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, 1998 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: None

Securities registered pursuant to Section 12(g) of the Act:

                                                         Name of each Exchange
    Title of each class                                   on which registered
Common Stock, $.001 par value                            Nasdaq National Market
Preferred Share Purchase Rights                          Nasdaq National Market


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 $23 5/8 for shares of the 
registrant's Common Stock on March 15, 1999 as  reported  on  the Nasdaq 
National Market, was approximately $621,659,391.  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 15, 1999:  27,479,312.
                                
                      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 20, 
1999 (Part III).

<PAGE>                                
                                
                                  CYMER, INC.
                                
                        1998 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           11
PART II                                                                   12
   Item 5.  Market for Registrant's Common Stock and Related 
            Stockholder Matters                                           12
   Item 6.  Selected Financial Data                                       12
   Item 7.  Management's Discussion and Analysis of Financial 
            Condition and Results of Operations                           14
   Item 7A. Quantitative and Qualitative Disclosures About Market
            Risk                                                          30
   Item 8.  Financial Statements and Supplementary Data                   31
   Item 9.  Changes in and Disagreements with Accountants on 
            Accounting and Financial Disclosure                           31
PART III                                                                  31
   Item 10. Directors and Executive Officers of the Registrant            31
   Item 11. Executive Compensation                                        31
   Item 12. Security Ownership of Certain Beneficial Owners and
            Management                                                    31
   Item 13. Certain Relationships and Related Transactions                31

PART IV                                                                   32
   Item 14. Exhibits, Financial Statement Schedules, and Reports
            on Form 8-K                                                   32




          CYMER is a registered trademark of Cymer, Inc.

<PAGE>


      AN  ASTERISK  ("*")  DENOTES  A  FORWARD-LOOKING  STATEMENT REFLECTING
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES.  ACTUAL RESULTS MAY 
DIFFER MATERIALLY  FROM  THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, 
AND STOCKHOLDERS OF CYMER,  INC.  (TOGETHER WITH ITS WHOLLY-OWNED AND  
MAJORITY-OWNED SUBSIDIARIES  COLLECTIVELY "CYMER") SHOULD CAREFULLY REVIEW THE
CAUTIONARY  STATEMENTS SET FORTH IN THIS FORM  10-K, INCLUDING "RISK FACTORS"
BEGINNING ON PAGE 20 HEREOF.  CYMER MAY FROM  TIME TO TIME MAKE  ADDITIONAL  
WRITTEN  AND  ORAL  FORWARD-LOOKING STATEMENTS,  INCLUDING STATEMENTS CONTAINED
IN  CYMER'S  FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN ITS 
REPORTS TO STOCKHOLDERS.   CYMER DOES NOT UNDERTAKE TO UPDATE  ANY  FORWARD-
LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF CYMER.
                                
                                 PART I
                                
Item 1.  Business

General

     Cymer is the world's leading supplier  of  excimer  laser illumination
sources,  the essential light source for deep ultraviolet   ("DUV")  
photolithography systems used in the manufacture of semiconductors. DUV 
lithography is a key  enabling technology  that has allowed the semiconductor 
industry  to  meet the  exacting  specifications and manufacturing requirements
for volume production of today's most advanced semiconductor devices. Cymer'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.  Cymer  believes that its excimer lasers constitute a  
substantial majority of all excimer lasers incorporated in DUV photolithography
tools.   Cymer's  customers  include  all  five manufacturers  of DUV 
photolithography systems: ASM  Lithography, Canon, Nikon, SVG Lithography and
Ultratech Stepper.  Photolithography  systems incorporating  Cymer's  excimer  
lasers have been purchased by  each  of  the  world's  20 largest semiconductor
manufacturers: AMD, Fujitsu, Hitachi, Hyundai, IBM, Intel, LG  Semicon, Lucent,
Micron,  Motorola,  NEC,  Philips, Samsung, SGS-Thomson, Siemens, Texas 
Instruments, Toshiba,  TSMC, UMC, and Winbond.

Products

     Cymer's   products   consist  of  photolithography   lasers, industrial
high power lasers and replacement parts.     

     Photolithography Laser Products

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

      5000 Series - The 5000 Series lasers are 1000Hz solid state pulse power
krypton  flouride  (KrF)  248nm  excimer   lasers engineered  using modular 
construction.  Enabling  higher  device yields by delivering improved energy 
stability, they are designed specifically for use in manufacturing 
semiconductors with  0.25um and  smaller  design rule features.  This series  
includes  three models:
         ELS-5000  -  Providing 10W of output power,  this KrF laser is used 
with optical designs requiring bandwidths less than 0.8pm, in stepper and 
scanner applications.
         EX-5000 - With 15W of output power, this model is used for scanner 
applications with 

<PAGE>

catadioptric lens designs.
        ELS-5010 - Designed for the next generation of steppers and  scanners 
with numerical apertures as high as 0.7.  The  ELS-5010  provides 10W of 
output power, controls bandwidth to -/<2.0pm, 95% energy integral, and 
integrated energy stability to <+/-0.6% in a 40 pulse window.

      6000 Series - The ELS-6000 is a 2000Hz repetition rate, KrF 248nm excimer
laser enabling 0.18um and below integrated circuit (IC) production.  This laser
addresses next-generation lithography applications with 0.7 numerical aperture 
lens design.  The ELS-6000  provides  20  watts  of  output  power,  controls
bandwidth to -/<2.0pm, 95% energy integral, and integrated  energy stability to
<+/-0.5% in a 32 pulse window. The higher repetition provides better dose 
control in stepper applications, and enables improved exposure  uniformity  in  
scanner applications and significant improvement in wafer throughput for both 
stepper and scanner lithography tools.

       Cymer's  lasers incorporate advanced software control and diagnostic 
systems.  The control system provides users  with  on-line monitoring of laser 
operating conditions, with approximately 129  diagnostic readings (including  
flow  rate,  temperatures, pressures and light quality), that are automatically
monitored by the photolithography tool's  control  system.   Additionally,
approximately  262  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.
     
     Cymer  continues  to  develop, and offer  for  sale  to  its customers,
its  next  generation argon  flouride  (ArF)  excimer laser.  The  ArF  laser
incorporates the advanced  technological features  and modular design of the 
5000 series lasers providing power output of 5 watts of 193nm wavelength light.
Cymer believes its ArF laser will be capable of producing critical feature sizes
below 0.10 microns.*
     
     Industrial High Power Laser Products

     Cymer'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.   Cymer  is  currently focusing  its  development
and marketing  efforts  on its photolithography laser  products, and Cymer
expects minimal revenues from industrial laser products  in 1999.*

     Replacement Parts

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

<PAGE>

Customers and End Users

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

     ASM Lithography              Nikon                    Ultratech Stepper
     Canon                        SVG Lithography
          
     Cymer believes that maintaining and strengthening  customer relationships 
will  play an important role  in  maintaining  its leading  position in the 
photolithography market.  Cymer works closely with its customers to integrate 
Cymer'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 37%, 20% and 31%, respectively, of total revenue in 1998.

     End  users of Cymer's lasers include the world's 20  largest semiconductor
manufacturers.   The following semiconductor manufacturers  have  purchased one
or more  DUV  photolithography tools incorporating Cymer's lasers:

United States                      Japan                 Taiwan/Southeast Asia

Advanced Micro Devices             ASET                  Chartered Semiconductor
Cypress                            Epson                 ERSO
Digital Equipment Corporation      Fujitsu               HNS
Dominion Semiconductor             Hitachi               Macronix
Hewlett Packard                    KTI                   Mosel
IBM                                Matsushita            Nan-Ya
Integrated Device Technology       Mitsubishi Electric   ProMOS
Intel                              NEC                   Tech Semiconductor
LSI                                NTT                   TSMC
Lucent/Cirent                      Oki Electric          UMC
Micron Technology                  Rohm                  USC
Micrus                             Sanyo                 USIC
Motorola                           Sharp                 Vanguard International
National Semiconductor             Sony                  Winbond
Rockwell                           Toshiba               WSMC
SEMATECH**                         Yamaha            
Texas Instruments                            
VLSI                                         
White Oak                                    
                                             
                                             
Korea                      Europe            
                                             
Anam-TI                    C-NET             
ETRI                       IMEC              
Hyundai                    LETI              
LG Semiconductor           Philips           
Samsung                    SGS THOMSON       
                           Siemens           
                                             

** A semiconductor industry consortium.

<PAGE>

Backlog

     Cymer  schedules  production  of  lasers  based  upon  order backlog  and
informal  customer forecasts.   Cymer  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, Cymer's backlog as of any
particular  date may not be a reliable indicator of actual  sales for  any  
succeeding period.  At December 31, 1998, Cymer had a backlog of approximately
$37.3 million, compared with a  backlog of $108.7 million at December 31, 1997.

