tax Services. The Audit Committee may pre-approve expenditures up to a
specified amount per engagement and in total for identified services related to tax matters. Additional services exceeding the specified pre-approved limits, or involving service types not included in the pre-approved list, requires specific Audit
Committee approval.



Other Services. In the case of specified
services for which utilizing our independent registered public accounting firm creates efficiencies, minimizes disruption, or preserves confidentiality, or for which management has determined that our independent registered public accounting firm
possesses unique or superior qualifications to provide such services, the Audit Committee may pre-approve expenditures up to a specified amount per engagement and in total. Additional services exceeding the specified pre-approved limits, or
involving service types not included in the pre-approved list, requires specific Audit Committee approval.



|Item 16D. | Exemptions from the Listing Standards for Audit Committees
|--------- | ----------------------------------------------------------



Not applicable.



|Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers
|--------- | ----------------------------------------------------------------------



Between May 14, 2007 and May 24, 2007, we used  20.5 million of
the  24.0 million 2006 final cash dividend received from our subsidiary ASMPT to repurchase USD 14.5 million principal amount of our 5.25% Convertible
Subordinated Notes due 2010 and USD 5.6 million principal amount of our 4.25% Convertible Subordinated Notes due 2011.



65



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##### Table of Contents

Between August 21, 2007 and August 31, 2007, we used  15.1 million of the  25.0 million 2007 interim cash dividend received from our subsidiary ASMPT
to repurchase USD 6.3 million principal amount of our 5.25% Convertible Subordinated Notes due 2010 and USD 9.0 million principal amount of our 4.25% Convertible Subordinated Notes due 2011.



On May 18, 2006, the General Meeting of Shareholders authorized, for an 18-month
period, to be calculated from the date of the General Meeting to cause the Company to repurchase its own shares up to the statutory maximum, at a price at least equal to the shares nominal value and at most a price equal to 110% of the
shares average closing price according to the listing on the Euronext Amsterdam stock exchange during the five trading days preceding the acquisition date.



The number of shares bought back under the authorization of May 18, 2006 was 178,706. Of this number, 178,706 were sold upon the
exercise of options by employees of ASMI, under the Employee Stock Option Plan.



The following table summarizes shares repurchased under the authorization of May 18, 2006:



|         |  |                               |  |                                                                          |  |                           |       |                                                                |  
|-------- |  | ----------------------------- |  | ------------------------------------------------------------------------ |  | ------------------------- | ----- | -------------------------------------------------------------- | -
|Period   |  | TotalNumber ofSharesPurchased |  | TotalNumber ofSharesPurchasedas Part ofPubliclyAnnouncedPlans orPrograms |  | AveragePricePaid perShare |       | MaximumNumber ofSharesthat MayYet bePurchasedunder thePrograms
|May 2007 |  | 178,706                       |  | 178,706                                                                  |  |                          | 19.56 |                                                                | 



On May 22, 2007, the
General Meeting of Shareholders authorized, for an 18-month period, to be calculated from the date of the General Meeting to cause the Company to repurchase its own shares up to the statutory maximum, at a price at least equal to the shares
nominal value and at most a price equal to 110% of the shares average closing price according to the listing on the Euronext Amsterdam stock exchange during the five trading days preceding the acquisition date.



The number of shares bought back under the authorization of May 22, 2007 was
250,000. Of this number, 36,213 were sold upon the exercise of options by employees of ASMI, under the Employee Stock Option Plan.



The following table summarizes shares repurchased under the authorization of May 22, 2007:



|            |  |                               |  |                                                                          |  |                           |       |                                                                |          
|----------- |  | ----------------------------- |  | ------------------------------------------------------------------------ |  | ------------------------- | ----- | -------------------------------------------------------------- | ---------
|Period      |  | TotalNumber ofSharesPurchased |  | TotalNumber ofSharesPurchasedas Part ofPubliclyAnnouncedPlans orPrograms |  | AveragePricePaid perShare |       | MaximumNumber ofSharesthat MayYet bePurchasedunder thePrograms
|August 2007 |  | 250,000                       |  | 250,000                                                                  |  |                          | 18.67 |                                                                | 5,150,521



Item 17. Financial Statements



Not
Applicable.



Item 18. Financial Statements



See
pages F-1 through F-42, which are incorporated herein by reference.



66



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##### Table of Contents

Item 19. Exhibits (*)



|              |  |                                                                                                                                                               |  |                                                                       |  |                
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | ---------------
|ExhibitNumber |  | Description                                                                                                                                                   |  | Incorporated by Reference to:                                         |  | IncludedHerein:
|1.1           |  | English Informal Translation of ASM International N.V.s Articles of Association, as amended                                                                  |  | Exhibit 1.1 to the Registrants Form 20-F filed on March 16, 2007     |  |                
|              |  |                                                                                                                                                               | 
|2.1           |  | Indenture Agreement dated May 6, 2003 between ASM International N.V. and Citibank N.A.                                                                        |  | Exhibit 4.18 to the Registrants Form F-3 filed on July 25, 2003      |  |                
|              |  |                                                                                                                                                               | 
|2.2           |  | Indenture Agreement dated December 6, 2004 for the 4.25 % Convertible Subordinated Notes.                                                                     |  | Exhibit 99.1 to the Registrants Form 6-K filed on December 9, 2004   |  |                
|              |  |                                                                                                                                                               | 
|4.1           |  | 2001 Stock Option Plan                                                                                                                                        |  | Exhibit 99.1 to the Registrants Form S-8 filed on April 30, 2002     |  |                
|              |  |                                                                                                                                                               | 
|4.2           |  | 1994 Stock Option Plan                                                                                                                                        |  | Exhibit 99.1 to the Registrants S-8 filed October 25, 1999           |  |                
|              |  |                                                                                                                                                               | 
|4.3           |  | Trust Deed and Rules of The ASM Pacific Technology Employee Share Incentive Scheme, dated March 23, 1990                                                      |  | Exhibit 4.14 to the Registrants Form 20-F filed on April 17, 2003    |  |                
|              |  |                                                                                                                                                               | 
|4.4           |  | Deed of Adherence Relating to Participation in the Employee Share Incentive Scheme of ASM Pacific Technology Limited, dated April 12, 1999                    |  | Exhibit 4.15 to the Registrants Form 20-F filed on April 17, 2003    |  |                
|              |  |                                                                                                                                                               | 
|4.5           |  | Supplemental Deed Relating to the Employee Share Incentive Scheme of ASM Pacific Technology Limited                                                           |  | Exhibit 4.16 to the Registrants Form 20-F filed on April 17, 2003    |  |                
|              |  |                                                                                                                                                               | 
|4.6           |  | English Translation of Arnold J.M. van der Vens Employment Agreement                                                                                         |  | Exhibit 99.1 to the Registrants Form 6-K filed on September 29, 2005 |  |                
|              |  |                                                                                                                                                               | 
|4.7           |  | Overview of Remuneration of Members of the Management Board, appointed May 18, 2006                                                                           |  | Exhibit 4.23 to the Registrants Form 20-F filed on March 16, 2007    |  |                
|              |  |                                                                                                                                                               | 
|4.8           |  | Overview of Remuneration of Mr. W.K. Lee, appointed Member of the Management Board effective January 1, 2007                                                  |  | Exhibit 4.24 to the Registrants Form 20-F filed on March 16, 2007    |  |                
|              |  |                                                                                                                                                               | 
|4.9           |  | Form of Supervisory Board Member Indemnification Agreement                                                                                                    |  | Exhibit 10.1 to the Registrants Form 20-F filed on March 16, 2007    |  |                
|              |  |                                                                                                                                                               | 
|4.10          |  | Form of Management Board Member Indemnification Agreement                                                                                                     |  | Exhibit 10.2 to the Registrants Form 20-F filed on March 16, 2007    |  |                
|              |  |                                                                                                                                                               | 
|4.11          |  | Amended and Restated Settlement Agreement dated as of December 16, 1998 by and among ASM International N.V., ASM America, Inc. and Applied Materials, Inc. ** |  | Exhibit 10.3 to the Registrants Form 20-F filed on March 16, 2007    |  |                
|              |  |                                                                                                                                                               | 
|8.1           |  | Subsidiaries                                                                                                                                                  |  |                                                                       |  | X              
|              |  |                                                                                                                                                               | 
|12.1          |  | Certification of CEO pursuant to Rule 13a-14(a)                                                                                                               |  |                                                                       |  | X              
|              |  |                                                                                                                                                               | 
|12.2          |  | Certification of CFO pursuant to Rule 13a-14(a)                                                                                                               |  |                                                                       |  | X              
|              |  |                                                                                                                                                               | 
|13.1          |  | Certification of CEO and CFO pursuant to Rule 13a-14(b) and 18 U.S.C. 1350                                                                                    |  |                                                                       |  | X              
|              |  |                                                                                                                                                               | 
|15.1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                      |  |                                                                       |  | X              



|* | Pursuant to Instruction 2(b)(ii), the Registrant has omitted certain agreements with respect to long-term debt not exceeding 10% of consolidated total assets. The Registrant agrees to furnish
a copy of any such agreements to the Securities Exchange Commission upon request.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|** | Redacted version, originally filed as an exhibit to Registrants Form 6-K filed February 11, 1999. Portions of the Agreement have been omitted pursuant to a request for confidential
treatment.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



67



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##### Table of Contents

SIGNATURES



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



|                    |  |                                             
|------------------- |  | --------------------------------------------
|                    |  | ASM INTERNATIONAL N.V.                      
|                    | 
|Date: April 1, 2008 |  | /s/    CHARLES D.
DEL PRADO                 
|                    |  | Charles D. del Prado Chief Executive Officer



S-1



---

##### Table of Contents

I
NDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|Report of Independent Registered Public Accounting Firm                                              |  | F-2 
|Consolidated Balance Sheets as of December 31, 2006 and 2007                                         |  | F-3 
|Consolidated Statements of Operations for the years ended December 31, 2005, 2006 and 2007           |  | F-4 
|Consolidated Statements of Comprehensive Income for the years ended December 31, 2005, 2006 and 2007 |  | F-5 
|Consolidated Statements of Shareholders Equity for the years ended December 31, 2005, 2006 and 2007 |  | F-6 
|Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2006 and 2007           |  | F-7 
|Notes to the Consolidated Financial Statements                                                       |  | F-8 



F-1



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm



To
the Supervisory Board and Shareholders of

ASM International N.V.

Bilthoven, the
Netherlands



We have audited the accompanying consolidated balance sheets of ASM
International N.V. and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income, shareholders equity, and cash flows for each of the three years
in the period ended December 31, 2007 (all expressed in euros). We also have audited the Companys internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements
and an opinion on the Companys internal control over financial reporting based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.



A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.



Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.



In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ASM International N.V. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2007, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



Deloitte Accountants B.V.

Amsterdam, the Netherlands,



April 1, 2008



F-2



---

##### Table of Contents

Consolidated Balance Sheets



|                                                                                                         |  |        |  |              |   |  |         |  
|-------------------------------------------------------------------------------------------------------- |  | ------ |  | ------------ | - |  | ------- | -
|                                                                                                         |  |        |  | EUR          |  
|                                                                                                         |  |        |  | December 31, |  
|(thousands except share data)                                                                            |  | Note   |  | 2006         |   |  | 2007    |  
|Assets                                                                                                   |  |        |  |              |   |  |         |  
|Cash and cash equivalents                                                                                |  | 4      |  | 193,872      |   |  | 167,923 |  
|Accounts receivable (less allowance for doubtful accounts of 
5,926 and  5,075)                        |  | 5      |  | 198,359      |   |  | 229,160 |  
|Inventories, net                                                                                         |  | 6      |  | 197,089      |   |  | 205,504 |  
|Income taxes receivable                                                                                  |  |        |  | 49           |   |  | 117     |  
|Deferred tax assets                                                                                      |  | 21     |  | 3,140        |   |  | 4,062   |  
|Other current assets                                                                                     |  |        |  | 24,009       |   |  | 26,786  |  
|                                                                                                         |  |        |  |              |   |  |         |  
|Total current assets                                                                                     |  |        |  | 616,518      |   |  | 633,552 |  
|                                                                                                         |  |        | 
|Debt issuance costs                                                                                      |  | 14     |  | 3,938        |   |  | 2,316   |  
|Deferred tax assets                                                                                      |  | 21     |  | 1,052        |   |  | 951     |  
|Other intangible assets, net                                                                             |  | 7      |  | 4,948        |   |  | 4,251   |  
|Goodwill, net                                                                                            |  | 8      |  | 54,576       |   |  | 49,621  |  
|Property, plant and equipment, net                                                                       |  | 9      |  | 151,265      |   |  | 149,642 |  
|                                                                                                         |  |        |  |              |   |  |         |  
|Total assets                                                                                             |  |        |  | 832,297      |   |  | 840,333 |  
|                                                                                                         |  |        |  |              |   |  |         |  
|Liabilities and Shareholders Equity                                                                     |  |        |  |              |   |  |         |  
|Notes payable to banks                                                                                   |  | 10     |  | 19,657       |   |  | 16,677  |  
|Accounts payable                                                                                         |  |        |  | 99,841       |   |  | 99,046  |  
|Provision for warranty                                                                                   |  | 11     |  | 16,299       |   |  | 17,039  |  
|Accrued expenses and other                                                                               |  | 12     |  | 76,221       |   |  | 73,453  |  
|Income taxes payable                                                                                     |  |        |  | 15,952       |   |  | 19,686  |  
|Current portion of long-term debt                                                                        |  | 13     |  | 7,344        |   |  | 15,438  |  
|                                                                                                         |  |        |  |              |   |  |         |  
|Total current liabilities                                                                                |  |        |  | 235,314      |   |  | 241,339 |  
|                                                                                                         |  |        | 
|Pension liabilities                                                                                      |  | 16     |  | 3,490        |   |  | 3,872   |  
|Deferred tax liabilities                                                                                 |  | 21     |  | 620          |   |  | 799     |  
|Long-term debt                                                                                           |  | 13     |  | 19,267       |   |  | 15,828  |  
|Convertible subordinated debt                                                                            |  | 14     |  | 182,232      |   |  | 138,993 |  
|                                                                                                         |  |        |  |              |   |  |         |  
|Total liabilities                                                                                        |  |        |  | 440,923      |   |  | 400,831 |  
|                                                                                                         |  |        | 
|Commitments and contingencies                                                                            |  | 17, 18 |  |              |   |  |         |  
|                                                                                                         |  |        | 
|Minority interest                                                                                        |  |        |  | 114,916      |   |  | 120,624 |  
|                                                                                                         |  |        | 
|Common shares                                                                                            |  |        |  |              |   |  |         |  
|Authorized 110,000,000 shares, par value  0.04, issued and
outstanding 53,828,745 and 54,005,214 shares |  |        |  | 2,153        |   |  | 2,160   |  
|Financing preferred shares                                                                               |  |        |  |              |   |  |         |  
|Authorized 8,000 shares, par value  40, none
issued                                                     |  |        |  |             |   |  |        |  
|Preferred shares                                                                                         |  |        |  |              |   |  |         |  
|Authorized 118,000 shares, par value  40, none
issued                                                   |  |        |  |             |   |  |        |  
|Capital in excess of par value                                                                           |  |        |  | 316,745      |   |  | 319,657 |  
|Treasury shares at cost                                                                                  |  |        |  |             |   |  | (3,985  | )
|Retained earnings                                                                                        |  |        |  | 18,748       |   |  | 73,965  |  
|Accumulated other comprehensive loss                                                                     |  |        |  | (61,188      | ) |  | (72,919 | )
|                                                                                                         |  |        |  |              |   |  |         |  
|Total shareholders equity                                                                               |  | 15     |  | 276,458      |   |  | 318,878 |  
|                                                                                                         |  |        |  |              |   |  |         |  
|Total liabilities and shareholders equity                                                               |  |        |  | 832,297      |   |  | 840,333 |  
|                                                                                                         |  |        |  |              |   |  |         |  



See Notes to Consolidated
Financial Statements.



F-3



---

##### Table of Contents

Consolidated Statements of Operations



|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|------------------------------------------------------------------------------------- |  | ---- |  | ----------------------- | - |  | -------- | - |  | -------- | -
|                                                                                      |  |      |  | EUR                     |  
|                                                                                      |  |      |  | Year ended December 31, |  
|(thousands, except per share data)                                                    |  | Note |  | 2005                    |   |  | 2006     |   |  | 2007     |  
|Net sales                                                                             |  | 22   |  | 724,698                 |   |  | 877,491  |   |  | 955,239  |  
|Cost of sales                                                                         |  |      |  | (469,321                | ) |  | (538,674 | ) |  | (594,163 | )
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Gross profit                                                                          |  | 22   |  | 255,377                 |   |  | 338,817  |   |  | 361,076  |  
|                                                                                      |  |      |  |                        
|Operating expenses:                                                                   |  |      |  |                         |   |  |          |   |  |          |  
|Selling, general and administrative                                                   |  |      |  | (98,073                 | ) |  | (120,654 | ) |  | (129,676 | )
|Research and development, net                                                         |  | 20   |  | (89,829                 | ) |  | (88,130  | ) |  | (83,468  | )
|Amortization of other intangible assets                                               |  | 7    |  | (599                    | ) |  | (553     | ) |  | (553     | )
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Total operating expenses                                                              |  |      |  | (188,501                | ) |  | (209,337 | ) |  | (213,697 | )
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Earnings from operations                                                              |  | 22   |  | 66,876                  |   |  | 129,480  |   |  | 147,379  |  
|                                                                                      |  |      |  |                        
|Interest income                                                                       |  |      |  | 5,746                   |   |  | 5,902    |   |  | 6,113    |  
|Interest expense                                                                      |  |      |  | (15,844                 | ) |  | (11,726  | ) |  | (9,866   | )
|Expense resulting from early extinguishment of debt                                   |  | 14   |  | (319                    | ) |  |         |   |  | (10,049  | )
|Foreign currency exchange losses, net                                                 |  |      |  | (128                    | ) |  | (1,250   | ) |  | (1,020   | )
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Earnings from continuing operations before income taxes and minority interest         |  |      |  | 56,331                  |   |  | 122,406  |   |  | 132,557  |  
|Income tax expense                                                                    |  | 21   |  | (6,666                  | ) |  | (14,095  | ) |  | (19,245  | )
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Earnings from continuing operations before minority interest                          |  |      |  | 49,665                  |   |  | 108,311  |   |  | 113,312  |  
|Minority interest                                                                     |  |      |  | (43,558                 | ) |  | (54,882  | ) |  | (55,345  | )
|Gain on dilution of investment in subsidiary                                          |  | 16   |  | 2,781                   |   |  | 1,255    |   |  | 3,010    |  
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Net earnings from continuing operations                                               |  |      |  | 8,888                   |   |  | 54,684   |   |  | 60,977   |  
|                                                                                      |  |      |  |                        
|Loss from discontinued operations before income taxes                                 |  | 2    |  | (48,464                 | ) |  | (20,350  | ) |  |         |  
|Income tax expense                                                                    |  | 21   |  | (641                    | ) |  |         |   |  |         |  
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Net loss from discontinued operations                                                 |  |      |  | (49,105                 | ) |  | (20,350  | ) |  |         |  
|                                                                                      |  |      |  |                        
|Net earnings (loss)                                                                   |  |      |  | (40,217                 | ) |  | 34,334   |   |  | 60,977   |  
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Net earnings (loss) per share:                                                        |  | 24   |  |                         |   |  |          |   |  |          |  
|Basic net earnings from continuing operations                                         |  |      |  | 0.17                    |   |  | 1.02     |   |  | 1.13     |  
|Basic net loss from discontinued operations                                           |  |      |  | (0.93                   | ) |  | (0.38    | ) |  |         |  
|Basic net earnings (loss)                                                             |  |      |  | (0.76                   | ) |  | 0.64     |   |  | 1.13     |  
|Diluted net earnings from continuing operations                                       |  |      |  | 0.17                    |   |  | 1.02     |   |  | 1.07     |  
|Diluted net loss from discontinued operations                                         |  |      |  | (0.93                   | ) |  | (0.38    | ) |  |         |  
|Diluted net earnings (loss)                                                           |  |      |  | (0.76                   | ) |  | 0.64     |   |  | 1.07     |  
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  
|Weighted average number of shares used in computing per share amounts (in thousands): |  |      |  |                         |   |  |          |   |  |          |  
|Basic                                                                                 |  |      |  | 52,638                  |   |  | 53,403   |   |  | 53,968   |  
|Diluted                                                                               |  |      |  | 52,638                  |   |  | 53,575   |   |  | 65,076   |  
|                                                                                      |  |      |  |                         |   |  |          |   |  |          |  



See Notes to Consolidated
Financial Statements.



F-4



---

##### Table of Contents

Consolidated Statements of Comprehensive Income



|                                                                                                         |  |      |  |                         |   |  |         |   |  |         |  
|-------------------------------------------------------------------------------------------------------- |  | ---- |  | ----------------------- | - |  | ------- | - |  | ------- | -
|                                                                                                         |  |      |  | EUR                     |  
|                                                                                                         |  |      |  | Year ended December 31, |  
|(thousands)                                                                                              |  | Note |  | 2005                    |   |  | 2006    |   |  | 2007    |  
|Net earnings (loss)                                                                                      |  |      |  | (40,217                 | ) |  | 34,334  |   |  | 60,977  |  
|Other comprehensive income (loss):                                                                       |  |      |  |                         |   |  |         |   |  |         |  
|Foreign currency translation effect                                                                      |  | 15   |  | 23,638                  |   |  | (16,998 | ) |  | (12,023 | )
|Reclassification to Consolidated Statement of Operations of cumulative translation adjustment ASM NuTool |  | 2    |  |                        |   |  | 4,832   |   |  |        |  
|Unrealized gains (losses) on derivative instruments, net of tax                                          |  | 15   |  | (2,263                  | ) |  | 244     |   |  | 270     |  
|Amortization of transition obligation SFAS 158                                                           |  | 15   |  |                        |   |  |        |   |  | 22      |  
|                                                                                                         |  |      |  |                         |   |  |         |   |  |         |  
|Total other comprehensive income (loss)                                                                  |  |      |  | 21,375                  |   |  | (11,922 | ) |  | (11,731 | )
|                                                                                                         |  |      |  |                         |   |  |         |   |  |         |  
|Comprehensive income (loss)                                                                              |  |      |  | (18,842                 | ) |  | 22,412  |   |  | 49,246  |  
|                                                                                                         |  |      |  |                         |   |  |         |   |  |         |  



See Notes to Consolidated
Financial Statements.



