SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C. 20549
                                
                            FORM 10-K
                                
(Mark One)
[X]  Annual report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934
     for the Fiscal Year Ended December 31, 1997 or

[ ]  Transition report pursuant to Section 13 or 15(d) of
     the Securities Exchange Act of 1934
     for the transition period from ______________________ to
     _______________________

                 Commission File Number 0-21321

                           CYMER, INC.
     (Exact name of registrant as specified in its charter)
                                
Nevada                                                      33-0175463
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                         Identification No.)

16750 Via Del Campo Court, San Diego, CA                      92127
(Address of principal executive offices)                   (Zip Code)

Registrant's telephone number including area code: (619) 451-7300

Securities registered pursuant to Section 12(b) of the Act:
                                                      Name of each Exchange
                                                       on which registered
      Title of each class                            Nasdaq National Market
Common Stock, $.001 par value

Securities registered pursuant to Section 12(g) of the Act:  None

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

Indicate  by  check  mark  if  disclosure  of  delinquent  filers
pursuant  to Item 405 of Regulation S-K is not contained  herein,
and  will not be contained to the best of registrant's knowledge,
in  definitive  proxy or information statements  incorporated  by
reference in Part III of this Form 10-K.   [  ]

The  aggregate  market value of the voting  stock  held  by  non-
affiliates  of  the registrant, based upon the closing  price  of
$20.44  for shares of the registrant's Common Stock on March  13,
1998 as reported on the Nasdaq National Market, was approximately
$566,459,523.  In calculating such aggregate market value, shares
of  Common  Stock  owned of record or beneficially  by  officers,
directors, and persons known to the registrant to own  more  than
five  percent of the registrant's voting securities  (other  than
such  persons of whom the Company became aware only  through  the
filing  of a Schedule 13G filed with the Securities and  Exchange
Commission) were excluded because such persons may be  deemed  to
be affiliates.  The registrant disclaims the existence of control
or any admission thereof for any other purpose.

Number of shares of Common Stock outstanding as of March 13,
1998:  28,808,978.
                                
               DOCUMENTS INCORPORATED BY REFERENCE
     The  following  documents are incorporated by  reference  in
Parts  I,  II,  III and IV of this Annual Report  on  Form  10-K:
portions  of registrant's proxy statement for its annual  meeting
of stockholders to be held on May 15, 1998 (Part III).

                                
                                                               
                                
                                
                           CYMER, INC.
                                
                 1997 Annual Report on Form 10-K
                                
                        TABLE OF CONTENTS


PART I                                                                 1
     Item 1.    Business                                               1
     Item 2.    Properties                                            10
     Item 3.    Legal Proceedings                                     10
     Item 4.    Submission of Matters to a Vote of Security-Holders   10
PART II                                                               11
     Item 5.    Market for Registrant's Common Stock and Related 
                Stockholder Matters                                   11
     Item 6.    Selected Financial Data                               11
     Item 7.    Management's Discussion and Analysis of Financial 
                Condition and Results of Operations                   13
     Item 8.    Financial Statements and Supplemental Data            27
     Item 9.    Changes in and Disagreements with Accountants on 
                Accounting and Financial Disclosure                   27

PART III                                                              27
     Item 10.   Directors and Executive Officers of the Registrant    27
     Item 11.   Executive Compensation                                27
     Item 12.   Security Ownership of Certain Beneficial Owners 
                and Management                                        27
     Item 13.   Certain Relationships and Related Transactions        27

PART IV                                                               28
     Item 14.   Exhibits, Financial Statement Schedules, and 
                Reports on Form 8-K                                   28










          CYMER is a registered trademark of Cymer, Inc.

     AN ASTERISK ("*") DENOTES A FORWARD-LOOKING STATEMENT
REFLECTING CURRENT EXPECTATIONS THAT INVOLVE RISKS AND
UNCERTAINTIES.  ACTUAL RESULTS MAY DIFFER FROM THOSE DISCUSSED IN
SUCH FORWARD-LOOKING STATEMENTS, AND STOCKHOLDERS OF CYMER, INC.
(THE "COMPANY" OR "CYMER") SHOULD CAREFULLY REVIEW THE CAUTIONARY
STATEMENTS SET FORTH IN THIS FORM 10K, INCLUDING  "RISK FACTORS"
BEGINNING ON PAGE 18 HEREOF.  THE COMPANY MAY FROM TIME TO TIME
MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS,
INCLUDING STATEMENTS CONTAINED IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO
STOCKHOLDERS.  THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY
FORWARD-LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO TIME BY
OR ON BEHALF OF THE COMPANY.
                                
                                
                             PART I
Item 1.  Business

General

     Cymer Inc., its wholly-owned subsidiaries, Cymer Japan, Inc.
(Cymer Japan) and Cymer Singapore, Pte Ltd. (Cymer Singapore) and
its  majority-owned subsidiaries, Cymer Korea, Inc. (Cymer Korea)
and  Cymer  Southeast Asia, Inc. (Cymer SEA)  (collectively,  the
"Company"  or "Cymer"), is the leading provider of excimer  laser
illumination   sources  for  use  in  deep  ultraviolet   ("DUV")
photolithography  systems  targeted  at  the  pilot  and   volume
production  segments  of the semiconductor manufacturing  market.
The  Company's  lasers are incorporated into step-and-repeat  and
step-and-scan photolithography systems for use in the manufacture
of semiconductors with critical feature sizes below 0.35 microns.
The  Company  believes  that  its  excimer  lasers  constitute  a
substantial  majority of all excimer lasers incorporated  in  DUV
photolithography tools.  The Company's customers include all five
manufacturers  of DUV photolithography systems: ASM  Lithography,
Canon,   Integrated   Solutions,  Nikon  and   SVG   Lithography.
Photolithography  systems  incorporating  the  Company's  excimer
lasers  have  been  purchased by each of the world's  15  largest
semiconductor  manufacturers:  Intel,  NEC,  Motorola,   Toshiba,
Hitachi,  Texas  Instruments,  Samsung,  Fujitsu,  Philips,  SGS-
THOMSON,   Mitsubishi,  Siemens,  Matsushita,  IBM  and  National
Semiconductor.

Products

     The  Company's products consist of photolithography  lasers,
industrial high power lasers and replacement parts.
     
     Photolithography Laser Products

     The   Company's   photolithography  lasers  produce   narrow
bandwidth  pulses of short wavelength light.  The  lasers  permit
very  fine  feature resolution and high throughput.  The  Company
has  designed its lasers to be highly reliable, easy  to  install
and   compatible   with   existing  semiconductor   manufacturing
processes.

     Introduced in the third quarter of 1995, the Company's  ELS-
4000F  KrF excimer laser is designed to meet the requirements  of
photolithography tool and semiconductor manufacturers.  The laser
operates  at  a  600Hz pulse repetition rate and  provides  power
output  of  7.2  watts of 248nm wavelength light.  The  ELS-4000F
incorporates  advanced  discharge chamber  technology  and  solid
state pulse power technology to excite the laser gas efficiently,
reducing  the  cost  of ownership.  The ELS-4000F  achieves  high
resolution  and stable focus through proprietary optical  modules
that perform line-narrowing and wavelength stabilization, thereby
optimizing   the   light   emitted   by   the   laser   for   the
photolithography application.

     The Company's 5000 series KrF excimer lasers, introduced  in
the  first quarter of 1996, are offered in both narrowband,  ELS-
5000,  and  broadband, EX-5000, configurations. The  5000  series
lasers  incorporate the advanced technological  features  of  the
Company's   ELS-4000F  laser  but  operate  at  a  higher   pulse
repetition  rate  and provide higher power outputs  that  shorten
exposure time and increase throughput, and in the case of the ELS-
5000,  a  narrower bandwidth.  The 5000 series lasers incorporate
the   Company's   proprietary  line  narrowing   and   wavelength
stabilization modules together with an atomic reference for long-
term  accuracy  of the wavemeter calibration.   The  5000  series
lasers  utilize  a  modular design that  allows  the  Company  to
outsource  many  of the system's subassemblies, thereby  reducing
manufacturing cycle times. The Company believes the  5000  series
lasers  will be capable of producing critical feature sizes  down
to 0.18 microns.
     
       The Company's lasers incorporate advanced software control
and  diagnostic systems.  The control system provides users  with
on-line   monitoring   of   laser  operating   conditions,   with
approximately  75  diagnostic  readings  (including  flow   rate,
temperatures,   pressures   and   light   quality),   that    are
automatically  monitored by the photolithography  tool's  control
system.   Additionally, approximately 140 configurable parameters
can  be  adjusted  to optimize the laser's performance  for  each
customer's  system.  A portable computer attached  to  the  laser
logs  this  data,  automatically providing  critical  information
about  performance and reliability.  The lasers are also designed
for  easy  serviceability, with most major modules and components
articulated  for easy swing-out or roll-out motion to  facilitate
inspection and replacement.
     
     The Company continues to develop, and has begun to offer for
sale  to  its  customers, its next generation ArF excimer  laser.
The  ArF  laser incorporates the advanced technological  features
and  modular  design  of the 5000 series lasers  providing  power
output  of 6 to 10 watts of 193nm wavelength light.  The  Company
believes  its  ArF  laser will be capable of  producing  critical
feature sizes below 0.15 microns. *
     
     Industrial High Power Laser Products

     The  Company's HPL-100K/110K series KrF excimer  lasers  are
designed to meet the rigors of high duty cycle industrial  usage,
such as microdrilling, micromachining and annealing applications.
The  laser operates at a 200 to 250Hz pulse repetition  rate  and
provides  average power output of 100 watts for the HPL-100K  and
110  watts for the HPL-110K.  The pulse repetition rate and  high
power  makes  these  lasers  well  suited  for  micro-fabrication
processes.  The Company is currently focusing its development and
marketing efforts on its photolithography laser products, and the
Company  expects minimal revenues from industrial laser  products
in 1998. *

     Replacement Parts

     Certain  components  and  subassemblies  included   in   the
Company's  lasers require replacement or refurbishment  following
continued operation.  For example, the discharge chamber  of  the
Company's  lasers  has a component life of approximately  two  to
three  billion  pulses,  depending on  the  model.   The  Company
estimates  that  a  laser  used  in  a  semiconductor  production
environment  will require one to three replacement  chambers  per
year.   Similarly, certain optical components of the  laser  will
deteriorate with continued exposure to DUV light and will require
periodic replacement.  The Company provides these and other spare
and  replacement parts for its photolithography lasers as  needed
by   its  customers.   On  a  limited  basis,  the  Company  also
refurbishes and resells complete laser systems.

Customers and End Users

     The  Company  sells its photolithography laser  products  to
each of the five manufacturers of DUV photolithography tools:

     ASM Lithography       Integrated Solutions          SVG Lithography
     Canon                 Nikon
          
     The  Company  believes  that maintaining  and  strengthening
these  customer  relationships will play  an  important  role  in
maintaining its leading position in the photolithography market.*
The  Company  works closely with its customers to  integrate  the
Company's  products  into  their photolithography  tools  and  is
collaborating   with  certain  of  its  customers   on   advanced
technology developments under jointly funded programs.  Sales  to
ASM  Lithography, Canon and Nikon accounted for 24%, 25% and 39%,
respectively, of total revenue in 1997.
     
     End  users  of the Company's lasers include the  world's  15
largest  semiconductor manufacturers. The following semiconductor
manufacturers  have  purchased one or more  DUV  photolithography
tools incorporating the Company's laser:

United States                    Japan                  Europe
                                             
Advanced Micro Devices           ASET                   C-Net
Cypress                          Epson                  IMEC
Digital Equipment Corporation    Fujitsu                LETI
Dominion Semiconductor           Hitachi                Philips
Hewlett Packard                  Matsushita             SGS THOMSON
IBM                              Mitsubishi Electric    Siemens
Integrated Device Technology     NEC                    
Intel                            NTT                    
Lucent                           Oki Electric           
Micron Technology                Rohm                   
Micrus                           Sanyo                  
Motorola                         Sharp                  
National Semiconductor           Sony                   
Rockwell                         Toshiba                
SEMATECH*                                    
Texas Instruments                            
VLSI                                         
                                             
Korea                             Taiwan/Southeast Asia  
                                             
Anam-TI                           Chartered              
ETRI                              ERSO/ITRI              
Hyundai                           Macronix               
LG Semicon                        Mosel                  
Samsung                           Nan-Ya                 
                                  NSH                    
                                  ProMOS                 
                                  Tech Semiconductor     
                                  TSMC                   
                                  UMC                    
                                  USC                    
                                  Winbond                
                                  Vanguard International

*A semiconductor industry consortium.

Backlog

     The  Company schedules production of lasers based upon order
backlog and informal customer forecasts.  The Company includes in
backlog  only those orders to which a purchase order  number  has
been  assigned  by the customer and for which delivery  has  been
specified  within  12 months.  Because customers  may  cancel  or
delay orders with little or no penalty, the Company's backlog  as
of  any particular date may not be a reliable indicator of actual
sales  for  any  succeeding period.  At December  31,  1997,  the
Company  had a backlog of approximately $108.7 million,  compared
with a backlog of $98 million at December 31, 1996.

Manufacturing

     The  Company's manufacturing activities consist of  material
management, assembly, integration and test.  These activities are
performed  in  a  111,000  square foot  facility  in  San  Diego,
California  that  includes approximately 36,000  square  feet  of
class 1000 clean room manufacturing and test space.  In order  to
focus  its own resources, capitalize on the expertise of its  key
suppliers  and respond more efficiently to customer  demand,  the
Company  has outsourced many of its subassemblies.  The Company's
outsourcing strategy is exemplified by the modular design of  the
Company's 5000 series laser, for which substantially all  of  the
nonproprietary subassemblies have been outsourced.   The  Company
believes  that  the highly outsourced content and  manufacturable
design of the 5000 series lasers allows for reduced manufacturing
cycle times and increased output per employee.

     To meet current and anticipated demand for its products, the
Company   must  continue  to  increase  the  rate  by  which   it
manufactures and tests modules, spares and replacement parts  for
its photolithography laser systems.*  In order to accomplish this
objective,  the Company intends to continue to provide additional
training  to  manufacturing personnel, improve its  assembly  and
test  processes  in  order  to  reduce  cycle  time,  invest   in
additional manufacturing tooling and further develop its supplier
management  and engineering capabilities.*  The Company  is  also
increasingly relying on outside suppliers for the manufacture  of
various components and subassemblies used in its products and  is
dependent   upon   these   suppliers  to   meet   the   Company's
manufacturing  schedules.  The failure by one or  more  of  these
suppliers to supply the Company on a timely basis with sufficient
quantities  of  components or subassemblies that perform  to  the
Company's  specifications could affect the Company's  ability  to
deliver completed lasers to its customers on schedule.
     
       In  addition to increasing manufacturing capacity  at  its
facilities  in  San Diego, California, the Company has  qualified
Seiko of Japan as a contract manufacturer of its photolithography
excimer lasers.  In order to ensure uniformity of product for all
customers, the Company maintains control of all work flow design,
manufacturing process, engineering changes and component sourcing
decisions.    The  Company  manufactures  and  seals   all   core
technology modules in San Diego.  The agreement expires in  2001,
but  will automatically renew every two years thereafter,  unless
one  year's notice to terminate is given by either party.   Seiko
began  production of lasers for the Company in the first  quarter
of 1997.

     Certain of the components and subassemblies included in  the
Company's  products  are obtained from a  single  supplier  or  a
limited  group  of  suppliers.   In  particular,  there  are   no
alternative   sources   for  certain  of   the   components   and
subassemblies,  including  certain optical  components  and  pre-
ionizer  tubes  used in the Company's lasers.  In  addition,  the
Company  is  increasingly outsourcing the manufacture of  various
subassemblies.   Although to date the Company has  been  able  to
obtain adequate supplies of the components and subassemblies used
in  the  production of the Company's laser systems  in  a  timely
manner   from  existing  sources,   the  Company  only   recently
commenced  volume production of  laser systems, which has  caused
many  of its suppliers to also commence volume production of  the
Company's components and subassemblies.  If the Company is unable
to obtain sufficient quantities of required materials, components
or  subassemblies,  or if such items do not  meet  the  Company's
quality  standards,  delays or reductions  in  product  shipments
could  occur  which could have a material adverse effect  on  the
Company's   business,   financial  condition   and   results   of
operations.
     
Sales and Marketing

     The   Company's  sales  and  marketing  efforts  have   been
predominately focused on DUV photolithography tool manufacturers.
The  Company markets and sells its products through four  account
managers located in the United States and Japan.  The Company  is
in the process of developing product and applications engineering
teams   to   support  the  account  managers  and  the  Company's
customers.   The  Company believes that to facilitate  the  sales
process it must work closely with and understand the requirements
of  semiconductor manufacturers, the end users of  the  Company's
products.   The Company visits major semiconductor manufacturers,
and  their  representatives attend Company-sponsored seminars  on
advanced   excimer  photolithography.   In  Japan,  the   Company
sponsors an annual seminar with Seiko in conjunction with Semicon
Japan.    This   seminar   has   attracted   representatives   of
semiconductor manufacturers from Japan, Korea, the United  States
and  SEMATECH, as well as photolithography tool manufacturers and
other photolithography process suppliers.
     
Service and Support

     The  Company  believes  its  success  in  the  semiconductor
photolithography  market  is  highly dependent  upon  after-sales
support  of  both  the customer and the end  user.   The  Company
supports  its  customers  with field service,  technical  service
engineers  and  training  programs, and in  some  cases  provides
ongoing on-site technical support at the customer's manufacturing
facility.   Prior  to shipment, the Company's  support  personnel
typically  assist the customer in site preparation and inspection
and  provide customers with training at the Company's  facilities
or  at the customer's location. Customers and end users are  also
provided   with   a  comprehensive  set  of  manuals,   including
operations, maintenance, service, diagnostic and safety manuals.