Manufacturing

     Cymer's manufacturing activities consist of material management, assembly,
integration and testing.  These  activities are  performed  in a 134,000 square
foot facility in  San  Diego, California  that  includes approximately 32,000 
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,  Cymer has  outsourced  many 
of its subassemblies.  Cymer's  outsourcing strategy is exemplified by the 
modular design of Cymer's 5000 and 6000 series lasers, for which substantially
all of the nonproprietary   subassemblies  have  been   outsourced.    Cymer
believes  that  the highly outsourced content and  manufacturable design  of
the 5000 and 6000 series lasers allows  for  reduced manufacturing cycle times 
and increased output per employee.

     To  meet  current and anticipated demand for  its  products, Cymer 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,  Cymer  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.*   Cymer 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  Cymer's  
manufacturing schedules.   The  failure by one or more of  these  suppliers to
supply  Cymer  on  a timely basis with sufficient  quantities  of components
or subassemblies that perform to  Cymer's specifications could affect Cymer's 
ability to deliver  completed lasers to its customers on schedule.
     
     In addition to the manufacturing capacity at its facilities in San Diego,
California, Cymer has qualified Seiko of Japan as a contract manufacturer of
its photolithography excimer lasers.  In order to ensure uniformity of product
for all customers,  Cymer maintains control of all work flow design, 
manufacturing process, engineering  changes and component sourcing decisions.
Cymer 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 Cymer in the first quarter of 1997.

     Certain  of  the  components and subassemblies  included  in Cymer'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 Cymer's lasers. In addition, Cymer is increasingly 
outsourcing the  manufacture of various subassemblies. To date Cymer has been
able to obtain  adequate  supplies  of  the  components and subassemblies 
used in the production of Cymer's laser systems in a timely manner from existing
sources.  If in the future Cymer is unable to obtain  sufficient quantities of
required  materials, components or subassemblies, or if such items do not meet
Cymer's quality  standards,  delays or reductions  in  product  shipments could
occur which could have a material adverse effect on Cymer's business, financial
condition and results of operations.

<PAGE>

Sales and Marketing

     Cymer's  sales and marketing efforts have been predominately focused on
DUV  photolithography  tool  manufacturers.   Cymer markets  and sells its 
products through its own worldwide direct sales  force. Cymer is in the process
of developing  product  and applications  engineering teams to support the  
account  managers and Cymer's  customers.  Cymer believes that to  facilitate 
the sales process it must  work closely with  and understand the requirements 
of semiconductor manufacturers, the  end  users  of Cymer's products.  Cymer
visits  major  semiconductor manufacturers, and their representatives attend 
Company-sponsored seminars  on advanced excimer photolithography.  In Japan, 
Cymer 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

     Cymer believes its success in the semiconductor photolithography market is
highly dependent  upon  after-sales support  of  both the customer and the end 
user.  Cymer  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, Cymer's support personnel typically assist the customer in site 
preparation and inspection and provide customers with training at Cymer'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.

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

     Cymer 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,  Cymer 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, 
Cymer intends to continue its expansion of the 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 Cymer 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 Cymer's business,  financial condition and results
of operations.

     Cymer  generally  warrants its products against  defects  in design,  
materials and workmanship for the earlier  to  occur  of between  17 and 24 
months from the date of shipment or 12 months after acceptance by the end user.

<PAGE>

Research and Development

     The semiconductor industry is subject to rapid technological change and
new product introductions and enhancements.   Cymer believes that continued and
timely development and introduction of new and enhanced laser products are 
essential for Cymer to maintain its competitive position.  Cymer intends to 
continue to develop its technology and innovative products to meet  customer
demands.*   Current projects include enhancements to Cymer'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.

     Cymer 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.*  Research and development 
expenses for 1996,  1997 and 1998  were  approximately $11.7 million, $25.0 
million and $30.2 million,  respectively.

     In  addition  to  funding its own research  and  development projects,
Cymer 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 Cymer's core 
technology.  Revenues generated  from  research and development contracts  
amounted  to approximately  $2.5  million, $2.5 million, and  $313,000  during
1996, 1997, and 1998, respectively.

Intellectual Property Rights

     Cymer 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 Cymer  may depend in part on patents and as of 
December 31, 1998, Cymer owned 36 United States patents covering certain aspects
of technology associated with excimer lasers which expire from January  2008 to
December 2018 and had applied for 56  additional patents in the United States, 
4 of which had been allowed.  As of December  31,  1998, Cymer also owned 9 
foreign patents  and  had filed  147  patent  applications in  various  foreign
countries. There   can   be   no  assurance  that  Cymer'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 Cymer's ability  to  do business.  In this regard, due to cost constraints, 
Cymer 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 1993 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 Cymer will adequately protect Cymer's proprietary information.
Furthermore, there can be no  assurance that  others  will  not independently 
develop similar products, duplicate Cymer's products or, if patents are issued
to  Cymer, design around the patents issued to Cymer.

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

     Cymer 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

<PAGE>

substantially  equivalent proprietary information and  techniques or  otherwise
gain access to Cymer's trade secrets  or  disclose such  technology or that 
Cymer can meaningfully protect its trade secrets.
     
     Cymer  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  in connection with the
design and development of specific products.  Although  Cymer'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 Cymer, there  can  be  no assurance  that disputes over
the ownership or rights to  use  or market  such  intellectual property will not
arise between  Cymer and  such parties.  Any such dispute could result in 
restrictions on  Cymer's  ability  to market its products  and  could  have  a
material  adverse effect on Cymer's business, financial condition and results 
of operations.

      Cymer  has  in  the past been, and may in  the  future  be, notified  
that it may be infringing intellectual property  rights possessed  by  third
parties.   Cymer's  Japanese  manufacturing partner,   Seiko,   was  in  1996  
notified  by   Komatsu   Ltd., ("Komatsu"), one of Cymer's competitors, that 
certain aspects  of Cymer's   lasers  might  infringe  three  patents  (the  
"Komatsu Patents")  that  had been issued to Komatsu in  Japan,  and  that
Komatsu  intended to enforce its rights under the Komatsu Patents against
Seiko  if  Seiko  continued to engage  in  manufacturing activities  for  
Cymer.   In connection  with  its  manufacturing agreement with Seiko, Cymer 
has agreed to indemnify Seiko against such  claims under certain circumstances.
Cymer has  engaged  in discussions with Komatsu with respect to the Komatsu 
Patents,  in the course of which Komatsu has also identified to Cymer a number
of pending applications and  additional  patents.   Cymer, in consultation with
Japanese patent counsel,  has  initiated oppositions  to the Komatsu Patents
and the applications  in  the Japanese  Patent Office.  Cymer has been advised 
by its  patent counsel in this matter, which is relying in part on the opinion
of Cymer's Japanese patent counsel, that in the opinion of such firm  Cymer'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 Cymer  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 Cymer's management  and technical personnel which
could have a material adverse effect on Cymer'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  Cymer'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  Cymer's  business,  
financial condition and results of operations.  If any such claims are asserted
against Cymer, Cymer 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.   Cymer 
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  Cymer's  management
and technical  personnel,  which  would materially  adversely  affect Cymer's
business, financial condition and results of operations.

     Cymer  has  registered the trademark  CYMER  in  the  United States  and
certain  other countries and is  seeking  additional registrations in certain
countries.    In  Japan,  Cymer'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.   Cymer  is  seeking  a
partial nullification of that registration with respect to  laser devices  and
related components and does not  believe  that  the holder  of  that trademark 
is engaged in any business similar  to that  of  Cymer. For this reason, Cymer 
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 that company's trademark.*  There can be no assurance
that Cymer 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, 

<PAGE>

would require Cymer to cease use of the mark and, potentially, pay damages.