F-5



---

##### Table of Contents

Consolidated Statements of Shareholders Equity



|                                                     |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  
|---------------------------------------------------- |  | ---- |  | --------------------- |  | ------------ |  | -------------------------- | - |  | --------------------- | - |  | ---------------- | - |  | ------------------------------------------- | - |  | ------------------------- | -
|                                                     |  |      |  | EUR                   | 
|(thousands, except for number of common shares)      |  | Note |  | Number ofcommonshares |  | Commonshares |  | Capitalinexcessof parvalue |   |  | Treasurysharesat cost |   |  | Retainedearnings |   |  | Accumulatedother com-prehensiveincome(loss) |   |  | TotalShare-holdersEquity |  
|Balance January 1, 2005                              |  |      |  | 52,617,952            |  | 2,105        |  | 299,761                    |   |  |                      |   |  | 24,631           |   |  | (69,781                                     | ) |  | 256,716                   |  
|                                                     |  |      |  |                       |  |              |  |                           
|Issuance of common shares:                           |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  
|For stock options                                    |  | 16   |  | 61,000                |  | 2            |  | 718                        |   |  |                      |   |  |                 |   |  |                                            |   |  | 720                       |  
|Net earnings                                         |  |      |  |                      |  |             |  |                           |   |  |                      |   |  | (40,217          | ) |  |                                            |   |  | (40,217                   | )
|Other comprehensive income                           |  | 15   |  |                      |  |             |  |                           |   |  |                      |   |  |                 |   |  | 21,375                                      |   |  | 21,375                    |  
|                                                     |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  
|Balance December 31, 2005                            |  |      |  | 52,678,952            |  | 2,107        |  | 300,479                    |   |  |                      |   |  | (15,586          | ) |  | (48,406                                     | ) |  | 238,594                   |  
|                                                     |  |      |  |                       |  |              |  |                           
|Issuance of common shares:                           |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  
|For stock options                                    |  | 16   |  | 899,652               |  | 36           |  | 10,931                     |   |  |                      |   |  |                 |   |  |                                            |   |  | 10,967                    |  
|Settlement agreement with former shareholders NuTool |  | 2    |  | 250,141               |  | 10           |  | 3,914                      |   |  |                      |   |  |                 |   |  |                                            |   |  | 3,924                     |  
|Compensation expense stock options                   |  | 16   |  |                      |  |             |  | 1,421                      |   |  |                      |   |  |                 |   |  |                                            |   |  | 1,421                     |  
|Net earnings                                         |  |      |  |                      |  |             |  |                           |   |  |                      |   |  | 34,334           |   |  |                                            |   |  | 34,334                    |  
|Impact of initial adoption of SFAS 158               |  | 16   |  |                      |  |             |  |                           |   |  |                      |   |  |                 |   |  | (860                                        | ) |  | (860                      | )
|Other comprehensive income                           |  | 15   |  |                      |  |             |  |                           |   |  |                      |   |  |                 |   |  | (11,922                                     | ) |  | (11,922                   | )
|                                                     |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  
|Balance December 31, 2006                            |  |      |  | 53,828,745            |  | 2,153        |  | 316,745                    |   |  |                      |   |  | 18,748           |   |  | (61,188                                     | ) |  | 276,458                   |  
|                                                     |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  
|                                                     |  |      |  |                       |  |              |  |                           
|Issuance of common shares:                           |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  
|For stock options                                    |  | 16   |  | 176,469               |  | 7            |  | 2,319                      |   |  |                      |   |  |                 |   |  |                                            |   |  | 2,326                     |  
|Compensation expense stock options                   |  | 16   |  |                      |  |             |  | 1,718                      |   |  |                      |   |  |                 |   |  |                                            |   |  | 1,718                     |  
|Purchase of common shares                            |  |      |  |                      |  |             |  |                           |   |  | (8,162                | ) |  |                 |   |  |                                            |   |  | (8,162                    | )
|Exercise of stock options out of treasury shares     |  |      |  |                      |  |             |  | (1,125                     | ) |  | 4,177                 |   |  | (363             | ) |  |                                            |   |  | 2,689                     |  
|Dividend                                             |  |      |  |                      |  |             |  |                           |   |  |                      |   |  | (5,397           | ) |  |                                            |   |  | (5,397                    | )
|Net earnings                                         |  |      |  |                      |  |             |  |                           |   |  |                      |   |  | 60,977           |   |  |                                            |   |  | 60,977                    |  
|Other comprehensive income                           |  | 15   |  |                      |  |             |  |                           |   |  |                      |   |  |                 |   |  | (11,731                                     | ) |  | (11,731                   | )
|                                                     |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  
|Balance December 31, 2007                            |  |      |  | 54,005,214            |  | 2,160        |  | 319,657                    |   |  | (3,985                | ) |  | 73,965           |   |  | (72,919                                     | ) |  | 318,878                   |  
|                                                     |  |      |  |                       |  |              |  |                            |   |  |                       |   |  |                  |   |  |                                             |   |  |                           |  



See Notes to Consolidated
Financial Statements.



F-6



---

##### Table of Contents

Consolidated Statements of Cash Flows



|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  
|----------------------------------------------------------------------------------- |  | ---- |  | ----------------------- | - |  | ------- | - |  | ------- | -
|                                                                                    |  |      |  | EUR                     |  
|                                                                                    |  |      |  | Year ended December 31, |  
|(thousands)                                                                         |  | Note |  | 2005                    |   |  | 2006    |   |  | 2007    |  
|Cash flows from operating activities:                                               |  |      |  |                         |   |  |         |   |  |         |  
|Net earnings (loss)                                                                 |  |      |  | (40,217                 | ) |  | 34,334  |   |  | 60,977  |  
|Adjustments to reconcile net earnings (loss) to net cash from operating activities: |  |      |  |                         |   |  |         |   |  |         |  
|Depreciation                                                                        |  | 9    |  | 36,006                  |   |  | 35,067  |   |  | 33,250  |  
|Amortization of other intangible assets                                             |  | 7    |  | 1,748                   |   |  | 2,439   |   |  | 1,391   |  
|Impairment of property, plant and equipment                                         |  | 9    |  | 3,308                   |   |  |        |   |  | (788    | )
|Impairment and disposal of discontinued operations                                  |  | 2    |  | 33,128                  |   |  | 12,841  |   |  |        |  
|Amortization of debt issuance costs                                                 |  | 14   |  | 1,781                   |   |  | 976     |   |  | 825     |  
|Compensation expense employee share incentive scheme                                |  | 16   |  | 6,242                   |   |  | 7,290   |   |  | 7,685   |  
|Compensation expense employee stock option plan                                     |  | 16   |  | 66                      |   |  | 1,421   |   |  | 1,718   |  
|Deferred income taxes                                                               |  |      |  | 550                     |   |  | (151    | ) |  | (913    | )
|Expense resulting from early extinguishment of debt                                 |  | 14   |  |                        |   |  |        |   |  | 10,049  |  
|Minority interest                                                                   |  |      |  | 43,558                  |   |  | 54,882  |   |  | 55,346  |  
|Gain on dilution of investment in subsidiary                                        |  | 16   |  | (2,781                  | ) |  | (1,255  | ) |  | (3,010  | )
|Increase (decrease) in allowance for doubtful receivables                           |  | 5    |  | 345                     |   |  | (169    | ) |  | (260    | )
|Changes in other assets and liabilities:                                            |  |      |  |                         |   |  |         |   |  |         |  
|Accounts receivable                                                                 |  |      |  | (22,611                 | ) |  | (6,974  | ) |  | (47,599 | )
|Inventories                                                                         |  |      |  | (14,537                 | ) |  | (26,095 | ) |  | (26,613 | )
|Other current assets                                                                |  |      |  | 1,918                   |   |  | (1,632  | ) |  | (5,184  | )
|Accounts payable and accrued expenses                                               |  |      |  | 14,657                  |   |  | 15,585  |   |  | 9,872   |  
|Advance payments from customers                                                     |  |      |  | (497                    | ) |  | 1,403   |   |  | 3,044   |  
|Deferred revenue                                                                    |  |      |  | (4,328                  | ) |  | 4,241   |   |  | (741    | )
|Pension liabilities                                                                 |  |      |  | (284                    | ) |  | 629     |   |  | 775     |  
|Income taxes                                                                        |  |      |  | (7,335                  | ) |  | 8,960   |   |  | 5,781   |  
|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  
|Net cash provided by operating activities                                           |  |      |  | 50,717                  |   |  | 143,792 |   |  | 105,605 |  
|                                                                                    |  |      |  |                        
|Cash flows from investing activities:                                               |  |      |  |                         |   |  |         |   |  |         |  
|Capital expenditures                                                                |  | 9    |  | (44,637                 | ) |  | (39,374 | ) |  | (47,206 | )
|Purchase of intangible assets                                                       |  | 7    |  | (732                    | ) |  | (3,298  | ) |  | (695    | )
|Acquisition of business                                                             |  | 8    |  | (1,101                  | ) |  | (1,162  | ) |  | (281    | )
|Proceeds from sale of intangible assets                                             |  | 2    |  |                        |   |  | 11,032  |   |  |        |  
|Proceeds from sale of property, plant and equipment                                 |  | 9    |  | 913                     |   |  | 2,750   |   |  | 3,652   |  
|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  
|Net cash used in investing activities                                               |  |      |  | (45,557                 | ) |  | (30,052 | ) |  | (44,530 | )
|                                                                                    |  |      |  |                        
|Cash flows from financing activities:                                               |  |      |  |                         |   |  |         |   |  |         |  
|Notes payable to banks, net                                                         |  |      |  | (2,379                  | ) |  | 1,052   |   |  | (2,013  | )
|Proceeds from long-term debt and subordinated debt                                  |  |      |  | 13,347                  |   |  | 2,694   |   |  | 14,496  |  
|Repayments of long-term debt and subordinated debt                                  |  |      |  | (89,620                 | ) |  | (6,282  | ) |  | (42,344 | )
|Purchase of treasury shares                                                         |  |      |  |                        |   |  |        |   |  | (8,162  | )
|Proceeds from issuance of common shares and exercise of stock options               |  |      |  | 654                     |   |  | 11,843  |   |  | 5,015   |  
|Dividends to minority shareholders ASMPT                                            |  |      |  | (31,713                 | ) |  | (51,125 | ) |  | (42,900 | )
|Dividend to shareholders ASMI                                                       |  |      |  |                        |   |  |        |   |  | (5,397  | )
|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  
|Net cash provided by (used in) financing activities                                 |  |      |  | (109,711                | ) |  | (41,818 | ) |  | (81,305 | )
|Foreign currency translation effect                                                 |  |      |  | 20,932                  |   |  | (13,050 | ) |  | (5,719  | )
|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  
|Net increase (decrease) in cash and cash equivalents                                |  |      |  | (83,619                 | ) |  | 58,872  |   |  | (25,949 | )
|Cash and cash equivalents at beginning of year                                      |  | 4    |  | 218,619                 |   |  | 135,000 |   |  | 193,872 |  
|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  
|Cash and cash equivalents at end of year                                            |  | 4    |  | 135,000                 |   |  | 193,872 |   |  | 167,923 |  
|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  
|Supplemental disclosures of cash flow information                                   |  |      |  |                         |   |  |         |   |  |         |  
|Cash paid during the year for:                                                      |  |      |  |                         |   |  |         |   |  |         |  
|Interest                                                                            |  |      |  | 10,295                  |   |  | 6,000   |   |  | 3,890   |  
|Income taxes                                                                        |  |      |  | 14,093                  |   |  | 5,893   |   |  | 14,329  |  
|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  
|Non cash investing and financing activities:                                        |  |      |  |                         |   |  |         |   |  |         |  
|Capital lease expenditures                                                          |  |      |  | 1,414                   |   |  |        |   |  |        |  
|                                                                                    |  |      |  |                         |   |  |         |   |  |         |  



See Notes to Consolidated
Financial Statements.



F-7



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##### Table of Contents

Notes to Consolidated Financial Statements



Amounts in euro thousands, except per share data and unless otherwise stated



NOTE 1 Summary of Significant Accounting Policies



Basis
of PresentationASM International N.V. (ASMI or the Company) is a Netherlands public liability company domiciled in the Netherlands with its principal operations in Europe, the United States, Southeast Asia and
Japan. The Company dedicates its resources to the research, development, manufacturing, marketing and servicing of equipment and materials used to produce semiconductor devices. The Company provides production solutions for the main areas of
semiconductor production: wafer processing (front-end), assembly and packaging (back-end). The Company follows accounting principles generally accepted in the United States of America (U.S. GAAP) and applies the going concern basis in
preparing its Consolidated Financial Statements. Historical cost is used as the measurement basis unless otherwise indicated.



Principles of ConsolidationThe Consolidated Financial Statements include the accounts of ASMI and its subsidiaries (the Company), where ASMI holds a
controlling interest. The minority interest of third parties is disclosed separately in the Consolidated Financial Statements. All intercompany profits, transactions and balances have been eliminated in consolidation.



Foreign Currency TranslationThe functional and reporting currency of ASMI is the euro
(EUR). The financial information for subsidiaries outside the Netherlands is measured using local currencies as the functional currency of that subsidiary. Assets and liabilities of foreign subsidiaries, of which the functional currency
is not the euro, are translated into euros at foreign currency exchange rates prevailing at the end of the year. Revenues and costs relating to the operation of such subsidiaries are translated at weighted average foreign currency exchange rates
during the year. Resulting translation adjustments are directly recorded in Shareholders Equity. Exchange rate differences on translations of other transactions in foreign currencies are reflected in the Consolidated Statement of Operations.



ReclassificationsCertain reclassifications have been made to the prior year
Consolidated Financial Statements to conform to the current year presentation.



Derivative Financial InstrumentsASMI and its subsidiaries conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the functional currency of the Company (euro) or one of
its subsidiaries conducting the business. The purpose of the Companys foreign currency management is to manage the effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in selected
foreign currencies, in particular denominated in U.S. dollar.



The Companys
front-end segment uses forward exchange contracts to hedge its foreign exchange risk of anticipated sales or purchase transactions in the normal course of business, which occur within the next twelve months, for which the Company has a firm
commitment from a customer or to a supplier. The terms of these contracts are consistent with the timing of the transactions being hedged. The hedges related to forecasted transactions are designated and documented at the inception of the hedge as
cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive loss in Shareholders Equity, and is reclassified into
earnings when the hedged transaction affects earnings.



Changes in the fair value of
derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are recognized in earnings. The Company records all derivatives, including forward exchange contracts, on the balance sheet at fair value in other
current assets or accrued expenses.



Substantially all amounts included in accumulated
other comprehensive loss at December 31, 2007 will be reclassified to net earnings within the next twelve months, upon completion of the underlying transactions. If the underlying transaction being hedged fails to occur, or if a portion of any
derivative is ineffective, the gain or loss is immediately recognized in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations.



Furthermore, the Company manages the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange
contracts (fair value hedges) and currency swaps, and non-derivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on receivables and payables
denominated in foreign currencies. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations. Receivables and
payables denominated in foreign currencies are recorded at the exchange rate



F-8



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##### Table of Contents

at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under foreign currency exchange gains (losses) in the
Consolidated Statement of Operations.



The Company does not use forward exchange
contracts for trading or speculative purposes.



Cash and Cash
EquivalentsCash and cash equivalents include cash on hand, current accounts with banks, and short-term deposits with a maturity of three months or less at the date of purchase.



Accounts ReceivableAccounts receivable are stated at nominal value less an allowance for doubtful accounts.



InventoriesInventories are stated at the lower of cost (first-in, first-out method) or
market value. Costs include net prices paid for materials purchased, charges for freight and custom duties, direct wages of employees and charges for material handling.



Property, Plant and EquipmentProperty, plant and equipment are carried at cost, less accumulated depreciation. Capital leased assets are recorded at the
present value of future lease obligations. Depreciation is calculated using the straight-line method over the estimated useful lives. Leasehold improvements are depreciated over the lesser of the estimated useful life of the leasehold improvement or
the term of the underlying lease.



Goodwill and Other Intangible
AssetsBusiness combinations are accounted for under the purchase accounting method. As from January 1, 2002, goodwill and other intangible assets with indefinite lives are no longer amortized. Instead, the Company tests its recorded
goodwill and other intangible assets with indefinite lives for impairment each year on December 31 or if events or changes in circumstances indicate that the carrying amount exceeds the fair value of the goodwill and other intangible assets
with indefinite lives. Other intangible assets with finite lives are amortized over the estimated useful lives using the straight-line method.



Recoverability of Long-Lived AssetsLong-lived assets and other intangible assets (except those not being amortized) to be held and used by the Company are reviewed by
the Company for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company estimates the future undiscounted cash flows
expected to result from the use of the asset. If the undiscounted future cash flow is less than the carrying amount of the asset, the asset is deemed impaired. The amount of the impairment is measured as the difference between the carrying value and
the fair value of the asset. Long-lived assets and other intangibles (except those not being amortized) to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.



Revenue RecognitionThe Company recognizes revenue when all four revenue recognition
criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; sellers price to buyer is fixed or determinable; and collectibility is reasonably assured. The Companys revenue
includes revenue from contractual arrangements consisting of multiple deliverables, such as equipment and installation. The revenue from the undelivered element of the arrangement is deferred at fair value until delivery of the element.



In general, the Company recognizes revenue from sales of equipment upon shipment of equipment, only
if testing at the factory has proven that the equipment has met substantially all of the customers criteria and specifications. The outcome of the test is signed-off by the customer (factory acceptance). Instead of signing-off, the
customer may choose to provide a waiver, e.g. with respect to repeat orders.



The Company
recognizes revenue from installation of equipment upon completion of installation at the customers site. At the time of shipment, the Company defers that portion of the sales price related to the fair value of installation. The fair value of
the installation process is measured based upon the per-hour amounts charged by third parties for similar installation services. Installation is completed when testing at the customers site has proven that the equipment has met all of the
customers criteria and specifications. The completion of installation is signed-off by the customer (final acceptance).



The Companys sales frequently involve complex equipment, which may include customer-specific criteria, sales to new customers or equipment with new technology. For each sale,
the decision whether to recognize revenue is, in addition to shipment and factory acceptance, based on the contractual agreement with a customer, the experience with a particular customer, the technology and the number of similarly configured
equipment previously delivered. Instead of recognizing revenue, the Company could decide to defer revenue recognition until completion of installation at the customers site and obtaining final acceptance from the customer.



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##### Table of Contents

Revenue related to training and technical support service is recognized when the service is rendered. Revenue from the sale of
spare parts and materials is recognized when the goods are shipped.



Cost of
SalesCost of sales includes direct costs such as materials, labor and related overhead. Cost of sales also includes cost of warranty, third party commission and royalty payments and costs relating to prototype and experimental products,
which the Company may subsequently sell to customers. Costs of warranty include the cost of labor, material and related overhead necessary to repair a product during the warranty period. The warranty period is usually one to two years. The Company
accrues for the estimated cost of the warranty on its products shipped in a provision for warranty, upon recognition of the sale of the product. The costs are estimated based on actual historical expenses incurred and on estimated future expenses
related to current sales, and are updated periodically. Actual warranty costs are charged against the provision for warranty.



RestructuringRestructuring charges are recognized for exit or disposal activities when the liability arising from restructuring plans is incurred.



Research and Development ExpensesResearch and development costs are expensed as
incurred. Costs, which relate to prototype and experimental models and are sold to customers, are charged to cost of sales. Subsidies and other governmental credits to cover research and development costs relating to approved projects are recorded
as research and development credits in the period when such project costs occur. The research and development expenses are presented net of the development credits. Technical development credits received from the government of the Netherlands, to
offset the costs of certain research and development projects, are contingently repayable to the extent sales of products developed in such projects occur within the agreed upon period. Such repayments are calculated as a percentage of sales and are
charged to cost of sales. No such repayments are required if such sales do not occur within the agreed upon period. Reference is made to Note 20.



Income TaxesThe Company recognizes deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using currently enacted tax rates. The effect
on deferred tax assets and liabilities of changes in tax rates is recognized in the Consolidated Statement of Operations in the period in which the enacted rate changes. Deferred tax assets are reduced through a valuation allowance at such time as,
based on available evidence, it is more likely than not that the deferred tax assets will not be realized.



On January 1, 2007 the Company adopted Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with Statement of Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. FIN 48 prescribes a two step approach for recognizing and measuring
tax positions taken or expected to be taken in a tax return. Prior to recognizing the benefit of a tax position in the financial statements, the tax position must be more-likely-than-not of being sustained based solely on its technical merits. Once
this recognition threshold has been met, tax positions are recognized at the largest amount that is more-likely-than-not to be sustained. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition.



PensionsThe Company has
retirement plans covering substantially all employees. The principal plans are defined contribution plans, except for the plans of the Companys operations in the Netherlands and Japan. The Companys employees in the Netherlands
participate in a multi-employer plan. Payment to defined contribution plans and the multi-employer plan are recognized as an expense in the Consolidated Statement of Operations as they fall due.