     The   Company's   field  engineers  and  technical   support
specialists are based at its San Diego headquarters, and  at  its
field  service offices in Santa Clara, Austin, near  Boston,  and
various  European cities. Support in Japan, Korea, Singapore  and
Southeast Asia are provided by the Company's subsidiaries located
within  those  regions.   As part of its  customer  service,  the
Company  maintains an inventory of spare parts  at  each  of  its
service  facilities.  As the Company's installed  base  grows  so
does  the  demand  for replacement parts to  satisfy  world  wide
support requirements for direct customers' support organizations,
as  well as Cymer's own logistics organization.  In order to meet
this  demand,  the Company must continue to expand its production
of  component modules which are required for new systems as  well
as support and warranty requirements.*

     The  Company  believes that the need  to  provide  fast  and
responsive service to the semiconductor manufacturers  using  its
lasers  is critical and that it will not be able to depend solely
on its customers to provide this specialized service.  Therefore,
the  Company  believes  it  is essential  to  establish,  through
trained third party sources or through its own personnel, a rapid
response  capability  to  service its  customers  throughout  the
world.   Accordingly, the Company intends to  expand  its  direct
support  infrastructure  in Japan, Korea,  Taiwan  and  Southeast
Asia,   Singapore  and  Europe.*   The  establishment  of   these
activities   will   entail  recruiting  and  training   qualified
personnel or identifying qualified independent firms and building
effective  and  highly  trained organizations  that  can  provide
service  to  customers  in various countries  in  their  assigned
regions.  There can be no assurance that the Company will be able
to  attract  qualified  personnel to establish  these  operations
successfully  or that the costs of such operations  will  not  be
excessive.   A  failure to implement this plan effectively  could
have  a  material  adverse  effect  on  the  Company's  business,
financial condition and results of operations.

     The  Company generally warrants its products against defects
in  design, materials and workmanship for the earlier to occur of
17 months from the date of shipment or 12 months after acceptance
by the end user.

Research and Development

     The semiconductor industry is subject to rapid technological
change  and  new  product introductions  and  enhancements.   The
Company  believes  that  continued  and  timely  development  and
introduction of new and enhanced laser products are essential for
the  Company  to maintain its competitive position.  The  Company
intends  to  continue  to develop its technology  and  innovative
products  to  meet  customer demands.* Current  projects  include
enhancements  to  the  Company's  KrF  and  ArF  lasers  and  the
development  of  the next generation of photolithography  lasers.
Other  research and development efforts are currently focused  on
reducing   manufacturing  costs,  lowering  the  cost  of   laser
operation,   enhancing  laser  performance  and  developing   new
features for existing lasers.

     The  Company has historically devoted a significant  portion
of  its  financial resources to research and development programs
and  expects  to  continue to allocate significant  resources  to
these  efforts.   As of December 31, 1997, the  Company  had  158
employees  engaged  in  research and development.   Research  and
development  expenses for 1995, 1996 and 1997 were  approximately
$6.2 million, $11.7 million and $25.0 million,  respectively.

     In  addition  to  funding its own research  and  development
projects, the Company has pursued a strategy of securing research
and development contracts from customers, government agencies and
SEMATECH in order to develop advanced technology for current  and
future  laser  systems  based on the Company's  core  technology.
Revenues   generated  from  research  and  development  contracts
amounted  to  approximately $3.2 million, $2.5 million  and  $2.5
million during 1995, 1996, and 1997, respectively.

Intellectual Property Rights

     The  Company  believes  that the  success  of  its  business
depends  more on such factors as the technical expertise  of  its
employees,  as well as their innovative skills and marketing  and
customer  relations ability, than on patents,  copyrights,  trade
secrets  and  other intellectual property rights.   Nevertheless,
the  success of the Company may depend in part on patents and  as
of  December 31, 1997, the Company owned 22 United States patents
covering  certain aspects of technology associated  with  excimer
lasers  which expire from January 2008 to February 2016  and  had
applied for 34 additional patents in the United States, three  of
which  have  been allowed.  As of December 31, 1997, the  Company
also  had filed 76 patent applications in other countries.  There
can   be   no   assurance  that  the  Company's  pending   patent
applications  or any future applications will be  approved,  that
any issued patents will provide it with competitive advantages or
will  not be challenged by third parties, or that the patents  of
others  will not have an adverse effect on the Company's  ability
to  do  business.   In this regard, due to cost constraints,  the
Company  did  not  begin filing for patents  in  Japan  or  other
countries with respect to inventions covered by its United States
patents  and patent applications until recently and has therefore
lost  the right to seek patent protection in those countries  for
certain of its inventions.  Additionally, because foreign patents
may  afford  less protection under foreign law than is  available
under  United  States patent law, there can be no assurance  that
any  such  patents issued to the Company will adequately  protect
the Company's proprietary information.  Furthermore, there can be
no  assurance that others will not independently develop  similar
products,  duplicate the Company's products or,  if  patents  are
issued  to the Company, design around the patents issued  to  the
Company.

     Others  may  have  filed and in the future may  file  patent
applications  that  are  similar or identical  to  those  of  the
Company.   To  determine the priority of inventions, the  Company
may  have to participate in interference proceedings declared  by
the  United States Patent and Trademark Office that could  result
in  substantial cost to the Company.  No assurance can  be  given
that  any  such  patent application will not have  priority  over
patent applications filed by the Company.

     The  Company  also  relies  upon  trade  secret  protection,
employee  and  third-party  nondisclosure  agreements  and  other
intellectual   property  protection  methods   to   protect   its
confidential and proprietary information.  Despite these efforts,
there  can  be  no  assurance that others will not  independently
develop  substantially  equivalent  proprietary  information  and
techniques  or  otherwise  gain access  to  the  Company's  trade
secrets  or  disclose  such technology or that  the  Company  can
meaningfully protect its trade secrets.
     
     The Company has in the past funded a significant portion  of
its   research   and  development  expenses  from  research   and
development   revenues   received  from   photolithography   tool
manufacturers   and  from  SEMATECH,  a  semiconductor   industry
consortium,  in  connection with the design  and  development  of
specific  products.   Although  the Company's  arrangements  with
photolithography tool manufacturers and SEMATECH seek to  clarify
the  ownership of the intellectual property arising from research
and  development services performed by the Company, there can  be
no assurance that disputes over the ownership or rights to use or
market  such  intellectual property will not  arise  between  the
Company  and  such  parties.  Any such dispute  could  result  in
restrictions on the Company's ability to market its products  and
could  have a material adverse effect on the Company's  business,
financial condition and results of operations.

      The Company has in the past been, and may in the future be,
notified  that it may be infringing intellectual property  rights
possessed by third parties.  The Company's Japanese manufacturing
partner,  Seiko, has been notified by Komatsu Ltd.,  ("Komatsu"),
one  of  the Company's competitors, that certain aspects  of  the
Company's  lasers  might  infringe three  patents  (the  "Komatsu
Patents")  that  have been issued to Komatsu in Japan,  and  that
Komatsu  intends to enforce its rights under the Komatsu  Patents
against  Seiko  if  Seiko  continues to engage  in  manufacturing
activities for the Company.  In connection with its manufacturing
agreement  with Seiko, the Company has agreed to indemnify  Seiko
against such claims under certain circumstances.  The Company has
engaged  in discussions with Komatsu with respect to the  Komatsu
Patents,  in  the course of which Komatsu has also identified  to
the  Company  a  number  of pending applications  and  additional
patents.   The  Company,  in consultation  with  Japanese  patent
counsel, has initiated oppositions to the Komatsu Patents and the
applications in the Japanese Patent Office.  The Company has been
advised by its patent counsel in this matter, which is relying in
part  on  the opinion of  the Company's Japanese patent  counsel,
that  in the opinion of such firm the Company's products  do  not
infringe any valid claims of the Komatsu Patents.  However, there
can  be  no assurance that litigation will not ensue with respect
to  these  claims,  that the Company and Seiko  would  ultimately
prevail  in  any such litigation or that Komatsu will not  assert
infringement claims under additional patents.

     Any patent litigation would at a minimum be costly and could
divert the efforts and attention of the Company's management  and
technical  personnel, which could have a material adverse  effect
on  the  Company's business, financial condition and  results  of
operations.   Furthermore, there can be no assurance  that  other
infringement  claims  by  third  parties  or  other  claims   for
indemnification  by  customers or  end  users  of  the  Company's
products  resulting from infringement claims will not be asserted
in the future or that such assertions, if proven to be true, will
not materially adversely affect the Company's business, financial
condition  and  results of operations.  If any  such  claims  are
asserted  against the Company, the Company may seek to  obtain  a
license  under  the third party's intellectual  property  rights.
There  can  be  no  assurance, however, that a  license  will  be
available  on  reasonable terms if at  all.   The  Company  could
decide,  in the alternative, to resort to litigation to challenge
such  claims  or to design around the patented technology.   Such
actions  could  be  costly  and  would  divert  the  efforts  and
attention  of  the Company's management and technical  personnel,
which  would materially adversely affect the Company's  business,
financial condition and results of operations.

     The Company has registered the trademark CYMER in the United
States  and  certain  other countries and is  seeking  additional
registrations  in  certain countries.  In  Japan,  the  Company's
application for registration was rejected on the grounds that  it
is  similar  to a trademark previously registered by  a  Japanese
company for a broad range of products.  The Company is seeking  a
partial  nullification of the other registration with respect  to
laser  devices and related components and does not  believe  that
the  holder  of  the other trademark is engaged in  any  business
similar to that of the Company.  For this reason, the Company  is
continuing to use the trademark CYMER in Japan and believes  that
it  will  ultimately be permitted to register such mark  for  use
with  its  products  and  that it is  not  infringing  the  other
company's trademark.  There can be no assurance that the  Company
will  ultimately succeed in its efforts to register its trademark
in  Japan  or  that  it will not be subjected to  an  action  for
trademark infringement, which could be costly to defend  and,  if
successful,  would require the Company to cease use of  the  mark
and, potentially, to pay damages.

     Effective August 1, 1989 and lasting until the expiration of
the licensed patents, the Company entered into an agreement for a
nonexclusive  worldwide license to use or sell  certain  patented
laser  technology  with  Patlex Corp., a patent  holding  company
("Patlex").   Under the terms of the agreement,  the  Company  is
required  to  pay royalties ranging from 0.25% to 5.0%  of  gross
sales  and  leases  of  its  lasers.    Beginning  in  1997,  the
royalties  are  subject to an annual cap of  $100,000  per  year.
During  1995,  1996  and  1997,  royalty  fees  totaled  $64,000,
$226,000 and $49,000, respectively.
     
     The  Company  has  granted to Seiko the exclusive  right  in
Japan and the non-exclusive right outside of Japan to manufacture
and sell the Company's industrial high power laser and subsequent
enhancements thereto.  The Company has also granted Seiko a right
of  first  refusal  to  fund the Company's  development  of,  and
receive  a  license  to,  new industrial laser  technologies  not
developed with funding from other parties.  In exchange for these
rights,  the  Company  received up-front  license  fees  of  $3.0
million.   The  Company is also entitled to royalties  of  5%  on
related  product  sales through September 1999, after  which  the
royalty  rate is subject to renegotiation.  The license agreement
also  provides that product sales between the Company  and  Seiko
will  be  at  a 15% discount from the respective companies'  list
prices.  The agreement terminates in August 2012.

Competition

     The   Company  believes  that  the  principal  elements   of
competition   in   the  Company's  markets  are   the   technical
performance  characteristics of the excimer laser  products;  the
cost  of  ownership  of  the system, which  is  based  on  price,
operating  cost and productivity; customer service  and  support;
and  product availability.  The Company believes that it competes
favorably with respect to these factors.

     The Company currently has two significant competitors in the
market   for   excimer   laser   systems   for   photolithography
applications, Lambda-Physik R&D ("Lambda-Physik"), a German-based
subsidiary of Coherent, Inc. and Komatsu located in Japan.   Both
of  these  companies are larger than the Company, have access  to
greater  financial, technical and other resources than  does  the
Company  and  are  located in closer proximity to  the  Company's
customers  than  is the Company.  Although the  Company  believes
that  these competitors are not yet supplying excimer  lasers  in
volume  for  photolithography application, the  Company  believes
that  both  companies  are aggressively seeking  to  gain  larger
positions in the market.  The Company believes that its customers
have  each  purchased  one  or more  products  offered  by  these
competitors   and   that  its  customers  may  consider   further
purchases,  in  part as a result of delays in deliveries  by  the
Company   as   the  Company  has  been  seeking  to  expand   its
manufacturing  capacity.   The Company  also  believes  that  its
customers  are  actively  seeking a  second  source  for  excimer
lasers.   Furthermore,  photolithography tool  manufacturers  may
seek   to  develop  or  acquire  the  capability  to  manufacture
internally their own excimer lasers.  In the future, the  Company
will  likely experience competition from other technologies, such
as  EUV, X-ray ,electron beam and ion projection processes.*   To
remain competitive, the Company believes that it will be required
to  manufacture  and deliver products to customers  on  a  timely
basis  and without significant defects and that it will  also  be
required  to maintain a high level of investment in research  and
development and sales and marketing.*  There can be no  assurance
that  the  Company will have sufficient resources to continue  to
make  the  investments  necessary  to  maintain  its  competitive
position.   In addition, the market for excimer lasers  is  still
relatively small and immature and there can be no assurance  that
larger   competitors   with   substantially   greater   financial
resources,  including other manufacturers of  industrial  lasers,
will  not attempt to enter the market.  There can be no assurance
that  the  Company will remain competitive.  A failure to  remain
competitive would have a material adverse effect on the Company's
business,  financial condition and results  of  operations.   See
"Risk Factors-Competition."

Employees

     On December 31, 1997, there were 809 persons employed by the
Company,  including  58  in  Japan. No  employees  are  currently
covered by collective bargaining agreements or are members of any
labor  organization as far as the Company is aware.  The  Company
has  not  experienced any work stoppages and  believes  that  its
employee relations are good.
     
Executive Officers

     Set forth below is certain information regarding the
executive officers of the Company and their ages as of
December 31, 1997.

         Name            Age                 Position
                                               
Robert P. Akins          46         Chairman of the Board, Chief Executive
                                    Officer and President
                            
William A. Angus, III    51         Senior Vice President, Chief Financial
                                    Officer and Secretary
                            
G. Scott Scholler        47         Senior Vice President, Operations
                            
Pascal Didier            39         Senior Vice President, Worldwide
                                    Customer Operations
                           
     Robert P. Akins, a co-founder of the Company, has served
as  its  President, Chief Executive Officer and Chairman  of  the
Board  since its inception in January 1986.  From 1980  to  1985,
Mr.  Akins  was  a  Senior  Program  Manager  for  HLX,  Inc.,  a
manufacturer  of  laser  and  defense  systems,  where   he   was
responsible  for  managing the development   of  compact  excimer
lasers  for  military communications applications and an  excimer
laser  trigger for the particle beam fusion accelerator at Sandia
National Laboratories.  Mr. Akins received a B.S. in Physics  and
a  B.A. in Literature in 1974, and a Ph.D. in Applied Physics  in
1983, from the University of California, San Diego.

     William  A.  Angus, III has served as Senior Vice  President
and Chief Financial Officer since February 1996 and Secretary  of
the  Company  since July 1990.  From July 1990 to February  1996,
Mr. Angus served as Vice President of Finance and Administration.
From  April  1988  to  June 1990, Mr. Angus  was  Executive  Vice
President and Chief Operating Officer, and from May 1985 to April
1988,  Chief Financial Officer, of Avant-Garde Computing Inc.,  a
manufacturer  of data communications network management  systems.
Mr. Angus graduated from the Wharton School of the University  of
Pennsylvania with a B.S. in Economics in 1968.

     G.  Scott  Scholler has served as Senior Vice  President  of
Operations  of the Company since March 1996.  From June  1995  to
February  1996,  Mr. Scholler served as a consultant  in  product
development   and  program  management  for  Electro   Scientific
Industries,  a  manufacturer of semiconductor capital  equipment.
From March 1994 until October 1995, Mr. Scholler was a co-founder
and  President  of  Black  Rose Ltd.,  a  developer  of  computer
telephone  software  for automated commerce  applications.   From
August  1992  to September 1994, he was Senior Vice President  of
Operations  for  Whittaker Communications, Inc.,  a  wholly-owned
subsidiary of Whittaker Corporation, and a manufacturer of  high-
performance  multimedia  servers.  From October  1988  to  August
1992,  Mr.  Scholler served as Vice President of  Operations  for
Etec  Systems,  Inc.,  a  manufacturer of  semiconductor  capital
equipment  and  as  General  Manager  of  its  Laser  Lithography
subsidiary.   From  1986 to 1988, Mr. Scholler  was  Director  of
Engineering, and from 1983 to 1986, Director of Manufacturing, of
the  Etch Products Division of Applied Materials Inc., a supplier
of   equipment  to  the  semiconductor  industry.   Mr.  Scholler
received  a  B.S. in Nuclear Engineering from the  United  States
Military  Academy at West Point in 1972 and an M.S.  in  Research
and  Development  Management  in  1978  from  the  University  of
Southern California.

     Pascal Didier has served as Senior Vice President, Worldwide
Customer  Operations  since October  1997.   From  July  1997  to
October  1997, he served as Vice President, Marketing and  Sales.
From  June  1996 to July 1997, Mr. Didier was Vice  President  of
Worldwide  Sales & Field Operations, and from June 1995  to  June
1996, Vice President of Asia/Pacific of GaSonics International, a
supplier  of  capital  equipment  for  photoresist  removal   and
isotropic etching for the semiconductor industry.  From  1983  to
1995,  Mr.  Didier  served  in various marketing  and  management
positions  at Megatest Corporation, a supplier of test  equipment
for the semiconductor industry.  From June 1993 to June 1995,  he
was  its  Vice President of International Operations,  from  June
1990  to  June  1993, Director of International Operations,  from
July  1989  to June 1990, a Software Marketing Manager  and  from
1983 to 1989, European Technical Manager.  Mr. Didier received  a
Bacalaureat  in Business and Administration in 1978 from  College
de  Paris  and  a Bacalaureat Superior in 1979 from  Electronique
Institut Universitaire de Lyon.

     Executive officers serve at the discretion of the  Board  of
Directors.  There are no family relationships between any of  the
directors and executive officers of the Company.