     Effective August 1, 1989 and lasting until the expiration of the licensed
patents, Cymer 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, Cymer 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 1996, 1997 and  1998,  royalty fees totaled 
$226,000, $49,000, and $100,000, respectively.
     
     Cymer has granted to Seiko the exclusive right in Japan and the non-
exclusive right outside of Japan to manufacture and sell Cymer's  industrial 
high power laser and subsequent  enhancements thereto.   Cymer has also granted
Seiko a right of first  refusal to  fund  Cymer's development of, and receive a
license  to,  new industrial  laser  technologies not developed with  funding  
from other parties.  In exchange for these rights, Cymer received  up-front
license fees of $3.0 million.  Cymer 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  Cymer and  Seiko  will  be  at  a  15%  discount  from  the  
respective companies' list prices.  The agreement terminates in August 2012.

Competition

     Cymer believes that the principal elements of competition in Cymer'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.   Cymer believes  that  it  competes  favorably with respect to
these factors.

     Cymer  currently  has three competitors in the market for excimer laser 
systems for photolithography applications, Lambda-Physik  ("Lambda-Physik"),
a German-based subsidiary of Coherent, Inc., Komatsu, Ltd. ("Komatsu") and 
Ushio, both located in Japan.  All  of  these  companies are larger than Cymer,
have  access  to greater  financial, technical and other resources and are 
located in closer proximity to  Cymer's  customers.   Although  Cymer believes
that  these competitors are not yet  supplying  excimer lasers in volume for 
photolithography application, Cymer believes that  Lambda-Physik and Komatsu 
are aggressively seeking to  gain larger  positions  in  the  market.   Cymer  
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 
chipmakers, Cymer could lose market share and  its growth  could  slow or 
even decline.  In the future,  Cymer  will likely  experience  competition 
from  post-optical  technologies, such as EUV, and scalpel processes.  
To remain competitive, Cymer 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  Cymer  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 Cymer 
will remain competitive.
     
A  failure  to  remain competitive would have a material  adverse effect  on
Cymer's business, financial condition and results  of operations.  See "Risk
Factors-Competition."

Employees

     On  December  31, 1998, there were 703 persons  employed  by Cymer,  
including 63 in Japan. No employees are currently covered by  collective 
bargaining agreements or are members of any  labor 

<PAGE>

organization as far as Cymer is aware. Cymer 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 Cymer and their ages as of December 31, 1998.

      Name              Age                           Position
                                               
Robert P. Akins         47              Chairman of the Board, Chief Executive
                                        Officer and President
                            
William A. Angus, III   52              Senior Vice President, Chief Financial
                                        Officer and Secretary
                            
Pascal Didier           40              Senior Vice President, Worldwide
                                        Customer Operations
                            
Edward "Ted" Holtaway   43              Senior Vice President, Process Quality
                            
G. Scott Scholler       48              Senior Vice President, Operations
                           
     Robert  P. Akins, a co-founder of Cymer, 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 Cymer 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.

     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  Megatest's 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
Bacalaureate in Business and Administration  in  1978 from  College de Paris
and a Bacalaureate Superieur in 1979  from Electronique Institut Universitaire 
de Lyon.

      Edward  "Ted" Holtaway has served as Senior Vice President, Process 
Quality since July 1998.  He joined Cymer in April  1998 as Vice  President 
of  Process Quality.   Prior  to  that,  Mr. Holtaway  spent 13 years with San
Diego-based Brooktree Corp.,  a fabless semiconductor company acquired by 
Rockwell Semiconductor Systems  in  September of 1996.  During his tenure at  
Brooktree, Mr.  Holtaway's  executive  posts included:   Vice  President  of
Corporate Quality from 1989 to 1995; Vice President and  Managing Director of
Brooktree's Singapore operations from 1995 to  1996; and  most  recently, 
Director of Rockwell's San Diego  operations from  1997  to 1998.  Mr. Holtaway
received a B.S. in  Electrical Engineering from the New Jersey Institute of 
Technology, an  M.S. in  Electrical Engineering from the 

<PAGE>

Polytechnic Institute of  New York, and an M.B.A. from San Diego State 
University.

     G.  Scott  Scholler  has  served as Senior  Vice  President, Operations 
of Cymer 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.

     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 Cymer.

Item 2.  Properties

     Cymer's  corporate headquarters, manufacturing,  engineering and R&D 
facilities are located in San Diego, California housed in multiple  buildings
totaling approximately 253,000  square  feet.  All building facilities are 
leased by Cymer under leases expiring between  August  2002 and January 2010. 
In February  1999,  Cymer purchased  2  lots of land, adjacent to their current
facilities, which  total approximately 5.98 acres.  For use as field  service
offices,  Cymer  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 under a lease expiring  September  2000, and a 1,627 
square  foot  facility  in Austin, Texas under a lease expiring September 2000.
For  use  as field service and sales offices, Cymer leases 13,831 square  feet
of facilities in Ichikawa, Japan under a renewable two year lease expiring in
June 2000, 6,390 square feet in Osaka Japan  under  a lease  expiring in 
December 1999, 4,184 square feet  in  Pundang, Korea  under a lease expiring 
August 1999, 1,754 square  feet in Hsin  Chu,  Taiwan  under a lease expiring 
June  1999  and  1,866 square feet in United Square, Singapore under a lease 
expiring in May  2000. Cymer intends to add additional field service  offices
as necessary to service and support its customers.

Item 3.   Legal Proceedings

      Cymer  has  been  named as a defendant in several  putative shareholder
class action lawsuits which were filed in  September and  October  1998  in 
the U.S. District Court for  the  Southern District of California.  Certain 
executive officers and directors of Cymer are also named as defendants.  The 
plaintiffs purport to represent  a  class of all persons who purchased  Cymer's
Common Stock between April 24, 1997 and September 26, 1997 (the "Class Period").
The  complaints  allege  claims  under  the   federal securities laws.  The 
plaintiffs allege that Cymer and the  other defendants  made various material 
representations  and  omissions during the Class Period. The complaints do not 
specify the amount of damages sought.  The complaints have been consolidated 
into  a single  action.  No lead plaintiff has yet been appointed  and  a 
consolidated complaint has not yet been filed.  Discovery has not yet commenced.
Cymer believes that it has good defenses to the claims alleged in the lawsuits
and will defend itself vigorously against these actions.  The ultimate outcome
of  these  actions cannot  be  presently determined.  Accordingly, no provision
for any liability or loss  that may result  from  adjudication  or settlement 
thereof has been made in the accompanying consolidated financial statements.

<PAGE>

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

     No  matters were submitted to a vote of the security holders of  Cymer 
during  the fourth quarter of the  fiscal  year  ended December 31, 1998.

<PAGE>
                                 PART II

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

     Cymer's Common Stock has been publicly traded on the  Nasdaq National 
Market under the symbol "CYMI" since September 19, 1996.  Cymer'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 Cymer'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.

<TABLE>
<CAPTION>
                                                        High            Low
<S>                                                   <C>            <C>
Year ended December 31, 1996   
   Third quarter (beginning Sept. 19, 1996)            $8 7/8        $6 13/16
   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
Year ended December 31, 1998                          
   First quarter                                      $22 9/16       $14 7/8
   Second quarter                                     $27 1/2        $14 7/8
   Third quarter                                      $18 5/8        $8 1/2
   Fourth quarter                                     $19 1/4        $6 1/2

The closing sales price of Cymer's Common Stock on  the  Nasdaq National 
Market was $23 5/8 on March 15, 1999 and there were 469 registered holders of 
record as of that date.

Cymer has never declared or paid cash dividends on  its  Common Stock and 
currently does not anticipate paying cash dividends in the forseeable future.