The Companys employees in Japan participate in a defined benefit plan. Pension costs in respect
of this defined benefit plan are determined using the projected unit credit method. These costs primarily represent the increase in the actuarial present value of the obligation for pension benefits based on employee service during the year and the
interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets. Actuarial gains and losses are recognized in income, spread over the average remaining service lives of employees, using the
corridor approach. In accordance with SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of SFAS No. 87, 88, 106, and 132(R) (SFAS 158), the Company
recognizes in its Consolidated Balance Sheet an asset or a liability for the plans overfunded status or underfunded status respectively. Reference is made to Note 16.



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##### Table of Contents

Stock-Based CompensationOn January 1, 2006 ASMI adopted SFAS No. 123R Share-Based Payment
(SFAS 123R), using the modified prospective transition method. This statement is a revision of SFAS No. 123 Accounting for Stock-Based Compensation (SFAS 123) and supersedes Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued to Employees (APB 25). The approach to account for share-based payments in SFAS 123R is in general similar to the approach described in SFAS 123. However,
SFAS 123R requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the financial statements based on the estimated fair value of the awards. The cost is recognized in the
Consolidated Statement of Operations over the requisite service period. Pro forma disclosure is no longer an alternative. In January 2005, the SEC issued Staff Accounting Bulletin (SAB) No. 107 (SAB 107), which
provides supplemental implementation guidance for SFAS 123R. The Company has applied the provisions of SFAS 123R to all share-based payments, including employee stock options granted, vested, modified or settled subsequent to the date of adoption.
Additionally, the cost of employee stock options that are outstanding as of January 1, 2006 and for which the requisite service has not been rendered are also recognized as the requisite service is rendered on or after that date. The cost
relating to employee stock options is measured at fair value on the grant date, by using the Black-Scholes option pricing model. Following the adoption of SFAS 123R, the Company recorded in 2006 compensation expenses of  1,421 and in 2007 compensation expenses of  1,718.



Under the modified prospective transition method, no restatement of prior years has been made. Prior to
the adoption of SFAS 123R ASMI accounted for its stock option and stock-based compensation plans using the intrinsic-value method prescribed in APB 25. SFAS 123, amended by SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure (SFAS 148) allowed companies to elect to recognize the fair value of stock options granted as an expense, or to account for stock options using the intrinsic value under APB 25 and provide pro
forma disclosure of the impact of the fair value on net earnings (loss) and net earnings (loss) per share. As ASMI elected to follow APB 25, prior to the adoption of SFAS 123R, compensation expense was computed for each employee stock option granted
as the amount by which the quoted market price of the ASMI common shares on the date of the grant exceeds the exercise price that the employee must pay to acquire the shares. All options granted to the Management Board and employees of ASMI under
ASMIs stock option plans had an exercise price equal to the market value of the underlying common shares on the date of grant and accordingly for these plans no stock-based compensation expense was reflected in net earnings (loss). The
following table illustrates the effect on net earnings (loss) if the Company had applied the fair value recognition provisions of SFAS 123, amended by SFAS 148, in the year ended December 31, 2005:



|                                                                                                           |  |                        |  
|---------------------------------------------------------------------------------------------------------- |  | ---------------------- | -
|                                                                                                           |  | Year endedDecember 31, |  
|                                                                                                           |  | 2005                   |  
|Net earnings (loss):                                                                                       |  |                        |  
|As reported                                                                                                |  | (40,217                | )
|Total stock-based compensation expense determined under fair value based method, net of related tax effect |  | (2,483                 | )
|                                                                                                           |  |                        |  
|Pro forma                                                                                                  |  | (42,700                | )
|Basic net earnings (loss) per share:                                                                       |  |                        |  
|As reported                                                                                                |  | (0.76                  | )
|Pro forma                                                                                                  |  | (0.81                  | )
|Diluted net earnings (loss) per share:                                                                     |  |                        |  
|As reported                                                                                                |  | (0.76                  | )
|Pro forma                                                                                                  |  | (0.81                  | )
|                                                                                                           |  |                        |  



For further information on ASMIs employee
stock option plans reference is made to Note 16.



Issuance of Shares by a
SubsidiaryAs further described in the Notes to Consolidated Financial Statements herein, from time to time, the consolidated subsidiary ASM Pacific Technology Ltd. (ASMPT) will issue common shares pursuant to their Employee
Share Incentive Scheme. The effect of these issuances is a dilution of the ownership in ASMPT. The Company recognizes the impact of these issuances in the Consolidated Statement of Operations as a gain on dilution of investment in subsidiary.



Net Earnings (Loss) per ShareBasic net earnings (loss) per share is
computed by dividing net earnings (loss) per share by the weighted average common shares outstanding for the year. Diluted net earnings (loss) per share reflects the potential dilution that could occur if options issued under the Companys
stock option plan were exercised and if the Companys convertible subordinated debt borrowings were converted, unless the conversion would have an anti-dilutive effect.



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##### Table of Contents

Comprehensive Income (Loss)Comprehensive income (loss) consists of net earnings (loss) and other comprehensive income
(loss). Other comprehensive income (loss) includes gains and losses that are not included in net earnings (loss), but are recorded directly in Shareholders Equity.



Use of EstimatesThe preparation of the Companys Consolidated Financial Statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reported periods. Actual results could
differ from those estimates.



New Accounting Pronouncements



In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48,
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. FIN 48 prescribes a two step approach for recognizing and measuring tax positions taken or expected to be taken in a tax return. Prior to recognizing the benefit of a tax position in the financial
statements, the tax position must be more-likely-than-not of being sustained based solely on its technical merits. Once this recognition threshold has been met, tax positions are recognized at the largest amount that is more-likely-than-not to be
sustained. The Companys net operating losses for tax purposes decreased by  5,369 as a result of the adoption of FIN 48. Since a valuation allowance was
recorded against the net deferred tax assets with respect to these net operating losses, the adoption of FIN 48 did not impact the Companys financial position and net earnings.



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, provides
guidance on how to measure assets and liabilities using fair value and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and should be applied
prospectively (with a limited form of retrospective application) as of the beginning of the fiscal year in which SFAS 157 is initially applied. The Company expects that the adoption of SFAS 157 will not have a material impact on the Companys
financial position and net earnings.



In December 2007, the FASB issued SFAS No. 141R,
Business Combinations (SFAS 141R). This statement replaces SFAS No. 141 Business Combinations. SFAS 141R improves the relevance, representational faithfulness and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its effects. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The Company is currently assessing the impact that SFAS 141R may have on its Consolidated Financial Statements.



NOTE 2 Discontinued Operations



Discontinued Operations ASM NuTool, Inc.Due to continued negative cash flows and the expected future returns on the invested capital employed, the Company decided in
2005 to reduce its 100% subsidiary ASM NuTool to a small operation, focusing on process and intellectual property development with the intention of licensing these technologies in the future. In December 2006, the Company sold substantially all of
the ASM NuTool patent portfolio to a third party. This caused ASM NuTool to be accounted for retroactively as discontinued operations in the Companys Consolidated Financial Statements, in accordance with SFAS No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets.



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##### Table of Contents

Summarized results from discontinued operations, as reported in the Companys front-end segment, are as follows:



|                                                      |  |                        |   |  |         |  
|----------------------------------------------------- |  | ---------------------- | - |  | ------- | -
|                                                      |  | Year endedDecember 31, |  
|                                                      |  | 2005                   |   |  | 2006    |  
|Net sales                                             |  | 1,720                  |   |  | (1,478  | )
|Cost of sales                                         |  | (2,158                 | ) |  | 1,286   |  
|                                                      |  |                        |   |  |         |  
|Gross profit                                          |  | (438                   | ) |  | (192    | )
|                                                      |  |                       
|Operating expenses                                    |  | (11,833                | ) |  | (5,232  | )
|Gain from the sale of patent portfolio                |  |                       |   |  | 6,689   |  
|Impairment of goodwill                                |  | (30,994                | ) |  | (11,364 | )
|Settlement agreement with former shareholders NuTool  |  |                       |   |  | (3,048  | )
|Reclassification of cumulative translation adjustment |  |                       |   |  | (4,832  | )
|Other restructuring charges                           |  | (5,199                 | ) |  | (2,371  | )
|                                                      |  |                        |   |  |         |  
|Loss from operations                                  |  | (48,464                | ) |  | (20,350 | )
|Loss on equity investments                            |  |                       |   |  |        |  
|                                                      |  |                        |   |  |         |  
|Loss from discontinued operations before income taxes |  | (48,464                | ) |  | (20,350 | )
|Income tax expense                                    |  | (641                   | ) |  |        |  
|                                                      |  |                        |   |  |         |  
|Net loss from discontinued operations                 |  | (49,105                | ) |  | (20,350 | )
|                                                      |  |                        |   |  |         |  



The gain from
the sale of patent portfolio is specified as follows:



|                                              |  |  |  |        |  
|--------------------------------------------- |  |  |  | ------ | -
|Net cash proceeds                             |  |  |  | 11,908 |  
|Settlement charges former shareholders NuTool |  |  |  | (876   | )
|                                              |  |  |  |        |  
|                                              |  |  |  | 11,032 |  
|Carrying value of patent portfolio            |  |  |  | (4,343 | )
|                                              |  |  |  |        |  
|Gain from the sale of patent portfolio        |  |  |  | 6,689  |  
|                                              |  |  |  |        |  



In January 2006, the Company reached a
settlement agreement in the dispute with former NuTool shareholders regarding the number of additional common shares of the Company to be issued in connection with the potential satisfaction of financial performance targets following the 2004
acquisition of NuTool. The Company issued 193,883 common shares of the Company with a fair value of  3,048 in March 2006 and 56,258 common shares of the Company
with a fair value of  876 in December 2006 related to the sale of the patent portfolio of ASM NuTool.



The impairment charges recorded in 2005 and 2006 for goodwill are the result of a comparison between the fair value of the goodwill with respect to
ASM NuTool and the carrying amount of the goodwill. The fair value is estimated by management using a discounted cash flow technique of expected future returns.



The company reclassified the cumulative translation adjustment of ASM NuTools operations, included in Shareholders Equity, as a loss to the Consolidated Statement of
Operations, in accordance with SFAS No. 52 Foreign Currency Translation.



Other restructuring charges recorded by the Company in 2005 include impairment charges for property, plant and equipment, the write-down of inventories and other current assets and the recognition of contractual purchase commitments. Of
these charges  606 was accrued for as of December 31, 2005 and paid in cash in 2006.



Other restructuring charges recorded by the Company in 2006 include impairment charges for property, plant and equipment, the write-down of other
current assets and the recognition of contractual lease obligations. Of these charges  1,093 was accrued for as of December 31, 2007 and is expected to be
paid in cash through 2009.



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##### Table of Contents

A breakdown of adjustments to reconcile net loss to net cash from discontinued operations, as reported in the Consolidated
Statements of Cash Flows, is as follows:



|                                                      |  |                        |  |        |  
|----------------------------------------------------- |  | ---------------------- |  | ------ | -
|                                                      |  | Year endedDecember 31, | 
|                                                      |  | 2005                   |  | 2006   |  
|Gain from the sale of patent portfolio                |  |                       |  | (6,689 | )
|Impairment of property, plant and equipment           |  | 2,134                  |  | 286    |  
|Impairment of goodwill                                |  | 30,994                 |  | 11,364 |  
|Settlement agreement with former shareholders NuTool  |  |                       |  | 3,048  |  
|Reclassification of cumulative translation adjustment |  |                       |  | 4,832  |  
|                                                      |  |                        |  |        |  
|                                                      |  | 33,128                 |  | 12,841 |  
|                                                      |  |                        |  |        |  



Reference is made to Note 8 and Note 9.



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##### Table of Contents

NOTE 3 List of Significant Subsidiaries



|                                                             |  |                                                   |  |                         |      |  |        |  
|------------------------------------------------------------ |  | ------------------------------------------------- |  | ----------------------- | ---- |  | ------ | -
|Name                                                         |  | Location                                          |  | % OwnershipDecember 31, |     
|                                                             |  | 2006                                              |  |                         | 2007 | 
|ASM Europe B.V.1                                             |  | Almere, the Netherlands                           |  | 100.00                  | %    |  | 100.00 | %
|ASM United Kingdom Sales B.V.1                               |  | Almere, the Netherlands                           |  | 100.00                  | %    |  | 100.00 | %
|ASM Germany Sales B.V.1                                      |  | Almere, the Netherlands                           |  | 100.00                  | %    |  | 100.00 | %
|Advanced Semiconductor Materials (Netherlands Antilles) N.V. |  | Willemstad, Curacao, Netherlands Antilles         |  | 100.00                  | %    |  | 100.00 | %
|ASM France S.A.R.L.                                          |  | Montpellier, France                               |  | 100.00                  | %    |  | 100.00 | %
|ASM Belgium N.V.                                             |  | Leuven, Belgium                                   |  | 100.00                  | %    |  | 100.00 | %
|ASM Italia S.r.l.                                            |  | Agrate, Italy                                     |  | 100.00                  | %    |  | 100.00 | %
|ASM Microchemistry Oy                                        |  | Helsinki, Finland                                 |  | 100.00                  | %    |  | 100.00 | %
|ASM Services and Support Ireland Ltd.                        |  | Dublin, Ireland                                   |  | 100.00                  | %    |  | 100.00 | %
|ASM Services and Support Israel Ltd                          |  | Tel Aviv, Israel                                  |  | 100.00                  | %    |  | 100.00 | %
|ASM America, Inc.                                            |  | Phoenix, Arizona, United States                   |  | 100.00                  | %    |  | 100.00 | %
|ASM Japan K.K.                                               |  | Tokyo, Japan                                      |  | 100.00                  | %    |  | 100.00 | %
|ASM Wafer Process Equipment Ltd.                             |  | Quarry Bay, Hong Kong, Peoples Republic of China |  | 100.00                  | %    |  | 100.00 | %
|ASM China Ltd.                                               |  | Shanghai, Peoples Republic of China              |  | 100.00                  | %    |  | 100.00 | %
|ASM Wafer Process Equipment Singapore Pte Ltd.               |  | Singapore                                         |  | 100.00                  | %    |  | 100.00 | %
|ASM Far East Marketing Ltd.                                  |  | Hsin-Chu, Taiwan                                  |  | 100.00                  | %    |  | 100.00 | %
|ASM Front-End Sales & Services Taiwan Co., Ltd.              |  | Hsin-Chu, Taiwan                                  |  | 100.00                  | %    |  | 100.00 | %
|ASM Front-End Manufacturing Singapore Pte Ltd.               |  | Singapore                                         |  | 100.00                  | %    |  | 100.00 | %
|ASM NuTool, Inc.                                             |  | Phoenix, Arizona, United States                   |  | 100.00                  | %    |  | 100.00 | %
|ASM Genitech Korea Ltd.                                      |  | Cheonan, South Korea                              |  | 100.00                  | %    |  | 100.00 | %
|NanoPhotonics AG                                             |  | Mainz, Germany                                    |  | 71.10                   | %    |  | 72.86  | %
|ASM Pacific Technology Ltd.                                  |  | Kwai Chung, Hong Kong, Peoples Republic of China |  | 53.35                   | %    |  | 53.10  | %
|ASM Assembly Automation Ltd.2                                |  | Kwai Chung, Hong Kong, Peoples Republic of China |  | 53.35                   | %    |  | 53.10  | %
|ASM Assembly Materials Ltd.2                                 |  | Kwai Chung, Hong Kong, Peoples Republic of China |  | 53.35                   | %    |  | 53.10  | %
|ASM Technology Singapore Pte Ltd.2                           |  | Singapore                                         |  | 53.35                   | %    |  | 53.10  | %
|ASM Technology (M) Sdn. Bhd.2                                |  | Johor Bahru, Malaysia                             |  | 53.35                   | %    |  | 53.10  | %
|ASM Semiconductor Materials (Shenzhen) Co. Ltd.2             |  | Shenzhen, Peoples Republic of China              |  | 53.35                   | %    |  | 53.10  | %
|ASM Pacific Investments Ltd.2                                |  | Kwai Chung, Hong Kong, Peoples Republic of China |  | 53.35                   | %    |  | 53.10  | %
|Edgeward Development Ltd.2                                   |  | Guernsey, Channel Islands                         |  | 53.35                   | %    |  | 53.10  | %
|Edgeward USA L.L.C.2                                         |  | Wilmington, Delaware, United States               |  | 53.35                   | %    |  | 53.10  | %
|Shenzhen ASM Micro Electronic Technology Co. Ltd.2           |  | Shenzhen, Peoples Republic of China              |  | 53.35                   | %    |  | 53.10  | %



|(1) | For these subsidiaries ASM International N.V. has filed statements at the Dutch Chamber of Commerce assuming joint and several liability in accordance with Article 403 of Book 2, Part 9 of
the Netherlands Civil Code.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 100% subsidiaries of ASM Pacific Technology Ltd.
|--- | ------------------------------------------------



The accounts of the above mentioned entities and of certain insignificant subsidiaries not mentioned above have been consolidated in the Consolidated Financial Statements.



NOTE 4Cash and Cash Equivalents



At December 31, 2007, cash and cash equivalents of the Companys subsidiaries ASMPT and ASM
Japan amounted to  67,780 and  11,417 respectively, which are restricted to
be used only in the operations of ASMPT and ASM Japan respectively.



NOTE 5Accounts receivable



The carrying amount of accounts receivable is as
follows:



|                  |  |         |  |                  |  |                     |  |                      |  |                     |  |        
|----------------- |  | ------- |  | ---------------- |  | ------------------- |  | -------------------- |  | ------------------- |  | -------
|                  |  | Current |  | Overdue< 30 days |  | Overdue31  60 days |  | Overdue61  120 days |  | Overdue>  120 days |  | Total  
|December 31, 2006 |  | 154,385 |  | 21,312           |  | 11,338              |  | 6,401                |  | 4,923               |  | 198,359
|December 31, 2007 |  | 175,195 |  | 24,989           |  | 14,123              |  | 9,537                |  | 5,316               |  | 229,160



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##### Table of Contents

The changes in the allowance for doubtful accounts receivable are as follows:



|                                                        |  |        |  
|------------------------------------------------------- |  | ------ | -
|Balance January 1, 2005                                 |  | (5,709 | )
|Charged to selling, general and administrative expenses |  | (999   | )
|Deductions                                              |  | 654    |  
|Foreign currency translation effect                     |  | (639   | )
|                                                        |  |        |  
|Balance December 31, 2005                               |  | (6,693 | )
|Charged to selling, general and administrative expenses |  | (1,176 | )
|Deductions                                              |  | 1,345  |  
|Foreign currency translation effect                     |  | 598    |  
|                                                        |  |        |  
|Balance December 31, 2006                               |  | (5,926 | )
|Charged to selling, general and administrative expenses |  | (137   | )
|Deductions                                              |  | 397    |  
|Foreign currency translation effect                     |  | 591    |  
|                                                        |  |        |  
|Balance December 31, 2007                               |  | (5,075 | )
|                                                        |  |        |  



NOTE 6 Inventories



Inventories consist of the following:



|                             |  |              |   |  |         |  
|---------------------------- |  | ------------ | - |  | ------- | -
|                             |  | December 31, |  
|                             |  | 2006         |   |  | 2007    |  
|Components and raw materials |  | 100,462      |   |  | 106,565 |  
|Work in process              |  | 93,205       |   |  | 83,444  |  
|Finished goods               |  | 31,484       |   |  | 42,988  |  
|                             |  |              |   |  |         |  
|Total inventories, gross     |  | 225,151      |   |  | 232,997 |  
|Allowance for obsolescence   |  | (28,062      | ) |  | (27,493 | )
|                             |  |              |   |  |         |  
|Total inventories, net       |  | 197,089      |   |  | 205,504 |  
|                             |  |              |   |  |         |  



The changes in the allowance for obsolescence
are as follows:



|                                    |  |         |  
|----------------------------------- |  | ------- | -
|Balance January 1, 2005             |  | (24,588 | )
|Charged to cost of sales            |  | (2,914  | )
|Deductions                          |  | 2,060   |  
|Foreign currency translation effect |  | (2,480  | )
|                                    |  |         |  
|Balance December 31, 2005           |  | (27,922 | )
|Charged to cost of sales            |  | (7,747  | )
|Deductions                          |  | 5,136   |  
|Foreign currency translation effect |  | 2,471   |  
|                                    |  |         |  
|Balance December 31, 2006           |  | (28,062 | )
|Charged to cost of sales            |  | (6,268  | )
|Deductions                          |  | 4,320   |  
|Foreign currency translation effect |  | 2,517   |  
|                                    |  |         |  
|Balance December 31, 2007           |  | (27,493 | )
|                                    |  |         |  