Item  2.  Properties

     Cymer's  headquarters are located at  16750  Via  Del  Campo
Court   in  an  approximate  37,000  square  foot  facility   and
manufacturing,  engineering  and R&D  facilities  are  housed  in
multiple  buildings approximating 216,000 square feet located  in
San  Diego,  California  which the Company  leases  under  leases
expiring from August 15, 2002 to January 2010.  For use as  field
service  offices,  the  Company also leases  a  400  square  foot
facility near Boston, Massachusetts under a lease expiring August
1998;  a  1,857  square foot facility in Santa Clara,  California
expiring  September  2000  and a 1,627 square  foot  facility  in
Austin,  Texas expiring September 2000. For use as field  service
and  sales  offices,  the Company leases  6,390  square  feet  of
facilities  in Ichikawa, Japan under four renewable one  and  two
year  leases  expiring  at various times but  cancelable  by  the
Company  upon three months notice; 4,184 square feet in  Pundang,
Korea  expiring August 1999 and 1,754 square feet  in  Hsin  Chu,
Taiwan expiring July 1999.  The Company intends to add additional
field service offices as necessary to service its customers.

Item 3.   Legal Proceedings

     For  a  description  of certain patent  infringement  claims
against  the Company and its Japanese manufacturing partner,  see
the  fourth,  fifth  and  sixth  paragraphs  under  "Intellectual
Property  Rights" in Item 1 of this Annual Report.   Neither  the
Company,  nor  any  of  its  subsidiaries,  is  a  party  to  any
litigation, other than non-material litigation incidental to  the
Company's business.

Item 4.   Submission of Matters to a Vote of Security-Holders

     No  matters were submitted to a vote of the security holders
of the Company during the fourth quarter of the fiscal year ended
December 31, 1997.



                              PART II

Item  5.    Market  for  Registrant's Common  Stock  and  Related
            Stockholder Matters

     The Company's Common Stock is publicly traded  on the Nasdaq
National Market under the symbol "CYMI" since September 19, 1996.
The  Company's initial public offering price was $4.75 per share.
The  following table sets forth, for the periods indicated,   the
high  and low closing sales prices of the Company's Common  Stock
as  reported by the Nasdaq National Market.  All per share prices
reflect a 2-for-1 stock split effected in August 1997.

Year ended December 31, 1996              High         Low
   Third quarter (beginning              $8 7/8       $6 13/16
    September 19, 1996)                    
   Fourth quarter                       $24 1/16      $7 7/8
Year ended December 31, 1997                          
   First quarter                        $27 3/16     $15 1/2
   Second quarter                       $29          $17 11/16
   Third quarter                        $48 3/4      $24 3/8
   Fourth quarter                       $30 7/8      $14 15/16


Item 6.   Selected Financial Data

  The following selected consolidated financial data should be
read in conjunction with the Company's consolidated financial
statements and notes thereto  and with Management's Discussion
and Analysis of Financial Condition and Results of Operations,
which are included elsewhere in this Annual Report on Form 10-K.
The consolidated statement of operations data for the years ended
December 31, 1995, 1996 and 1997 and the consolidated balance
sheet data at December 31, 1996 and 1997 are derived from, and
are qualified by reference to, the consolidated financial
statements included elsewhere in this Annual Report on Form 10-K,
which have been audited by Deloitte & Touche LLP.  The
consolidated statement of operations data for the years ended
December 31, 1993 and 1994, and the consolidated balance sheet
data at December 31, 1993 and 1994 are derived from consolidated
financial statements not included in this Annual Report on Form
10-K, which have also been audited by Deloitte & Touche LLP.
These historical results are not necessarily indicative of the
results to be expected in the future.

<TABLE>
<CAPTION>
                                          Years Ended December 31,
                                   1993     1994     1995     1996     1997
                                   (in thousands, except per share data)
Consolidated Statement of                                          
Operations Data:
Revenues:                                                          
<S>                               <C>      <C>      <C>      <C>      <C>

   Product sales                  $3,393   $7,705   $15,576  $62,510  $201,191
   Other                           2,306    1,216     3,244    2,485     2,456
      Total revenues               5,699    8,921    18,820   64,995   203,647
                                                                   
Costs and expenses:                                                
   Cost of product sales           2,726    4,797     8,786   35,583   123,654
   Research and development        2,733    3,283     6,154   11,742    24,971
   Sales and marketing             2,154    1,780     2,353    5,516    11,992
   General and administrative        782      849     1,181    4,270     8,586
     Total costs and expenses      8,395   10,709    18,474   57,111   169,203
Operating income (loss)           (2,696)  (1,788)      346    7,884    34,444
Other income (expense) - net          (7)    (199)     (241)    (183)      112
</TABLE>

<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                    1993     1994      1995      1996     1997
                                     (in thousands, except per share data)
<S>                              <C>       <C>         <C>     <C>     <C>
Income (loss) before provision                                     
  for income taxes
  and minority interest           (2,703)   (1,987)    105      7,701   34,556
Provision for income taxes          (221)      (58)    (36)    (1,191)  (8,639)
Minority interest                                                          141
                                                                   
Net income (loss)                ($2,924)  ($2,045)    $69     $6,510  $26,058
Basic earnings per share (1)                                    $0.33    $0.92
Weighted average common shares                         
 outstanding (1)                                               19,868   28,212
Diluted earnings per share (1)                                  $0.29    $0.86
Weighted average common and                                        
 common equivalent shares                                   
 outstanding (1)                                               22,420   30,267
</TABLE>

<TABLE>
<CAPTION>
                                                 December 31,
                                    1993     1994     1995     1996     1997
                                                (in thousands)
Consolidated Balance Sheet                                        
Data:
<S>                              <C>      <C>      <C>       <C>      <C>
Cash and cash equivalents           $715   $2,326   $2,015   $55,405  $51,903
Working capital                     (122)  (1,557)   3,845    84,743  202,539
Total assets                       5,805    9,172   15,619   129,467  384,880
Total debt (2)                     2,717    6,879    4,164     2,217  176,066
Redeemable convertible
  preferred stock                 12,989   19,290   28,409       -       -
Stockholders' equity (deficit)   (11,828) (19,752) (21,830)   98,820  124,540
</TABLE>
     
(1)  See Note 1 of Notes to Consolidated Financial Statements for
  an explanation of the determination of shares used in computing
  earnings per share.

(2)    Total   debt   includes   indebtedness   for   convertible
  subordinated   notes,   borrowed  money   and   capital   lease
  obligations.

Item 7.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations

RESULTS OF OPERATIONS

  The following table sets forth certain items in the Company's
statements of operations as a percentage of total revenues for
the periods indicated:

<TABLE>
<CAPTION>
                                     1995        1996        1997    
Revenues:                                                    
<S>                                 <C>         <C>         <C>
  Product sales                      82.8 %      96.2 %      98.8 % 
  Other                              17.2         3.8         1.2   
     Total revenues                 100.0       100.0       100.0   
                                                             
Cost and expenses:                                           
  Cost of product sales              46.7        54.7        60.7   
  Research and development           32.7        18.1        12.3   
  Sales and marketing                12.5         8.5         5.9   
  General and administrative          6.3         6.6         4.2   
     Total costs and expenses        98.2        87.9        83.1   
                                                             
Operating income                      1.8        12.1        16.9   
Other income (expense) - net         (1.3)       (0.3)         .1   
                                                             
Income before provision for                                  
  income taxes and minority 
  interest                            0.5        11.8        17.0   
                                                             
Provision for income taxes           (0.2)       (1.8)       (4.3)
Minority interest                      -           -           .1   
                                                             
Net income                            0.3 %      10.0 %      12.8 % 
                                                             
Gross margin on product sales        43.6 %      43.1 %      38.5 % 
</TABLE>

  YEARS ENDED DECEMBER 31, 1996 AND 1997
  
    Revenues.  The Company's total revenues consist of product
sales, which include sales of laser systems and spare parts and
service and training, and other revenues, which primarily include
revenue from funded development activities performed for
customers and for SEMATECH.  Revenue from product sales is
generally recognized at the time of shipment, unless customer
agreements contain inspection or other conditions, in which case
revenue is recognized at the time such conditions are satisfied.
Funded development contracts are accounted for on the percentage-
of-completion method based on the relationship of costs incurred
to total estimated costs, after giving effect to estimates for
costs to complete the development project.
  
  Product sales increased 222% from $62.5 million in 1996 to
$201.2 million in 1997, primarily due to increased sales of DUV
photolithography laser systems.  A total of 460 laser systems
were sold in 1997 compared to 145 laser systems in 1996.  As a
result of the increase in the Company's installed base of lasers,
the Company believes that revenues from spares, replacement parts
and services will be an increasingly larger component of product
sales.*  Funded development revenues remained constant at $2.5
million for 1996 and 1997, primarily due to the laser research
project sponsored by SEMATECH.  The Company expects that funded
development revenues will continue to decrease as a percentage of
total revenues as the Company focuses on product sales.*
  
  The Company's sales are generated primarily by shipments to
customers in Japan, the Netherlands, and the United States.
Approximately 69%, 81% and 89% of the Company's sales in 1995,
1996, and 1997, respectively, were derived from customers outside
the United States.  The Company maintains a wholly-owned Japanese
subsidiary which sells to the Company's Japanese customers.
Revenues from Japanese customers, generated primarily by this
subsidiary, accounted for 50%, 61% and 65% of revenues in 1995,
1996, and 1997, respectively.  The activities of the Company's
Japanese subsidiary are limited to sales and service of products
purchased by the subsidiary from the parent corporation.  All
costs of development and production of the Company's products,
including costs of shipment to Japan, are recorded on the books
of the parent company.  The Company anticipates that
international sales will continue to account for a significant
portion of its net sales.*
  
  Cost of Product Sales.  Cost of product sales includes direct
material and labor, warranty expenses, license fees,
manufacturing and service overhead, and foreign exchange gains
and losses on foreign currency exchange contracts associated with
purchases of the Company's products by the Japanese subsidiary
for resale under firm third-party sales commitments.
  
  Cost of product sales rose 248% from $35.6 million in 1996 to
$123.7 million in 1997 due to the increase in sales volume.  The
gross margin on these sales decreased from 43.1% in 1996 to 38.5%
in 1997 primarily due to the increase in additional specific
warranty reserves of $6.4 million, an increase in field support
overhead costs as the Company continued to build its worldwide
field support infrastructure in order to provide fast and
responsive service to the semiconductor manufacturers, and one
time charges associated with bringing the Company's new
manufacturing facility more fully on line.
  
  Warranty reserve expenses are included in cost of product
sales as the related sales are reported.  For 1997, an additional
specific warranty reserve was expensed to certain lasers
previously shipped.  This additional warranty expense was to
incorporate changes in these lasers to ensure that they meet the
current product configuration and specifications.  The Company
took a proactive approach to make the necessary hardware and
software changes to the laser systems as a preventative
maintenance measure to meet performance levels warranted by the
Company.  These changes are currently in varying stages of
implementation.  The gross margin on product sales prior to this
specific reserve was 41.7% for the period ended December 31,
1997.
  
  Net gains or losses from foreign currency exchange contracts
are included in cost of product sales in the consolidated
statements of operations as the related sales are recognized.
The Company recognized net gains on such contracts of $1.9
million and $5.8 million for the years ended December 31, 1996
and 1997, respectively.
  
   Research and Development.  Research and development expenses
include costs of internally-funded and customer-funded projects
as well as continuing research support expenses which primarily
include employee and material costs, depreciation of equipment
and other engineering related costs.  Research and development
expenses increased 113% from $11.7 million in 1996 to $25.0
million in 1997, due primarily to increased product support
efforts associated with the release of the Company's 5000 series
lasers, the hiring of additional technical personnel and the
continued development of new laser products.  As a percentage of
total revenues, such expenses declined from 18.1% to 12.3% in the
respective periods due to the growth in the Company's revenues.
The Company expects that research and development expenses will
increase in absolute dollars and as a percentage of revenues in
1998 as the Company continues to invest in the development of new
products and product enhancements.*
  
  Sales and Marketing.  Sales and marketing expenses include the
expenses of the sales, marketing and customer support staffs and
other marketing expenses.  Sales and marketing expenses increased
117% from $5.5 million in 1996 to $12.0 million in 1997, due
primarily to increased product management and  sales support
efforts and marketing activities as more lasers were placed in
the field over the period.  As a percentage of total revenues,
such expense declined from 8.5% to 5.9% in the respective periods
due to the growth in the Company's revenues.
  
  General and Administrative.  General and administrative
expenses consist primarily of management and administrative
personnel costs, professional services and administrative
operating costs.  General and administrative expenses increased
101% from $4.3 million in 1996 to $8.6 million in 1997, due to an
increase in general and administrative support as the Company's
sales volume, manufacturing capacity, employee recruiting
requirements and overall level of business activity increased.
As a percentage of total revenue, such expenses decreased from
6.6% to 4.2% in the respective periods.
  
  Other Income (Expense)- net.  Net other income (expense)
consists primarily of interest income and expense and foreign
currency exchange gains and losses associated with the
fluctuations in the value of the Japanese yen against the United
States dollar.  Net other income (expense) increased from
$183,000 of net other expense for 1996 to $112,000 of net other
income for 1997, primarily due to the increase in interest income
associated with the investment of excess cash, offset by interest
expense associated with the convertible subordinated notes issued
in 1997 and a foreign currency exchange loss for 1997.  Foreign
currency exchange gains totaled $161,000, interest income totaled
$347,000, and interest expense totaled $691,000 for 1996,
compared to a foreign exchange loss of $359,000, interest income
of $5.3 million and interest expense of $4.8 million for 1997.
  
  The Company's results of operations are subject to
fluctuations in the value of the Japanese yen against the United
States dollar.  Sales by the Company to its Japanese subsidiary
are denominated in dollars, and sales by the subsidiary to
customers in Japan are denominated in yen.  The Company's
Japanese subsidiary manages its exposure to such fluctuations by
entering into foreign currency exchange contracts to hedge its
purchase commitments to the Company.  The gains or losses from
these contracts are recorded as a component of cost of product
sales, while  the remaining foreign currency exposure  is
recorded as other income (expense) in the consolidated statements
of operations.  Gains and losses resulting from foreign currency
translation are accumulated as a separate component of
consolidated stockholders' equity.
  
  Provision for Income Taxes.  The provision for income taxes in
1996 was primarily attributable to the growth in the Company's
pre tax income offset by net operating loss carryforwards from
prior years.  The tax provision of $8.6 million in 1997 was
primarily attributable to the substantial growth in the Company's
pretax income partially offset by the reduction of the deferred
tax asset valuation allowance carried over from 1996.
  
  YEARS ENDED DECEMBER 31, 1995 AND 1996

     Revenues.  Product sales increased 301% from $15.6 million
in 1995 to $62.5 million in 1996, primarily due to increased
sales of DUV photolithography laser systems.  A total of 145
laser systems were sold in 1996 compared to 34 laser systems in
1995.  Funded development revenues decreased 23% from $3.2
million in 1995 to $2.5 million in 1996, primarily due to the
completion in 1995 of a laser research project sponsored by
SEMATECH.

     Cost of Product Sales.   Net gains from foreign currency
exchange contracts included in cost of product sales were
$496,000 and $1.9 million for the years ended December 31, 1995
and 1996, respectively.  Cost of product sales rose 305% from
$8.8 million in 1995 to $35.6 million in 1996 due to the increase
in sales volume.  The gross margin on these sales remained
relatively consistent at approximately 43% in 1995 and 1996.

     Research and Development.  Research and development expenses
increased 91% from $6.2 million in 1995 to $11.7 million in 1996,
due primarily to increased product support efforts associated
with the release of the Company's 5000 series lasers and the
hiring of additional technical personnel.  As a percentage of
total revenues, such expenses declined from 32.7% to 18.1% in the
respective periods due to growth in the Company's revenues.

     Sales and Marketing.  Sales and marketing expenses increased
134% from $2.4 million in 1995 to $5.5 million in 1996, due
primarily to increased sales commissions and increased sales
support efforts and marketing activities associated with the
increase in laser sales.  As a percentage of total revenues, such
expense declined from 12.5% to 8.5% in the respective periods due
to the growth in the Company's revenues.

     General and Administrative. General and administrative
expenses increased 262% from $1.2 million in 1995 to $4.3 million
in 1996, due to an increase in general and administrative support
as the Company's sales volume, manufacturing capacity and overall
level of business activity increased.  These expenses include a
$705,000 receivable reserve recorded in 1996, taken in connection
with concerns over the collectibility of an accounts receivable
with a particular customer.  As a percentage of total revenue,
such expenses, including the receivable reserve, increased to
6.6% of revenue in 1996.  Excluding the receivable reserve, such
expenses were 5.5% of revenue in 1996.

     Other Income (Expense) - net.  Net other expense decreased
from $241,000 in 1995 to $183,000 in 1996, primarily due to the
increase in interest income associated with the investment of the
Company's proceeds from its common stock offerings in September
and December 1996, larger exchange gains against the yen,
partially offset by higher interest expense reflective of
borrowing requirements for the first nine months of 1996.
Foreign currency exchange gains totaled $10,000, interest income
totaled $32,000, and interest expense totaled $283,000 for 1995,
compared to $161,000, $347,000, and $691,000, respectively, for
1996.

     Provision for Income Taxes.  The provision for income taxes
was insignificant in 1995 and primarily represented taxes in
Japan for research and development revenues generated from
agreements with Seiko. The tax provision of $1.2 million in 1996
was primarily attributable to the substantial growth in the
Company's pretax income.  As of December 31, 1996, the Company
had Federal and state tax business credit carryforwards available
to offset future tax liabilities of $1.8 million and $293,000,
respectively.  Such Federal and state tax credit carryforwards
expire at various dates beginning with the year 1997 and 2003,
respectively.

     To date, inflation has not had a significant effect on the
Company or its results of operations.