Item 6.   Selected Financial Data

  The  following selected consolidated financial data  should  be read  in   
conjunction with  Cymer'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,  1996,  1997 and 1998 and the consolidated  balance sheet  data
at December 31, 1997 and 1998 are derived  from, and are qualified  by  
reference  to,  the  consolidated  financial statements included elsewhere in
Annual Reports on Form 10-K  and 10-K/A,  which  have been audited by Deloitte 
& Touche  LLP.  The consolidated  statement of operations data for  the  years 
ended December  31,  1994 and 1995, and the consolidated balance sheet data
at  December  31, 1994, 1995, and 1996,  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>
<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                   1994     1995      1996     1997      1998
                                   (in thousands, except per share data)
Consolidated Statement of                                       
Operations Data:
Revenues:                                                       
   <S>                           <C>       <C>       <C>      <C>       <C>
   Product sales                 $7,705    $15,576   $62,510  $201,191  $184,828
   Other                          1,216      3,244     2,485     2,456       313
      Total revenues              8,921     18,820    64,995   203,647   185,141
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                  1994      1995      1996     1997     1998
                                     (in thousands, except per share data)
Costs and expenses:                                                
<S>                            <C>        <C>       <C>       <C>      <C>
   Cost of product sales         4,797     8,786    35,583    123,654  125,713
   Research and development      3,283     6,154    11,742     24,971   30,152
   Sales and marketing           1,780     2,353     5,516     11,992   14,528
   General and administrative      849     1,181     4,270      8,586    9,487
    Total costs and expenses    10,709    18,474    57,111    169,203  179,880
Operating income (loss)         (1,788)      346     7,884     34,444    5,261
                                                                   
Other income (expense) - net      (199)     (241)     (183)       112   (3,568)
Income (loss) before income tax                                    
 (provision) benefit and 
  minority interest             (1,987)      105     7,701     34,556    1,693
Income tax (provision) benefit     (58)      (36)   (1,191)    (8,639)   1,250
Minority interest                                                 141     (420)
                                                                   
Net income (loss)              ($2,045)      $69    $6,510    $26,058   $2,523
Basic earnings per share (1)                         $0.33      $0.92    $0.09
Weighted average common shares                      19,868     28,212   28,226
Diluted earnings per share (1)                       $0.29      $0.86    $0.09
Weighted average common and                                        
 potential shares outstanding (1)                   22,420     30,267   29,566
</TABLE>

<TABLE>
<CAPTION>
                                                     December 31,
                                      1994     1995     1996     1997     1998
                                                    (in thousands)
Consolidated Balance Sheet Data:
<S>                                <C>      <C>       <C>       <C>      <C>
Cash and cash equivalents           $2,326   $2,015   $55,405   $51,903  $53,130
Working capital                     (1,557)   3,845    84,743   202,539  198,645
Total assets                         9,172   15,619   129,467   386,119  364,318
Total debt (2)                       6,879    4,164     2,217   176,066  175,924
Redeemable convertible
  preferred stock                   19,290   28,409       -        -        -
Treasury stock                        -        -          -        -     (24,871)
Stockholders' equity (deficit)     (19,752) (21,830)   98,820   125,779  106,531
</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, 
     and capital lease obligations.
<PAGE>

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 Cymer's statements of 
operations as a percentage of total  revenues  for the periods indicated:
<TABLE>
<CAPTION>
                                                1996       1997       1998    
Revenues:                                                    
<S>                                           <C>        <C>         <C>
   Product sales                               96.2 %     98.8 %      99.8 % 
   Other                                        3.8        1.2          .2   
     Total revenues                           100.0      100.0       100.0   
                                                             
Cost and expenses:                                           
   Cost of product sales                       54.7       60.7        67.9   
   Research and development                    18.1       12.3        16.3   
   Sales and marketing                          8.5        5.9         7.9   
   General and administrative                   6.6        4.2         5.1   
     Total costs and expenses                  87.9       83.1        97.2   
                                                             
Operating income                               12.1       16.9         2.8   
Other income (expense) - net                   (0.3)        .1        (1.9)
                                                             
Income before income tax                                     
 (provision) benefit and
  minority interest                            11.8       17.0         0.9   
                                                             
Income tax (provision) benefit                 (1.8)      (4.3)        0.7   
Minority interest                                -          .1        (0.2)
                                                             
Net income                                     10.0 %     12.8 %       1.4 % 
                                                             
Gross margin on product sales                  43.1 %     38.5 %      32.0 % 
</TABLE>

  YEARS ENDED DECEMBER 31, 1997 AND 1998
  
     Revenues.  Cymer'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 decreased 8% from $201.2  million  in  1997  to $184.8  million
in 1998, primarily due to lower  sales  of  DUV photolithography laser systems.
A total of  460  laser  systems were  sold  in  1997 compared to 341 laser 
systems in 1998.  The decrease was primarily attributable to the overall market
decline in the semiconductor industry during 1998. Cymer's installed base of
lasers  continued to rise in 1998 supporting  Cymer's  belief that  revenues
from spares, replacement parts and services  will become  

<PAGE>

an  increasingly  larger  component  of  product  sales.*  Funded  development 
revenues declined from $2.5 million for  1997 to $313,000 for 1998, primarily 
due to completion of larger laser research  projects  sponsored by SEMATECH.   
Cymer  expects  that funded  development  revenues will  continue  to  decrease
as  a percentage of total revenues as Cymer focuses on product sales.*
  
  Cymer's   sales  are  generated  primarily  by   shipments  to customers in
Japan, the Netherlands, and  the  United  States.  Approximately 81%, 89%, and 
88% of the Company's sales in 1996, 1997, and 1998, respectively, were derived
from customers outside the  United  States.   Cymer maintains  a  wholly-owned 
Japanese subsidiary  which sells to Cymer's Japanese customers.   Revenues from
Japanese customers, generated primarily by this subsidiary, accounted for 61%,
65%, and 48% of revenues in 1996, 1997, and 1998, respectively.  The  activities
of  Cymer'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 Cymer's products, including  costs of  shipment 
to Japan, are recorded on the books of the parent company.   Cymer 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 Cymer's products by the Japanese subsidiary for
resale under firm third-party sales commitments.
  
  Cost of product sales rose 2% from $123.7 million in 1997 to $125.7 million
in 1998 primarily due to additional inventory obsolescence reserves recognized 
during the  fourth  quarter  of 1998  offset by lower sales volume in 1998.  
The gross margin  on these  sales  decreased  from 38.5% in  1997  to  32.0%  
in  1998 primarily  due  to  a  $5.8  million obsolete  inventory  reserve
associated with the accelerated customer acceptance of  the  5010 series  
lasers over the 5000 series lasers, and an  increase  in foreign field support
overhead costs as Cymer continued to  build its  worldwide field support 
infrastructure in Japan, Singapore, Europe, Korea and Southeast Asia in order 
to provide fast and responsive service to the semiconductor manufacturers.
  
  Net  gains  or losses from foreign currency exchange  contracts are  included
in  cost  of  product sales  in  the  consolidated statements of income as the
related sales are recognized.   Cymer recognized net gains on such contracts of
$5.8 million  and  $4.5 million  for  the  years  ended  December  31,  1997  
and 1998, respectively.
  
    Research and Development.  Research and development expenses include costs
of internally-funded and externally-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  21%  from $25.0 million  in  1997  to  $30.2
million in 1998, due primarily to increased product support efforts  associated
with  the release  of  Cymer's  5010  series lasers, the ongoing development of
the 6000 series laser, and the continued development of new laser products.  As
a percentage  of total  revenues, such expenses rose from 12.3% to  16.3%  in  
the respective periods due to the decline in Cymer's revenues as well as  the
increase in development expenditures  throughout  1998.  Cymer  expects  that
research  and  development  expenses  will increase  in absolute dollars and as
a percentage of revenues  in 1999  as  Cymer  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 21% from $12.0 million in 1997 to $14.5
million in 1998,  due primarily  to  increased  product management  and  sales 
support efforts  and  marketing infrastructure activities developed over the
period.   As a percentage of total revenues,  such  expenses rose  from 5.9%
to  7.9% in the respective  periods  due  to  a

<PAGE>

decrease in overall revenues from period to period as well as  an increased 
focus on building a worldwide sales and marketing  team in 1998 and beyond.
  
  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 10%  from  $8.6 million in 1997 to $9.5 
million in 1998,  due  to ongoing  process  quality development costs and  an  
increase in general  and administrative support as Cymer's overall  level  of
business activity increased.   As a percentage of total revenues, such expenses
increased from 4.2% to  5.1%  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)  decreased 
from $112,000  of  net other income for 1997 to $3.6  million of net other 
expense for 1998, primarily due to the increase in interest income associated
with the investment  of  excess  cash  and  a foreign  exchange gain in 1998
versus a net loss in 1997, offset by a full year of interest expense associated
with the convertible  subordinated  notes  in  1998.   Foreign   currency
exchange  loss  totaled $359,000, interest  income  totaled  $5.3 million,
and interest expense totaled $4.8  million  for  1997, compared to a foreign 
exchange gain of $692,000, interest income of $7.4 million and interest expense
of $11.6 million for 1998.
  