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##### Table of Contents

NOTE 7Other Intangible Assets



Other intangible assets include purchased technology from third parties and software developed or purchased for internal use. The changes in the
amount of other intangible assets are as follows:



|                                          |  |          |   |  |                                              |   |  |        |  
|----------------------------------------- |  | -------- | - |  | -------------------------------------------- | - |  | ------ | -
|                                          |  | Software |   |  | Purchasedtechnologyand otherintangibleassets |   |  | Total  |  
|At cost:                                  |  |          |   |  |                                              |   |  |        |  
|Balance January 1, 2006                   |  | 746      |   |  | 11,777                                       |   |  | 12,523 |  
|Additions                                 |  | 2,922    |   |  | 376                                          |   |  | 3,298  |  
|Sale of patent portfolio ASM NuTool, Inc. |  |         |   |  | (7,446                                       | ) |  | (7,446 | )
|Foreign currency translation effect       |  | (63      | ) |  | (1,032                                       | ) |  | (1,095 | )
|                                          |  |          |   |  |                                              |   |  |        |  
|Balance December 31, 2006                 |  | 3,605    |   |  | 3,675                                        |   |  | 7,280  |  
|Additions                                 |  | 695      |   |  |                                             |   |  | 695    |  
|Reclassification                          |  | 718      |   |  |                                             |   |  | 718    |  
|Foreign currency translation effect       |  | (278     | ) |  | (359                                         | ) |  | (637   | )
|                                          |  |          |   |  |                                              |   |  |        |  
|Balance December 31, 2007                 |  | 4,740    |   |  | 3,316                                        |   |  | 8,056  |  
|                                          |  |          |   |  |                                              |   |  |        |  
|                                          |  |          |  
|Accumulated amortization:                 |  |          |   |  |                                              |   |  |        |  
|Balance January 1, 2006                   |  | 115      |   |  | 3,231                                        |   |  | 3,346  |  
|Amortization for the year                 |  | 855      |   |  | 1,584                                        |   |  | 2,439  |  
|Sale of patent portfolio ASM NuTool, Inc. |  |         |   |  | (3,103                                       | ) |  | (3,103 | )
|Foreign currency translation effect       |  | (15      | ) |  | (335                                         | ) |  | (350   | )
|                                          |  |          |   |  |                                              |   |  |        |  
|Balance December 31, 2006                 |  | 955      |   |  | 1,377                                        |   |  | 2,332  |  
|Amortization for the year                 |  | 838      |   |  | 553                                          |   |  | 1,391  |  
|Reclassification                          |  | 409      |   |  |                                             |   |  | 409    |  
|Foreign currency translation effect       |  | (146     | ) |  | (181                                         | ) |  | (327   | )
|                                          |  |          |   |  |                                              |   |  |        |  
|Balance December 31, 2007                 |  | 2,056    |   |  | 1,749                                        |   |  | 3,805  |  
|                                          |  |          |   |  |                                              |   |  |        |  
|                                          |  |          |  
|Other intangible assets, net:             |  |          |   |  |                                              |   |  |        |  
|December 31, 2006                         |  | 2,650    |   |  | 2,298                                        |   |  | 4,948  |  
|December 31, 2007                         |  | 2,684    |   |  | 1,567                                        |   |  | 4,251  |  
|                                          |  |          |   |  |                                              |   |  |        |  



Other intangible assets are amortized over
useful lives of 3 to 7 years. Estimated amortization expenses relating to other intangible assets are as follows:



|     |  |      
|---- |  | -----
|2008 |  | 1,492
|2009 |  | 1,143
|2010 |  | 771  
|2011 |  | 531  
|2012 |  | 248  
|2013 |  | 66   
|     |  |      
|     |  | 4,251
|     |  |      



NOTE 8 Goodwill



The changes in the carrying amount of goodwill are
as follows:



|                                    |  |         |  
|----------------------------------- |  | ------- | -
|Balance January 1, 2006             |  | 73,009  |  
|Addition:                           |  |         |  
|NanoPhotonics AG                    |  | 300     |  
|ASM Genitech Korea Ltd.             |  | 862     |  
|Impairment charge:                  |  |         |  
|ASM NuTool, Inc.                    |  | (11,364 | )
|Other charges:                      |  |         |  
|ASM Pacific Technology Ltd.         |  | (1,776  | )
|Foreign currency translation effect |  | (6,455  | )
|                                    |  |         |  
|Balance December 31, 2006           |  | 54,576  |  
|Addition:                           |  |         |  
|ASM Genitech Korea Ltd.             |  | 281     |  
|Foreign currency translation effect |  | (5,236  | )
|                                    |  |         |  
|Balance December 31, 2007           |  | 49,621  |  
|                                    |  |         |  



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##### Table of Contents

The allocation of the carrying amount of goodwill is as follows:



|                            |  |              |  |       
|--------------------------- |  | ------------ |  | ------
|                            |  | December 31,
|                            |  | 2006         |  | 2007  
|Front-end segment:          |  |              |  |       
|ASM Microchemistry Oy       |  | 3,560        |  | 3,560 
|NanoPhotonics AG            |  | 1,729        |  | 1,729 
|ASM Genitech Korea Ltd.     |  | 8,964        |  | 8,257 
|                            |  |             
|Back-end segment:           |  |              |  |       
|ASM Pacific Technology Ltd. |  | 40,323       |  | 36,075
|                            |  |              |  |       
|Total                       |  | 54,576       |  | 49,621
|                            |  |              |  |       



NanoPhotonics AGIn 1999, the
Company acquired a 24.0% interest in NanoPhotonics, a German supplier of precision thin film metrology equipment, for  407. In 1999, the Companys then Chief
Executive Officer also purchased a 44.5% interest in NanoPhotonics. Due to the issuance of new shares by NanoPhotonics to third parties in 2003, the Companys interest diluted to 23.61% and the then Chief Executive Officers interest
diluted to 43.77%. In 2004 the then Chief Executive Officer purchased an additional 1.72% interest in NanoPhotonics from another shareholder. For all the shares purchased by the then Chief Executive Officer, the Company and the then Chief Executive
Officer agreed that the Company could purchase such shares at the same price the officer paid to acquire the shares. The Company exercised this option in December 2005 for a total consideration of  1,101. In 2006, the Company acquired an additional 2.0% interest in NanoPhotonics for a consideration of 
300. The acquisitions in 2005 and 2006 were accounted for using the purchase accounting method. The Company estimated that no amounts could be allocated to identifiable net assets and the entire consideration has been recorded as goodwill. In 2007,
the Company acquired an additional 1.8% interest in NanoPhotonics following a financial restructuring of NanoPhotonics. At December 31, 2007 the Company holds a 72.86% interest in NanoPhotonics.



ASM NuTool, Inc.From December 2001 through June 2004, the Company acquired 100% interest
in NuTool for a total consideration of  56,570. The excess of the purchase price over the fair value of the identifiable net assets has been recorded as goodwill
in the amount of  42,022 in 2004. In 2005 and 2006 the Company recorded impairment charges for goodwill with respect to ASM NuTool of  30,994 and  11,364 respectively. Reference is made to Note 2.



ASM Genitech Korea Ltd.In 2004, the Company acquired 100% of the common shares in Genitech
in exchange for 247,638 common shares of the Company,  4,640 in cash and the possible future variable cash payments of up to US$ 9,200 if certain financial
performance targets are satisfied at various times during the period ending December 31, 2008. The total consideration at the date of the acquisition in 2004, including expenses, amounted to  7,939, excluding variable cash payments that may be payable in the future based on certain financial performance targets.



The excess of the purchase price over the fair value of the identifiable net assets has been recorded as goodwill in the amount of  6,917 in 2004. In 2006 the Company recorded  862 as additional purchase
consideration once certain financial performance targets were satisfied during the year ended December 31, 2006. In 2007 the Company recorded  281 as
additional purchase consideration once certain financial performance targets were satisfied during the year ended December 31, 2007.



ASM Pacific Technology Ltd.In 2006, the Company recorded against goodwill a charge of  1,776 to the Consolidated Statement of Operations. Reference is made to Note 16.



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##### Table of Contents

NOTE 9Property, Plant and Equipment



The changes in the amount of property, plant and equipment are as follows:



|                                       |  |                                         |   |  |                                          |   |  |         |  
|-------------------------------------- |  | --------------------------------------- | - |  | ---------------------------------------- | - |  | ------- | -
|                                       |  | Land,buildings andleaseholdimprovements |   |  | Machinery,equipment,furnitureandfixtures |   |  | Total   |  
|At cost:                               |  |                                         |   |  |                                          |   |  |         |  
|Balance January 1, 2006                |  | 107,226                                 |   |  | 303,040                                  |   |  | 410,266 |  
|Capital expenditures                   |  | 4,549                                   |   |  | 34,825                                   |   |  | 39,374  |  
|Impairment charges                     |  |                                        |   |  | (286                                     | ) |  | (286    | )
|Retirements and sales                  |  | (5,655                                  | ) |  | (24,191                                  | ) |  | (29,846 | )
|Foreign currency translation effect    |  | (7,900                                  | ) |  | (29,617                                  | ) |  | (37,517 | )
|                                       |  |                                         |   |  |                                          |   |  |         |  
|Balance December 31, 2006              |  | 98,220                                  |   |  | 283,771                                  |   |  | 381,991 |  
|Capital expenditures                   |  | 11,942                                  |   |  | 35,264                                   |   |  | 47,206  |  
|Reclassification                       |  |                                        |   |  | (718                                     | ) |  | (718    | )
|Revaluation fixed assets held for sale |  | 788                                     |   |  |                                         |   |  | 788     |  
|Retirements and sales                  |  | (603                                    | ) |  | (9,304                                   | ) |  | (9,907  | )
|Foreign currency translation effect    |  | (7,382                                  | ) |  | (27,249                                  | ) |  | (34,631 | )
|                                       |  |                                         |   |  |                                          |   |  |         |  
|Balance December 31, 2007              |  | 102,965                                 |   |  | 281,764                                  |   |  | 384,729 |  
|                                       |  |                                         |   |  |                                          |   |  |         |  
|                                       |  |                                         |  
|Accumulated depreciation:              |  |                                         |   |  |                                          |   |  |         |  
|Balance January 1, 2006                |  | 53,603                                  |   |  | 193,320                                  |   |  | 246,923 |  
|Depreciation for the year              |  | 6,289                                   |   |  | 28,778                                   |   |  | 35,067  |  
|Retirements and sales                  |  | (5,441                                  | ) |  | (21,655                                  | ) |  | (27,096 | )
|Foreign currency translation effect    |  | (4,685                                  | ) |  | (19,483                                  | ) |  | (24,168 | )
|                                       |  |                                         |   |  |                                          |   |  |         |  
|Balance December 31, 2006              |  | 49,766                                  |   |  | 180,960                                  |   |  | 230,726 |  
|Depreciation for the year              |  | 6,400                                   |   |  | 26,850                                   |   |  | 33,250  |  
|Reclassification                       |  |                                        |   |  | (409                                     | ) |  | (409    | )
|Retirements and sales                  |  | (75                                     | ) |  | (6,179                                   | ) |  | (6,254  | )
|Foreign currency translation effect    |  | (4,386                                  | ) |  | (17,840                                  | ) |  | (22,226 | )
|                                       |  |                                         |   |  |                                          |   |  |         |  
|Balance December 31, 2007              |  | 51,705                                  |   |  | 183,382                                  |   |  | 235,087 |  
|                                       |  |                                         |   |  |                                          |   |  |         |  
|                                       |  |                                         |  
|Property, plant and equipment, net:    |  |                                         |   |  |                                          |   |  |         |  
|December 31, 2006                      |  | 48,454                                  |   |  | 102,811                                  |   |  | 151,265 |  
|December 31, 2007                      |  | 51,260                                  |   |  | 98,382                                   |   |  | 149,642 |  
|                                       |  |                                         |   |  |                                          |   |  |         |  



|                       |  |                                        |  |      
|---------------------- |  | -------------------------------------- |  | -----
|Useful lives in years: |  | - Buildings and leasehold improvements |  | 10-25
|                       |  | - Machinery and equipment              |  | 2-10 
|                       |  | - Furniture and fixtures               |  | 2-10 



Property, plant and equipment include real
estate held for sale with a carrying value of  2,540.



With respect to impairment charges, reference is made to Note 2.



ASM Japan and ASM Front-End Manufacturing Singapore have pledged real estate with a carrying value of  21,165 to secure loan facilities outstanding in Japan and Singapore.



NOTE 10Notes Payable to Banks



Information on notes payable to banks is as follows:



Short-term
debt outstanding in:



|          |  |              |  |       
|--------- |  | ------------ |  | ------
|          |  | December 31,
|          |  | 2006         |  | 2007  
|Japan     |  | 17,984       |  | 15,756
|Singapore |  | 966          |  | 921   
|Hong Kong |  | 707          |  |      
|          |  |              |  |       
|          |  | 19,657       |  | 16,677
|          |  |              |  |       



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##### Table of Contents

Short-term debt outstanding in local currencies is as follows (in thousands):



|                 |  |              |  |          
|---------------- |  | ------------ |  | ---------
|                 |  | December 31,
|                 |  | 2006         |  | 2007     
|Japanese yen     |  | 2,810,000    |  | 2,600,000
|Singapore dollar |  | 1,950        |  | 1,950    
|Hong Kong dollar |  | 7,244        |  |         
|                 |  |              |  |          



Short-term debt outstanding in Japan in the
amount of  7,272 is collateralized by real estate with a carrying value of 
5,924 of ASM Japan.



ASMI and its individual subsidiaries borrow under separate
short-term lines of credit with banks in the countries where they are located. The lines contain general provisions concerning renewal and continuance at the option of the banks. The weighted average interest rate of the outstanding notes payable
was 2.02% at December 31, 2007.



Total short-term lines of credit amounted to  118,871 at December 31, 2007. The amount outstanding at December 31, 2007 was  16,677 and the undrawn portion totaled  102,194. The undrawn portion includes the Companys bank credit facility of  50,000 with Rabobank. The facility, available through February 28, 2010, is secured by a portion of the Companys shareholding in ASMPT. The undrawn portion includes  26,165 for ASMPT, which amount is restricted to be used only in the operations of ASMPT. The undrawn portion includes  25,816 for ASM Japan, which amount is restricted to be used only in the operations of ASM Japan.



ASMI is guarantor with respect to all short-term debt outstanding of ASM Front-End Manufacturing Singapore. ASMI is guarantor with respect to a credit line of  9,090, with no debt outstanding, of ASM Japan. ASMI does not provide guarantees for borrowings of ASMPT and there are no guarantees from ASMPT to secure indebtedness of
ASMI. Under the rules of the Stock Exchange of Hong Kong, ASMPT is precluded from providing loans and advances other than trade receivables in the normal course of business, to ASMI or its non ASMPT subsidiaries.



NOTE 11Provision for Warranty



The changes in the amount of provision for warranty are as follows:



|                                    |  |         |  
|----------------------------------- |  | ------- | -
|Balance January 1, 2006             |  | 19,389  |  
|Charged to cost of sales            |  | 10,474  |  
|Deductions                          |  | (12,678 | )
|Foreign currency translation effect |  | (886    | )
|                                    |  |         |  
|Balance December 31, 2006           |  | 16,299  |  
|                                    |  |         |  
|Charged to cost of sales            |  | 13,808  |  
|Deductions                          |  | (12,228 | )
|Foreign currency translation effect |  | (840    | )
|                                    |  |         |  
|Balance December 31, 2007           |  | 17,039  |  
|                                    |  |         |  



NOTE 12Accrued Expenses and
Other



Accrued expenses and other consist of the following:



|                                |  |              |  |       
|------------------------------- |  | ------------ |  | ------
|                                |  | December 31,
|                                |  | 2006         |  | 2007  
|Advance payments from customers |  | 8,095        |  | 10,039
|Deferred revenue                |  | 13,652       |  | 12,377
|Personnel related items         |  | 24,686       |  | 24,219
|Other                           |  | 29,788       |  | 26,818
|                                |  |              |  |       
|                                |  | 76,221       |  | 73,453
|                                |  |              |  |       



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##### Table of Contents

NOTE 13Long-term Debt



Long-term debt consists of the following:



|                                     |  |              |   |  |         |  
|------------------------------------ |  | ------------ | - |  | ------- | -
|                                     |  | December 31, |  
|                                     |  | 2006         |   |  | 2007    |  
|Term loans:                          |  |              |   |  |         |  
|Japan, 0.5-3.2%, due 2008  2012     |  | 17,722       |   |  | 21,780  |  
|Finland, 1.0%, due 2010              |  | 1,134        |   |  | 641     |  
|Singapore, 3.6-3.8%, due 2008  2011 |  | 3,693        |   |  | 2,333   |  
|South Korea, 4.9%, due 2008          |  | 779          |   |  | 37      |  
|Germany, 5.0-7.5%, due 2007  2010   |  | 1,748        |   |  |        |  
|Mortgage loans:                      |  |              |   |  |         |  
|Japan, 2.1-2.2%, due 2012            |  |             |   |  | 4,242   |  
|Capital lease commitments:           |  |              |   |  |         |  
|United States, 7.9%, due 2007        |  | 182          |   |  |        |  
|Japan, 1.8%, due 2009  2012         |  | 1,353        |   |  | 2,233   |  
|                                     |  |              |   |  |         |  
|                                     |  | 26,611       |   |  | 31,266  |  
|Current portion                      |  | (7,344       | ) |  | (15,438 | )
|                                     |  |              |   |  |         |  
|                                     |  | 19,267       |   |  | 15,828  |  
|                                     |  |              |   |  |         |  



Long-term debt, including current portion, in
local currencies is as follows (in thousands):



|                      |  |              |  |          
|--------------------- |  | ------------ |  | ---------
|                      |  | December 31,
|                      |  | 2006         |  | 2007     
|Euro                  |  | 2,882        |  | 641      
|United States dollars |  | 240          |  |         
|Japanese yen          |  | 2,980,400    |  | 4,662,546
|Singapore dollars     |  | 7,455        |  | 4,939    
|Korean won            |  | 950,000      |  | 50,000   
|                      |  |              |  |          



Aggregate annual principal repayments for years
subsequent to December 31, 2007 are:



|     |  |       
|---- |  | ------
|2008 |  | 15,438
|2009 |  | 5,111 
|2010 |  | 4,801 
|2011 |  | 3,285 
|2012 |  | 2,631 
|     |  |       
|     |  | 31,266
|     |  |       



Long-term debt outstanding in Japan in the
amount of  4,242 is collateralized by real estate with a carrying value of 
3,837 of ASM Japan.



Long-term debt outstanding in Singapore in the amount of  2,333 is collateralized by real estate with a carrying value of  11,404 and other
assets with a carrying value of  16,709 of ASM Front-End Manufacturing Singapore.



ASMI is guarantor with respect to all long-term debt outstanding of ASM Front-End Manufacturing Singapore.



Capital lease commitments relate to commitments for equipment and machinery.



NOTE 14Convertible Subordinated Debt



Convertible subordinated debt consists of the following:



|                                               |  |              |  |        
|---------------------------------------------- |  | ------------ |  | -------
|                                               |  | December 31,
|                                               |  | 2006         |  | 2007   
|5.25% convertible subordinated notes, due 2010 |  | 68,337       |  | 47,016 
|4.25% convertible subordinated notes, due 2011 |  | 113,895      |  | 91,977 
|                                               |  |              |  |        
|                                               |  | 182,232      |  | 138,993
|                                               |  |              |  |        



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In May 2003, ASMI issued US$ 90.0 million in principal amount of 5.25% convertible subordinated notes due in May 2010 in a
private offering. Interest on the notes is payable on May 15 and November 15 of each year. The notes are subordinated in right of payment to all of the Companys existing and future senior indebtedness. The notes are convertible, at
the option of the holder, into shares of the Companys common stock initially at a conversion rate of 52.0237 shares of common stock for each US$ 1,000 principal amount of notes, subject to adjustment in certain circumstances. This is
equivalent to an initial conversion price of US$ 19.22 per share. On or after May 20, 2006, the Company may redeem any of the notes at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and
unpaid interest, if the closing price of the Companys common shares has exceeded 150% of the conversion price for at least 20 trading days in any period of 30 consecutive trading days and if certain other conditions are satisfied. In the event
of a change in control, the Company may be required to repurchase the notes. In 2007, US$ 20.8 million of the US$ 90.0 million convertible subordinated notes has been repurchased and as a result US$ 69.2 million remains outstanding at
December 31, 2007. The US$ 20.8 million has been repurchased for a market value of US$ 29.0 million. The loss for the early extinguishment of the notes of  6,309, which includes the premium paid above par and the write-off of unamortized issuance costs, has been recorded as interest expense in the Consolidated Statement of Operations for the year 2007.



In December 2004, ASMI issued US$ 150.0 million in principal amount of 4.25% convertible
subordinated notes due in December 2011 in a private offering. Interest on the notes is payable on June 6 and December 6 of each year. The notes are subordinated in right of payment to all of the Companys existing and future senior
indebtedness. The notes are convertible, at the option of the holder, into shares of the Companys common stock initially at a conversion rate of 48.0307 shares of common stock for each US$ 1,000 principal amount of notes, subject to
adjustment in certain circumstances. This is equivalent to an initial conversion price of US$ 20.82 per share. Effective December 6, 2007, the conversion price is adjusted for the cash dividend paid in September 2007 to US$ 20.71 per
share. On or after December 6, 2007, the Company may redeem any of the notes at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if the closing price of the Companys
common shares has exceeded 130% of the conversion price for at least 20 trading days in any period of 30 consecutive trading days. In the event of a change in control, the Company may be required to repurchase the notes. In 2007, US$
14.6 million of the US$ 150.0 million convertible subordinated notes has been repurchased and as a result US$ 135.4 million remains outstanding at December 31, 2007. The US$ 14.6 million has been repurchased for a
market value of US$ 19.4 million. The loss for the early extinguishment of the notes of  3,740, which includes the premium paid above par and the write-off of
unamortized issuance costs, has been recorded as interest expense in the Consolidated Statement of Operations for the year 2007.



The US$ 150.0 million convertible subordinated notes rank pari passu with the US$ 90.0 million convertible subordinated notes.



Except for repurchasing US$ 20.8 million of the US$ 90.0 million convertible subordinated
notes and repurchasing US$ 14.6 million of the US$ 150.0 million convertible subordinated notes, movements in the balance of the outstanding subordinated debt in the year ended December 31, 2007 relate solely to the translation of the
outstanding amounts in U.S. dollars to euros.