LIQUIDITY AND CAPITAL RESOURCES

  Since inception, the Company has funded its operations
primarily through the private sale of equity securities totaling
approximately $27.1 million, borrowings from certain of its
investors for bridge financing, bank borrowings,  its September
18, 1996 initial public offering, which resulted in net proceeds
to the Company of approximately $29.7 million,  the public
offering on December 12, 1996, which resulted in net proceeds  of
approximately $50.0 million, and more recently, raised a net
$167.3 million in a convertible subordinated note offering on
August 6, 1997.  As of December 31, 1997, the Company had
approximately $51.9 million in cash and cash equivalents, $80.4
million in short-term investments, $42.7 million in long-term
investments, $202.5 million in working capital and no bank debt.
  
  Net cash used in operating activities was approximately $2.1
million, $8.0 million and $17.3 million for 1995, 1996 and 1997,
respectively.  The increases in cash used in operations for the
periods ended December 31, 1995, 1996 and 1997 was primarily
attributable to increases in accounts receivable and inventory as
the working capital requirements of the Company continued to
increase due to the expansion of the business during these
periods.
  
  Net cash used for investing activities was approximately $2.4
million , $22.9 million, and $153.6 million in 1995, 1996 and
1997.  The increase in cash used for investing activities during
the periods ended December 31, 1995, 1996 and 1997 primarily
reflects the investment activity of funds received through the
Company's public offerings in 1996, the convertible subordinated
notes offering in 1997 and the purchase of computer equipment ,
test equipment, research and development tools, manufacturing
process machinery and tenant improvements to the manufacturing
facility in order to accommodate business expansion throughout
the periods.
  
  The Company's financing activities provided net cash of
approximately $4.3 million, $83.6 million and $167.3 million for
1995, 1996 and 1997, respectively.  In 1995, the Company sold
Redeemable Convertible Preferred Stock for approximately $3.4
million,  increased its bank borrowings by $1.2 million and
reduced discounting of commercial drafts by $390,000.  In 1996,
the Company received net proceeds of approximately $79.7 million
from its two public offerings,  received net proceeds of
approximately $6.1 million from the sale of Redeemable
Convertible Preferred Stock and decreased bank borrowings by $1.0
million.  During the same period, the Company reduced discounting
of commercial drafts in Japan of approximately $1.2 million.  In
1997, the Company issued $172.5 million in convertible
subordinated notes with net costs of $5.2 million and, in
addition,  received $2.1 million in net proceeds for the issuance
of common stock and reduced bank debt by $1.8 million.
  
  The Company has available credit arrangements with a bank
permitting borrowings of up to $5.0 million. These borrowings are
unsecured and provide for the following facilities: (i) a $2.0
million revolving line of credit; and (ii) a $3.0 million
optional currency line.   The Company also has through its
subsidiary in Japan a 10.7 billion yen (approximately $81.9
million) facility for the receipt of funds from three banks in
Japan, without recourse, in connection with the discounting of
certain commercial drafts received from customers as payment for
merchandise.  As of December 31, 1997, 3.3 billion yen
(approximately $25.4 million) was being utilized under the
facility.  The Company also has three foreign currency exchange
facilities.  The Company had forward foreign exchange contracts
at December 31, 1997 to buy $81.3 million for 9.6 billion yen.
The total unrecorded deferred gain and premium on these contracts
as of December 31, 1997 was $4.1 million.
  
     On January 29, 1998, Cymer announced its Board of Directors
authorized the Company to repurchase up to $50.0 million of the
Company's common stock.  The purchases will be made from time to
time on the open market or in privately negotiated transactions.*
  
    The Company requires substantial working capital to fund its
business, particularly to finance inventories and accounts
receivable and for capital expenditures.  The Company's future
capital requirements will depend on many factors, including the
rate of the Company's manufacturing expansion, the timing and
extent of spending to support product development efforts and
expansion of sales and marketing and field service and support,
the timing of introductions of new products and enhancements to
existing products, and market acceptance of the Company's
products.*  The Company believes that it has sufficient working
capital and available bank credit to sustain operations and
provide for the future expansion of its business during the 1998
fiscal year.*
  
  Recent Accounting Pronouncements
  
    In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share.  SFAS No. 128 requires all
companies whose capital structures include convertible securities
and options to make a dual presentation of basic and diluted
earnings per share.  The new standard became effective for the
Company for the year ended December 31, 1997.   The Company
adopted this standard as of December 31, 1997 and the 1996
financial statements have been restated to reflect the change.
  
     In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income.  SFAS No. 130 establishes requirements for
disclosure of comprehensive income and becomes effective for the
Company for the year ending December 31, 1998.  Comprehensive
income includes such items as foreign currency translation
adjustments and unrealized holding gains and losses on available
for sale securities that are currently being presented by the
Company as a component of stockholders' equity.  The Company does
not expect this pronouncement to materially impact the Company's
results of operations.*
  
     In June 1997, the FASB issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information.  SFAS
No. 131 establishes standards for disclosure about operating
segments in annual financial statements and selected information
in interim financial reports.  It also establishes standards for
related disclosures about products and services, geographic areas
and major customers.  This statement supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise.  The
new standard becomes effective for the Company for the year
ending December 31, 1998, and requires that comparative
information from earlier years be restated to conform to the
requirements of this standard.  The Company does not expect this
pronouncement to materially change the Company's current
reporting and disclosures.*
  
  Impact of Year 2000 Issue

          The Company has reviewed its data processing systems as
well as computer applications and has determined that the
Company's  data processing will not be materially impacted by any
date-sensitive calculations related to the year 2000.*  The
Company has initiated efforts to remedy all currently known
situations and expects all programs to be corrected and tested
prior to the year 2000.*  The incremental costs of this project
will not have a material effect on the Company's consolidated
financial statements.*
  
  RISK FACTORS
  
     Likely Fluctuations in Operating Results.  The Company's
operating results have in the past fluctuated and are likely in
the future to fluctuate significantly depending upon a variety of
factors.  Such factors may include: the demand for semiconductors
in general and, in particular, for leading edge devices with
smaller circuit geometries; the rate at which semiconductor
manufacturers take delivery of photolithography tools from the
Company's customers; cyclicality in the market for semiconductor
manufacturing equipment; the timing and size of orders from the
Company's small base of customers; the ability of the Company to
manufacture, test and deliver laser systems in a timely and cost
effective manner; the mix of shipments between new lasers and
lower-margin replacement parts; the ability of the Company's
competitors to obtain orders from the Company's customers; the
entry of new competitors into the market for DUV photolithography
illumination sources; the ability of the Company to manage its
costs as it supplies its products in higher volumes; and the
Company's ability to manage effectively its exposure to foreign
currency exchange rate fluctuations, principally with respect to
the Japanese yen (in which sales by the Company's Japanese
subsidiary are denominated).  In addition, the Company's
operating results may be affected by reductions in customer laser
inventories as customers become more efficient at integrating the
Company's lasers into their photolithography tools.

     The Company has historically derived a substantial portion
of its quarterly and annual revenues from the sale of a
relatively small number of systems.   As a result, the precise
timing of the recognition of revenue from an order for a small
number of systems can have a significant impact on the Company's
total revenues and operating results for a particular period.
The Company's operating results for a particular period could be
adversely affected if orders for a small number of systems are
canceled or rescheduled by customers or cannot be filled in time
to recognize revenue during that period due to, for example,
unanticipated manufacturing, testing, shipping or product
acceptance delays. The Company's expense levels are based, in
large part, on the Company's expectations as to future revenues
and are, therefore, relatively fixed in the short term.  If
revenue levels fall below expectations, net income will be
disproportionately and adversely affected.  The impact of these
and other factors on the Company's revenues and operating results
in any future period cannot be forecast with any degree of
certainty.

     The Company believes that semiconductor manufacturers are
currently developing capability for pilot production of 0.25um
devices.*  The Company also believes that demand for its excimer
lasers for DUV photolithography tools is currently being driven
by the efforts to develop such capability.*  Once semiconductor
manufacturers have acquired such capability, the company believes
that they will continue to invest in DUV photolithography tools
to expand their capacity to manufacture 0.25um devices only to
the degree to which their sales forecasts and 0.25um
manufacturing process yields justify such investment.
Accordingly, the Company currently expects that demand for its
DUV excimer lasers will be subject to such demand and process
development constraints.*

     Recently, the Company has significantly increased the scale
of its operations and its manufacturing capacity, including
hiring additional personnel and substantially increasing the
number of systems in production.  This expansion has resulted in
higher materials and work-in-process inventory levels and
significantly higher operating expenses, and has required the
Company to implement a variety of new systems, procedures and
controls.  If orders received by the Company do not result in
sales, or if the Company is unable to sustain its revenues at
anticipated levels, the Company's operating results would be
materially adversely affected.

     Due to the foregoing factors, as well as other unanticipated
factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market
analysts or investors.  In such event, the price of the Company's
Common Stock would be materially adversely affected.

     Unpredictability of Future Operating Results.  The Company
was founded in 1986 and shipped its first prototype laser system
in 1988.  Although the Company's revenues have increased over the
last four years, and the Company has been profitable for each of
the last seven quarters, there can be no assurance that the
Company's revenues will grow or be sustained in future periods or
that the Company will be profitable in any future period.  The
Company's history of annual and quarterly operating losses, its
substantial expansion in manufacturing capacity, its limited
experience in supplying products in volume and the difficulty of
predicting the demand for its products, among other factors, make
the prediction of future operating results difficult if not
impossible.

     Risks Associated with Rapid and Substantial Manufacturing
Expansion.  To meet current and anticipated demand for its
products, the Company must continue to increase the rate by which
it manufactures and tests modules, spares and replacement parts
for its photolithography laser systems. Although the Company has
experienced recent success in expanding production, the Company
has historically been unable to manufacture and test its
photolithography laser systems fast enough to fill all orders and
has been behind on some of its delivery schedules.  Should the
Company fail to meet delivery orders in the future, customers
could cancel orders and seek to meet all or a portion of their
needs for illumination sources from the Company's competitors.
The Company is also increasingly relying on outside suppliers for
the manufacture of various components and subassemblies used in
its products and is dependent upon these suppliers to meet the
Company's manufacturing schedules.  The failure by one or more of
these suppliers to supply the Company on a timely basis with
sufficient quantities of components or subassemblies that perform
to the Company's specifications could affect the Company's
ability to deliver completed lasers to its customers on schedule.
Additionally, the Company may underestimate the costs required to
increase its manufacturing capacity, which may materially
adversely affect the Company's financial condition and results of
operations.

     In addition to increasing manufacturing capacity at its
facilities in San Diego, California, the Company has qualified
Seiko Instruments, Inc. ("Seiko") of Japan as a contract
manufacturer of its photolithography lasers.  While Seiko began
limited production of lasers for the Company in the first quarter
of 1997, there can be no assurance that Seiko can maintain
production on schedule.  The failure of Seiko to maintain
production on schedule could have a material adverse effect on
the Company's business, financial condition and results of
operations.

     Seiko has been advised by Komatsu, Ltd. ("Komatsu"), a
competitor of the Company, that certain aspects of the Company's
lasers might infringe certain patents that have been issued to
Komatsu in Japan and that Komatsu intends to enforce its rights
under such patents against Seiko if Seiko engages in
manufacturing activities for the Company.  In the event that,
notwithstanding its manufacturing agreement with the Company,
Seiko should determine not to continue manufacturing the
Company's products until resolution of the matter with Komatsu,
the Company's ability to meet the anticipated demand for its
products could be materially adversely affected.  See -
"Uncertainty Regarding Patents and Protection of Proprietary
Technology."

     Dependence on Key Suppliers.  Certain of the components and
subassemblies included in the Company's products are obtained
from a single supplier or a limited group of suppliers.  In
particular, there are no alternative sources for certain of the
components and subassemblies, including certain optical
components and pre-ionizer tubes used in the Company's lasers.
In addition, the Company is increasingly outsourcing the
manufacture of various subassemblies.  Although to date the
Company has been able to obtain adequate supplies of the
components and subassemblies used in the production of the
Company's laser systems in a timely manner from existing sources,
the Company has only recently commenced volume production of its
laser systems, which has caused many of its suppliers to also
commence volume production of the Company's components and
subassemblies.

     Due to the nature of the Company's product development
requirements, it is often necessary for key suppliers to rapidly
advance their own technologies in order to support the Company's
new product introduction schedule.  These suppliers may or may
not be able to satisfy the Company's schedule requirements in
providing new modules and subassemblies to the Company.  If the
Company is unable to obtain sufficient quantities of such
materials, components or subassemblies, or if such items do not
meet the Company's quality standards, delays or reductions in
product shipments could have a material adverse effect on the
Company's business, financial condition and results of
operations.

     Dependence on Single Product Line.  The Company's only
product line is excimer lasers, the primary market for which is
for use in DUV photolithography equipment for manufacturing deep-
submicron semiconductor devices.  Demand for the Company's
products will depend in part on the rate at which semiconductor
manufacturers adopt excimer lasers as the illumination source for
their photolithography tools.  Impediments to such adoption
include a shortage of engineers with experience implementing,
utilizing and maintaining DUV photolithography systems that
incorporate excimer laser illumination sources, instability of
photoresists used in DUV photolithography and a shortage of
specialized glass used in DUV optics.  There can be no assurance
that such impediments can or will be overcome, and, in any event,
such impediments may materially reduce the demand for the
Company's products.  In addition, to the extent that such
manufacturers are able to produce semiconductors with smaller
critical feature sizes by extending the performance capabilities
of mercury lamp illumination sources used in existing DUV
photolithography tools, the demand for the Company's products
would also be materially reduced.  Further, if the Company's
customers experience reduced demand for DUV photolithography
tools, or if the Company's competitors are successful in
obtaining significant orders from such customers, the Company's
financial condition and results of operations would be materially
adversely affected.
     
     Limited Production Use of Excimer Lasers.  The Company first
shipped its lasers for photolithography applications in 1988.
There can be no assurance that the Company's products will meet
production specifications over time when subjected to prolonged
and intense use in volume production in semiconductor
manufacturing processes.  If any semiconductor manufacturer is
not able to successfully achieve or sustain volume production
using the Company's lasers, the Company's reputation with
semiconductor manufacturers or the limited number of
photolithography tool manufacturers could be damaged, which would
have a material adverse effect on the Company's business,
financial condition and results of operations.

     Dependence on Small Number of Customers.  The Company's
primary customer base is composed of a small number of
manufacturers of DUV photolithography tools.  Four large firms,
ASM Lithography, Canon, Nikon and SVG Lithography (a subsidiary
of Silicon Valley Group, Inc.), dominate the photolithography
tool business and collectively accounted for approximately 65%,
90% and 94% of the Company's total revenues in 1995, 1996, and
1997, respectively.  Sales to ASM Lithography, Canon, Nikon and
SVG Lithography accounted for approximately 24%, 25%, 39% and 6%,
respectively, of total revenues in 1997 and 19%, 30%, 31% and
10%, respectively, of total revenues in 1996.  The Company
expects that sales of its systems to these customers will
continue to account for substantially all of its revenues in the
foreseeable future.*  None of the Company's customers is
obligated to purchase a minimum number of the Company's products.
Loss of any significant business from any one of these customers
or a significant reduction in orders from any one of these
customers, including reductions caused by changes in a customer's
competitive position, a decision to purchase illumination sources
from other suppliers or economic conditions in the semiconductor
and photolithography tool industries, would have a material
adverse effect on the Company's business, financial condition and
results of operations.

     Need to Manage a Changing Business.  The Company recently
has dramatically expanded the scope of its operations and the
number of employees in most of its functional areas.  For
example, the Company increased the number of its employees from
136 at December 31, 1995 to 336 at December 31, 1996 and to 809
at December 31, 1997.  The Company installed new management
information systems and has also substantially expanded its
facilities and manufacturing capacity.  For example, since
December 31, 1996 the Company has occupied three additional
buildings covering approximately 187,000 square feet.  If demand
for the Company's products continues to grow, the Company will be
required to continue this expansion.  The management of such
growth, if such growth occurs, will require the Company to
continue to improve and expand its management, operational and
financial systems, including accounting and other internal
management systems, its quality control, delivery and field
service and customer support capabilities.*  The Company will be
required to attract, train and retain key technical personnel,
including both hardware and software engineers, in order to
support the Company's growth.*  The Company will be required to
manage effectively its expanding international operations,
including the operations of its Japan, Korea, Taiwan, and
Singapore subsidiaries, its field service and support presence in
Asia and Europe and its relationship with Seiko as a manufacturer
of its photolithography lasers.*  The Company must also effect
timely deliveries of its products and maintain the product
quality and reliability required by its customers.  Any failure
to manage the Company's growth, if such growth occurs, would
materially adversely effect the Company's financial condition and
results of operations.

     Risks Associated with Laser Warranty; Need to Increase
Production of Component Modules.  The Company's growing installed
base will require it to increase production of replacement parts
and component modules.  Because the Company prioritizes the
reliable operation of its installed units at semiconductor
manufacturers above all other requirements, it typically utilizes
available component modules first to support existing systems in
the field.  Accordingly, the failure to rapidly expand production
of component modules could result in the delay in shipment of new
laser systems, which could have a material adverse effect on the
Company's business, financial condition and results of
operations.

     Need to Expand Field Service and Support Organization.  The
Company believes that the need to provide fast and responsive
service to the semiconductor manufacturers using its lasers is
critical and that it will not be able to depend solely on its
direct customers to provide this specialized service.*
Therefore, the Company believes it is essential to establish,
through trained third-party sources or through its own personnel,
a rapid response capability to service its lasers throughout the
world.  Accordingly, the Company is currently expanding its
direct support infrastructure in Japan, Europe, Korea, Singapore,
Taiwan and Southeast Asia.  This expansion entails recruiting and
training qualified field service personnel and building effective
and highly trained organizations that can provide service to
customers in various countries in their assigned regions.  The
Company has historically experienced difficulties in effectively
training field service personnel. There can be no assurance that
the Company will be able to attract and train qualified personnel
to establish these operations successfully or that the costs of
such operations will not be excessive.  A failure to implement
this plan effectively could have a material adverse effect on the
Company's business, financial condition and results of
operations.
     