  Cymer's  results  of operations are subject to fluctuations in the value of
the Japanese yen against the United States  dollar.  Sales by Cymer to its 
Japanese subsidiary are  denominated  in dollars,  and sales by the subsidiary 
to customers in  Japan  are denominated  in  yen.  Cymer's Japanese  subsidiary
manages its exposure  to such fluctuations by entering into foreign  currency
exchange  contracts to hedge its purchase commitments  to  Cymer.  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 tax provision of $8.6  million in 1997 was
primarily attributable to the substantial growth in Cymer's  pretax income 
partially offset by the reduction  of  the deferred  tax asset valuation 
allowance carried over  from  1996.  The  tax  benefit of $1.3 million reported
in 1998 was  primarily attributed  to  tax  credits  and permanent  differences
between taxable income and book income which resulted in a negative effective
tax rate for the year.
  
  YEARS ENDED DECEMBER 31, 1996 AND 1997
  
  Revenues.   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.  Funded development revenues remained constant at 
$2.5 million for 1996  and  1997,  primarily due to the laser research project
sponsored by SEMATECH.
  
  Cost  of  Product Sales.  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  
Cymer 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 Cymer'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.  

<PAGE>

This additional  warranty  expense  was  to incorporate changes in these 
lasers to ensure that they meet the current product configuration and 
specifications.  Cymer 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  Cymer.   These scheduled 
changes were completed in early 1998.  The gross margin on product sales prior
to this specific reserve was 41.7% for the period ended December 31, 1997.
  
  Cymer recognized  net  gains  on  foreign  currency  exchange 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 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 Cymer'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 Cymer's revenues.
  
   Sales  and  Marketing.  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 Cymer's revenues.
  
   General and Administrative.  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 Cymer's  sales  volume,  manufacturing  
capacity, employee recruiting  requirements and overall level of  business  
activity increased.    As  a percentage of total revenues,  such  expenses
decreased from 6.6% to 4.2% in the respective periods.
  
   Other Income (Expense)-net.   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.
  
   Provision for Income Taxes.  The income tax provision in 1996 was primarily
attributable to the growth in Cymer'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 Cymer's pretax  
income partially offset by the reduction of the deferred tax asset valuation
allowance carried over from 1996.

LIQUIDITY AND CAPITAL RESOURCES

  Since  inception,  Cymer  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  Cymer of approximately $29.7 million,  the public offering on December 12,
1996,  which  resulted  in   net   proceeds   of approximately $50.0 million, 
and raising a net $167.3 million in a  convertible subordinated note offering 
on August 6, 1997.   As of December 31, 1998, Cymer had approximately $53.1  
million  in cash   and   cash   equivalents,  $85.6  million  in   short-term
investments,  $23.5  million  in  long-term  investments,  $198.6 million in 
working capital and $11.6 million in bank debt.

<PAGE>  

   Net cash used for operating activities was approximately  $8.0 million, and
$17.3 million for 1996 and 1997,  respectively, whereas  net cash was provided
by operating activities of $23.2 million  for 1998.  The increases in cash used
in operations for the periods ended  December 31, 1996 and 1997 were primarily
attributable to increases in accounts receivable and inventory as the  working
capital requirements of Cymer continued to  increase due  to the expansion of 
the business during these periods.   The net  cash  provided by operating 
activities in 1998 was primarily due  to increases in depreciation associated 
with the prior year expansion efforts, offset by decreases in accounts 
receivable.
  
  Net  cash used for investing activities was approximately $22.9 million, 
$153.6 million and $5.7 million in 1996, 1997 and  1998.  The  increase in 
cash used for investing activities during the periods ended December 31, 1996,
1997 and 1998 primarily reflects the  investment activity of funds received 
through Cymer's public offerings in 1996, and through the convertible 
subordinated notes offering in 1997 as well as the purchase of computer 
equipment, test  equipment,  research and development  tools,  manufacturing
process machinery and tenant improvements to the  field  support organizations
and manufacturing facility in order to accommodate business expansion throughout
the periods.
  
  Cymer's  financing  activities  provided  net  cash  of approximately  $83.6 
million, and $167.3 million for 1996 and 1997,  respectively.  In  1996, Cymer
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, Cymer reduced discounting  of commercial
drafts in Japan by approximately  $1.2 million.  In  1997,  Cymer 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.  In 1998, Cymer's financing
activities used net cash of approximately $13.5 million primarily due to the 
$24.9 million repurchase of treasury stock offset by $10.1 million in bank loans
for the period.

  Cymer  has available credit arrangements with a bank permitting borrowings of
up to $15.0 million. These borrowings are unsecured and provide for a $15.0 
million optional currency revolving line of  credit.  Cymer has two foreign 
currency exchange  facilities.  Cymer had forward foreign exchange contracts at
December 31, 1998 to  buy  $33.2 million for 4.2 billion yen.  The total 
unrecorded deferred loss and discount on these contracts as of December  31,
1998 was approximately $720,000 and $662,000, respectively.
  
     On January 29, 1998, Cymer announced a program to repurchase up to $50.0
million of Cymer's common stock.  As of December 31, 1998  Cymer had purchased
2 million shares at a  total  cost  of $24.9 million.
  
    Cymer  requires  substantial working  capital  to  fund  its business,  
particularly  to  finance  inventories  and   accounts receivable  and for 
capital expenditures. Cymer's future  capital requirements will depend on many
factors, including the  rate  of Cymer'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 the market 
acceptance of Cymer's products.  Cymer believes that it has sufficient working 
capital  and  available bank  credit  to  sustain operations and provide for  
the  future expansion of its business during 1999.*
  
  
  Recent Accounting Pronouncements

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities."   SFAS  No.  133 establishes  accounting
and reporting standards for derivative instruments and for hedging activities.
The new  standard  will become effective for Cymer for the year 

<PAGE>

ending December 31, 2000.  Interim reporting for this standard will be required.
Cymer  has not  yet  assessed the effect of this standard on Cymer's current
reporting and disclosures.
  
  Impact of Year 2000 Issue

    The Year 2000 Issue ("Y2K") is primarily  the  result  of computer systems
using a two-digit format rather than four-digits to  indicate the year.  Such 
computer systems will be  unable  to differentiate  between the year 1900 and 
the year  2000, causing errors  and  system failures which may disrupt the 
operations of such systems.  Cymer has been addressing this issue and has been
focusing its efforts  through  a  five  step  approach:   (1) identification
of  the systems which may be  vulnerable  to  Y2K problems; (2) assessment of
the impact on the systems identified;  (3)  remediation  of  non-compliant 
systems  and  components  and determination  of  solutions  for  non-compliant 
suppliers;  (4) testing of systems and components following remediation; and  
(5) documentation.