The fees incurred for the issuance of the
convertible subordinated notes are included as debt issuance costs in the Consolidated Balance Sheet and amortized by the interest method as interest cost during the life of the debts. Debt issuance costs of  772 are expected to be amortized in 2008.



NOTE 15Shareholders Equity



Common shares



The authorized capital of the Company amounts to
110,000,000 shares of  0.04 par value common shares, 118,000 shares of  40
par value preferred shares and 8,000 shares of  40 par value financing preferred shares, of which 54,005,214 common shares and no preferred or financing preferred
shares were outstanding as at December 31, 2007. There are currently no preferred or financing preferred shares issued. All shares have one vote per  0.04 par
value.



Preferred and financing preferred shares



Financing preferred shares are designed to allow ASMI to finance equity with an instrument paying a
preferred dividend, linked to EURIBOR loans and government loans, without the dilutive effects of issuing additional common shares. Preferred and financing preferred shares are issued in registered form only and are subject to transfer restrictions.
Essentially, a preferred or financing preferred shareholder must obtain the approval of the Companys Supervisory Board to transfer shares. If the approval is denied, the



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##### Table of Contents

Supervisory Board will provide a list of acceptable prospective buyers who are willing to purchase the shares at a cash price to be fixed by consent of the Supervisory
Board and seller within two months after the approval is denied. If the transfer is approved, the shareholder must complete the transfer within three months, at which time the approval expires.



Preferred shares are entitled to a cumulative preferred dividend based on the amount paid-up
on such shares. Financing preferred shares are entitled to a cumulative dividend based on the par value and share premium paid on such shares.



Retained earnings



Distributions to common shareholders are limited to the extent the total amount of shareholders equity exceeds the amounts of nominal paid-in share capital (exclusive any share premium) and any reserves to be formed pursuant to
law or the Companys articles of association. The amounts are derived from the Statutory Financial Statements of ASM International N.V.



Accumulated other comprehensive loss



The changes in the amount of accumulated other comprehensive loss are as follows:



|                                                                                                         |  |                                   |   |  |                                                       |   |  |                                                 |   |  |         |  
|-------------------------------------------------------------------------------------------------------- |  | --------------------------------- | - |  | ----------------------------------------------------- | - |  | ----------------------------------------------- | - |  | ------- | -
|                                                                                                         |  | Foreigncurrencytranslationeffects |   |  | Unrealized gains(losses) onderivativeinstruments, net |   |  | Impact of initialadoption ofSFAS 158,net of tax |   |  | Total   |  
|Balance January 1, 2006                                                                                  |  | (48,038                           | ) |  | (368                                                  | ) |  |                                                |   |  | (48,406 | )
|Foreign currency translation effect on translation of foreign operations                                 |  | (16,998                           | ) |  |                                                      |   |  |                                                |   |  | (16,998 | )
|Increase in fair value of derivative instruments, net of tax                                             |  |                                  |   |  | 190                                                   |   |  |                                                |   |  | 190     |  
|Transfer to Consolidated Statement of Operations of derivative instruments, net of tax                   |  |                                  |   |  | 54                                                    |   |  |                                                |   |  | 54      |  
|Reclassification to Consolidated Statement of Operations of cumulative translation adjustment ASM NuTool |  | 4,832                             |   |  |                                                      |   |  |                                                |   |  | 4,832   |  
|                                                                                                         |  |                                   |   |  |                                                       |   |  |                                                 |   |  |         |  
|Total change in accumulated other comprehensive loss                                                     |  | (12,166                           | ) |  | 244                                                   |   |  |                                                |   |  | (11,922 | )
|Impact of initial adoption of SFAS 158, net of tax                                                       |  |                                  |   |  |                                                      |   |  | (860                                            | ) |  | (860    | )
|                                                                                                         |  |                                   |   |  |                                                       |   |  |                                                 |   |  |         |  
|Balance December 31, 2006                                                                                |  | (60,204                           | ) |  | (124                                                  | ) |  | (860                                            | ) |  | (61,188 | )
|Foreign currency translation effect on translation of foreign operations                                 |  | (12,114                           | ) |  |                                                      |   |  | 91                                              |   |  | (12,023 | )
|Increase in fair value of derivative instruments, net of tax                                             |  |                                  |   |  | 1,159                                                 |   |  |                                                |   |  | 1,159   |  
|Transfer to Consolidated Statement of Operations of derivative instruments, net of tax                   |  |                                  |   |  | (889                                                  | ) |  |                                                |   |  | (889    | )
|Amortization of transition obligation SFAS 158                                                           |  |                                  |   |  |                                                      |   |  | 22                                              |   |  | 22      |  
|                                                                                                         |  |                                   |   |  |                                                       |   |  |                                                 |   |  |         |  
|Total change in accumulated other comprehensive loss                                                     |  | (12,114                           | ) |  | 270                                                   |   |  | 113                                             |   |  | (11,731 | )
|                                                                                                         |  |                                   |   |  |                                                       |   |  |                                                 |   |  |         |  
|Balance December 31, 2007                                                                                |  | (72,318                           | ) |  | 146                                                   |   |  | (747                                            | ) |  | (72,919 | )
|                                                                                                         |  |                                   |   |  |                                                       |   |  |                                                 |   |  |         |  



With respect to the initial adoption of SFAS 158
in 2006, reference is made to Note 16.



Purchases of Equity Securities by the Issuer
and Affiliated Purchasers



On May 18, 2006, the General Meeting of Shareholders
authorized, for an 18-month period, to be calculated from the date of the General Meeting to cause the Company to repurchase its own shares up to the statutory maximum, at a price at least equal to the shares nominal value and at most a price
equal to 110% of the shares average closing price according to the listing on the Euronext Amsterdam stock exchange during the five trading days preceding the acquisition date.



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##### Table of Contents

The number of shares bought back under the authorization of May 18, 2006 was 178,706. Of this number, 178,706 were sold upon
the exercise of options by employees of ASMI, under the Employee Stock Option Plan.



The
following table summarizes shares repurchased under the authorization of May 18, 2006:



|         |  |                                 |  |                                                                                |  |                             |       |                                                                    |  
|-------- |  | ------------------------------- |  | ------------------------------------------------------------------------------ |  | --------------------------- | ----- | ------------------------------------------------------------------ | -
|Period   |  | Total Number ofShares Purchased |  | Total Number of SharesPurchased as Part of PubliclyAnnounced Plans or Programs |  | Average PricePaid per Share |       | Maximum Number ofShares that May Yet bePurchased underthe
Programs
|May 2007 |  | 178,706                         |  | 178,706                                                                        |  |                            | 19.56 |                                                                    | 



On May 22, 2007, the General Meeting of
Shareholders authorized, for an 18-month period, to be calculated from the date of the General Meeting to cause the Company to repurchase its own shares up to the statutory maximum, at a price at least equal to the shares nominal value and at
most a price equal to 110% of the shares average closing price according to the listing on the Euronext Amsterdam stock exchange during the five trading days preceding the acquisition date.



The number of shares bought back under the authorization of May 22, 2007 was 250,000. Of this
number, 36,213 were sold upon the exercise of options by employees of ASMI, under the Employee Stock Option Plan.



The following table summarizes shares repurchased under the authorization of May 22, 2007:



|            |  |                                 |  |                                                                                |  |                             |       |                                                                    |          
|----------- |  | ------------------------------- |  | ------------------------------------------------------------------------------ |  | --------------------------- | ----- | ------------------------------------------------------------------ | ---------
|Period      |  | Total Number ofShares Purchased |  | Total Number of SharesPurchased as Part of PubliclyAnnounced Plans or Programs |  | Average PricePaid per Share |       | Maximum Number ofShares that May Yet bePurchased under thePrograms
|August 2007 |  | 250,000                         |  | 250,000                                                                        |  |                            | 18.67 |                                                                    | 5,150,521



NOTE 16 Employee
Benefits



Pension plans



The Company has retirement plans covering substantially all employees. The principal plans are defined
contribution plans, except for the plans of the Companys operations in the Netherlands and Japan.



The Companys employees in the Netherlands participate in a multi-employer plan (Bedrijfstakpensioenfonds Metalektro). The plan monitors the risks of the entire investment portfolio, not by individual company
or employee, and is subject to regulation by Dutch governmental authorities. By Dutch law, a multi-employer union plan must be monitored against specific criteria, including the coverage ratio of its assets to its obligations. This ratio must exceed
100%. Each company participating in the plan contributes a percentage of its total pensionable salaries, each company contributes the same percentage. The pension rights of individual employees are based on the employees average salary during
employment. The Companys net periodic pension cost for the multi-employer plan for a fiscal period is equal to the required contribution for that period.



The Companys employees in Japan participate in a defined benefit plan. The funded status of the plan and the amounts not yet recognized in the Consolidated Statement of
Operations and the amounts recognized in the Consolidated Balance Sheet are as follows:



|                                          |  |              |   |  |        |  
|----------------------------------------- |  | ------------ | - |  | ------ | -
|                                          |  | December 31, |  
|                                          |  | 2006         |   |  | 2007   |  
|Defined benefit obligations               |  | (7,024       | ) |  | (7,401 | )
|Fair value of plan assets                 |  | 4,375        |   |  | 4,831  |  
|                                          |  |              |   |  |        |  
|Funded status surplus / (deficit)         |  | (2,649       | ) |  | (2,570 | )
|                                          |  |              |   |  |        |  
|Unrecognized actuarial loss (gain)        |  | 5            |   |  | (6     | )
|Unrecognized transition amount            |  | 1,453        |   |  | 1,272  |  
|Adjustment to recognize minimum liability |  |             |   |  |       |  
|                                          |  |              |   |  |        |  
|Net assets / (liabilities)                |  | (1,191       | ) |  | (1,304 | )
|                                          |  |              |   |  |        |  



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---

##### Table of Contents

The changes in defined benefit obligations and fair value of plan assets are as follows:



|                                    |  |                        |   |  |       |  
|----------------------------------- |  | ---------------------- | - |  | ----- | -
|                                    |  | Year endedDecember 31, |  
|                                    |  | 2006                   |   |  | 2007  |  
|Defined benefit obligations         |  |                        |   |  |       |  
|Balance January 1                   |  | 7,176                  |   |  | 7,024 |  
|Current service cost                |  | 679                    |   |  | 650   |  
|Interest on obligation              |  | 134                    |   |  | 135   |  
|Actuarial losses (gains)            |  | (17                    | ) |  | 52    |  
|Benefits paid                       |  | (112                   | ) |  | (70   | )
|Foreign currency translation effect |  | (836                   | ) |  | (390  | )
|                                    |  |                        |   |  |       |  
|Balance December 31                 |  | 7,024                  |   |  | 7,401 |  
|                                    |  |                        |   |  |       |  
|Fair value of plan assets           |  |                        |   |  |       |  
|Balance January 1                   |  | 4,069                  |   |  | 4,375 |  
|Expected return on plan assets      |  | 142                    |   |  | 156   |  
|Actuarial losses                    |  | 190                    |   |  | 64    |  
|Company contribution                |  | 584                    |   |  | 555   |  
|Benefits paid                       |  | (112                   | ) |  | (70   | )
|Foreign currency translation effect |  | (498                   | ) |  | (249  | )
|                                    |  |                        |   |  |       |  
|Balance December 31                 |  | 4,375                  |   |  | 4,831 |  
|                                    |  |                        |   |  |       |  



The net periodic benefit cost consists of the
following:



|                                  |  |                         |   |  |      |   |  |      |  
|--------------------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                                  |  | Year ended December 31, |  
|                                  |  | 2005                    |   |  | 2006 |   |  | 2007 |  
|Current service cost              |  | 684                     |   |  | 679  |   |  | 650  |  
|Interest on obligation            |  | 130                     |   |  | 134  |   |  | 135  |  
|Expected return on plan assets    |  | (35                     | ) |  | (142 | ) |  | (156 | )
|Amortization of transition amount |  | 124                     |   |  | 116  |   |  | 106  |  
|                                  |  |                         |   |  |      |   |  |      |  
|Net periodic pension benefit cost |  | 903                     |   |  | 787  |   |  | 735  |  
|                                  |  |                         |   |  |      |   |  |      |  



The actual return on plan assets was  409,  333, and  219 for the years ended December 31, 2005, 2006 and 2007 respectively.



The assumptions in calculating the actuarial present value of benefit obligations and net periodic benefit cost are as follows:



|                               |  |                         |   |  |      |   |  |      |  
|------------------------------ |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                               |  | Year ended December 31, |  
|                               |  | 2005                    |   |  | 2006 |   |  | 2007 |  
|Discount rate for obligations  |  | 2.00                    | % |  | 2.00 | % |  | 2.00 | %
|Expected return on plan assets |  | 3.50                    | % |  | 3.50 | % |  | 3.50 | %
|Future salary increases        |  | 2.94                    | % |  | 2.94 | % |  | 2.94 | %



The allocation
of plan assets is as follows:



|            |  |                        |  |      
|----------- |  | ---------------------- |  | -----
|            |  | Year endedDecember 31,
|            |  | 2006                   |  | 2007 
|Shares      |  | 2,171                  |  | 2,508
|Bonds       |  | 1,867                  |  | 1,912
|Loans       |  | 134                    |  | 125  
|Real estate |  | 32                     |  | 34   
|Other       |  | 171                    |  | 252  
|            |  |                        |  |      
|            |  | 4,375                  |  | 4,831
|            |  |                        |  |      



F-25



---

##### Table of Contents

The plan assets do not include any of the Companys shares.



The Company expects to contribute  617 to the defined benefit plan in 2008. The Company expects to pay benefits for years subsequent to December 31, 2007 as follows:



|                                  |  |      
|--------------------------------- |  | -----
|2008                              |  | 140  
|2009                              |  | 173  
|2010                              |  | 179  
|2011                              |  | 229  
|2012                              |  | 247  
|Aggregate for the years 2013-2017 |  | 1,785
|                                  |  |      
|Total                             |  | 2,753
|                                  |  |      



In September 2006, the FASB issued SFAS
No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of SFAS No. 87, 88, 106, and 132(R)). SFAS 158 requires an employer to (a) recognize in its statement of
financial position an asset for a plans overfunded status or a liability for a plans underfunded status, other than a multi-employer plan; (b) measure plans assets and obligations that determine its funded status as of the end
of the employers fiscal year (with limited exceptions); (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in other comprehensive
income; and (d) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or
credits, and transition asset or obligation. Reference is made to Note 1.



With respect
to the defined benefit plan in which the Companys employees in Japan participate, the incremental effect of the adoption of SFAS 158 on individual line items in the Consolidated Balance Sheet at December, 31 2006 was as follows:



|                                           |  |             |   |  |             |   |  |              |  
|------------------------------------------ |  | ----------- | - |  | ----------- | - |  | ------------ | -
|                                           |  | PreSFAS 158 |   |  | Adjustments |   |  | PostSFAS 158 |  
|Deferred tax assets                        |  | 454         |   |  | 598         |   |  | 1,052        |  
|Total assets                               |  | 831,699     |   |  | 598         |   |  | 832,297      |  
|Liability for pension benefits             |  | 2,032       |   |  | 1,458       |   |  | 3,490        |  
|Total liabilities                          |  | 439,465     |   |  | 1,458       |   |  | 440,923      |  
|Accumulated other comprehensive loss       |  | (60,328     | ) |  | (860        | ) |  | (61,188      | )
|Total shareholders equity                 |  | 277,318     |   |  | (860        | ) |  | 276,458      |  
|                                           |  |             |   |  |             |   |  |              |  
|Total liabilities and shareholders equity |  | 831,699     |   |  | 598         |   |  | 832,297      |  
|                                           |  |             |   |  |             |   |  |              |  



Retirement plan costs consist of the following:



|                            |  |                         |  |        |  |       
|--------------------------- |  | ----------------------- |  | ------ |  | ------
|                            |  | Year ended December 31,
|                            |  | 2005                    |  | 2006   |  | 2007  
|Defined contribution plans  |  | 6,191                   |  | 7,343  |  | 7,813 
|Multi-employer plans        |  | 2,076                   |  | 2,197  |  | 2,586 
|Defined benefit plans       |  | 903                     |  | 787    |  | 735   
|                            |  |                         |  |        |  |       
|Total retirement plan costs |  | 9,170                   |  | 10,327 |  | 11,134
|                            |  |                         |  |        |  |       



The Company does not provide for any significant
post retirement benefits other than pensions.



Employee Stock Option Plan



The Company has adopted various stock option plans and has entered into stock
option agreements with various employees. Under these plans, employees may purchase a specific number of shares of the Companys common stock. Options are priced at market value in euros or U.S. dollars on the date of grant, are generally
vesting in equal parts over a period of five years and generally expire after five or ten years. Under the 2001 Stock Option Plan the Company is authorized to issue 4,000,000 shares. At December 31, 2007, options to purchase 2,469,345 shares
have been issued under the 2001 Stock Option Plan. Under previous plans no more options to purchase shares can be issued. Under the various stock option plans a total of 1,189,797 options to purchase common stock were outstanding at
December 31, 2007, expiring at various dates through 2017. The number of options outstanding at December 31, 2005 and 2006 were 1,874,612 and 1,399,711 respectively.



F-26



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##### Table of Contents

The following is a summary of changes in options outstanding:



|                          |  |                  |   |  |                                    |  |                 |   |  |                                  
|------------------------- |  | ---------------- | - |  | ---------------------------------- |  | --------------- | - |  | ---------------------------------
|                          |  | Number ofoptions |   |  | Weightedaverageexerciseprice
inUS$ |  | Numberofoptions |   |  | Weightedaverageexerciseprice in 
|Balance January 1, 2005   |  | 1,361,940        |   |  | 15.81                              |  | 476,716         |   |  | 14.13                            
|Options granted           |  | 63,000           |   |  | 15.91                              |  | 165,000         |   |  | 13.02                            
|Options forfeited         |  | (44,794          | ) |  | 20.78                              |  | (86,250         | ) |  | 12.77                            
|Options exercised         |  | (11,000          | ) |  | 10.10                              |  | (50,000         | ) |  | 11.41                            
|                          |  |                  |   |  |                                    |  |                 |   |  |                                  
|Balance December 31, 2005 |  | 1,369,146        |   |  | 15.70                              |  | 505,466         |   |  | 14.26                            
|Options granted           |  | 177,500          |   |  | 15.03                              |  | 327,532         |   |  | 13.97                            
|Options forfeited         |  | (56,715          | ) |  | 20.88                              |  | (23,566         | ) |  | 15.49                            
|Options exercised         |  | (844,403         | ) |  | 15.23                              |  | (55,249         | ) |  | 12.12                            
|                          |  |                  |   |  |                                    |  |                 |   |  |                                  
|Balance December 31, 2006 |  | 645,528          |   |  | 15.69                              |  | 754,183         |   |  | 14.26                            
|Options granted           |  | 72,000           |   |  | 24.35                              |  | 217,868         |   |  | 18.46                            
|Options forfeited         |  | (18,594          | ) |  | 16.80                              |  | (90,600         | ) |  | 18.07                            
|Options exercised         |  | (256,137         | ) |  | 16.76                              |  | (134,451        | ) |  | 13.80                            
|                          |  |                  |   |  |                                    |  |                 |   |  |                                  
|Balance December 31, 2007 |  | 442,797          |   |  | 16.43                              |  | 747,000         |   |  | 15.10                            
|                          |  |                  |   |  |                                    |  |                 |   |  |                                  



The weighted average fair value of employee
stock options granted in U.S. dollars were US$ 11.02 in 2005, US$ 6.21 in 2006 and US$ 13.85 in 2007. The weighted average fair values of employee stock option granted in euros were  7.95 in 2005,  4.90 in 2006 and  7.27 in 2007.



The weighted average remaining contractual life of the outstanding options granted in
2007 is 6.9 years at December 31, 2007.



The total intrinsic value of options
exercised was  105,  3,451, and  2,320 for the years ended December 31, 2005, 2006 and 2007 respectively. For all exercises of options in 2005 and 2006 new shares have been issued. New shares have been issued for the exercise of
176,469 options in 2007.



At December 31, 2007 options outstanding and options
exercisable classified by range of exercise prices are:



|                         |  |                     |  |                                           |  |                               |  |                   |  |                              
|------------------------ |  | ------------------- |  | ----------------------------------------- |  | ----------------------------- |  | ----------------- |  | -----------------------------
|                         |  | Options outstanding |  | Options exercisable                      
|Range of exercise prices |  | Numberoutstanding   |  | Weighted averageremainingcontractual life |  | Weightedaverageexercise price |  | Numberexercisable |  | Weightedaverageexercise price
|In US$                   |  |                     |  | In years                                  |  | In US$                        |  |                   |  | In US$                       
|                         |  |                     |  |                                           | 
|1.00-10.00               |  | 18,433              |  | 1.14                                      |  | 5.56                          |  | 18,433            |  | 5.56                         
|10.00-15.00              |  | 240,100             |  | 4.30                                      |  | 13.87                         |  | 92,600            |  | 12.56                        
|15.00-20.00              |  | 84,984              |  | 5.16                                      |  | 16.99                         |  | 40,184            |  | 17.67                        
|20.00-30.00              |  | 99,920              |  | 5.00                                      |  | 24.17                         |  | 25,400            |  | 23.65                        
|                         |  |                     |  |                                           |  |                               |  |                   |  |                              
|1.00-30.00               |  | 442,797             |  | 5.16                                      |  | 16.43                         |  | 176,617           |  | 14.59                        
|                         |  |                     |  |                                           |  |                               |  |                   |  |                              
|                         |  |                     |  |                                           | 
|In                      |  |                     |  | In years                                  |  | In                           |  |                   |  | In                          
|                         |  |                     |  |                                           | 
|10.00-15.00              |  | 441,132             |  | 4.65                                      |  | 13.26                         |  | 74,496            |  | 12.42                        
|15.00-20.00              |  | 300,868             |  | 5.26                                      |  | 17.72                         |  | 32.200            |  | 16.05                        
|20.00-30.00              |  | 5,000               |  | 0.20                                      |  | 20.00                         |  | 5.000             |  | 20.00                        
|                         |  |                     |  |                                           |  |                               |  |                   |  |                              
|10.00-30.00              |  | 747,000             |  | 4.86                                      |  | 15.10                         |  | 111,696           |  | 13.81                        
|                         |  |                     |  |                                           |  |                               |  |                   |  |                              



At December 31, 2007, the aggregate
intrinsic value of all options outstanding and all options exercisable is  3,493 and  1,452 respectively.