     Competition.  The Company currently has two significant
competitors in the market for excimer laser systems for
photolithography applications,  Lambda-Physik and Komatsu.  Both
of these companies are larger than the Company, have access to
greater financial, technical and other resources than does the
Company and are located in closer proximity to the Company's
customers than is the Company.  Although the Company believes
that these competitors are not yet supplying excimer lasers in
volume for photolithography applications, the Company believes
that both companies are aggressively seeking to gain larger
positions in this market.  The Company believes that its
customers have each purchased one or more products offered by
these competitors and that its customers will continue to
actively qualify these competitors' lasers in their search for a
second source.*  If competitors successfully qualify their lasers
for use with the Company's customers, the Company could lose
market share and its growth could slow or even decline.  In the
future, the Company will likely experience competition from other
technologies, such as EUV, X-ray, electron beam and ion
projection processes.  To remain competitive, the Company
believes that it will be required to manufacture and deliver
products to customers on a timely basis and without significant
defects and that it will also be required to maintain a high
level of investment in research and development and in sales and
marketing.*  There can be no assurance that the Company will have
sufficient resources to continue to make the investments
necessary to maintain its competitive position.  In addition, the
market for excimer lasers is still small and immature and there
can be no assurance that larger competitors with substantially
greater financial resources, including other manufacturers of
industrial lasers, will not attempt to enter the market.  There
can be no assurance that the Company will remain competitive.  A
failure to remain competitive would have a material adverse
effect on the Company's business, financial condition and results
of operations.

     Risk of Excessive Inventory Buildups by Photolithography
Tool Manufacturers.  Substantially all of the Company's customers
are photolithography tool manufacturers, which in turn sell their
systems to semiconductor manufacturers.  Over the past year, the
Company's customers have substantially increased their forecasted
shipments of DUV photolithography tools.  The Company believes
that the increase in competitive demand for DUV photolithography
tools may have caused and may continue to cause a degree of over-
ordering of the Company's products.  The Company is working with
its customers to better understand end user demand for DUV
photolithography tools.  However, there can be no assurance that
the Company will be successful in this regard, or that its
customers will not build excessive laser inventories.  Excessive
customer laser inventories could result in a material decline in
the Company's revenues and operating results in future periods as
such inventories are brought into balance.

     Dependence on Semiconductor Industry.  Substantially all of
the Company's revenues are derived from photolithography tool
manufacturers that in turn depend on the demand for their
products from semiconductor manufacturers.  Semiconductor
manufacturers correspondingly depend on the demand from
manufacturers of end-products or systems that use semiconductors.
The semiconductor industry is highly cyclical and has
historically experienced periodic and significant downturns,
which often have had a severe effect on the demand for
semiconductor manufacturing equipment, including photolithography
tools.  The Company believes that downturns in the semiconductor
manufacturing industry will occur in the future, and will result
in decreased demand for semiconductor manufacturing equipment.*
In addition, the Company believes that its ability to reduce
expenses in a future downturn will be constrained by the need for
continual investment in research and development, and the need to
maintain extensive ongoing customer service and support
capability.*  Accordingly, any downturn in the semiconductor
industry could have a material adverse effect on the Company's
business, financial condition and results of operations.

     Rapid Technological Change; New Product Introductions.
Semiconductor manufacturing equipment and processes are subject
to rapid technological change.  The Company believes that its
future success will depend in part upon its ability to continue
to enhance its excimer laser products and their process
capabilities and to develop and manufacture new products with
improved capabilities.*  In order to enhance and improve its
products and develop new products, among other things, the
Company must work closely with its customers, particularly in the
product development stage, to integrate its lasers with its
customers' photolithography tools.  There can be no assurance
that future technologies, such as EUV, X-ray, electron beam and
ion projection processes, will not render the Company's excimer
laser products obsolete or that the Company will be able to
develop and introduce new products or enhancements to its
existing products and processes in a timely manner that satisfy
customer needs or achieve market acceptance.  The failure to do
so could materially adversely affect the Company's business,
financial condition and results of operations.

     Uncertainty Regarding Patents and Protection of Proprietary
Technology.  The Company believes that the success of its
business depends more on such factors as the technical expertise
of its employees, as well as their innovative skills and
marketing and customer relations ability, than on patents,
copyrights, trade secrets and other intellectual property
rights.*  Nevertheless, the success of the Company may depend in
part on patents, and as of December 31, 1997, the Company owned
22 United States patents covering certain aspects of technology
associated with excimer lasers which expire from January 2008 to
February 2016 and had applied for 34 additional patents in the
United States, three of which have been allowed.  As of December
31, 1997, the Company had filed 76 patent applications in other
countries.  There can be no assurance that the Company's pending
patent applications or any future applications will be approved,
that any patents will provide it with competitive advantages or
will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the Company's ability
to do business. In this regard, due to cost constraints, the
Company did not begin filing for patents in Japan or other
countries with respect to inventions covered by its United States
patents and patent applications until recently and has therefore
lost the right to seek patent protection in those countries for
certain of its inventions.  Additionally, because foreign patents
may afford less protection under foreign law than is available
under United States patent law, there can be no assurance that
any such patents issued to the Company will adequately protect
the Company's proprietary information.  Furthermore, there can be
no assurance that others will not independently develop similar
products, duplicate the Company's products or, if patents are
issued to the Company, design around the patents issued to the
Company.

     Others may have filed and in the future may file patent
applications that are similar or identical to those of the
Company.  To determine the priority of inventions, the Company
may have to participate in interference proceedings declared by
the United States Patent and Trademark Office that could result
in substantial cost to the Company.*  No assurance can be given
that any such patent application will not have priority over
patent applications filed by the Company.

     The Company also relies upon trade secret protection,
employee and third-party nondisclosure agreements and other
intellectual property protection methods to protect its
confidential and proprietary information.  Despite these efforts,
there can be no assurance that others will not independently
develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade
secrets or disclose such technology or that the Company can
meaningfully protect its trade secrets.

     The Company has in the past funded a significant portion of
its research and development expenses from research and
development revenues received from photolithography tool
manufacturers and from SEMATECH, a semiconductor industry
consortium, in connection with the design and development of
specific products.  Although the Company's arrangements with
photolithography tool manufacturers and SEMATECH seek to clarify
the ownership of the intellectual property arising from research
and development services performed by the Company, there can be
no assurance that disputes over the ownership or rights to use or
market such intellectual property will not arise between the
Company and such parties.  Any such dispute could result in
restrictions on the Company's ability to market its products and
could have a material adverse effect on the Company's business,
financial condition and results of operations.

     The Company has in the past been, and may in the future be,
notified that it may be infringing intellectual property rights
possessed by third parties.*  The Company's Japanese
manufacturing partner, Seiko, has been notified by Komatsu, one
of the Company's competitors, that certain aspects of the
Company's lasers might infringe three patents that have been
issued to Komatsu in Japan, and that Komatsu intends to enforce
its rights under the Komatsu Patents against Seiko if Seiko
engages in manufacturing activities for the Company.  In
connection with its manufacturing agreement with Seiko, the
Company has agreed to indemnify Seiko against such claims under
certain circumstances. The Company has engaged in discussions
with Komatsu with respect to the Komatsu Patents, in the course
of which Komatsu has also identified to the Company a number of
pending applications and additional patents.  The Company,  in
consultation with Japanese patent counsel, has initiated
oppositions to the Komatsu Patents and  the applications in the
Japanese Patent Office.  However, there can be no assurance that
litigation will not ensue with respect to these claims, that the
Company and Seiko would ultimately prevail in any such litigation
or that Komatsu will not assert infringement claims under
additional patents.

     Any patent litigation would at a minimum be costly and could
divert the efforts and attention of the Company's management and
technical personnel, which could have a material adverse effect
on the Company's business, financial condition and results of
operations.  Furthermore, there can be no assurance that other
infringement claims by third parties or other claims for
indemnification by customers or end users of the Company's
products resulting from infringement claims will not be asserted
in the future or that such assertions, if proven to be true, will
not materially adversely affect the Company's business, financial
condition and results of operations.  If any such claims are
asserted against the Company, the Company may seek to obtain a
license under the third party's intellectual property rights.
There can be no assurance, however, that a license will be
available on reasonable terms or at all.  The Company could
decide, in the alternative, to resort to litigation to challenge
such claims or to design around the patented technology.  Such
actions could be costly and would divert the efforts and
attention of the Company's management and technical personnel,
which would materially adversely affect the Company's business,
financial condition and results of operations.

     The Company has registered the trademark CYMER in the United
States and certain other countries and is seeking additional
registrations in certain countries.  In Japan, the Company's
application for registration was rejected on the grounds that it
is similar to a trademark previously registered by a Japanese
company for a broad range of products.  The Company is seeking a
partial nullification of the other registration with respect to
laser devices and related components and does not believe that
the holder of the other trademark is engaged in any business
similar to that of the Company.  For this reason, the Company is
continuing to use the trademark CYMER in Japan and believes that
it will ultimately be permitted to register such mark for use
with its products and that it is not infringing the other
company's trademark.*  There can be no assurance that the Company
will ultimately succeed in its efforts to register its trademark
in Japan or that it will not be subjected to an action for
trademark infringement, which could be costly to defend and, if
successful, would require the Company to cease use of the mark
and, potentially, to pay damages.

     Dependence on Key Personnel.  The Company is highly
dependent on the services of a number of key employees in various
areas, including engineering, research and development, sales and
marketing and manufacturing.  In particular, there are a limited
number of experts in excimer laser technology and there is
intense competition for such personnel, as well as for the highly-
skilled hardware and software engineers the Company requires.
The Company has in the past experienced, and continues to
experience, difficulty in hiring personnel, including experts in
excimer laser technology.  The Company believes that, to a large
extent, its future success will depend upon the continued
services of its engineering, research and development, sales and
marketing and manufacturing and service personnel and on its
ability to attract, train and retain highly skilled personnel in
each of these areas.*  The Company does not have employment
agreements with any of its employees, and there is no assurance
that the Company will be able to retain its key employees.  The
failure of the Company to hire, train and retain such personnel
could have a material adverse effect on the Company's business,
financial condition and results of operations.

     Risks of International Sales and Operations.  Approximately
69%, 81% and 89% of the Company's revenues in 1995, 1996 and
1997, respectively, were derived from customers located outside
the United States.  Because a significant majority of the
Company's principal customers are located in other countries,
particularly Asia, the Company anticipates that international
sales will continue to account for a significant portion of its
revenues.*  In order to support its overseas customers, the
Company maintains subsidiaries in Japan, Korea, Taiwan and
Singapore, is expanding its field service and support operations
worldwide, and will continue to work with Seiko as a manufacturer
of its products in Japan.*  There can be no assurance that the
Company will be able to manage these operations effectively or
that the Company's investment in these activities will enable it
to compete successfully in international markets or to meet the
service and support needs of its customers.  Additionally, a
significant portion of the Company's sales and operations could
be subject to certain risks, including tariffs and other
barriers, difficulties in staffing and managing foreign
subsidiary and branch operations, currency exchange risks and
exchange controls, potentially adverse tax consequences and the
possibility of difficulty in accounts receivable collection.
Because many of the Company's principal customers, as well as
many of the end-users of the Company's laser systems, are located
in Asia, the recent economic problems and currency fluctuations
affecting that region could intensify the Company's international
risk.  Further, while the Company has experienced no difficulty
to date in complying with United States export controls, these
rules could change in the future and make it more difficult or
impossible for the Company to export its products to various
countries.  There can be no assurance that any of these factors
will not have a material adverse effect on the Company's
business, financial condition and results of operations.

     The Company's results of operations are subject to
fluctuations in the value of the Japanese yen against the U.S.
dollar due to sales by the Company to its Japanese subsidiary
being dominated in dollars, and sales by the subsidiary to
customers in Japan being dominated in yen.  The Company's
subsidiary manages its exposure to such fluctuations by entering
into foreign currency exchange contracts to hedge its purchase
commitments.  Although management will continue to monitor the
Company's exposure to currency fluctuations, and, when
appropriate, use financial hedging techniques to minimize the
effect of these fluctuations, there can be no assurance that
exchange rate fluctuations will not have a material adverse
effect on the Company's results of operations or financial
condition.  In the future, the Company could be required to sell
its products in other currencies, which would make the management
of currency fluctuations more difficult and expose the Company to
greater risks in this regard.*

     The Company's products are subject to numerous foreign
government standards and regulations that are continually being
amended.  Although the Company endeavors to meet foreign
technical and regulatory standards, there can be no assurance
that the Company's products will continue to comply with foreign
government standards and regulations, or changes thereto, or that
it will be cost effective for the Company to redesign its
products to comply with such standards and regulations.  The
inability of the Company to design or redesign products to comply
with foreign standards could have a material adverse effect on
the Company's business, financial condition and results of
operations.

     Environmental and Other Government Regulations.  Federal,
state and local regulations impose various controls on the
storage, handling, discharge and disposal of substances used in
the Company's manufacturing process and on the facility leased by
the Company.  The Company believes that its activities conform to
present governmental regulations applicable to its operations and
its current facilities, including those related to environmental,
land use, public utility utilization and fire code matters.
There can be no assurance that such governmental regulations will
not in the future impose the need for additional capital
equipment or other process requirements upon the Company or
restrict the Company's ability to expand its operations.  The
adoption of such measures or any failure by the Company to comply
with applicable environmental and land use regulations or to
restrict the discharge or hazardous substances could subject the
Company to future liability or could cause its manufacturing
operations to be curtailed or suspended.

     Risks of Product Liability Claims.  The Company faces a
significant risk of exposure to product liability claims in the
event that the use of its products results in personal injury or
death, and there can be no assurance that the Company will not
experience material product liability losses in the future.  The
Company maintains insurance against product liability claims, but
there can be no assurance that such coverage will continue to be
available on terms acceptable to the Company or that such
coverage will be adequate for liabilities actually incurred.
Also, in the event that any of the Company's products prove to be
defective, the Company may be required to recall or redesign such
products.  A successful claim brought against the Company in
excess of available insurance coverage, or any claim or product
recall that results in significant adverse publicity against the
Company, could have a material adverse effect on the Company's
business, financial condition and results of operations.

     Possible Price Volatility of Common Stock.  The market price
of the Company's Common Stock has been, and may continue to be,
extremely volatile.  The market price of Common Stock may be
significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of
technological innovations, new products or new contracts by the
Company or its competitors, developments with respect to patents
or proprietary rights, conditions and trends in the laser device
and other technology industries, changes in financial estimates
by securities analysts, general market conditions, and other
factors.  In addition, the stock market has experienced extreme
price and volume fluctuations that have particularly affected the
market price for  many high technology companies and that have
often been unrelated to the operating performance of these
companies.  The market price of the Company's Common Stock has
fluctuated substantially in recent periods, rising from $4 3/4
(all prices are adjusted to reflect the Company's 2-for-1 stock
split effective as of August 21, 1997) at the Company's initial
public offering on September 18, 1996 to $48 3/4 on August 22,
1997, and declining to $14 7/8 on January 16, 1998.  In the past,
following periods of volatility in the market price of a
particular company's securities, securities class action
litigation has often been brought against that company.  Such
litigation, if brought against the Company, could result in
substantial costs and a diversion of management's attention and
resources.

     Anti-Takeover Effect of Nevada Law and Charter and Bylaw
Provisions; Availability of Preferred Stock for Issuance.  Nevada
law and the Company's Articles of Incorporation and Bylaws
contain provisions that could discourage a proxy contest or make
more difficult the acquisition of a substantial block of the
Company's Common Stock.  In addition, the Board of Directors is
authorized to issue, without shareholder approval, up to
5,000,000 shares of Preferred Stock with voting, conversion and
other rights and preferences that may be superior to those of the
Common Stock and that could adversely affect the voting power or
other rights of the holders of Common Stock.  The issuance of
Preferred Stock or of rights to purchase Preferred Stock could be
used to discourage an unsolicited acquisition proposal.
  

Item 8.   Financial Statements and Supplementary Data

     The information required by this Item is included in Part IV
Item 14(a)(1) and (2).

Item 9.   Changes  in  and Disagreements  with  Accountants  on
          Accounting and Financial Disclosure

     There  have  been no disagreements with accountants  on  any
matter  of  accounting  principles  and  practices  or  financial
disclosure.

                            PART III
                                
Item 10.  Directors and Executive Officers of the Registrant.

     The  information regarding the identification  and  business
experience   of  the  Company's  directors  under   the   caption
"Nominees"   under the main caption "Proposal One -  Election  of
Directors"  in the Company's definitive Proxy Statement  for  the
annual  meeting  of stockholders to be held, as  filed  with  the
Securities and Exchange Commission within 120 days after the  end
of  the  Company's  fiscal  year  ended  December  31,  1997,  is
incorporated herein by this reference.  For information regarding
the  identification  and  business experience  of  the  Company's
executive officers, see "Executive Officers" at the end of Item 1
in  Part  I  of  this  Annual Report on Form  10-K.   Information
concerning  filing  requirements  applicable  to  the   Company's
executive  officers  and directors under the caption  "Compliance
With  Section  16(a) of the Exchange Act" in the Company's  Proxy
Statement is incorporated herein by this reference.

Item 11.  Executive Compensation

     The  information under the captions "Executive Compensation"
and  "Compensation of Directors" in the Company's Proxy Statement
is incorporated herein by reference.

Item  12.   Security Ownership of Certain Beneficial  Owners  and
Management

     The  information  under the caption "Security  Ownership  of
Principal  Stockholders and Management" under  the  main  caption
"Additional  Information"  in the Company's  Proxy  Statement  is
incorporated herein by this reference.

Item 13.  Certain Relationships and Related Transactions

     The information under the caption "Certain Transactions"  in
the  Company's  Proxy Statement is incorporated  herein  by  this
reference.