      Cymer is 100% complete with the identification of  systems which  may
be  vulnerable to the Y2K issue, and is approximately 95%  complete with the
assessment of the impact on these systems.  The  assessment  includes  factory 
systems,  desktop  PC's,  fax machines, printers, and common software packages 
in use at Cymer.  In  addition,  all suppliers have been contacted  for  their 
Y2K plans and all new software licenses include  Y2K  statements.  Remediation
is 100% complete.  The  testing  of  systems  and components  is approximately
95% complete and is expected  to  be complete by the end of March, 1999.*

      Cymer's ongoing plan is to continue the process of working with suppliers
and customers to verify their Y2K  readiness by June  30,  1999,  as  well  as 
to obtain their then-current Y2K related public statements on Y2K compliance.*
Cymer  plans  to evaluate  any  issues  raised in this process  in  terms  of  
any special  actions Cymer should consider taking to  reduce  related risks,
including further follow up with suppliers and  customers as  the  year 2000 
approaches.*  These and other issues  will  be included in Cymer's Y2K ongoing 
action plan.*

     Cymer's Y2K contingency plan consists of the following: (1) offsite backup
of all critical data and software;  (2)  multiple redundant  suppliers for all
critical  data  communication  and telecommunications services; (3) readiness 
planning  for  support personnel;  (4) outside  consultants  identified  for 
rapid availability; and (5) ongoing evaluation and planning for contingencies.*

     Cymer's current  laser systems are not Y2K  compliant  per SEMATECH  
standards.  The laser systems currently require  manual intervention to reset
the internal clock to account for leap year in  the  year 2000.  Cymer's 
customers have been informed of  the non-compliance and have been provided with
instructions  for  the manual correction of the date between January 1 and 
February  28, 2000.   Not  resetting the internal clock would have no  material
impact  on  the  operation  of  the  laser  system.*   Cymer  has demonstrated 
and tested the software fix to bring the  lasers  to full  SEMATECH  Y2K 
compliance. These tests have been  completed; however, no date has been 
determined for full deployment of the software upgrade out to the field. Cymer
currently has no reason to believe the software upgrade will not be implemented
prior to the year 2000.*

    Based  on  the assessment efforts to date, Cymer  does  not believe that
the Y2K issue will have a material adverse effect on Cymer's   consolidated
financial  condition   and   results   of operations.*  The  cost  of  the  
Y2K  process  is  estimated  at approximately $250,000 of which approximately 
$125,000  has  been incurred.*  However, Cymer's beliefs and expectations  are 
based on certain assumptions that  ultimately  may  prove  to  be inaccurate.
Aside from global infrastructure Y2K  requirements, Cymer's  worst case scenario
may include: supplier  and  customer purchase,  delivery  and  payment  delays;
server  and   desktop computer   failures;  one  or  more  critical  software  
systems failures, including embedded control systems; and failure of  one or
more  internal and external communications  systems  such  as telephones, 
networks, voice mail and paging systems.*  Additional potential  sources  of
risk include (a)  the  inability  of  key suppliers  and customers to be Y2K 
compliant, (b) the  disruption of  global transportation channels as 

<PAGE>

a result of general  system failures,  and (c) an overall failure of necessary 
infrastructure such as electricity and telecommunications.  If any of these were
to  occur,  there could be a material adverse effect  on  Cymer's consolidated 
financial condition and results of operations.*

RISK FACTORS
  
Likely Fluctuations in Operating Results
  
     Certain Factors Causing Fluctuations

     Cymer's  operating results have in the past  fluctuated  and are likely
in  the  future  to fluctuate  significantly.  These fluctuations depend on a
variety of factors which 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 Cymer's customers;
     *    cyclicality in the market for semiconductor manufacturing
          equipment;
     *    the timing and size of orders from Cymer's small base of
          customers;
     *    the ability of Cymer to manufacture, test and deliver laser
          systems in a timely and cost effective manner;
     *    the mix of  laser models, replacement parts and service
          revenues;
     *    the ability of Cymer's competitors to obtain orders from
          Cymer's customers;
     *    the  entry of new competitors into the market for  DUV
          photolithography illumination sources;
     *    the ability of Cymer to manage its costs as it supplies its
          products in higher volumes; and
     *    Cymer's ability to effectively manage its exposure  to
          foreign currency exchange rate fluctuations, principally with
          respect to the Japanese yen (in which sales by Cymer's Japanese
          subsidiary are denominated).
     
In  addition,  as customers become more efficient at  integrating Cymer's 
lasers into their photolithography tools, reductions  in customer laser 
inventories may affect Cymer's operating results.
     
     Timing of Revenue Recognition
     
      Cymer 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 
Cymer's total  revenues and  operating  results for a particular  period.   If 
customers cancel or reschedule orders for a small number of systems  or  if
Cymer  cannot fill orders in time to recognize revenue  during  a particular
period, this could adversely affect Cymer's  operating results for that period.
For   example,   unanticipated manufacturing,  testing,  shipping or product  
acceptance  delays could cause such cancellations, rescheduling or inability to
fill orders promptly.

     Fixed Expenses

     Cymer's  expense levels are based, in large part, on Cymer's expectations 
as to future revenues. Therefore, Cymer's  expenses are  relatively fixed in 
the short term. If revenue  levels  fall below  expectations, this would 
disproportionately and  adversely affect net income.  Cymer cannot forecast 
the impact of these and other factors on its revenues and operating results 
in any future period with any degree of certainty.

<PAGE>
     
     Semiconductor Manufacturer Demand
     
     Cymer   believes   that  semiconductor   manufacturers   are
currently   developing  capability  for  production   and   pilot
production  of  0.25um, 0.18um and below  devices.*   Cymer  also
believes that the efforts to develop such capability are  driving
present  demand  for its excimer lasers for DUV  photolithography
tools.*   Once  semiconductor manufacturers  have  acquired  such
capability,  their demand for Cymer's DUV photolithography  tools
will  depend  on  whether they want to expand their  capacity  to
manufacture  such devices.  This will in turn depend  on  whether
their  sales  forecasts and manufacturing process yields  justify
such an investment.  Cymer currently expects that demand for  its
DUV  excimer  lasers  will  depend on  such  demand  and  process
development constraints of the semiconductor manufacturers.*
     
     Industry Conditions
     
     Recently, Cymer has increased some aspects of its operations
in  response  to anticipated improvement in industry  conditions.
Should  these improvements not materialize, the planned increases
in spending may delay the return to profitable operations.

      Due  to  the  foregoing,  as well  as  other  unanticipated
factors,  Cymer's operating results will likely  fall  below  the
expectations  of  public market analysts  or  investors  in  some
future quarter or quarters. Such failure to meet operating result
expectations  would  materially adversely  affect  the  price  of
Cymer's Common Stock.

Dependence on Single Product Line

      Cymer's  only product line is excimer lasers.  The  primary
market  for  excimer  lasers is for use in  DUV  photolithography
equipment for manufacturing deep-submicron semiconductor devices.
Demand  for Cymer'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   advanced   DUV
  photolithography and
* potential  shortages of specialized materials used  in  DUV
  optics.

There  can be no assurance that such impediments can or  will  be
overcome.  In  any event, such impediments may materially  reduce
the  demand  for Cymer's products. Further, if Cymer's  customers
experience reduced demand for DUV photolithography tools,  or  if
Cymer's  competitors  are  successful  in  obtaining  significant
orders  from  such  customers, Cymer's  financial  condition  and
results of operations would be materially adversely affected.

Dependence on Semiconductor Industry
     
       Cymer  derives  substantially all  of  its  revenues  from
photolithography   tool   manufacturers.  Photolithography   tool
manufacturers  depend in turn on the demand  for  their  products
from  semiconductor  manufacturers.  Semiconductor  manufacturers
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.  These downturns have often had  a  severe
effect  on  the demand for semiconductor manufacturing equipment,
including  photolithography tools.  Cymer believes that downturns
in  the  semiconductor manufacturing industry  will  periodically
occur,   resulting   in   periodic  decreases   in   demand   for
semiconductor  manufacturing  

<PAGE>

equipment.*   In  addition,   Cymer believes  that  in  a future downturn 
Cymer's  need  to  continue investment in research and development, and to 
maintain extensive ongoing  customer service and support capability  will  
constrain its  ability to reduce expenses.*  Accordingly, downturns in  the
semiconductor  industry could have a material adverse  effect  on
Cymer's business, financial condition and results of operations.
     
Dependence on Small Number of Customers

      A  small  number  of manufacturers of DUV  photolithography
tools  constitute  Cymer's  primary customer  base.   Four  large
firms,  ASM  Lithography, Canon, Nikon  and  SVG  Lithography  (a
subsidiary   of  Silicon  Valley  Group,  Inc.),   dominate   the
photolithography tool business. Collectively, they accounted  for
approximately 90%,  94%, and 94% of the Cymer's total revenues in
1996,  1997, and 1998, respectively. Individually, sales  to  ASM
Lithography,  Canon,  Nikon  and SVG  Lithography  accounted  for
approximately  24%,  25%,  39% and  6%,  respectively,  of  total
revenues  for  1997, and 37%, 20%, 31% and 6%,  respectively,  of
total  revenues in 1998.  Cymer 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  Cymer's
customers  are obligated to purchase a minimum number of  Cymer's
products.  The loss of any significant business from any  one  of
these customers or a significant reduction in orders from any one
of  these  customers,  would have a material  adverse  effect  on
Cymer's  business, financial condition and results of operations.
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, could all cause such a loss  of
business or reduction  in orders.