F-27



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##### Table of Contents

On January 1, 2006 the Company adopted SFAS 123R which requires that the cost of all employee stock options, as well as other
equity-based compensation arrangements, be reflected in the financial statements. The cost relating to employee stock options is measured at fair value on the grant date. The fair value was computed using the Black-Scholes option pricing model with
the following weighted average assumptions:



|                        |  |                        |   |  |        |  
|----------------------- |  | ---------------------- | - |  | ------ | -
|                        |  | Year endedDecember 31, |  
|                        |  | 2006                   |   |  | 2007   |  
|Expected life (years)   |  | 5  10                 |   |  | 5  10 |  
|Risk free interest rate |  | 4.0                    | % |  | 4.0    | %
|Dividend yield          |  |                       |   |  |       |  
|Expected volatility     |  | 35.8                   | % |  | 30.0   | %
|                        |  |                        |   |  |        |  



Following the adoption of SFAS 123R, the
Companys recorded in 2006 compensation expenses of  1,421 and in 2007 compensation expenses of  1,718.



Employee Share Incentive Scheme ASMPT



In 1989, the shareholders of ASMPT approved a plan to issue up to 5.0 percent of
the total issued shares of ASMPT to directors and employees. This plan has been extended in 1999 for a term up to March 23, 2010. The directors annually may approve an amount of supplemental compensation to the designated directors and
officers, which will be used to issue or purchase ASMPTs common shares for the designees at current market value. In December 2007, 1,789,000 common shares of ASMPT were issued, for cash at par value of HK$ 0.10 per share, pursuant to the
Employee Share Incentive Scheme of ASMPT. In 2006 and 2005, respectively 1,779,500 and 1,791,000 ASMPT shares were issued to certain directors and employees under the plan. The effect of this transaction on ASMI was a dilution of its ownership
interest in ASMPT of 0.25% in 2007, 0.24% in 2006, and 0.25% in 2005. The shares issued under the plan in 2007 have diluted ASMIs ownership in ASMPT to 53.10% as of December 31, 2007. In 2005 ASMI revised its assessment of the
compensation expense related to the Employee Share Incentive Scheme which impacted ASMIs Consolidated Statement of Operations for the year ended December 31, 2005 positively by  2,588. Total compensation expenses related to the Employee Share Incentive Scheme of respectively  6,242 in 2005,  7,290 in 2006, and  7,685 in 2007 were charged to the Consolidated Statement
of Operations.



The dilution in ownership has resulted in a gain on the investment in
ASMPT of  2,781 in 2005,  3,031 in 2006, and  3,010 in 2007, which gain has been separately included in the Consolidated Statement of Operations. Due to the participation exemption in the Netherlands no
deferred income taxes have been provided for these gains. In 2006, the Company charged  1,776 as a loss on the investment of ASMPT related to the repurchase of
shares of ASMPT by ASMPT in 2004, initially recorded as goodwill.



NOTE 17Commitments and Contingencies



Capital leases included in property,
plant and equipment are as follows:



|                              |  |              |   |  |        |  
|----------------------------- |  | ------------ | - |  | ------ | -
|                              |  | December 31, |  
|                              |  | 2006         |   |  | 2007   |  
|Machinery and equipment       |  | 4,085        |   |  | 4,990  |  
|Furniture and fixtures        |  | 596          |   |  | 597    |  
|                              |  |              |   |  |        |  
|                              |  | 4,681        |   |  | 5,587  |  
|Less accumulated depreciation |  | (2,863       | ) |  | (3,380 | )
|                              |  |              |   |  |        |  
|                              |  | 1,818        |   |  | 2,207  |  
|                              |  |              |   |  |        |  



F-28



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##### Table of Contents

At December 31, 2007 minimum rental commitments under capital leases and operating leases having initial or remaining
non-cancelable terms in excess of one year are as follows:



|                                            |  |               |   |  |                
|------------------------------------------- |  | ------------- | - |  | ---------------
|                                            |  | Capitalleases |   |  | Operatingleases
|2008                                        |  | 843           |   |  | 6,892          
|2009                                        |  | 666           |   |  | 5,741          
|2010                                        |  | 509           |   |  | 3,252          
|2011                                        |  | 197           |   |  | 2,419          
|2012                                        |  | 86            |   |  | 1,147          
|Years thereafter                            |  |              |   |  | 3,105          
|                                            |  |               |   |  |                
|Total                                       |  | 2,301         |   |  | 22,556         
|Less amount representing interest           |  | (68           | ) |  |                
|                                            |  |               |   |  |                
|Present value of net minimum lease payments |  | 2,233         |   |  |                
|                                            |  |               |   |  |                



Aggregate rental expense for operating leases
was  8,692 in 2005,  8,881 in 2006 and  7,873 in 2007. At December 31, 2007 the Company had entered into purchase commitments with suppliers in the amount of  65,460 for purchases, of which  65,276 for purchases within the next 12 months. Commitments for capital expenditures at
December 31, 2007 were  8,556.



Change of Control Transaction



If the Company desires to effect a change of control transaction with a competitor of Applied Materials, Inc., (Applied Materials) the Company must, pursuant to a litigation settlement agreement in 1997, as amended
and restated in 1998, first offer the change of control transaction to Applied Materials on the same terms as the Company would be willing to accept from that competitor pursuant to a bona fide arms-length offer by that competitor.



NOTE 18Litigation and Environmental Matters



The Company is party to various legal proceedings generally incidental to its business and is subject
to a variety of environmental and pollution control laws and regulations. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings. Although the ultimate disposition
of legal proceedings cannot be predicted with certainty, it is the opinion of the Companys management that the outcome of any claim which is pending or threatened, either individually or on a combined basis, will not have a materially adverse
effect on the financial position of the Company, but could materially affect the Companys results of operations in a given reporting period.



NOTE 19Financial Instruments and Risk Management



Categories of Financial Instruments



Financial instruments include:



Financial assets:



|                                                       |  |              |  |        
|------------------------------------------------------ |  | ------------ |  | -------
|                                                       |  | December 31,
|                                                       |  | 2006         |  | 2007   
|Cash and cash equivalents                              |  | 193,872      |  | 167,923
|Accounts receivable                                    |  | 198,359      |  | 229,160
|Derivative instruments designated in cash flow hedges  |  | 109          |  | 163    
|Derivative instruments designated in fair value hedges |  | 271          |  | 226    
|                                                       |  |              |  |        



Financial liabilities:



|                                                       |  |              |  |        
|------------------------------------------------------ |  | ------------ |  | -------
|                                                       |  | December 31,
|                                                       |  | 2006         |  | 2007   
|Notes payable to banks                                 |  | 19,657       |  | 16,677 
|Accounts payable                                       |  | 99,841       |  | 99,046 
|Current portion of long-term debt                      |  | 7,344        |  | 15,438 
|Long-term debt                                         |  | 19,267       |  | 15,828 
|Convertible subordinated debt                          |  | 182,232      |  | 138,993
|Derivative instruments designated in cash flow hedges  |  | 396          |  | 29     
|Derivative instruments designated in fair value hedges |  | 29           |  | 7      
|                                                       |  |              |  |        



F-29



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##### Table of Contents

Gains or losses related to financial instruments are as follows:



|                                                       |  |                        |   |  |         |  
|------------------------------------------------------ |  | ---------------------- | - |  | ------- | -
|                                                       |  | Year endedDecember 31, |  
|                                                       |  | 2006                   |   |  | 2007    |  
|Interest income                                        |  | 5,902                  |   |  | 6,113   |  
|Interest expense                                       |  | 11,726                 |   |  | (9,866  | )
|Early extinguishment of debt expense                   |  |                       |   |  | (10,049 | )
|Foreign currency exchange losses, net                  |  | (1,250                 | ) |  | (1,020  | )
|Addition to allowance for doubtful accounts receivable |  | (1,176                 | ) |  | (137    | )
|                                                       |  |                        |   |  |         |  



Financial Risk Factors



ASMI is exposed to a number of risk factors: market risks (including foreign exchange risk and
interest rate risk), credit risk and liquidity risk. The Company uses forward exchange contracts to hedge its foreign exchange risk. The Company does not enter into financial instrument transactions for trading or speculative purposes.



Foreign Exchange Risk



ASMI and its subsidiaries conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the
functional currency of the Company (euro) or one of its subsidiaries conducting the business. The purpose of the Companys foreign currency management is to manage the effect of exchange rate fluctuations on revenues, costs and cash flows and
assets and liabilities denominated in selected foreign currencies, in particular denominated in U.S. dollar.



The Companys front-end segment uses forward exchange contracts to hedge its foreign exchange risk of anticipated sales or purchase transactions in the normal course of business, which occur within the next twelve months,
for which the Company has a firm commitment from a customer or to a supplier. The terms of these contracts are consistent with the timing of the transactions being hedged. The hedges related to forecasted transactions are designated and documented
at the inception of the hedge as cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive loss in Shareholders
Equity, and is reclassified into earnings when the hedged transaction affects earnings.



The majority of revenues and costs of the Companys back-end segment are denominated in Hong Kong dollars, Chinese Yuan and U.S. dollar. The functional currency of the Companys back-end segment (Hong Kong dollar) is linked to the
U.S. dollar. Since foreign currency exposure is not significant, no forward exchange contracts are used. The effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in foreign currencies is
periodically reviewed.



Changes in the fair value of derivatives that do not qualify for
hedge treatment, as well as the ineffective portion of any hedges, are recognized in earnings. The Company records all derivatives, including forward exchange contracts, on the balance sheet at fair value in other current assets or accrued expenses.



The Company expects that substantially all of the  146 unrealized gains included in accumulated other comprehensive loss as of December 31, 2007 will be reclassified to net earnings within the next twelve months, upon completion of the
underlying transactions. If the underlying transaction being hedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss is immediately recognized in earnings under foreign currency exchange gains (losses) in the
Consolidated Statement of Operations. Unrealized losses included in other comprehensive income as of December 31, 2006 of  124 were reclassified to earnings
in 2007. Hedge ineffectiveness was insignificant for the years ended December 31, 2006 and December 31, 2007.



Furthermore, the Company manages the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts (fair value hedges) and
currency swaps, and non-derivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on receivables and payables denominated in foreign currencies.
The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations. Receivables and payables denominated in foreign
currencies are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations.



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##### Table of Contents

To the extent that exchange rate fluctuations impact the value of the Companys investments in its foreign subsidiaries, they
are not hedged. The cumulative effect of these fluctuations is separately reported in Consolidated Shareholders Equity. Reference is made to Note 15.



The outstanding forward exchange contracts are as follows:



|                            |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|--------------------------- |  | -------- |  | -------------- | - |  | -------------------- | - |  | --------- | - |  | ------------------------------------------- | - |  | ----------------------------------------------------- | -
|                            |  | Currency |  | Notionalamount |   |  | Forwardcontractvalue |   |  | Fairvalue |   |  | Differencebetweenforwardvalue andfair value |   |  | Included inaccumulatedothercomprehensiveincome (loss) |  
|                            |  |          |  |                |   |  | Euro                 |   |  | Euro      |   |  | Euro                                        |   |  | Euro                                                  |  
|December 31, 2006:          |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|                            |  |          |  |                |   | 
|Assets:                     |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|                            |  |          |  |                |   | 
|Cash flow hedge contracts:  |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|Short position              |  | US$      |  | (26,604        | ) |  | (19,467              | ) |  | (19,766   | ) |  | (299                                        | ) |  | (131                                                  | )
|Fair value hedge contracts: |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|Short position              |  | US$      |  | (16,530        | ) |  | (12,740              | ) |  | (12,511   | ) |  | 229                                         |   |  |                                                      |  
|                            |  |          |  |                |   | 
|Liabilities:                |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|                            |  |          |  |                |   | 
|Cash flow hedge contracts:  |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|Long position               |  | US$      |  | 1,100          |   |  | 806                  |   |  | 818       |   |  | 12                                          |   |  | 7                                                     |  
|Fair value hedge contracts: |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|Long position               |  | US$      |  | 6,441          |   |  | 4,870                |   |  | 4,883     |   |  | 13                                          |   |  |                                                      |  
|                            |  |          |  |                |   | 
|December 31, 2007:          |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|                            |  |          |  |                |   | 
|Assets:                     |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|                            |  |          |  |                |   | 
|Cash flow hedge contracts:  |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|Short position              |  | US$      |  | (14,073        | ) |  | (9,671               | ) |  | (9,537    | ) |  | 134                                         |   |  | 146                                                   |  
|Fair value hedge contracts: |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|Short position              |  | US$      |  | (7,774         | ) |  | (5,499               | ) |  | (5,273    | ) |  | 226                                         |   |  |                                                      |  
|                            |  |          |  |                |   | 
|Liabilities:                |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|                            |  |          |  |                |   | 
|Fair value hedge contracts: |  |          |  |                |   |  |                      |   |  |           |   |  |                                             |   |  |                                                       |  
|Long position               |  | US$      |  | 42,500         |   |  | 28,900               |   |  | 28,870    |   |  | (30                                         | ) |  |                                                      |  
|                            |  | Euro     |  | 1,350          |   |  | 1,318                |   |  | 1,341     |   |  | 23                                          |   |  |                                                      |  



For forward exchange contracts, market values
based on external quotes from banks have been used to determine the fair value.



The
following table analyzes the Companys sensitivity to a hypothetical 10% strengthening respectively 10% weakening of the U.S. dollar, Hong Kong dollar or Japanese yen against the euro as of December 31, 2006 and December 31, 2007.
This analysis includes foreign currency denominated monetary items and adjusts their translation at year end for a 10% increase respectively 10% decrease of the U.S. dollar, Hong Kong dollar or Japanese yen against the euro. A positive amount
indicates an increase in equity. Recognized in equity is the revaluation effect of subsidiaries denominated in U.S. dollar, Hong Kong dollar and Japanese yen.



|                                             |  |                 |   |  |                 |  
|-------------------------------------------- |  | --------------- | - |  | --------------- | -
|                                             |  | 2006            |   |  | 2007            |  
|                                             |  | Impact onequity |   |  | Impact onequity |  
|10% increase of U.S. dollar versus euro      |  | (6,698          | ) |  | (8,279          | )
|10% decrease of U.S. dollar versus euro      |  | 6,698           |   |  | 8,279           |  
|10% increase of Hong Kong dollar versus euro |  | 13,316          |   |  | 13,647          |  
|10% decrease of Hong Kong dollar versus euro |  | (13,316         | ) |  | (13,647         | )
|10% increase of Japanese yen versus euro     |  | 3,100           |   |  | 3,162           |  
|10% decrease of Japanese yen versus euro     |  | (3,100          | ) |  | (3,162          | )
|                                             |  |                 |   |  |                 |  

A hypothetical 10% strengthening or 10% weakening of any other currency than the U.S. dollar, Hong Kong dollar and Japanese
yen against the euro as of December 31, 2006 and December 31, 2007 would not result in a material impact on equity.



A hypothetical 10% strengthening or 10% weakening of the U.S. dollar, Hong Kong dollar, Japanese yen or any other currency against the euro as of December 31, 2006 and
December 31, 2007 would not result in a material impact on net earnings.



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##### Table of Contents

Interest Risk



The Company is exposed to interest rate risk primarily through its borrowing activities. The Company does not enter into financial instrument transactions for trading or
speculative purposes or to manage interest rate exposure. At December 31, 2007 the Company had convertible subordinated debt borrowings outstanding of  47,016
at a fixed interest rate, maturing in May 2010 and  91,977 at a fixed interest rate, maturing in December 2011 and  31,266 in long-term debt at fixed interest rates and  16,667 in other borrowings with variable
short-term interest rates. A hypothetical change in the average interest rate by 10% on the portion of the Companys debt bearing interest at variable rates would not result in a material change in interest expense at December 31, 2006 and
December 31, 2007 borrowing levels.



Credit Risk



Financial instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents, accounts receivable and derivative instruments. These instruments contain a risk of counterparties failing to discharge their obligations. The Company monitors credit risk and manages credit risk exposure by
type of financial instrument by assessing the creditworthiness of counterparties. The Company does not anticipate nonperformance by counterparties given their high creditworthiness.



The Companys customers are semiconductor device manufacturers located throughout the world. The Company generally does not require collateral or
other security to support financial instruments with credit risk.



Concentrations of
credit risk (whether on or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic or other conditions.



The Company derives a
significant percentage of its revenue from a small number of large customers. The Companys largest customer accounted for approximately 9.6% of net sales in 2007 (2006: 11.4%; 2005: 17.2%) and the ten largest customers accounted for
approximately 32.4% of net sales in 2007 (2006: 33.9%; 2005: 43.7%). Sales to these large customers also may fluctuate significantly from time to time depending on the timing and level of purchases by these customers. Significant orders from such
customers may expose the Company to a concentration of credit risk and difficulties in collecting amounts due, which could harm the Companys financial results. At December 31, 2007 one customer accounted for 7.8% of the outstanding
balance in accounts receivable (2006: 8.8%; 2005: 12.4%).



The Company places its cash
and cash equivalent and derivative instruments with high quality financial institutions to limit the amount of credit risk exposure.



The maximum credit exposure is equal to the carrying values of cash and cash equivalent and accounts receivable.



Liquidity Risk



The following table summarizes the Companys contractual obligations as at December 31, 2007 aggregated by type of contractual obligation:



|                                   |  |         |  |                 |  |           |  |           |  |                 
|---------------------------------- |  | ------- |  | --------------- |  | --------- |  | --------- |  | ----------------
|Contractual obligations            |  | Total   |  | Less than1 year |  | 1-3 years |  | 3-5 years |  | More than5 years
|Notes payable to banks1            |  | 17,014  |  | 17,014          |  |          |  |          |  |                
|Long-term debt1, 2                 |  | 32,407  |  | 15,958          |  | 10,393    |  | 6,056     |  |                
|Convertible subordinated debt1     |  | 159,566 |  | 6,377           |  | 57,303    |  | 95,886    |  |                
|Operating leases                   |  | 22,556  |  | 6,892           |  | 8,993     |  | 3,566     |  | 3,105           
|                                   |  |         |  |                 | 
|Purchase obligations:              |  |         |  |                 |  |           |  |           |  |                 
|Purchase commitments to suppliers  |  | 65,460  |  | 65,276          |  | 184       |  |          |  |                
|Capital expenditure commitments    |  | 8,556   |  | 8,556           |  |          |  |          |  |                
|Unrecognized tax benefits (FIN 48) |  | 12,908  |  | 12,908          |  |          |  |          |  |                
|                                   |  |         |  |                 |  |           |  |           |  |                 
|Total contractual obligations      |  | 318,467 |  | 132,981         |  | 76,873    |  | 105,508   |  | 3,105           
|                                   |  |         |  |                 |  |           |  |           |  |                 



|(1) | Including interest expense based on the percentages at the reporting date.
|--- | --------------------------------------------------------------------------



|(2) | Capital lease obligations of  2,233 are included in long-term debt.
|--- | --------------------------------------------------------------------



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##### Table of Contents

Total short-term lines of credit amounted to 
118,871 at December 31, 2007. The amount outstanding at December 31, 2007 was  16,677 and the undrawn portion totaled  102,194. The undrawn portion includes the Companys bank credit facility of  50,000 with
Rabobank. The facility, available through February 28, 2010, is secured by a portion of the Companys shareholding in ASMPT. The undrawn portion includes  26,165 for ASMPT, which amount is restricted to be used only in the operations of ASMPT. The undrawn portion includes  25,816 for ASM Japan,
which amount is restricted to be used only in the operations of ASM Japan.



The Company
uses notes payable to banks to manage short term liquidity and uses long-term debt and convertible subordinated debt to manage long term liquidity.



For the majority of purchase commitments, the Company has flexible delivery schedules depending on the market conditions, which allows the Company, to a certain extent, to delay
delivery beyond originally planned delivery schedules.



Methods and Assumptions Used
in Estimating Fair Value Disclosure for Financial Instruments



For cash and cash
equivalents, accounts receivable, notes payable to banks, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.



For long-term debt, the estimated fair values of the Companys long-term debt are based on current interest rates available to the Company for debt instruments
with similar terms and remaining maturities. The estimated fair values of long-term debt approximate the carrying amount of long-term debt.