     With   the   exception   of  the  information   specifically
incorporated  by reference from the Company's Proxy Statement  in
Part  III of this Annual Report on Form 10-K, the Company's Proxy
Statement shall not be deemed to be filed as part of this Report.
Without  limiting  the  foregoing,  the  information  under   the
captions  "Report of the Compensation Committee of the  Board  of
Directors"  and  "Company's  Stock Performance"  under  the  main
caption "Additional Information" in the Company's Proxy Statement
is not incorporated by reference in this Annual Report on Form 10-
K.
                           PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on
          Form 8-K

     (a)   The  following  documents are filed  as  part  of,  or
incorporated by reference into, this Annual Report on Form 10-K:

          (1)  Financial Statements.   The following Consolidated
Financial  Statements  of Cymer, Inc. and  Independent  Auditors'
Report  are  included  in  a  separate  section  of  this  Report
beginning on page F-1:
          
      Description                                        Page Number

      Independent    Auditors'   Report...................   F-1
      Consolidated Balance Sheets as of December 31, 1996 
      and 1997....                                           F-2
      Consolidated Statements of  Income for the Years Ended
      December  31,  1995,  1996 and  1997.............      F-3
      Consolidated   Statements of Stockholders' Equity
      (Deficit) for the Years
      Ended  December 31, 1995, 1996 and  1997.........      F-4
      Consolidated Statements of Cash Flows for the Years
      Ended December 31, 1995, 1996 and 1997.............    F-5
      Notes to Consolidated Financial Statements............ F-7

          (2)  Financial Statement Schedules.  All financial
     statement  schedules  have  been  omitted  because  the
     required  information is not applicable or not  present
     in  amounts  sufficient to require  submission  of  the
     schedule,  or  because  the  information  required   is
     included  in  the consolidated financial statements  or
     the notes thereto.

          (3)   Exhibits.  The exhibits listed under  Item  14(c)
     hereof  are  filed with, or incorporated by reference  into,
     this Annual Report on Form 10-K.

     (b)  Reports on Form 8-K.  No reports on Form 8-K were filed
by  Registrant during the fourth quarter of the fiscal year ended
December 31, 1997.

     (c)  Exhibits.  The following exhibits are filed as part of,
or incorporated by reference into, this Annual Report on Form 10-K:
          
          21.1 Subsidiaries of Registrant

          23.1 Independent Auditors' Consent

          27.1  Financial  Data  Schedule  for  the  year  ended
                December 31, 1997




                            SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d)  of  the
Securities  Exchange Act of 1934, the registrant has duly  caused
this  report  to  be  signed on its behalf  by  the  undersigned,
thereunto duly authorized.

                                        CYMER, INC.


Dated:   March  25,  1998           By:  /s/  ROBERT P. AKINS
                                        Robert P. Akins, President


     Pursuant to the requirements of the Securities Exchange  Act
of  1934,  this  report has been signed below  by  the  following
persons on behalf of the registrant and in the capacities and  on
the date indicated.


                                                        
  /s/ ROBERT P. AKINS         President, Chief         
      Robert P. Akins         Executive Officer,      
                              and Chairman of the
                              Board                   March 25, 1998
                               
  /s/ WILLIAM A. ANGUS,III    Senior Vice President,   
     William A. Angus, III    Chief Financial Officer 
                              and Secretary           March 25, 1998
                                                        
 /s/ NANCY J. BAKER           Director, Corporate      
     Nancy J. Baker           Finance, Treasurer and
                              Chief Accounting
                              Officer                 March 25, 1998
                                                        
 /s/ RICHARD P. ABRAHAM       Director               
     Richard P. Abraham                               March 25, 1998
                                                        
 /s/ KENNETH M. DEEMER        Director                 
     Kenneth M. Deemer                                March 25, 1998
                                                        
 /s/ PETER J. SIMONE          Director                 
     Peter J. Simone                                  March 25, 1998
                                                        
 /s/ F. DUWAINE TOWNSEN       Director                 
     F. Duwaine Townsen                               March 25, 1998
                                                                 


INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders of Cymer, Inc.:


We have audited the accompanying consolidated balance sheets of
Cymer, Inc. and subsidiaries (collectively the "Company") as of
December 31, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended
December 31, 1997.  These financial statements are the
responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Cymer, Inc. and subsidiaries as of December 31, 1996 and 1997,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.



DELOITTE & TOUCHE LLP
San Diego, California
February 17, 1998



CYMER, INC.                                                            
CONSOLIDATED BALANCE SHEETS                                            
(In thousands, except share data)                                      

<TABLE>
<CAPTION>
                                                       December 31,    
ASSETS                                              1996          1997   
CURRENT ASSETS:                                                        
<S>                                              <C>           <C>
  Cash and cash equivalents                       $55,405       $51,903
  Short-term investments                           10,449        80,387 
  Accounts receivable - net                        18,833        59,140 
  Foreign exchange contracts receivable             9,317        31,267 
  Inventories                                      15,678        47,502 
  Deferred income taxes                             1,432        12,690 
  Prepaid expenses and other                        1,880         2,847 
     Total current assets                         112,994       285,736 
                                                                      
PROPERTY - net                                     11,707        48,031 
LONG-TERM INVESTMENTS                               1,361        42,667 
OTHER ASSETS                                        3,405         8,446 
                                                                       
TOTAL ASSETS                                     $129,467      $384,880
                                                                       
LIABILITIES AND STOCKHOLDERS' EQUITY                                   
                                                                       
CURRENT LIABILITIES:                                                   
  Accounts payable                                 $7,095       $22,615 
  Accrued and other liabilities                     8,401        26,860 
  Foreign exchange contracts payable                8,396        27,278 
  Income taxes payable                              2,609         6,444 
  Revolving loan and security agreements            1,750             
      Total current liabilities                    28,251        83,197 
                                                                      
CONVERTIBLE SUBORDINATED NOTES                                  172,500 
OTHER LIABILITIES                                   2,396         3,566 
MINORITY INTEREST                                                 1,077 
COMMITMENTS AND CONTINGENCIES (NOTES 4, 5, 7, 9                        
  and 10)
                                                                       
STOCKHOLDERS' EQUITY:                                                  
 Preferred stock - authorized 5,000,000 shares;                        
 $.001 par value, no shares issued or 
 outstanding                                    
 Common stock - authorized 50,000,000 shares;                          
 $.001 par value, issued and outstanding 
 27,560,000 and 28,724,000                             28            29 
 Paid-in capital                                  106,658       109,367 
 Net unrealized gain on investments                                  49 
 Retained earnings (accumulated deficit)           (7,421)       18,637 
 Cumulative translation adjustment                   (445)       (3,542) 
     Total stockholders' equity                    98,820       124,540 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $129,467      $384,880
</TABLE>
                                                                       
See Notes to Consolidated Financial Statements.                        


CYMER, INC.                                                            
CONSOLIDATED STATEMENTS OF OPERATIONS                                  
(In thousands, except per share data)                                  

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                           1995         1996        1997    
REVENUES:                                                              
<S>                                      <C>          <C>         <C>
  Product sales                          $15,576      $62,510     $201,191
  Other                                    3,244        2,485        2,456 
    Total revenues                        18,820       64,995      203,647 
COSTS AND EXPENSES:                                                    
  Cost of product sales                    8,786       35,583      123,654 
  Research and development                 6,154       11,742       24,971 
  Sales and marketing                      2,353        5,516       11,992 
  General and administrative               1,181        4,270        8,586 
      Total costs and expenses            18,474       57,111      169,203 
OPERATING INCOME                             346        7,884       34,444 
OTHER INCOME (EXPENSE):                                                
  Foreign currency exchange gain 
   (loss) - net                               10          161         (359) 
  Interest and other income                   32          347        5,318 
  Interest and other expense                (283)        (691)      (4,847) 
    Total other income (expense)-net        (241)        (183)         112 
INCOME BEFORE PROVISION FOR           
 INCOME TAXES & MINORITY INTEREST            105        7,701       34,556
PROVISION FOR INCOME TAXES                   (36)      (1,191)      (8,639) 
MINORITY INTEREST                                                      141 
NET INCOME                                   $69       $6,510      $26,058 
EARNINGS PER SHARE:                                                    
  Basic:                                                               
    Earnings per share                                  $0.33        $0.92 
    Weighted average common shares                     
    outstanding                                        19,868       28,212
  Diluted:                                                             
    Earnings per share                                  $0.29        $0.86 
    Weighted average common and common                  
    equivalent shares                                  22,420       30,267
</TABLE>
                                                                       
See Notes to Consolidated Financial                                    
Statements.


CYMER, INC.                   
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                   
(DEFICIT)

<TABLE>
<CAPTION>
                                                                                                    Retained
                                                                  Net Unrealized     Cumulative     Earnings/  
                                    Common Stock       Paid-in       Gain on        Translation   (Accumulated      Stockholders'
                                  Shares    Amount     Capital     Investments       Adjustment      Deficit)     Equity (Deficit)
<S>                             <C>           <C>   <C>                   <C>          <C>          <C>              <C>
BALANCE, JANUARY 1, 1995          2,182        22       $153                              ($29)     ($19,898)        ($19,752) 
 Exercise of common stock
  options                           138         1         31                                                               32
 Cumulative translation
  adjustment                                                                              (176)                          (176)
 Accretion of redemption -
  preferred stock                                                                                     (2,003)          (2,003)
 Net income                                                                                               69               69
BALANCE, DECEMBER 31, 1995        2,320        23        184                              (205)      (21,832)         (21,830)      
                                                                                                         
 Change in par value due to
  reincorporation                             (20)        20                   
 Exercise of common stock 
  options                           254                   93                                                               93
 Issuance of common stock under 
  consulting agreement               20                  100                                                              100
 Initial public offering of
  common stock, net of
  issuance costs                  7,018         7     29,733                                                           29,740
 Conversion of preferred stock
  and warrants to common stock   15,408        15     26,543                                                           26,558
 Secondary public offering of                                        
  common stock,
  net of issuance costs           2,540         3     49,985                                                           49,988
 Cumulative translation                                              
  adjustment                                                                              (240)                          (240)
 Reversal of accretion of                                                                                              
redemption upon
  conversion of preferred stock                                                                        7,901            7,901
 Net income                                                                                            6,510            6,510      
BALANCE, DECEMBER 31, 1996       27,560        28    106,658                              (445)       (7,421)          98,820  
                                                                                                         
 Exercise of common stock 
  options and warrants            1,045         1        473                                                              474
 Issuance of employee stock
  purchase plan shares              119                  852                                                              852
 Income tax benefit from stock
  options exercised                                    1,802                                                            1,802 
 Deferred issuance costs,
  secondary public offering                             (418)                                                            (418)
 Net unrealized gain on
  available-for-sale
  investments                                                              49                                              49
 Cumulative translation
  adjustment                                                                            (3,097)                        (3,097) 
 Net income                                                                                           26,058           26,058
BALANCE, DECEMBER 31, 1997       28,724       $29   $109,367              $49          ($3,542)      $18,637         $124,540  
</TABLE>
                                                    
See Notes to Consolidated Financial                        
Statements.


CYMER, INC.                                                   
CONSOLIDATED STATEMENTS OF CASH FLOWS                         
(In thousands)                                                
<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                             1995        1996        1997
<S>                                        <C>        <C>        <C>
OPERATING ACTIVITIES:                                         
  Net income                                  $69      $6,510     $26,058
  Adjustments to reconcile net income                         
   to net cash
   used for operating activities:                            
     Depreciation and amortization            820       2,284       7,606
     Minority interest                                               (141)
     Deferred income taxes                             (1,432)    (11,295)
     Loss on disposal of property                         223            
     Change in assets and                                    
      liabilities:
     Accounts receivable                   (2,574)    (15,436)    (43,467)
     Foreign exchange contracts                            
      receivable                                       (9,317)    (24,819)
      Inventories                          (2,813)    (10,512)    (32,288)
      Prepaid expenses and other
       assets                                  99      (4,919)     (1,029)
      Accounts payable                      1,404       5,501      15,684
      Accrued and other liabilities           379       8,769      18,602
      Foreign exchange contracts
       payable                                          8,396      21,397
      Income taxes payable                              2,609       6,166
      Other                                   502        (674)        194
         Net cash used for operating
          activities                       (2,114)     (7,998)    (17,332)
                                                              
INVESTING ACTIVITIES:                                         
  Acquisition of property                  (2,653)    (11,090)    (42,209)
  Disposal of property                        226          16         147
  Purchases of investments                            (13,715)   (140,939)
  Proceeds from sold or matured
   investments                                          1,900      29,370
     Net cash used for investing
      activities                           (2,427)    (22,889)   (153,631)
                                                              
FINANCING ACTIVITIES:                                         
  Net borrowings (payments) under                             
   revolving loan and
   security agreements                      1,240      (1,036)     (1,750)
  Proceeds from issuance of                                 
   convertible subordinated notes                                 172,500
  Debt issue costs                                                 (5,228)
  Proceeds from issuance of redeemable                               
   convertible preferred stock              3,407       6,050            
  Proceeds from issuance of common
   stock                                       32      79,935       2,125
  Net discounting of commercial drafts       (390)     (1,240) 
  Payments on capital lease 
   obligations                                (27)       (159)       (395)
     Net cash provided by 
      financing activities                  4,262      83,550     167,252
                                                              
EFFECT OF EXCHANGE RATE CHANGES ON                            
 CASH AND CASH EQUIVALENTS                    (32)        727         209

NET INCREASE (DECREASE) IN CASH AND                                  
 CASH EQUIVALENTS                            (311)     53,390      (3,502)

CASH AND CASH EQUIVALENTS AT 
 BEGINNING OF YEAR                          2,326       2,015      55,405

CASH AND CASH EQUIVALENTS AT
 END OF YEAR                               $2,015     $55,405     $51,903

SUPPLEMENTAL DISCLOSURE OF
 CASH FLOW INFORMATION:
 Interest paid                                219         467         671
 Income taxes paid                             36          14      11,991

SUPPLEMENTAL DISCLOSURE OF
 NONCASH INVESTING AND 
 FINANCING ACTIVITIES:

 Conversion of Redeemable
  Convertible Preferred Stock
  to common stock upon initial
  public offering                                     $26,558

 Capital lease obligations
  incurred for furniture and
  equipment                                   100         573       1,950

 Net book value of property
  transferred to inventory for
  resale                                      177

 Conversion of subordinated
  promissory notes and related
  interest payable to Redeemable
  Convertible Preferred Stock               3,755       
</TABLE>

See Notes to Consolidated Financial Statements
    

CYMER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Nature of Operations - Cymer, Inc., its wholly-owned subsidiaries, Cymer
   Japan, Inc. (Cymer Japan) and Cymer Singapore, Pte Ltd. (Cymer Singapore)
   and its majority-owned subsidiaries, Cymer Korea, Inc. (Cymer Korea) and
   Cymer Southeast Asia, Inc. (Cymer SEA) (collectively, the "Company") is
   engaged primarily in the development, manufacturing and marketing of excimer
   lasers for sale to manufacturers of photolithography tools in the 
   semiconductor equipment industry.  The Company sells its product to
   customers primarily in Japan, the Netherlands and the United States.

   Reincorporation and Recapitalization - The Company's Board of Directors
   and stockholders approved a reincorporation into the State of Nevada that
   became effective on August 21, 1996.  In connection with the reincorporation,
   the Company increased its authorized common stock to 50,000,000 shares.
   The Board of Directors and stockholders also approved the creation of a new
   class of 5,000,000 shares of undesignated preferred stock, which was
   authorized on the closing of the Company's initial public offering.

   The Company completed its initial public offering of 7,018,000 shares of
   common stock on September 18, 1996, resulting in net proceeds to the Company
   of approximately $29.7 million.  In connection with the offering, all
   outstanding Redeemable Convertible Preferred Stock and related outstanding
   warrants were converted into 15,408,000 shares of common stock (see Note 6).
   On December 12, 1996, the Company completed a secondary public offering
   of 2,540,000 shares of common stock, resulting in net proceeds to the
   Company of approximately $50 million.

   Principles of Consolidation - The consolidated financial statements include
   the accounts of Cymer, Inc., its wholly-owned subsidiaries, Cymer Japan and
   Cymer Singapore, and its majority-owned subsidiaries, Cymer Korea and Cymer
   SEA.  Cymer, Inc. owns 70% of Cymer Korea and 75% of Cymer SEA.  The Company
   sells its excimer lasers in Japan primarily through Cymer Japan.  Cymer 
   Korea, Cymer SEA and Cymer Singapore are field service offices for
   customers in those regions.  All significant intercompany balances have
   been eliminated in consolidation.

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

   Cash Equivalents - Cash equivalents consist of money market instruments,
   commercial paper and other highly liquid investments purchased with an
   original maturity of three months or less.

   Investments - The Company's investments are composed primarily of
   government and corporate fixed income securities, certificates of deposit
   and commercial paper.  While it is the Company's general intent to hold
   such securities until maturity, management will occasionally sell 
   particular securities for cash flow purposes.  Therefore, the Company's
   investments are classified as available-for-sale and are carried at fair
   value.  Net unrealized holding gains were $49,000 at December 31, 1997 and
   are included in stockholders' equity.  Such amounts were not material in
   1996.  See Note 3.

   Inventories - Inventories are carried at the lower of cost (first-in, 
   first-out) or market.  Cost includes material, labor and manufacturing
   overhead costs.

   Property - Property is stated at cost.  Depreciation is provided using the
   straight-line method over the estimated useful lives of the assets
   (generally three to five years).  Leasehold improvements are amortized,
   using the straight-line method, over the shorter of the life of the 
   improvement or the remaining lease term.  Lasers built for internal use are
   capitalized and depreciated using the straight-line method over three years.

   Impairment of Long-Lived Assets - Effective January 1, 1996, the Company
   adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
   "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
   Assets to be Disposed Of".  SFAS No. 121 requires that long-lived assets
   be reviewed for impairment and written down to fair value whenever events
   or changes in circumstances indicate that the carrying value may not be
   recoverable.  Under the provisions of SFAS No. 121, impairment losses are
   recognized when expected future cash flows are less than the assets'
   carrying value.  In 1996, the Company recorded expenses related to
   impairment losses totaling $223,000.  No such losses occurred in 1997.

   Fair Value of Financial Instruments - The following methods and assumptions
   were used to estimate the fair value of each class of financial instruments
   for which it is practicable to estimate that value:

   Cash and Cash Equivalents - The carrying amount reported in the consolidated
   balance sheets for cash and cash equivalents approximates fair value
   because of the short maturity of those instruments.

   Investments - Investments consist primarily of government and corporate
   fixed income securities, certificates of deposit and commercial paper (see
   "Investments" and Note 3).  Such assets are carried at fair value which
   is based on quoted market prices for such securities.