Need to Manage a Changing Business
     
     Cymer has recently dramatically expanded and contracted  the
scope  of its operations and the number of employees in  most  of
its functional areas.  For example, Cymer increased the number of
its  employees from 136 at December 31, 1995 to 336  at  December
31,  1996  to  809 at December 31, 1997 and then  decreased  that
number  to  703  at  December  31,  1998.  Cymer  installed   new
management   information  systems  and  has  also   substantially
expanded its facilities and manufacturing capacity.  For example,
since  December  31,  1996  Cymer has occupied  three  additional
buildings  covering  approximately  187,000  square  feet.  In  a
cyclical  environment  of dramatic growth or  contraction,  Cymer
will need:
     
     *    to continue close management of these areas, and
     *    to  improve its management, operational and  financial
          systems, including
         *    accounting and other internal management systems,
         *    quality control,
         *    delivery and
         *    field service and customer support capabilities.*

Cymer   must  also  effectively  manage  its  inventory   levels,
including  assessing and managing excess and obsolete inventories
associated   with  the  changing  environment  and  new   product
introductions.  Cymer  will need to attract,  train,  retain  and
manage key technical personnel in order to support Cymer's growth
and/or  contraction.*  Cymer will also need to manage effectively
its international operations, including:
     
     *    the operations of its subsidiaries in Japan, Korea, Taiwan,
          Singapore and the Netherlands,
     *    its field service and support presence in Asia and Europe
          and
     *    its  relationship with Seiko as a manufacturer of  its
          photolithography lasers.*

Cymer  must  also  effect timely deliveries of its  products  and
maintain  the  product quality and reliability  required  by  its
customers.  Any failure to effectively manage Cymer's  growth  or
contraction  would materially adversely affect Cymer's  financial
condition and results of operations.

<PAGE>

Competition

     Lambda-Physik, Komatsu and Ushio
     
     Cymer  currently  has three significant competitors  in  the
market   for   excimer   laser   systems   for   photolithography
applications:
     
     *    Lambda-Physik,
     *    Komatsu, Ltd. ("Komatsu") and
     *    Ushio.

All of these companies:
     
     *    are larger than Cymer,
     *    have  access to greater financial, technical and other
          resources than does Cymer, and
     *    are located in closer proximity to Cymer's customers than is
          Cymer.

Cymer  believes  that Lambda-Physik and Komatsu are  aggressively
seeking  to gain larger positions in this market.  Cymer 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.*  Cymer believes that Komatsu in particular has
been  qualified for production use by chipmakers in Japan.  Cymer
could lose market share and its growth could slow or even decline
as competitors gain market acceptances.

     Other Technologies

     In the future, Cymer will likely experience competition from
other technologies, such as EUV and scalpel processes.  To remain
competitive, Cymer believes that it will need to:

     *    manufacture and deliver products to customers on a timely
          basis and without significant defects, and
     *    maintain  a  high level of investment in research  and
          development and in sales and marketing.*

Cymer might not have sufficient resources to continue to make the
investments necessary to maintain its competitive position.
     
     Small and Immature Market for Excimer Lasers
     
     In  addition, the market for excimer lasers is  still  small
and  immature.   Larger  competitors with  substantially  greater
financial  resources, including other manufacturers of industrial
lasers, might attempt to enter the market.
     
     Cymer  might  not remain competitive.  A failure  to  remain
competitive  would  have  a material adverse  effect  on  Cymer's
business, financial condition and results of operations.
     
Risk  of  Excessive  Inventory Buildups by Photolithography  Tool
Manufacturers

      Pholithography tool manufacturers constitute  substantially
all  of  Cymer's  customers. Photolithography tool  manufacturers
sell  their  systems  in  turn  to  semiconductor  manufacturers.
Current  market  conditions in the industry could  cause  Cymer's
customers  to reduce their orders for new laser systems  as  they
try  to  manage  their  inventories to appropriate  levels  which
better  reflect their expected sales forecasts.  Cymer is working
with  its customers to better understand end user demand for  DUV

<PAGE>

photolithography tools.  However, there can be no assurance  that
Cymer  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  Cymer's
revenues  and  operating  results  in  future  periods  as   such
inventories are brought into balance.

Dependence on Key Suppliers
     
        Cymer obtains certain of the components and subassemblies
included  in  its products from a single supplier  or  a  limited
group  of  suppliers.  In particular, there  are  no  alternative
sources   for  certain  of  such  components  and  subassemblies,
including certain optical components used in Cymer's lasers.   In
addition,  Cymer is increasingly outsourcing the  manufacture  of
various  subassemblies.  To date Cymer has been  able  to  obtain
adequate supplies of the components and subassemblies in a timely
manner  from  existing sources.  However, due to  the  nature  of
Cymer's  product  development requirements, key  suppliers  often
need  to  rapidly  advance  their own technologies  in  order  to
support   Cymer's  new  product  introduction  schedule.    These
suppliers  may  or  may not be able to satisfy  Cymer's  schedule
requirements in providing new modules and subassemblies to Cymer.
If  Cymer  cannot obtain sufficient quantities of such materials,
components or subassemblies, or if such items do not meet Cymer's
quality  standards,  delays or reductions  in  product  shipments
could  have  a  material  adverse  effect  on  Cymer's  business,
financial condition and results of operations.
     
Limited Production Use of Excimer Lasers

     The  semiconductor  industry  is  at  the  early  stages  of
adopting  the  excimer  laser  technology  into  photolithography
applications.    Cymer's  products  might  not  meet   production
specifications or cost of operation requirements over  time  when
subjected  to  prolonged and intense use in volume production  in
semiconductor   manufacturing  processes.  If  any  semiconductor
manufacturer  cannot  successfully  achieve  or  sustain   volume
production   using  Cymer's  lasers,  Cymer's   reputation   with
semiconductor   manufacturers   or   the   limited   number    of
photolithography tool manufacturers could be damaged. This  would
have  a  material  adverse effect on Cymer's business,  financial
condition and results of operations.

Need to Expand Field Service and Support Organization

     Cymer  believes that the need to provide fast and responsive
service  to the semiconductor manufacturers using its  lasers  is
critical.  Cymer cannot depend solely on its direct customers  to
provide this specialized service.*  Therefore, Cymer 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, Cymer is currently
expanding its direct support infrastructure in the United States,
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.   Cymer  has  historically  experienced
difficulties  in  effectively training field  service  personnel.
Cymer  might not be able to attract and train qualified personnel
to  establish these operations successfully.  Further, the  costs
of  such  operations might be excessive.  A failure to  implement
this  plan  effectively could have a material adverse  effect  on
Cymer'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.  Cymer 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
     *    develop  and  manufacture new products  with  improved
          capabilities.*
<PAGE>

  In  order  to enhance and improve its products and develop  new
products,  among other things, Cymer must work closely  with  its
customers,  particularly  in the product  development  stage,  to
integrate its lasers with its customers' photolithography  tools.
Future  technologies,  such as EUV and scalpel  processes,  might
render  Cymer's excimer laser products obsolete.  Further,  Cymer
might  not  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  Cymer's
business, financial condition and results of operations.

Dependence on Key Personnel

     Cymer 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.  There  is  intense  competition   for   such
personnel,  as  well  as  for  the  highly-skilled  hardware  and
software  engineers  Cymer  requires.   Cymer  has  in  the  past
experienced,  and continues to experience, difficulty  in  hiring
personnel, including experts in excimer laser technology.   Cymer
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
     *    its ability to attract, train and retain highly skilled
          personnel in each of these areas.*

Cymer  does  not  have employment agreements  with  most  of  its
employees,  and  Cymer  might not  be  able  to  retain  its  key
employees.   The failure of Cymer to hire, train and retain  such
personnel  could  have  a  material  adverse  effect  on  Cymer's
business, financial condition and results of operations.

Uncertainty  Regarding  Patents  and  Protection  of  Proprietary
Technology
     
     Cymer Patents
     
     Cymer 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 Cymer may depend in part on patents.  As of December 31, 1998,
Cymer owned 36 United States patents covering certain aspects  of
technology  associated with excimer lasers.   Such  patents  will
expire  at various times during the period from January  2008  to
December  2018.  As of December 31, 1998, Cymer had also  applied
for  56 additional patents in the United States, 4 of which  have
been  allowed.   As of December 31, 1998, Cymer owned  9  foreign
patents  and had filed 147 patent applications in various foreign
countries.
     