The fair values of the Companys convertible subordinated debt borrowings are based on the Companys estimates:



|                              |  |                |  |           |  |                |  |          
|----------------------------- |  | -------------- |  | --------- |  | -------------- |  | ---------
|                              |  | 2006           |  | 2007     
|                              |  | Carryingamount |  | Fairvalue |  | Carryingamount |  | Fairvalue
|                              |  |                |  |          
|Convertible subordinated debt |  | 182,232        |  | 215,034   |  | 138,993        |  | 174,508  
|                              |  |                |  |           |  |                |  |          



NOTE 20 Research
and Development



Research and Development consists of the following:



|                                                                      |  |                         |   |  |        |   |  |        |  
|--------------------------------------------------------------------- |  | ----------------------- | - |  | ------ | - |  | ------ | -
|                                                                      |  | Year ended December 31, |  
|                                                                      |  | 2005                    |   |  | 2006   |   |  | 2007   |  
|Research and development expenses from continuing operations          |  | 91,564                  |   |  | 89,719 |   |  | 84,340 |  
|Research and development grants and credits                           |  | (1,735                  | ) |  | (1,589 | ) |  | (872   | )
|                                                                      |  |                         |   |  |        |   |  |        |  
|Research and development from continuing operations                   |  | 89,829                  |   |  | 88,130 |   |  | 83,468 |  
|Research and development expenses included in discontinued operations |  | 10,839                  |   |  | 2,477  |   |  |       |  
|                                                                      |  |                         |   |  |        |   |  |        |  
|Total research and development                                        |  | 100,668                 |   |  | 90,607 |   |  | 83,468 |  
|                                                                      |  |                         |   |  |        |   |  |        |  



The Companys operations in the
Netherlands, Germany and the United States receive research and development grants and credits from various sources. The research and development grants and credits received from governmental sources in the Netherlands include a credit which is
contingently repayable to the extent the Company recognizes sales of products to which the credit is related within an agreed upon period. The Company does not recognize a liability on the Consolidated Balance Sheet in respect of this credit until
it recognizes sales of products to which the credit is related, within the agreed upon period and is then charged to cost of sales when such sales are recorded. The repayment amounts to 4.0% of the realized sales of these products. In 2005, 2006 and
2007 the Company accounted for repayments with respect to such credits of  162,  243 and  114 respectively. Interest on the contingent repayments is accrued at an interest rate of 6.05% per annum. The contingent repayment,
including accrued interest, was  3,093 at December 31, 2006 and  2,953 at December 31, 2007. This amount has not been recognized as a liability in the Consolidated Balance Sheet since the Company has not recognized sales of products to which the credit is related.



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##### Table of Contents

NOTE 21Income Taxes



The components of earnings (loss) before income taxes and minority interest consist of:



|                                                                              |  |                         |   |  |         |   |  |        
|----------------------------------------------------------------------------- |  | ----------------------- | - |  | ------- | - |  | -------
|                                                                              |  | Year ended December 31,
|                                                                              |  | 2005                    |   |  | 2006    |   |  | 2007   
|The Netherlands                                                               |  | (15,129                 | ) |  | 13,781  |   |  | 9,155  
|Other countries                                                               |  | 22,996                  |   |  | 88,275  |   |  | 123,402
|                                                                              |  |                         |   |  |         |   |  |        
|                                                                              |  | 7,867                   |   |  | 102,056 |   |  | 132,557
|                                                                              |  |                         |   |  |         |   |  |        
|Earnings from continuing operations before income taxes and minority interest |  | 56,331                  |   |  | 122,406 |   |  | 132,557
|Loss from discontinued operations before income taxes                         |  | (48,464                 | ) |  | (20,350 | ) |  |       
|                                                                              |  |                         |   |  |         |   |  |        
|                                                                              |  | 7,867                   |   |  | 102,056 |   |  | 132,557
|                                                                              |  |                         |   |  |         |   |  |        



The income tax
expense consists of:



|                   |  |                         |   |  |         |   |  |         |  
|------------------ |  | ----------------------- | - |  | ------- | - |  | ------- | -
|                   |  | Year ended December 31, |  
|                   |  | 2005                    |   |  | 2006    |   |  | 2007    |  
|Current:           |  |                         |   |  |         |   |  |         |  
|The Netherlands    |  |                        |   |  |        |   |  | (320    | )
|Other countries    |  | (6,757                  | ) |  | (14,246 | ) |  | (19,838 | )
|                   |  |                         |   |  |         |   |  |         |  
|                   |  | (6,757                  | ) |  | (14,246 | ) |  | (20,158 | )
|Deferred:          |  |                         |   |  |         |   |  |         |  
|The Netherlands    |  |                        |   |  |        |   |  |        |  
|Other countries    |  | (550                    | ) |  | 151     |   |  | 913     |  
|                   |  |                         |   |  |         |   |  |         |  
|                   |  | (550                    | ) |  | 151     |   |  | 913     |  
|                   |  |                         |   |  |         |   |  |         |  
|Income tax expense |  | (7,307                  | ) |  | (14,095 | ) |  | (19,245 | )
|                   |  |                         |   |  |         |   |  |         |  



The provisions for income taxes as shown in the
Consolidated Statements of Operations differ from the amounts computed by applying the Netherlands statutory income tax rates to earnings before taxes. A reconciliation of the provisions for income taxes and the amounts that would be computed using
the Netherlands statutory income tax rates is set forth as follows:



|                                                                  |  |                         |   |  |         |   |  |         |  
|----------------------------------------------------------------- |  | ----------------------- | - |  | ------- | - |  | ------- | -
|                                                                  |  | Year ended December 31, |  
|                                                                  |  | 2005                    |   |  | 2006    |   |  | 2007    |  
|Earnings before income taxes and minority interest                |  | 7,867                   |   |  | 102,056 |   |  | 132,557 |  
|Netherlands statutory income tax rate                             |  | 31.5                    | % |  | 29.6    | % |  | 25.5    | %
|Income tax provision at statutory rate                            |  | (2,478                  | ) |  | (30,209 | ) |  | (33,802 | )
|Non-deductible expenses                                           |  | (11,124                 | ) |  | (6,978  | ) |  | (8,811  | )
|Foreign taxes at a rate other than the Netherlands statutory rate |  | 20,010                  |   |  | 29,397  |   |  | 16,390  |  
|Valuation allowance                                               |  | (19,750                 | ) |  | (7,493  | ) |  | 994     |  
|Non-taxable income                                                |  | 8,871                   |   |  | 9,340   |   |  | 11,776  |  
|Other                                                             |  | (2,836                  | ) |  | (8,152  | ) |  | (5,792  | )
|                                                                  |  |                         |   |  |         |   |  |         |  
|Income tax expense                                                |  | (7,307                  | ) |  | (14,095 | ) |  | (19,245 | )
|                                                                  |  |                         |   |  |         |   |  |         |  



Included in non-taxable income is  10,068 regarding the Companys manufacturing operations in Singapore and other countries where income covering certain products is non-taxable under tax incentive
schemes granted by the local tax authority. The majority of these tax exemption schemes have terms ending in 2010.



The government of the Netherlands has enacted income tax rate reductions at the end of 2004 to 31.5% in 2005, at the end of 2005 to 29.6 % in 2006, and at the end of 2006
to 25.5% for 2007 and following years. The Companys deferred tax assets and liabilities have been determined in accordance with these statutory income tax rates.



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Deferred income taxes consist of the following:



|                                 |  |              |   |  |         |  
|-------------------------------- |  | ------------ | - |  | ------- | -
|                                 |  | December 31, |  
|                                 |  | 2006         |   |  | 2007    |  
|Deferred tax assets:             |  |              |   |  |         |  
|Reserves and allowances          |  | 2,961        |   |  | 3,311   |  
|Net operating losses             |  | 105,280      |   |  | 91,874  |  
|Other                            |  | 376          |   |  | 724     |  
|                                 |  |              |   |  |         |  
|Gross deferred tax assets        |  | 108,617      |   |  | 95,909  |  
|Less: valuation allowance        |  | (103,531     | ) |  | (90,879 | )
|                                 |  |              |   |  |         |  
|Net deferred tax assets          |  | 5,086        |   |  | 5,030   |  
|Deferred tax liabilities:        |  |              |   |  |         |  
|Depreciation                     |  | (725         | ) |  | (63     | )
|Research and development credits |  | (789         | ) |  | (753    | )
|                                 |  |              |   |  |         |  
|Deferred tax liabilities         |  | (1,514       | ) |  | (816    | )
|                                 |  |              |   |  |         |  
|Net deferred income taxes        |  | 3,572        |   |  | 4,214   |  
|                                 |  |              |   |  |         |  



Deferred tax assets and liabilities are
classified in the balance sheet as follows:



|                                     |  |              |   |  |       |  
|------------------------------------ |  | ------------ | - |  | ----- | -
|                                     |  | December 31, |  
|                                     |  | 2006         |   |  | 2007  |  
|Deferred tax assetscurrent          |  | 3,140        |   |  | 4,062 |  
|Deferred tax assetsnon-current      |  | 1,052        |   |  | 951   |  
|Deferred tax liabilitiesnon-current |  | (620         | ) |  | (799  | )
|                                     |  |              |   |  |       |  
|                                     |  | 3,572        |   |  | 4,214 |  
|                                     |  |              |   |  |       |  



Based on tax filings, ASMI and its individual
subsidiaries have net operating losses available at December 31, 2007 of  321,368 for tax return purposes to reduce future income taxes, mainly in Europe and
the United States. The Company believes that realization of its net deferred tax assets is dependent on the ability of the Company to generate taxable income in the future. Given the volatile nature of the semiconductor equipment industry, past
experience, and the tax jurisdictions where the Company has net operating losses, the Company believes that there is currently insufficient evidence to substantiate recognition of substantially all net deferred tax assets with respect to net
operating losses. Accordingly, a valuation allowance of  103,531 in 2006 and 
90,879 in 2007 has been recorded.



The amounts and expiration dates of net operating
losses for tax purposes are as follows:



|                     |  |        
|-------------------- |  | -------
|Expiration year      |  |        
|2008                 |  | 1,028  
|2009                 |  | 1,866  
|2010                 |  | 2,560  
|2011                 |  | 139,142
|2012                 |  | 50,367 
|2013                 |  | 19,371 
|2014                 |  | 5,648  
|2016                 |  | 7,068  
|2017                 |  | 50,003 
|2018                 |  | 3,664  
|2022                 |  | 6,752  
|2023                 |  | 3,547  
|2024                 |  | 383    
|2025                 |  | 4,307  
|2026                 |  | 1,687  
|2027                 |  | 4,170  
|Unlimited            |  | 19,805 
|                     |  |        
|Net operating losses |  | 321,368
|                     |  |        



The Company has not provided for deferred
foreign withholding taxes, if any, on undistributed earnings of its foreign subsidiaries. At December 31, 2007 undistributed earnings of subsidiaries, subject to withholding taxes, were approximately  23,794. These earnings could become subject to foreign withholding taxes if



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##### Table of Contents

they were remitted as dividends or if the Company should sell its interest in the subsidiaries. However, the Company believes that Netherlands tax credits would
largely eliminate any foreign withholding tax that might otherwise be due.



Until
December 31, 2006, the Company accounted for income tax contingencies in accordance with SFAS No. 5, Accounting for Contingencies. The Company provides for these tax contingencies for the duration of the statute of limitation
period, which differs per tax jurisdiction. At December 31, 2006 tax contingencies amounted to  8,276 and are included in income taxes payable in the
Consolidated Balance Sheet.



On January 1, 2007 the Company adopted FIN 48
Accounting for Uncertainty in Income Taxes. The Companys net operating losses for tax purposes decreased by  5,369 as a result of the adoption of
FIN 48. Since a valuation allowance was recorded against the net deferred tax assets with respect to these net operating losses, the adoption of FIN 48 did not impact the Companys financial position and net earnings.



A reconciliation of the beginning and ending balance of the liability for unrecognized tax benefits is
as follows:



|                                              |  |        |  
|--------------------------------------------- |  | ------ | -
|Balance January 1, 2007                       |  | 8,276  |  
|                                              |  |        |  
|Gross increasestax positions in prior period |  | 10,340 |  
|Gross decreasestax positions in prior period |  | (5,537 | )
|Gross increasestax positions in current year |  | 1,156  |  
|Foreign currency translation effect           |  | (1,327 | )
|                                              |  |        |  
|Balance December 31, 2007                     |  | 12,908 |  
|                                              |  |        |  



Unrecognized tax benefits mainly relate to
transfer pricing positions, operational activities in countries where the Company is not tax registered and tax deductible costs.



The Company estimates that no interest and penalties are related to these unrecognized tax benefits.



In the year ended December 31, 2007, no settlement with tax authorities and no reduction as a result of a lapse of statute of limitations occurred.



Unrecognized tax benefits of  12,908 would, if recognized, impact the Companys effective tax rate. The Company estimates that the liability for unrecognized tax benefits will change with  12,908 within the next 12 months, following the expected outcome of investigations by local tax authorities.



A summary of open tax years by major jurisdiction is as follows:



|                |  |          
|--------------- |  | ---------
|Jurisdiction    |  |          
|Japan           |  | 20012007
|Hong Kong       |  | 20002007
|The Netherlands |  | 20042007
|Singapore       |  | 20042007
|United States   |  | 19942007



The calculation of the Companys tax
liabilities involves dealing with uncertainties in the application of complex tax laws. The Companys estimate for the potential outcome of any unrecognized tax benefits is highly judgmental. Settlement of unrecognized tax benefits in a
manner inconsistent with the Companys expectations could have a material impact on the Companys financial position, net earnings and cash flows.



NOTE 22 Disclosures about Segments and Related Information



The Company organizes its activities in two operating segments, front-end and back-end.



The front-end segment manufactures and sells equipment used in wafer processing, encompassing the fabrication steps in which silicon wafers are
layered with semiconductor devices. The segment is a product driven organizational unit comprised of manufacturing, service, and sales operations in Europe, the United States, Japan and Southeast Asia.



The back-end segment manufactures and sells equipment and materials used in assembly and packaging,
encompassing the processes in which silicon wafers are separated into individual circuits and subsequently assembled, packaged and tested. The segment is organized in ASM Pacific Technology Ltd., in which the Company holds a majority of 53.10%
interest, whilst the remaining shares are listed on the Stock Exchange of Hong Kong. The segments main operations are located in Hong Kong, the Peoples Republic of China, Singapore and Malaysia.



F-36



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##### Table of Contents

|                                                   |  |           |   |  |          |   |  |         |  
|-------------------------------------------------- |  | --------- | - |  | -------- | - |  | ------- | -
|(euro thousands, except for headcount)             |  | Front-end |   |  | Back-end |   |  | Total   |  
|Year ended December 31, 2005                       |  |           |   |  |          |   |  |         |  
|                                                   |  |           |  
|Net sales to unaffiliated customers                |  | 357,913   |   |  | 366,785  |   |  | 724,698 |  
|Gross profit                                       |  | 89,742    |   |  | 165,635  |   |  | 255,377 |  
|Earnings (loss) from operations                    |  | (31,818   | ) |  | 98,694   |   |  | 66,876  |  
|Net interest income (expense)                      |  | (11,958   | ) |  | 1,541    |   |  | (10,417 | )
|Foreign currency exchange gains (losses), net      |  | 174       |   |  | (302     | ) |  | (128    | )
|Income tax expense                                 |  | (1,095    | ) |  | (5,571   | ) |  | (6,666  | )
|Gain on dilution of investment in subsidiary       |  | 2,781     |   |  |         |   |  | 2,781   |  
|Minority interest                                  |  |          |   |  | (43,558  | ) |  | (43,558 | )
|Net earnings (loss) from continuing operations     |  | (41,916   | ) |  | 50,804   |   |  | 8,888   |  
|Net loss from discontinued operations              |  | (49,105   | ) |  |         |   |  | (49,105 | )
|Net earnings (loss)                                |  | (91,021   | ) |  | 50,804   |   |  | (40,217 | )
|Capital expenditures                               |  | 24,622    |   |  | 20,015   |   |  | 44,637  |  
|Purchase of other intangibles                      |  | 732       |   |  |         |   |  | 732     |  
|Depreciation                                       |  | 20,046    |   |  | 15,960   |   |  | 36,006  |  
|Amortization of other intangible assets            |  | 1,748     |   |  |         |   |  | 1,748   |  
|Impairment of property, plant and equipment        |  | 3,308     |   |  |         |   |  | 3,308   |  
|Impairment and disposal of discontinued operations |  | 33,128    |   |  |         |   |  | 33,128  |  
|Cash and cash equivalents                          |  | 55,329    |   |  | 79,671   |   |  | 135,000 |  
|Capitalized goodwill                               |  | 26,005    |   |  | 47,004   |   |  | 73,009  |  
|Other intangible assets                            |  | 9,177     |   |  |         |   |  | 9,177   |  
|Other identifiable assets                          |  | 341,652   |   |  | 253,470  |   |  | 595,122 |  
|Total assets                                       |  | 432,163   |   |  | 380,145  |   |  | 812,308 |  
|Total debt                                         |  | 257,350   |   |  | 50       |   |  | 257,400 |  
|Headcount in full-time equivalents1                |  | 1,691     |   |  | 7,760    |   |  | 9,451   |  
|                                                   |  |           |   |  |          |   |  |         |  



|                                                   |  |           |   |  |          |   |  |         |  
|-------------------------------------------------- |  | --------- | - |  | -------- | - |  | ------- | -
|(euro thousands, except for headcount)             |  | Front-end |   |  | Back-end |   |  | Total   |  
|Year ended December 31, 2006                       |  |           |   |  |          |   |  |         |  
|                                                   |  |           |  
|Net sales to unaffiliated customers                |  | 409,383   |   |  | 468,108  |   |  | 877,491 |  
|Gross profit                                       |  | 127,856   |   |  | 210,961  |   |  | 338,817 |  
|Earnings from operations                           |  | 1,390     |   |  | 128,090  |   |  | 129,480 |  
|Net interest income (expense)                      |  | (9,131    | ) |  | 3,307    |   |  | (5,824  | )
|Foreign currency exchange losses, net              |  | (1,228    | ) |  | (22      | ) |  | (1,250  | )
|Income tax expense                                 |  | (976      | ) |  | (13,119  | ) |  | (14,095 | )
|Gain on dilution of investment in subsidiary       |  | 1,255     |   |  |         |   |  | 1,255   |  
|Minority interest                                  |  |          |   |  | (54,882  | ) |  | (54,882 | )
|Net earnings (loss) from continuing operations     |  | (8,690    | ) |  | 63,374   |   |  | 54,684  |  
|Net loss from discontinued operations              |  | (20,350   | ) |  |         |   |  | (20,350 | )
|Net earnings (loss)                                |  | (29,040   | ) |  | 63,374   |   |  | 34,334  |  
|Capital expenditures                               |  | 18,811    |   |  | 20,563   |   |  | 39,374  |  
|Purchase of other intangibles                      |  | 2,611     |   |  | 687      |   |  | 3,298   |  
|Depreciation                                       |  | 18,070    |   |  | 16,997   |   |  | 35,067  |  
|Amortization of other intangible assets            |  | 2,053     |   |  | 386      |   |  | 2,439   |  
|Impairment and disposal of discontinued operations |  | 12,841    |   |  |         |   |  | 12,841  |  
|Cash and cash equivalents                          |  | 104,599   |   |  | 89,273   |   |  | 193,872 |  
|Capitalized goodwill                               |  | 14,253    |   |  | 40,323   |   |  | 54,576  |  
|Other intangible assets                            |  | 4,646     |   |  | 302      |   |  | 4,948   |  
|Other identifiable assets                          |  | 328,257   |   |  | 250,644  |   |  | 578,901 |  
|Total assets                                       |  | 451,755   |   |  | 380,542  |   |  | 832,297 |  
|Total debt                                         |  | 227,793   |   |  | 707      |   |  | 228,500 |  
|Headcount in full-time equivalents1                |  | 1,860     |   |  | 9,008    |   |  | 10,868  |  
|                                                   |  |           |   |  |          |   |  |         |  



F-37



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##### Table of Contents

|                                                    |  |           |   |  |          |   |  |         |  
|--------------------------------------------------- |  | --------- | - |  | -------- | - |  | ------- | -
|(euro thousands, except for headcount)              |  | Front-end |   |  | Back-end |   |  | Total   |  
|Year ended December 31, 2007                        |  |           |   |  |          |   |  |         |  
|                                                    |  |           |  
|Net sales to unaffiliated customers                 |  | 450,899   |   |  | 504,340  |   |  | 955,239 |  
|Gross profit                                        |  | 145,036   |   |  | 216,040  |   |  | 361,076 |  
|Earnings from operations                            |  | 15,525    |   |  | 131,854  |   |  | 147,379 |  
|Net interest income (expense)                       |  | (6,278    | ) |  | 2,525    |   |  | (3,753  | )
|Expense resulting from early extinguishment of debt |  | (10,049   | ) |  |         |   |  | (10,049 | )
|Foreign currency exchange losses, net               |  | (1,902    | ) |  | 882      |   |  | (1,020  | )
|Income tax expense                                  |  | (2,612    | ) |  | (16,633  | ) |  | (19,245 | )
|Gain on dilution of investment in subsidiary        |  | 3,010     |   |  |         |   |  | 3,010   |  
|Minority interest                                   |  |          |   |  | (55,345  | ) |  | (55,345 | )
|Net earnings (loss) from continuing operations      |  | (2,306    | ) |  | 63,283   |   |  | 60,977  |  
|Net loss from discontinued operations               |  |          |   |  |         |   |  |        |  
|Net earnings (loss)                                 |  | (2,306    | ) |  | 63,283   |   |  | 60,977  |  
|                                                    |  |           |  
|Capital expenditures                                |  | 17,411    |   |  | 29,795   |   |  | 47,206  |  
|Purchase of other intangibles                       |  | 253       |   |  | 442      |   |  | 695     |  
|Depreciation                                        |  | 14,997    |   |  | 18,253   |   |  | 33,250  |  
|Amortization of other intangible assets             |  | 1,087     |   |  | 304      |   |  | 1,391   |  
|Impairment of property, plant and equipment         |  | (788      | ) |  |         |   |  | (788    | )
|Cash and cash equivalents                           |  | 100,143   |   |  | 67,780   |   |  | 167,923 |  
|Capitalized goodwill                                |  | 13,546    |   |  | 36,075   |   |  | 49,621  |  
|Other intangible assets                             |  | 3,576     |   |  | 675      |   |  | 4,251   |  
|Other identifiable assets                           |  | 333,013   |   |  | 285,525  |   |  | 618,538 |  
|Total assets                                        |  | 450,278   |   |  | 390,055  |   |  | 840,333 |  
|Total debt                                          |  | 186,936   |   |  |         |   |  | 186,936 |  
|Headcount in full-time equivalents1                 |  | 1,843     |   |  | 9,989    |   |  | 11,832  |  
|                                                    |  |           |   |  |          |   |  |         |  



|(1) | Headcount includes those employees with a fixed contract, and is exclusive of temporary workers.
|--- | ------------------------------------------------------------------------------------------------



There are no inter-segment transactions, other than charges for management services, which are based on actual cost. The accounting policies used to measure the net
earnings and total assets in each segment are identical to those used in the Consolidated Financial Statements. The measurement methods used to determine reported segment earnings are consistently applied for all periods presented. There were no
asymmetrical allocations to segments.