   Foreign Exchange Contracts - The fair value of foreign exchange contracts
   is determined using the quoted exchange rate (see "Foreign Exchange 
   Contracts").

   Convertible Subordinated Notes - Convertible Subordinated Notes are
   recorded at face value of $172.5 million (see Note 5).  The fair value
   of such debt, based on quoted market prices at December 31, 1997 was $139.0
   million.

   Revenue Recognition - Revenue from product sales is generally recognized at
   the time of shipment unless customer agreements contain inspection or other
   conditions, in which case revenue is recognized at the time such conditions
   are satisfied.  Product sales include sales of lasers, replacement parts,
   and product service contracts.  Other revenue primarily represents revenue
   earned from funded development activities and license fees.  Such revenue
   is recognized on a basis consistent with the performance requirement of the
   agreements.  Payments received in advance of performance are recorded as
   deferred revenue.  Long-term contracts are accounted for on the 
   percentage-of-completion method based upon the relationship of costs incurred
   to total estimated costs, after giving effect to estimates of costs to
   complete.

   Research and development revenues totaled $3,244,000, $2,485,000 and
   $2,456,000 for the years ended December 31, 1995, 1996 and 1997
   respectively.

   Warranty Expense - The Company generally warrants its products against 
   defects for the earlier to occur of 17 months from the date of shipment or
   12 months after acceptance by the end-user.  The Company accrues a provision
   for warranty expense for all products sold.  The amount of the provision is
   based on actual historical expenses incurred and estimated probable future
   expenses related to current sales.  Warranty costs incurred are charged
   against the provision.

   Stock-Based Compensation - Effective January 1, 1996, the Company adopted
   SFAS No. 123, "Accounting for Stock-Based Compensation".  SFAS No. 123
   encourages, but does not require, companies to record compensation cost for
   stock-based employee compensation plans at fair value.  The Company has
   chosen to continue to account for stock-based compensation using the
   intrinsic value method prescribed in Accounting Principles Board ("APB")
   Opinion No. 25, "Accounting for Stock Issued to Employees", and related
   interpretations.  Accordingly, compensation cost for stock options is
   measured as the excess, if any, of the quoted market price of the Company's
   stock at the date of the grant over the amount an employee must pay to
   acquire the stock.  See Note 7.
 
   Foreign Currency Translation - Gains and losses resulting from foreign 
   currency translation are accumulated as a separated componenet of
   consolidated stockholders' equity.  Gains and losses resulting from
   foreign currency transactions are included in the consolidated statements
   of operations.

   Foreign Exchange Contracts - The Company enters into foreign currency
   exchange contracts in order to reduce the impact of currency fluctuations
   related to purchases of the Company's inventories by Cymer Japan for resale
   under firm third-party sales commitments.  Net gains or losses are 
   recorded on the date the inventories are received by Cymer Japan (the
   transaction date) and are included in cost of product sales in the
   consolidated statements of operations as the related sale is consummated.
   Amounts due from/to the bank on contracts not settled as of the transaction
   date are recorded as foreign exchange contracts receivable/payable in the
   consolidated balance sheets.

   The Company recognized net gains from the above foreign currency exchange
   contracts of $496,000, $1,920,000 and $5,758,000 for the years ended
   December 31, 1995, 1996 and 1997, respectively.  The face amount of the
   underlying contracts was $4,048,000, $16,123,000 and $88,339,000 at
   December 31, 1995, 1996 and 1997, respectively.  The Company also had 
   outstanding forward foreign exchange contracts at December 31, 1997 to buy
   $81.3 million for 9.6 billion yen under foreign currency exchange 
   facilities with banks in Japan and the United States (see Note 4).  The
   total unrecorded deferred gain and premium on these contracts as of 
   December 31, 1997, was $4,125,000.  Such contracts expire on various dates 
   through November 1998.

   Concentration of Credit Risk - The Company invests its excess cash in an
   effort to preserve capital, provide liquidity, maintain diversification and
   generate returns relative to the Company's corporate investment policy and
   prevailing market conditions.  The Company has not experienced any losses
   on its cash accounts.  The Company has a small number of significant
   customers and maintains a reserve for potential credit losses and such
   losses, to date, have been minimal (see "Major Customers and Related
   Parties").

   Major Customers and Related Parties - Revenues from major customers are
   detailed as follows:
<TABLE>
<CAPTION>
                                             Year ended December 31,
                                           1995         1996        1997
    Customer                                        (in thousands)
    <S>                                   <C>         <C>         <C>
    A                                     $5,035      $20,123     $80,156
    B                                      3,557       19,134      51,480
    C                                      3,395       12,586      49,441
    D                                                   6,555      11,697
</TABLE>

   Receivables from these customers totaled $16,183,000 and $51,467,000 at 
   December 31, 1996 and 1997, respectively.

   Revenues from Japanese customers, generated primarily by Cymer Japan, 
   accounted for 50%, 61% and 65% of revenues for the years ended December 31,
   1995, 1996 and 1997, respectively.  Revenues from a customer in the
   Netherlands accounted for 18%, 19% and 24% of revenues for the years
   ended December 31, 1995, 1996 and 1997, respectively.

   Revenues from stockholders totaled $9,085,000, $52,114,000 and $131,636,000 
   for the years ended December 31, 1995, 1996 and 1997, respectively.

   Earnings Per Share - In February 1997, the Financial Accounting Standards
   Board issued SFAS No. 128, "Earnings Per Share", effective for financial
   statements issued after December 15, 1997.  SFAS No. 128 requires dual
   presentation of "Basic" and "Diluted" EPS by entities with complex capital
   structures, replacing "Primary" and "Fully Diluted" EPS under APB Opinion
   No. 15.  Basic EPS excludes dilution from common stock equivalents and
   is computed by dividing income available to common stockholders by the
   weighted-average number of common shares outstanding for the period.
   Diluted EPS reflects the potential dilution from common stock equivalents, 
   similar to fully diluted EPS, but uses only the average stock price during
   the period as part of the computation.  The Company adopted the new method
   of reporting EPS for the year ended December 31, 1997 and the 1996 financial 
   statements have been restated to reflect the change.  Reconciliation of the
   basic and diluted EPS is as follows:

<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                                    1996               1997
                                                     (in thousands, except
                                                       per share amounts)

   <S>                                            <C>               <C>
   Net income                                     $6,510            $26,058
   Basic earnings per share                        $0.33              $0.92
   Basic weighted average common shares
    outstanding                                   19,868             28,212

   Effect of dilutive securities:
    Warrants                                         560                121
    Options                                        1,992              1,934
   Diluted weighted average common and
    commmon equivalent shares outstanding         22,420             30,267
   Diluted earnings per share                      $0.29              $0.86
</TABLE>

   Weighted average options to purchase 9,764 and 412,000 shares of common
   stock, which expire at various dates through October 1, 2007 were 
   outstanding for the period ended December 31, 1996 and 1997, respectively,
   and were not included in the computation of diluted earnings per share
   as the options' exercise prices were greater than the average market price
   of the common shares.  In addition, for the period ended December 31, 1997,
   Convertible Subordinated Notes and related interest expense of $4,249,000 
   were not included in the diluted earnings per share computation as they were
   also anti-dilutive.

   Stock Split - On August 7, 1997, the Company declared a 2-for-1 stock split
   of its Common Stock effective August 21, 1997.  The Company's par value of
   $.001 per share remained unchanged.  All common share amounts and earnings
   per share for all periods presented have been adjusted to give effect to
   this stock split.

   Reclassifications - Certain amounts in the prior years' financial statements
   have been reclassified to conform to current period presentation.

2. BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
                                                           December 31,
                                                       1996           1997
                                                          (in thousands)
   <S>                                               <C>            <C>
   ACCOUNTS RECEIVABLE:
    Trade                                            $19,072        $56,856
    Other                                                466          3,030
                                                      19,538         59,886
    Less allowance for doubtful accounts                (705)          (746)
   Total                                             $18,833        $59,140

   INVENTORIES:
    Raw materials                                     $6,243        $24,365
    Work-in-progress                                   6,680         18,394
    Finished goods                                     2,755          4,743
   Total                                             $15,678        $47,502

   PROPERTY - at cost:
    Furniture and equipment                          $10,888        $30,202
    Capitalized lasers                                 3,474         10,163
    Leasehold improvements                             1,713         19,083
    Construction in process                            1,229          1,435
                                                      17,304         60,883
    Less accumulated depreciation and
     amortization                                     (5,597)       (12,852)
   Total                                             $11,707        $48,031

   ACCRUED AND OTHER LIABILITIES:
    Warranty and installation reserves               $ 4,950        $15,730
    Payroll and payroll related                          932          2,735
    Interest                                                          3,920
    Other                                              2,519          4,475
   Total                                             $ 8,401        $26,860
</TABLE>

3. INVESTMENTS

   Investments consist of the following:

<TABLE>
<CAPTION>
                                                          December 31,
                                                       1996          1997
                                                         (in thousands)
   <S>                                               <C>            <C>
   Short-term:
    Municipal Bonds                                   $3,706        $32,923
    Corporate Bonds                                                  14,151
    Certificates of Deposit                                          14,113
    Commercial Paper                                     591          8,900
    Auction Market Preferred                                          5,000
    U.S. Government Agencies                             300          3,000
    Weekly Municipal Floater                           4,602            500
    Other                                              1,250          1,800

   Total                                             $10,449        $80,387

   Long-term:
    Municipal Bonds                                  $ 1,061        $29,670
    Corporate Bonds                                                  12,997
    Medium-Term Notes                                    300

   Total                                              $1,361        $42,667
</TABLE>

   Investments are recorded at fair value.  Short-term investments mature
   within one year and long-term investments mature in one year to 23 months.
   See also "Investments" in Note 1.

4. CREDIT FACILITIES

   Revolving Loan Facility - The Company had a revolving loan facility
   ("Loan Facility") providing for borrowings of up to $1,000,000 and
   guaranteed by a preferred stockholder of the Company (see Note 10).
   Interest was payable quarterly, and the balance was due on the earlier
   of March 31, 1997 or the completion of the Company's initial public
   offering.  The $1,000,000 balance owed plus accrued interest due against
   the Loan Facility was paid upon completion of the Company's initial public
   offering in September 1996.

   Loan and Security Agreement - In 1996, the Company had a Loan and Security
   Agreement (the "Agreement") that provided for three revolving loan 
   facilities and a loan with a bank to provide for combinned borrowings of up 
   to a maximum of $11,000,000 with interest on outstanding borrowings ranging
   from prime to prime plus 0.25% (8.25% and 8.50%, respectively, at December
   31, 1996).  Borrowings under the Agreement were secured by substantially all
   of the Company's assets.  There was $1,750,000 outstanding under the
   Agreement at December 31, 1996.

   The Agreement required the Company to maintain compliance with certain
   financial statement and other covenants including, among other items,
   limitation on additional debt, total liabilities to tangible net worth and
   minimum tangible net worth.  As of December 31, 1996, the Company was in
   compliance with all such covenants.  In 1997, the outstanding balance was
   paid off and the Agreement was terminated.

   Revolving Loan Agreement - The Company has a Loan Agreement (the "Agreement")
   which provides two revolving loan facilities with a bank to provide for
   combined borrowings of up to a maximum of $5.0 million with interest on
   outstanding borrowings at prime less 0.50% or LIBOR plus 2.25%.  The
   Agreement provides for the following: (i) an unsecured $2.0 million
   revolving bank line of credit and (ii) an unsecured $3.0 million Optional
   Currency revolving line of credit.  There were no borrowings outstanding
   under this Agreement at December 31, 1997.

   The Agreement requires the Company to maintain compliance with certain
   financial statement and other covenants including, among other items, 
   tangible net worth and cash flow ratio requirements.  As of December 31,
   1997, the Company was in compliance with all such covenants.

   Advances Against Commercial Drafts - Advances against commercial drafts
   represent funds advanced by two banks in Japan, without recourse, in
   connection with the discounting of certain commercial drafts received
   from customers as payment for the purchase of merchandise.  The advances
   against commercial drafts are for a maximum of 2.1 billion yen
   (approximately $18.1 million) as of December 31, 1996 and 10.7 billion yen
   (approximately $81.9 million) as of December 31, 1997, are discounted
   at the bill discount rate plus 0.25% to 0.5% (1.875% at December 31, 1996
   and 2.125% at December 31, 1997) and generally mature within 120 days.
   The Company had deposited $459,000 with a bank under lien to the bank as
   security under the agreement in 1996.  No such deposit was required in 1997.

   Foreign Exchange Facilities - The Company has foreign exchange facilities
   with banks in Japan and a bank in the United States.  The first facility with
   a bank in Japan provides up to $43.2 million in 1996 and 14.3 billion yen in
   1997 to be utilized for forward contracts for periods of up to one year.
   As of December 31, 1996 and 1997, respectively, $18.7 million and 4.2 billion
   yen ($36.4 million) was being utilized under the foreign exchange facility
   (see "Foreign Exchange Contracts" in Note 1).

   The second foreign exchange facility with another bank in Japan provides up
   to $32.4 million in 1996 and $50.0 million in 1997 to be utilized for forward
   contracts for periods of up to nine months.  As of December 31, 1996, $24.5
   million was being utilized under this facility.  There were no foreign
   exchange contracts outstanding under this agreement at December 31, 1997.

   The foreign exchange facility with the United States bank provides up to
   $3.5 million in 1996 and $100.0 million in 1997 to be utilized for spot and
   future foreign exchange contracts for periods of up to one year.  There
   were no foreign exchange contracts outstanding under this agreement at
   December 31, 1996.  As of December 31, 1997, $44.9 million was being
   utilized under the foreign exchange facility.  This facility is part of the
   Revolving Loan Agreement discussed above and is subject to the same
   covenants.

5. CONVERTIBLE SUBORDINATED NOTES

   In the third quarter of 1997, the Company issued $172.5 million aggregate
   principal amount of Step-Up Convertible Subordinated Notes (the "Notes")
   due August 6, 2004 with interest payable semi-annually February 6 and
   August 6, commmencing February 6, 1998.  Interest on the notes is stated at
   3 1/2% per annum from August 6, 1997 through August 5, 2000 and at
   7 1/4% per annum from August 6, 2000 to maturity or earlier redemption, 
   representing a yield to maturity accrued at approximately 5.47%.  The 
   Notes are convertible at the option of the holder into shares of Common 
   Stock of the Company at any time on or after November 5, 1997 and prior to 
   redemption or maturity, at a conversion rate of 21.2766 shares per $1,000 
   principal amount of Notes, subject to adjustment under certain conditions.  
   The Company cannot redeem the Notes prior to August 9, 2000.  Thereafter, 
   the Company can redeem the Notes from time to time, in whole or in part, 
   at specified redemption prices.  The Notes are unsecured and subordinated 
   to all existing and future senior indebtedness of the Company.  The 
   indenture governing the Notes does not restrict the incurrence of senior 
   indebtedness or other indebtedness by the Company.

6. REDEEMABLE CONVERTIBLE PREFERRED STOCK

   Upon the Company's initial public offering in September 1996, all Redeemable
   Convertible Preferred Stock (approximately 15.4 million shares) and
   Redeemable Convertible Preferred Stock warrants (to purchase 566,000 shares
   of such stock) were automatically converted into the Company's common stock
   or warrants to purchase common stock.  The conversion of the preferred stock
   and warrants to common was on a 1 for 1 basis, except for the Series E
   preferred stock and warrants, which were converted on an approximate 1.5 to
   1 basis.  Upon conversion of the preferred stock and warrants, all preferred
   stock dividends and other rights previously assigned ceased.  In addition,
   upon the September 1996 conversion discussed above, the cumulative accretion
   of the Redeemable Convertible Preferred Stock of $7,901,000 was recorded
   as a reduction of the acumulated deficit.

7. STOCKHOLDERS' EQUITY (DEFICIT)

   Preferred Stock - Pursuant to the Company's Articles of Incorporation, the
   Board of Directors has the authority, without further action by the
   stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or
   more series and to fix the designations, powers, preferences, privileges,
   and relative participation, optional or special rights and the 
   qualifications, limitations or restrictions thereof, including dividend 
   rights, conversion rights, voting rights, terms of redemption and 
   liquidation preferences, any or all of which may be greater than the
   rights of the common stock.

   Common Stock Warrants - At December 31, 1997, the Company had warrants
   outstanding to purchase 130,000 shares of its common stock at a weighted
   average purchase price of $1.69 per share.  The warrants expire in 2000
   and 2001.

   Stock Option and Purchase Plans - The Company has three plans as follows:

                                                       Common Shares
                                                       Designated for
                                                          Issuance

       (i)   1987 Stock Plan                             3,000,000
       (ii)  1996 Stock Option Plan                      3,000,000
       (iii) 1996 Employee Stock Purchase Plan             500,000

             Total                                       6,500,000


   (i) 1987 Stock Option Plan (the "1987 Plan") - The 1987 Plan provides that
incentive and nonstatutory options to purchase shares of common stock may be
granted to employees and consultants at prices that are not less than 100%
(85% for nonstatutory options) of the fair market value of the Company's
common stock on the date the options are granted. The 1987 Plan also provides
for various restrictions regarding option terms, prices, transferability and
other matters.  Options issued under the 1987 Plan expire five to ten years
after the options are granted and generally become exercisable ratably over
a four-year period following the date of grant.

  (ii) 1996 Stock Option Plan (the "1996 Stock Plan") - The 1996 Stock Plan
provides for the grant of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and nonqualified stock options to employees, directors and consultants of the
Company.  Incentive stock options may be granted only to employees.  The 1996
Stock Plan is administered by the Board of Directors or by a committee appointed
by the Board of Directors, which determines the terms of options granted,
including the exercise price and the number of shares subject to the option.
The exercise price of incentive stock options granted under the 1996 Stock
Plan must be at least equal to the fair market value of the Company's 
common stock on the date of grant and the exercise price of nonqualified
stock options must be at least equal to 85% of the fair market value of the
Company's common stock on the date of grant.  Options issued under the 1996
Plan expire five to ten years after the options are granted and generally
become exercisable ratably over a four-year period following the date of
grant.