Geographical information is summarized as follows:



|                                    |  |         |  |              |  |         |  |               |  |           |  |             
|----------------------------------- |  | ------- |  | ------------ |  | ------- |  | ------------- |  | --------- |  | ------------
|                                    |  | Europe  |  | UnitedStates |  | Japan   |  | SoutheastAsia |  | Corporate |  | Consolidated
|Year ended December 31, 2005        |  |         |  |              |  |         |  |               |  |           |  |             
|                                    |  |         |  |              |  |        
|Net sales to unaffiliated customers |  | 107,835 |  | 148,124      |  | 54,993  |  | 413,746       |  |          |  | 724,698     
|Long-lived assets                   |  | 12,902  |  | 24,172       |  | 24,024  |  | 100,933       |  | 1,312     |  | 163,343     
|Total assets                        |  | 99,651  |  | 139,153      |  | 106,141 |  | 426,496       |  | 40,867    |  | 812,308     
|Capital expenditures                |  | 2,402   |  | 11,033       |  | 9,622   |  | 22,952        |  | 42        |  | 46,051      
|Purchase of intangible assets       |  | 137     |  | 208          |  |        |  | 387           |  |          |  | 732         
|                                    |  |         |  |              |  |         |  |               |  |           |  |             
|Year ended December 31, 2006        |  |         |  |              |  |         |  |               |  |           |  |             
|                                    |  |         |  |              |  |        
|Net sales to unaffiliated customers |  | 102,098 |  | 159,686      |  | 69,746  |  | 545,961       |  |          |  | 877,491     
|Long-lived assets                   |  | 11,616  |  | 20,690       |  | 18,449  |  | 99,281        |  | 1,229     |  | 151,265     
|Total assets                        |  | 100,133 |  | 121,373      |  | 95,427  |  | 429,559       |  | 85,805    |  | 832,297     
|Capital expenditures                |  | 2,264   |  | 8,078        |  | 3,452   |  | 25,580        |  |          |  | 39,374      
|Purchase of intangible assets       |  | 11      |  | 339          |  |        |  | 1,022         |  | 1,926     |  | 3,298       
|                                    |  |         |  |              |  |         |  |               |  |           |  |             
|Year ended December 31, 2007        |  |         |  |              |  |         |  |               |  |           |  |             
|                                    |  |         |  |              |  |        
|Net sales to unaffiliated customers |  | 89,306  |  | 128,002      |  | 87,162  |  | 650,769       |  |          |  | 955,239     
|Long-lived assets                   |  | 11,115  |  | 12,153       |  | 21,947  |  | 101,599       |  | 2,828     |  | 149,642     
|Total assets                        |  | 119,251 |  | 89,957       |  | 110,739 |  | 441,186       |  | 79,200    |  | 840,333     
|Capital expenditures                |  | 3,700   |  | 1,179        |  | 8,718   |  | 33,586        |  | 23        |  | 47,206      
|Purchase of intangible assets       |  | 7       |  | 13           |  |        |  | 489           |  | 186       |  | 695         
|                                    |  |         |  |              |  |         |  |               |  |           |  |             



Long-lived assets for the years ended
December 31, 2005, 2006 and 2007 consist of the Companys property, plant and equipment.



F-38



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##### Table of Contents

NOTE 23Selected Operating Expenses and Additional Information



Personnel expenses for employees were as follows:



|                   |  |                         |  |         |  |        
|------------------ |  | ----------------------- |  | ------- |  | -------
|                   |  | Year ended December 31,
|                   |  | 2005                    |  | 2006    |  | 2007   
|Wages and salaries |  | 163,065                 |  | 187,757 |  | 194,047
|Social security    |  | 16,755                  |  | 17,414  |  | 18,578 
|Pension expenses   |  | 9,170                   |  | 10,327  |  | 11,134 
|                   |  |                         |  |         |  |        
|                   |  | 188,990                 |  | 215,498 |  | 223,759
|                   |  |                         |  |         |  |        



The average number of employees, exclusive of
temporary workers, by geographic area during the year was as follows:



|                         |  |                         |  |        |  |       
|------------------------ |  | ----------------------- |  | ------ |  | ------
|                         |  | Year ended December 31,
|                         |  | 2005                    |  | 2006   |  | 2007  
|The Netherlands          |  | 339                     |  | 340    |  | 352   
|Other European countries |  | 173                     |  | 178    |  | 209   
|United States            |  | 606                     |  | 614    |  | 593   
|Southeast Asia           |  | 7,505                   |  | 8,704  |  | 9,993 
|Japan                    |  | 273                     |  | 284    |  | 293   
|                         |  |                         |  |        |  |       
|                         |  | 8,896                   |  | 10,120 |  | 11,440
|                         |  |                         |  |        |  |       



NOTE 24Earnings (Loss) per
Share



The following represents a reconciliation of net earnings (loss) and
weighted average number of shares outstanding (in thousands) for purposes of calculating basic and diluted net earnings (loss) per share:



|                                                                                                                           |  |                         |   |  |        |   |  |       
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | - |  | ------ | - |  | ------
|                                                                                                                           |  | Year ended December 31,
|                                                                                                                           |  | 2005                    |   |  | 2006   |   |  | 2007  
|Net earnings (loss) used for purpose of computing basic earnings per share                                                 |  | (40,217                 | ) |  | 34,334 |   |  | 60,977
|After-tax equivalent of interest expense on convertible subordinated notes                                                 |  |                        |   |  |       |   |  | 8,425 
|                                                                                                                           |  |                         |   |  |        |   |  |       
|Net earnings (loss) used for purposes of computing diluted net earnings (loss) per share                                   |  | (40,217                 | ) |  | 34,334 |   |  | 69,402
|                                                                                                                           |  |                         |   |  |        |   |  |       
|Basic weighted average number of shares outstanding during the year used for purpose of computing basic earnings per share |  | 52,638                  |   |  | 53,403 |   |  | 53,968
|Dilutive effect of stock options                                                                                           |  |                        |   |  | 172    |   |  | 94    
|Dilutive effect of convertible subordinated notes                                                                          |  |                        |   |  |       |   |  | 11,014
|                                                                                                                           |  |                         |   |  |        |   |  |       
|Dilutive weighted average number of shares outstanding                                                                     |  | 52,638                  |   |  | 53,575 |   |  | 65,076
|                                                                                                                           |  |                         |   |  |        |   |  |       
|Net earnings (loss) per share:                                                                                             |  |                         |   |  |        |   |  |       
|Basic net earnings from continuing operations                                                                              |  | 0.17                    |   |  | 1.02   |   |  | 1.13  
|Basic net loss from discontinued operations                                                                                |  | (0.93                   | ) |  | (0.38  | ) |  |      
|Basic net earnings (loss)                                                                                                  |  | (0.76                   | ) |  | 0.64   |   |  | 1.13  
|Diluted net earnings from continuing operations                                                                            |  | 0.17                    |   |  | 1.02   |   |  | 1.07  
|Diluted net loss from discontinued operations                                                                              |  | (0.93                   | ) |  | (0.38  | ) |  |      
|Diluted net earnings (loss)                                                                                                |  | (0.76                   | ) |  | 0.64   |   |  | 1.07  
|                                                                                                                           |  |                         |   |  |        |   |  |       



For the year ended December 31, 2006, the
effect of 11,887 conversion rights to acquire common stock was anti-dilutive. As a result of the losses incurred by the Company there is no difference between the basic and diluted loss per share for the year 2005, as the effects of the exercise of
stock options and the conversion of the convertible subordinated debt borrowings would be anti-dilutive. For the year ended December 31, 2005, the effect of 152 stock options and 11,887 conversion rights to acquire common stock was
anti-dilutive.



F-39



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##### Table of Contents

NOTE 25Board Remuneration



The following table sets forth as to all current and former members of the Management Board and Supervisory Board of the Company information concerning all
remuneration from the Company (including its subsidiaries) for services in all capacities:



|                      |  |                  |  |         |  |          |  |                        |  |      
|--------------------- |  | ---------------- |  | ------- |  | -------- |  | ---------------------- |  | -----
|                      |  | Basecompensation |  | Bonuses |  | Pensions |  | Year endedDecember 31,
|                      |  |                  |  | 2007    |  | 2006    
|                      |  |                  |  | Total   |  | Total   
|Management Board:     |  |                  |  |         |  |          |  |                        |  |      
|A.H. del Prado1       |  | 583              |  | 58      |  |         |  | 641                    |  | 583  
|P. Lam See Pong2      |  |                 |  |        |  |         |  |                       |  | 1,596
|W.K. Lee3             |  | 295              |  | 249     |  | 18       |  | 562                    |  | 314  
|C.D. del Prado4       |  | 289              |  | 28      |  | 19       |  | 336                    |  | 270  
|A.J.M. van der Ven    |  | 282              |  | 14      |  | 18       |  | 314                    |  | 293  
|J.F.M. Westendorp4    |  | 330              |  |        |  | 21       |  | 351                    |  | 359  
|                      |  |                  |  |         |  |          |  |                        |  |      
|                      |  | 1,779            |  | 349     |  | 76       |  | 2,204                  |  | 3,415
|Supervisory Board:    |  |                  |  |         |  |          |  |                        |  |      
|P.C. van den Hoek     |  | 54               |  |        |  |         |  | 54                     |  | 54   
|E.A. van Amerongen    |  | 30               |  |        |  |         |  | 30                     |  | 35   
|L.P.E.M. van den Boom |  | 33               |  |        |  |         |  | 33                     |  | 31   
|B.C. Brix5            |  | 30               |  |        |  |         |  | 30                     |  | 15   
|J.M.R. Danneels       |  | 29               |  |        |  |         |  | 29                     |  | 29   
|H.W. Kreutzer6        |  | 30               |  |        |  |         |  | 30                     |  | 3    
|J. den Hoed7          |  |                 |  |        |  |         |  |                       |  | 16   
|                      |  |                  |  |         |  |          |  |                        |  |      
|                      |  | 206              |  |        |  |         |  | 206                    |  | 183  
|                      |  |                  |  |         |  |          |  |                        |  |      



|(1) | Mr. A.H. del Prado retired March 1, 2008.
|--- | -----------------------------------------



|(2) | All remuneration for Mr. P. Lam See Pong relates to the compensation he received in his former capacity as member of the Board of Directors of ASMPT.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Mr. W.K. Lee was appointed member of the Management Board effectively January 1, 2007. All remuneration for the year ended December 31, 2006 relates to the compensation he
received in his former capacity as General Manager Southern Region of ASM Pacific Technology. All remuneration for the year ended December 31, 2007 relates to the compensation he received in his capacity as member of the Board of Directors of
ASMPT.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Appointed member of the Management Board effectively May 18, 2006, remuneration for serving in all capacities during the year ended December 31, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | For the period May 18, 2006 through December 31, 2006.
|--- | ------------------------------------------------------



|(6) | For the period November 27, 2006 through December 31, 2006.
|--- | -----------------------------------------------------------



|(7) | For the period January 1, 2006 through July 31, 2006.
|--- | -----------------------------------------------------



The remuneration of members of the Management Board has been determined by the Supervisory Board, with the exception of Mr. W.K. Lee. His compensation has been determined by the
Board of ASM Pacific Technology. The remuneration of members of the Supervisory Board has been determined by the General Meeting of Shareholders.



F-40



---

##### Table of Contents

No stock options have been issued to members of the Supervisory Board. The following table shows the outstanding options to
purchase ASM International N.V. common shares held by current and former members of the Management Board, and changes in such holdings during 2007:



|                    |  |             |  |                           |  |                |  |                  |  |                  |  |                             |  |               |       |                        |  
|------------------- |  | ----------- |  | ------------------------- |  | -------------- |  | ---------------- |  | ---------------- |  | --------------------------- |  | ------------- | ----- | ---------------------- | -
|                    |  | Yearofgrant |  | OutstandingJanuary 1,2007 |  | Grantedin 2007 |  | Forfeitedin 2007 |  | Exercisedin 2007 |  | OutstandingDecember 31,2007 |  | Exerciseprice |       | Remainingterm, inyears
|A.H. del Prado1     |  | 2006        |  | 100,856                   |  |               |  |                 |  |                 |  | 100,856                     |  |              | 14.08 |                        | 7
|A.H. del Prado1     |  | 2007        |  |                          |  | 60,441         |  |                 |  |                 |  | 60,441                      |  |              | 19.47 |                        | 8
|C.D. del Prado2     |  | 2003        |  | 20,000                    |  |               |  |                 |  |                 |  | 20,000                      |  | US$           | 11.35 |                        | 6
|C.D. del Prado1     |  | 2006        |  | 35,680                    |  |               |  |                 |  |                 |  | 35,680                      |  |              | 14.08 |                        | 7
|C.D. del Prado1     |  | 2007        |  |                          |  | 22,451         |  |                 |  |                 |  | 22,451                      |  |              | 19.47 |                        | 8
|A.J.M. van der Ven3 |  | 2005        |  | 30,000                    |  |               |  |                 |  |                 |  | 30,000                      |  |              | 11.18 |                        | 6
|A.J.M. van der Ven1 |  | 2006        |  | 20,000                    |  |               |  |                 |  |                 |  | 20,000                      |  |              | 14.13 |                        | 7
|A.J.M. van der Ven1 |  | 2006        |  | 15,680                    |  |               |  |                 |  |                 |  | 15,680                      |  |              | 14.08 |                        | 7
|A.J.M. van der Ven1 |  | 2007        |  |                          |  | 21,917         |  |                 |  |                 |  | 21,917                      |  |              | 19.47 |                        | 8
|J.F.M. Westendorp4  |  | 2001        |  | 7,500                     |  |               |  |                 |  | 7,500            |  |                            |  |              | 15.00 |                        | 
|J.F.M. Westendorp4  |  | 2006        |  | 56,000                    |  |               |  |                 |  |                 |  | 56,000                      |  |              | 15.40 |                        | 4
|J.F.M. Westendorp1  |  | 2006        |  | 42,816                    |  |               |  |                 |  |                 |  | 42,816                      |  |              | 14.08 |                        | 7
|J.F.M. Westendorp1  |  | 2007        |  |                          |  | 25,659         |  |                 |  |                 |  | 25,659                      |  |              | 19.47 |                        | 8
|                    |  |             |  |                           |  |                |  |                  |  |                  |  |                             |  |               |       |                        |  
|                    |  |             |  | 328,532                   |  | 130,468        |  |                 |  | 7,500            |  | 451,500                     |  |               |       |                        |  
|                    |  |             |  |                           |  |                |  |                  |  |                  |  |                             |  |               |       |                        |  



The fair value per option of options granted to
current and former members of the Management Board was  4.98 in 2006 and  8.31 in 2007. The compensation expense recorded in the Consolidated Statements of Operations related to options held by current and former members of the Management Board was  408 in 2006 and  658 in 2007.



New shares have been issued for the exercise of options.



The stock option grants to members of the Management Board have been determined by the Supervisory Board.



|(1) | These options are conditional. A percentagenot exceeding 150%of the options which have been granted conditionally will become unconditional after three years, based on the total
return of the Companys shares for the three years after the options are granted compared to the average total return of the shares of a relevant number of companies which are similar to the Company during the same three-year period. The
options are granted for a term of eight years.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | These options are granted for a term of ten years, and become exercisable in equal parts over a five year period.
|--- | -----------------------------------------------------------------------------------------------------------------



|(3) | These options are granted for a term of eight years, and become exercisable in equal parts over a three year period, starting 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------



|(4) | These options are granted for a term of five years, and become exercisable in equal parts over a five year period.
|--- | ------------------------------------------------------------------------------------------------------------------



In February 2006, Mr. P. Lam See Pong in his former capacity of member of the Board of Directors of ASMPT was granted 180,000 shares in the share
capital of ASMPT under the Employee Share Incentive Scheme of ASMPT. These shares were issued in December 2006. The fair value of the shares granted amounted to 
737.



In February 2007, Mr. W.K. Lee in his capacity of member of the Board of
Directors of ASMPT was granted 100,000 shares in the share capital of ASMPT under the Employee Share Incentive Scheme of ASMPT. The shares were issued in December 2007. The fair value of the shares granted amounted to  430. In February 2006, Mr. W.K. Lee in his former capacity of General Manager Southern Region of ASMPT was granted 65,000 shares in the share capital of ASMPT under the Employee
Share Incentive Scheme of ASMPT. The shares were issued in December 2006. The fair value of the shares granted amounted to  266.



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##### Table of Contents

NOTE 26Share Ownership and Related Party Transactions



The ownership or controlling interest of outstanding common shares of ASM International N.V. by
members of the Management Board and Supervisory Board or members of their immediate family are as follows:



|                                    |  |                   |  |                                 |                   |  |             |  |                                 |  
|----------------------------------- |  | ----------------- |  | ------------------------------- | ----------------- |  | ----------- |  | ------------------------------- | -
|                                    |  | December 31, 2006 |  |                                 | December 31, 2007 | 
|                                    |  | Sharesowned       |  | Percentage ofshares outstanding |                   |  | Sharesowned |  | Percentage ofshares outstanding |  
|Management Board:                   |  |                   |  |                                 |                   |  |             |  |                                 |  
|A.H. del Prado                      |  | 3,784,839         |  | 7.03                            | %                 |  | 3,784,839   |  | 7.01                            | %
|P. Lam See Pong1                    |  | 20,000            |  | 0.04                            | %                 |  |            |  |                                |  
|C.D. del Prado                      |  | 132,945           |  | 0.25                            | %                 |  | 132,945     |  | 0.25                            | %
|J.F.M. Westendorp                   |  | 6,000             |  | 0.01                            | %                 |  | 6,000       |  | 0.01                            | %
|                                    |  |                   |  |                                
|Supervisory Board:                  |  |                   |  |                                 |                   |  |             |  |                                 |  
|P.C. van den Hoek                   |  | 300,000           |  | 0.56                            | %                 |  | 300,000     |  | 0.56                            | %
|                                    |  |                   |  |                                
|Stichting Administratiekantoor ASMI |  | 7,692,039         |  | 14.29                           | %                 |  | 7,692,039   |  | 14.24                           | %
|                                    |  |                   |  |                                 |                   |  |             |  |                                 |  



|(1) | Mr. Lam See Pong retired December 31, 2006.
|--- | -------------------------------------------



Stichting Administratiekantoor ASMI is a trust controlled by Mr. A.H. del Prado. The number of shares owned by Stichting Administratiekantoor ASMI includes 713,000 common
shares which are beneficially owned by Mr. C.D. del Prado.



In 2006, Mr. P. Lam
See Pong sold 375,300 shares in the share capital of the Company at market prices.



In
2006, Mr. P. Lam See Pong sold 811,000 shares in the share capital of ASMPT at market prices and Mr. P.C. van den Hoek sold 450,000 shares in the share capital of ASMPT at market prices.



At December 31, 2006 Mr. P. Lam See Pong was owner of 339,000 shares in the share capital of
ASMPT. This represents 0.09% of the total outstanding shares of ASMPT.



NanoPhotonics
AGIn 1999, the Company acquired a 24.0% interest in NanoPhotonics, a German supplier of precision thin film metrology equipment, for  407. In 1999, the
Companys then Chief Executive Officer also purchased a 44.5% interest in NanoPhotonics. Due to the issuance of new shares by NanoPhotonics to third parties in 2003, the Companys interest diluted to 23.61% and the then Chief Executive
Officers interest diluted to 43.77%. In 2004 the then Chief Executive Officer purchased an additional 1.72% interest in NanoPhotonics from another shareholder. For all the shares purchased by the then Chief Executive Officer, the Company and
the then Chief Executive Officer agreed that the Company could purchase such shares at the same price the officer paid to acquire the shares. The Company exercised this option in December 2005, for a total consideration of  1,101. In 2006 the Company acquired an additional 2% interest in NanoPhotonics for a consideration of  300. At December 31, 2007 the Company holds a 72.86% interest in NanoPhotonics. At December 31, 2006 and December 31, 2007, the Company has provided NanoPhotonics with intercompany loans of  10,409 and  300, respectively. Intercompany loans decreased as a result of a
financial restructuring of NanoPhotonics in 2007. In 2005 and 2006 the Company purchased equipment from NanoPhotonics in the amount of  427 and  648 respectively. In 2007 the Company purchased no equipment from NanoPhotonics.



In March 2000, the Company made an interest-bearing loan to its then Chief Executive Officer in connection with the exercise of stock options at an
average interest rate for 2007 of 6.24%. At December 31, 2007 the loan is fully repaid.



The Chairman of the Supervisory Board, Mr. P.C. van den Hoek, is a partner in the European law firm of Stibbe. Another partner at Stibbe serves as the Companys general outside legal counsel. Mr. van den Hoek has been with
Stibbe since 1965. Mr. P.C. van den Hoek also serves on the boards of directors of various European companies. Fees for services to Stibbe amounted to  521
and  360 in 2006 and 2007, respectively.



F-42