  (iii) 1996 Employee Stock Purchase Plan (the "Purchase Plan") - The
Purchase Plan is intended to qualify under Section 423 of the Code.  Under
the Purchase Plan, an eligible employee may purchase shares of common stock
from the Company through payroll deductions of up to 10% of his or her base
compensation (excluding bonuses, overtime and sales commissions), at a price
per share equal to 85% of the lower of (i) the fair market value of the
Company's common stock as of the first day of each offering period under the
Purchase Plan or (ii) the fair market value of the common stock at the end
of the offering period.

In 1996 the Company had adopted a 1996 Director Option Plan (the "Director
Option Plan") whereby 200,000 shares were reserved for the Board of Director
option grants.  There was 80,000 options issued under the Plan in 1997.  The
plan was dissolved in October 1997 by the Board of Directors.

Stock option transactions are summarized as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
                                                             Weighted Average
                                            Number of         Exercise Price
                                             Shares             Per Share
   <S>                                        <C>                <C>
   Outstanding, January 1, 1995                 848              $  0.38
    Granted                                   1,958              $  0.31
    Exercised                                  (118)             $  0.35
    Terminated                                 (766)             $  0.34

   Outstanding, December 31, 1995             1,922              $  0.33
    Granted                                   1,444              $  7.16
    Exercised                                  (254)             $  0.37
    Terminated                                  (78)             $  1.16

   Outstanding, December 31, 1996             3,034              $  3.48
    Granted                                   1,838              $ 27.20
    Exercised                                  (608)             $  0.78
    Terminated                                 (217)             $  8.93

   Outstanding, December 31, 1997             4,047              $ 14.39

   Exercisable, December 31, 1995               400              $  0.27
   Exercisable, December 31, 1996               586              $  0.31
   Exercisable, December 31, 1997               846              $  3.73
</TABLE>

The Company applies APB Opinion No. 25 and related interpretations in accounting
for its employee stock options plans.  Accordingly, no compensation expense
has been recognized for its stock-based compensation plan, as the options are
granted at the fair market value of the Company's common stock.  Had
compensation cost been determined based upon the fair value at the grant date
for awards under the plan consistent with the methodology prescribed under
SFAS No. 123, the Company's net income for the year ended December 31, 1995
would have been reduced by approximately $19,000; the Company's net income
for the year ended December 31, 1996 would have been reduced by approximately
$218,000 ($0.01 per share, basic and diluted), and the Company's net income
for the year ended December 31, 1997 would have been reduced by approximately
$7.6 million ($0.27 and $0.25 per share, basic and diluted, respectively).
Using the Black-Scholes option-pricing model, the estimated weighted average
fair value of the options granted during 1995 was $0.07 per option on the date 
of grant with the following weighted average assumptions: no dividend yield or
volatility rate, risk free interest rates of 5.57% to 7.54%, assumed
forfeiture rate of 3% and an expected life of five years.  The estimated
weighted average fair value of the options granted during 1996 was $1.75 per
option on the date of grant with the following weighted average assumptions:
no dividend yield, volatility rate of 107%, risk free interest rates of
5.33% to 6.68%, assumed forfeiture rate of 3% and an expected life of five
years.  The estimated weighted average fair value of the options granted
during 1997 was $17.36 per option on the date of grant with the following
weighted average assumptions: no dividend yield, volatility rate of 88%, risk 
free interest rates of 5.37% to 6.83%, assumed forfeiture rate of 5% and an
expected life of five years.

The following table summarizes information as of December 31, 1997 concerning
currently outstanding and exercisable options:
<TABLE>
<CAPTION>
                                    Options Outstanding
                          Weighted Ave.    Weighted                 Weighted
 Range of       Number      Remaining       Average     Number       Average
 Exercises       Out-      Contractual     Exercise   Exercisable   Exercise
  Prices       standing       Life           Price                    Price

<S>              <C>          <C>           <C>           <C>         <C>
$ 0.25-$ 4.75    1,896        2.85          $ 1.85        734         $ 1.55
$11.38-$17.31      287        6.45          $15.03         33         $11.38
$20.50-$24.25      801        4.68          $21.15         79         $20.59
       $27.38      375        5.36          $27.38    
       $33.75      688        4.56          $33.75

                 4,047                                    846
</TABLE>
Common Shares Reserved - As of December 31, 1997, the Company had reserved the
following number of shares of common stock for issuance (in thousands):

       Issuance under stock option and purchase plans              933
       Exercise of common stock purchase warrants                  130

          Total                                                  1,063

8. INCOME TAXES

   Income taxes in the statement of operations for the year ended December 31,
   1995 primarily represent taxes paid in Japan for research and development
   revenues generated from agreements with Japanese companies, see Note 10.

   The components of the provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                     1996          1997
                                                       (in thousands)

   <S>                                              <C>           <C>
   Current income taxes                             
    Federal                                         $1,605        $16,174
    State                                                           1,127
    Foreign                                          1,004          2,700

   Total                                             2,609         20,001

   Deferred income taxes:
    Federal                                           (131)        (5,103)
    State                                              (12)          (360)
    Foreign                                           (352)          (611)

   Total                                              (495)        (6,074)

   Reduction in valuation allowance                   (923)        (5,288)
   Provision for income taxes                       $1,191         $8,639
</TABLE>

   The provision for income taxes is different from that which would be obtained
   by applying the statutory Federal income tax rate (35%) to income before
   provision for income taxes.  The items causing this difference for the
   period are as follows:
<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                                      1996           1997

   <S>                                              <C>            <C>
   Provision at statutory rate                       34.0%          35.0%
   Foreign provision in excess of Federal
    statutory rate                                    7.3            4.8
   State income taxes, net of Federal benefit        (1.6)           1.4
   Foreign sales corporation taxes, net of
    Federal benefit                                  (4.4)          (1.3)
   Federal tax credits                               (2.5)          (1.7)
   Japanese imported product credits                                (1.8)
   Miscellaneous/other items                          3.2            2.8
   Reduction in valuation allowance                 (20.5)         (14.2)

   Provision at effective rate                       15.5%          25.0%
</TABLE>

   Deferred income taxes reflect the net tax effects of temporary differences
   between the carrying amounts of assets and liabilities for financial
   reporting purposes and the amounts used for income tax purposes.  
   Significant components of the Company's net deferred tax assets are as
   follows:

<TABLE>
<CAPTION>
                                                          December 31,
                                                      1996           1997
                                                         (in thousands)

   <S>                                               <C>           <C>
   Reserves and accruals not currently deductible    $3,290        $11,780
   Differences between book and tax basis of
    inventory and fixed assets                          594            355
   Accrued Japanese enterprise tax                      246            739
   State taxes                                          (65)          (563)
   Tax credit carryforwards                           2,126
   Capitalized research and development costs           243
   Other                                                286            379

   Net deferred tax assets before valuation
    allowance                                         6,720         12,690
   Valuation allowance                               (5,288)

   Total                                             $1,432        $12,690
</TABLE>

   The Company recorded a valuation alloance equal to the total net deferred
   tax asset balance at December 31, 1995.  The Company reduced its valuation
   allowance in 1996 by $923,000.  The Company eliminated its remaining 
   valuation allowance in 1997 due to management's belief that current year
   activity made realization of such benefit more likely than not.

9. COMMITMENTS AND CONTINGENCIES

   Leases - The Company leases its primary facilities under non-cancelable
   operating leases.  The lease terms are through January 1, 2010 and provide
   for certain rent abatements and minimum annual increases and options to
   extend the term.  The Company also leases certain other facilities and
   equipment under capital and short-term operating lease agreements.  The
   capital leases expire on various dates through 2002.

   Under the terms of an operating lease for an office building entered into
   in December 1996, the Company has deposited approximately $2,224,000 in an
   escrow account in lieu of a security deposit for the premises.  The majority
   of this amount is included with prepaid expenses and other assets on
   the consolidated balance sheet.

   Rent expense under operating leases is recognized on a straight-line basis
   over the life of the related leases and totaled approximately $736,000, 
   $1,052,000, $2,863,000 for the years ended December 31, 1995, 1996 and 1997, 
   respectively.

   The net book value of assets under capital leases at December 31, 1996 and 
   1997 was approximately $528,000 and $2,101,000, net of accumulated
   amortization of approximately $145,000 and $523,000, respectively.

   Total future minimum lease commitments under operating and capital leases
   are as follows (in thousands):

<TABLE>
<CAPTION>
   Year Ending December 31,                           Operating        Capital

   <S>                                                <C>              <C>
   1998                                                 $2,852           $727
   1999                                                  2,901            716
   2000                                                  2,918            663
   2001                                                  2,936            429
   2002                                                  2,885             32
   Thereafter                                           20,757      

   Total                                               $35,249          2,567

   Less amount representing interest                                      563
   Present value of minimum lease payments                              2,004
   Less current portion                                                   570
   Long term obligations under capital leases                          $1,434
</TABLE>

   Patent License Agreement - The Company has a patent license agreement for
   a non-exclusive worldwide license to certain patented laser technology.
   Under the terms of the agreement, the Company is required to pay royalties
   ranging from 0.25% to 5.0% of gross sales and leases as defined depending
   on the total amounts attained.  Royalty fees totaled $64,000, $226,000 and
   $49,000 for the years ended December 31, 1995, 1996 and 1997, respectively.

   Employee Savings Plan - The Company has a 401(k) plan that allows 
   participating employees to contribute a percentage of their salary,
   subject to annual limits.  The Plan is available to substantially all
   full-time United States employees.  Effective January 1, 1997, the Company
   matched 100% of each eligible employee's contributions, up to $500 per
   year.  The Company contributed $187,000 to the plan for the year ended
   December 31, 1997.  There were no matching contributions for 1996.

   Retirement Plan - During the year ended December 31, 1996, Cymer Japan
   adopted a retirement benefit plan for all Cymer Japan employees and 
   Japanese directors.  The plan consists of a multi-employer retirement
   plan covering all employees and life insurance policies covering all
   employees and Japanese directors.  The multi-employer retirement plan was
   established under the Small and Medium-Size Enterprise Retirement Benefits
   Cooperative Law.  Expense under the plan totaled $37,000 and $172,000 for
   the years ended December 31, 1996 and 1997, respectively.

   Contingency - On November 1, 1996, the Company entered into a settlement
   agreement for the dismissal of a patent infringement complaint filed 
   against the Company in September, 1996.  Under the terms of the settlement,
   the plaintiffs agreed to (i) release the Company from any claims they may
   have with respect to the disputed patent and (ii) dismiss the patent
   infringement action with prejudice.  In return, the Company agreed to make
   annual payments to the plaintiffs over a 13-year period.  Such annual
   payments and the related expense are not material to the Company's financial
   position, results of operations or cash flows.

   In addition, the Company's Japanese manufacturing partner has been notified
   that its manufacture of the Company's laser systems in Japan may infringe
   a Japanese patent held by another Japanese company.  The Company has
   indemnified its Japanese manufacturing partner against patent infringement
   claims under certain circumstances.  The Company believes, based upon the
   advise of counsel, that the Company's products do not infringe any valid
   claim of the asserted patent.

10.RELATED PARTY TRANSACTIONS

   Collaborative Arrangement - The Company has a collaborative arrangement
   with a Japanese company that is also a stockholder of the Company.  The
   arrangement, entered into in August, 1992, includes a (i) stock purchase
   agreement, (ii) research and development agreement (iii) product license
   agreement, and (iv) contract manufacturing agreement.  The general provisions
   of these agreements are as follows:

    Stock Purchase Agreement - The stockholder purchased 470,590 shares of the
    Company's Series D Redeemable Convertible Preferred Stock at $4.25 per share
    with net proceeds to the Company of $1,909,000.  Such stock was converted
    to common stock in 1996 (see Note 6).

    Research and Development Agreement - The stockholder agreed to reimburse
    the Company 50% of the Company's total research and development expenses
    under annual sub-agreements, as defined, to a maximum of $500,000 per year.
    Reimbursements of $250,000 were received under the agreement for the year
    ended December 31, 1995.  The agreement expired in June 1995.

    Product License Agreement - The Company granted to the stockholder the
    exclusive right in Japan and the non-exclusive right outside Japan to 
    manufacture and sell one of the Company's products and subsequent 
    enhancements thereto.  The Company also granted the stockholder the
    right of first refusal to license and fund the development of new
    technologies not developed with funding from other parties.  In
    exchange for these rights, the Company received up-front license fees
    and is also entitled to royalties of 5% on related product sales
    through September 1999, after which the royalty rate is subject to
    renegotiation.  The license agreement also provides that product sales
    between the Company and the stockholder will be at a 15% discount from the
    respective companies' list price.  The agreement terminates in August 2012.
    There was no activity under this agreement in 1995, 1996 and 1997.

    Contract Manufacturing Agreement - The stockholder has agreed to manufacture
    for the Company another of its products.  The Company will be required
    to purchase a specified percentage of its total annual product, as defined.
    The agreement expires in August 2001, and will automatically renew for
    two-year terms unless one year's notice is given by either party.  The
    Company made $477,000 and $14.1 million in purchases under this agreement
    in 1996 and 1997, respectively.  No purchases were made in 1995.

   Design and Development Agreements - During 1995, the Company entered into
   design and development agreements with certain of its major customers who
   are also stockholders.  Such agreements generally provide, among other
   things, discounts to these customers on future sales of the related lasers.
   Revenues from such agreements are not a material component of 1995, 1996
   or 1997 revenues.

   Service Agreement - The Company has a service agreement with another
   Japanese company who is also a stockholder of the Company.  The general
   provisions of the service agreement are as follows:

    Sales and Marketing - The Japanese company is to assist the Company in
    establishing sales, marketing, manufacturing, and maintenance capabilities
    in exchange for consideration equal to a percentage of net sales of certain
    products in Japan.  The agreement initially expired in March 1996 and
    automatically extends until the total consideration paid under the
    agreement aggregates $2,000,000.  Under certain conditions, if the
    agreement is terminated, the Company may be required to pay liquidated
    damages equal to $2,000,000 less the aggregate of previous consideration
    plus other eligible consideration paid to the Japanese company as defined
    in the agreement.  Consideration expensed under the agreement for the
    years ended December 31, 1995, 1996 and 1997 totaled $211,000, $1,284,000
    and $150,000, respectively.  The aggregate $2,000,000 consideration was
    met in January, 1997.

    Business Strategy - In addition, the Japanese company has agreed to assist
    the Company in establishing a business strategy for the Japanese market,
    evaluating third party contractors, preparing and negotiating the terms
    and conditions of a license proposal with third party contractors, and
    finding new investors.  In exchange for such assistance, the Company agreed
    to pay the Japanese company a percentage of any (i) up-front license fees,
    (ii) royalties received on certain sales, and (iii) funding received from
    new investors.  No payments were made under the agreement in 1995, 1996 and
    1997.

    Royalties - The Company has also agreed to pay the Japanese company
    additional royalties on net sales of certain products manufactured by
    the third party contractor as well as a fee for each laser chamber 
    refurbished by the third party contractor.  Such royalties are applicable
    only for the period subsequent to the expiration of the original agreement.
    Consideration expensed under the agreement for the year ended December 31,
    1997 was $252,000.  There was no consideration under the agreement in
    1995 and 1996.

11.GEOGRAPHIC INFORMATION

   Presented below is information regarding sales, income from operations, and
   identifiable assets, classified by operations located in the United States,
   Japan, and Korea, Taiwan and Singapore.  The Company sells its excimer
   lasers in Japan through Cymer Japan.  Intercompany sales to Cymer Japan,
   Cymer Korea, Cymer SEA and Cymer Singapore are primarily at 85% of the price
   of products sold to outside customers.  All significant intercompany balances
   are eliminated in consolidation.  The majority of consolidated costs and
   expenses are incurred in the United States and are reflected in the operating
   income (loss) from the United States Operations.
<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                                1995       1996       1997
   <S>                                        <C>       <C>        <C>
   Sales:
    United States                             $11,303    $26,918    $75,432
    Japan                                       7,517     38,077    128,075
    Korea, Taiwan and Singapore                                         140

     Total                                    $18,820    $64,995   $203,647

   Operating Income:
    United States                             $(3,425)  $(13,974)  $(30,186)
    Japan                                       3,771     21,858     65,786
    Kora, Taiwan and Singapore                                       (1,156)

      Total                                      $346     $7,884    $34,444
</TABLE>

<TABLE>
<CAPTION>
                                                       Decemeber 31,
                                                 1995       1996      1997

   <S>                                        <C>       <C>        <C>
   Identifiable assets:
    United States                             $10,876   $105,902    $308,780
    Japan                                       4,743     23,565      72,427
    Korea, Taiwan and Singapore                                        3,673

      Total                                   $15,619   $129,467    $384,880
</TABLE>
  
12.SUBSEQUENT EVENTS

   Repurchase - On January 28, 1998, the Company's Board of Directors authorized
   the Company to repurchase up to $50.0 million of the Company's common stock.
   The purchases will be made from time to time on the open market or in
   privately negotiated transactions.

   Option Repricing - On January 28, 1998, the Company's Board of Directors
   authorized an incentive stock option repricing effective March 2, 1998 at
   a new option price of $22.56 per share.  The repricing took effect on
   839,020 options with original prices ranging from $21.03 to $33.75 per
   share granted from December 1996 through October 1997.  The four year 
   vesting period of the repriced options also began on March 2, 1998 and the
   term of such options was set at ten years.

   Stockholder Rights Plan - On February 13, 1998, the Company's Board of
   Directors adopted a Stockholder Rights Plan.  Under the terms of the plan,
   rights will be distributed as a dividend at a rate of one preferred share
   purchase right on each outstanding share of the Company's commmon stock held
   by shareholders of record as of close of business on March 2, 1998.  The
   dividend distribution will be made on or about April 20, 1998 with rights
   expiring on February 13, 2008.  The rights are designated to assure that
   all Company stockholders receive fair and equal treatment in the event of
   any proposed takeover of the Company and to guard against partial tender
   offers and other abusive tactics to gain control of the Company without
   paying all stockholders the fair value of their shares, including a control
   premium.