     Cymer's   pending  patent  applications   and   any   future
applications  might not be approved. Cymer's  patents  might  not
provide  Cymer with competitive advantages.  Third parties  might
challenge Cymer's patents.  And third parties' patents might have
an  adverse  effect  on Cymer's ability to do business.  In  this
regard,  due to cost constraints, Cymer 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  1993.  Therefore, Cymer has 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

<PAGE>

available under United States  patent law,  any  such  patents  issued 
to Cymer  might  not  adequately protect  Cymer's  proprietary  information.   
Furthermore,  third parties  might independently develop similar products, 
duplicate Cymer's  products  or,  if patents are issued  to  Cymer,  design
around the patents issued to Cymer.
     
     Competitive Patents
     
      Others  may  have filed and in the future may  file  patent
applications that are similar or identical to those of Cymer.  To
determine  the  priority  of  inventions,  Cymer  may   have   to
participate  in interference proceedings declared by  the  United
States Patent and Trademark Office. Such interference proceedings
could  result  in  substantial cost to Cymer.  Such  third  party
patent  applications might have priority over patent applications
filed by Cymer.

     Other Forms of Protection

     Cymer also relies upon:

     *    trade secret protection,
     *    employee nondisclosure agreements,
     *    third-party nondisclosure agreements, and
     *    other intellectual property protection methods
to protect its confidential and proprietary information.  Despite
these efforts, third parties might:

     *    independently develop substantially equivalent proprietary
          information and techniques,
     *    otherwise gain access to Cymer's trade secrets, or
     *    disclose such technology.
Cymer  might  not  be  able  to meaningfully  protect  its  trade
secrets.

       Possible  Claims  to  Ownership  of  Cymer's  Intellectual Property

      Cymer  has in the past funded a significant portion of  its
research  and  development  expenses from  outside  research  and
development  revenues.   Cymer has received  such  revenues  from
photolithography   tool  manufacturers  and  from   SEMATECH,   a
semiconductor industry consortium, in connection with the  design
and  development  of specific products. Cymer currently  funds  a
small  portion  of  its  development expenses  through  SEMATECH.
Although   Cymer'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  Cymer, disputes over  the  ownership  or
rights  to  use or market such intellectual property might  arise
between Cymer and such parties.  Any such dispute could result in
restrictions on Cymer's ability to market its products and  could
have  a  material  adverse effect on Cymer's business,  financial
condition and results of operations.

     Patent Infringement

      Third  parties have in the past notified, and  may  in  the
future notify, Cymer that it may be infringing their intellectual
property  rights.*   Komatsu,  one of  Cymer's  competitors,  has
notified   Cymer's   Japanese   manufacturing   partner,    Seiko
Instruments,  Inc.  ("Seiko"), that certain  aspects  of  Cymer's
lasers  might  infringe three patents that have  been  issued  to
Komatsu  in  Japan.   Komatsu  has notified  Seiko  that  Komatsu
intends  to enforce its rights under the Komatsu Patents  against
Seiko if Seiko engages in manufacturing activities for Cymer.  In
connection with its manufacturing agreement with Seiko, Cymer has
agreed  to  indemnify  Seiko against such  claims  under  certain
circumstances.  Attorneys  representing  Komatsu  are   currently
challenging  one  of  Cymer's U.S. patents  in  the  U.S.  Patent
Office.   In  addition,  Cymer has engaged  in  discussions  with
Komatsu  with  respect to the Komatsu Patents, in the  course  of
which  Komatsu has also identified to Cymer a number  of  pending
applications

<PAGE>

and  additional patents.  Cymer,   in  consultation with  Japanese 
patent counsel, has initiated oppositions  to  the Komatsu  Patents
and   the applications in the  Japanese  Patent Office.   However, 
litigation might ensue with respect  to  these claims.  Cymer and 
Seiko might not ultimately prevail in any such litigation.  Komatsu
might  assert  infringement  claims   under additional patents.

      Any  patent  litigation  would  at  a  minimum  be  costly.
Litigation could also divert the efforts and attention of Cymer's
management  and technical personnel.  Both could have a  material
adverse  effect  on  Cymer's business,  financial  condition  and
results  of operations.  Furthermore, in the future third parties
might  assert  other infringement claims, and customers  and  end
users   of  Cymer's  products  might  assert  other  claims   for
indemnification   resulting  from  infringement   claims.    Such
assertions,  if  proven  to be true, might  materially  adversely
affect  Cymer's  business,  financial condition  and  results  of
operations. If any such claims are asserted against Cymer,  Cymer
may seek to obtain a license under the third party's intellectual
property  rights.  However, such a license might not be available
on  reasonable  terms  or at all.  Cymer  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  Cymer's
management   and  technical  personnel,  which  would  materially
adversely  affect  Cymer's  business,  financial  condition   and
results of operations.

     Trademark

      Cymer  has  registered the trademark CYMER  in  the  United
States  and  certain  other countries and is  seeking  additional
registrations   in   certain  countries.    In   Japan,   Cymer'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.   Cymer  is  seeking  a
partial nullification of that registration with respect to  laser
devices  and  related components and does not  believe  that  the
holder  of  that trademark is engaged in any business similar  to
that  of Cymer.  For this reason, Cymer (1) is continuing to  use
the   trademark  CYMER  in  Japan,  (2)  believes  that  it  will
ultimately  be permitted to register such mark for use  with  its
products,  and  (3) believes it is not infringing that  company's
trademark.* Cymer might not ultimately succeed in its efforts  to
register its trademark in Japan.  Cymer might be subjected to  an
action  for  trademark infringement, which  could  be  costly  to
defend.   If  successful, such an action would require  Cymer  to
cease use of the mark and, potentially, to pay damages.

Risks Associated with Manufacturing in Japan

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

Risks of International Sales and Operations

     Significant International Trade

     Cymer  derived  approximately  81%,   89%  and  88%  of  its
revenues  in  1996, 1997 and 1998, respectively,  from  customers
located   outside  the  United  States.   Because  a  significant
majority  of  Cymer's principal customers are  located  in  other
countries,    particularly   Asia,   Cymer    anticipates    that
international  sales will continue to account for  a  significant
portion  of  its  revenues.*  In order to  support  its  overseas
customers, Cymer:

<PAGE>
     
     *    maintains subsidiaries in Japan, Korea, Taiwan, Singapore
          and the Netherlands,
     *    is  expanding its field service and support operations
          worldwide, and
     *    will continue to work with Seiko as a manufacturer of its
          products in Japan.*

Cymer  might  not be able to manage these operations effectively.
Cymer's  investment in these activities might not  enable  it  to
compete  successfully in international markets  or  to  meet  the
service  and  support  needs  of its customers.  Additionally,  a
significant  portion  of Cymer'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 Cymer's principal customers, as well as many  of
the  end-users of Cymer's laser systems, are located in Asia, the
recent economic problems and currency fluctuations affecting that
region  could  intensify  Cymer's international  risk.   Further,
while  Cymer  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 Cymer  to
export  its  products to various countries. These  factors  could
have  a  material  adverse effect on Cymer's business,  financial
condition and results of operations.

     Currency Fluctuations

     Sales by Cymer to its Japanese subsidiary are denominated in
dollars, while sales by the subsidiary to customers in Japan  are
denominated  in  yen.   This  means  that  Cymer's   results   of
operations  show  some fluctuation based  on  the  value  of  the
Japanese yen against the U.S. dollar. Cymer's Japanese subsidiary
manages  its  exposure  to  such fluctuations  by  entering  into
foreign   currency  exchange  contracts  to  hedge  its  purchase
commitments.    Management  will  continue  to  monitor   Cymer's
exposure  to  currency fluctuations, and, when  appropriate,  use
financial  hedging  techniques to minimize the  effect  of  these
fluctuations.  However, exchange rate fluctuations might  have  a
material  adverse  effect  on Cymer's results  of  operations  or
financial condition.  In the future, Cymer might need to sell its
products in other currencies, which would make the management  of
currency fluctuations more difficult and expose Cymer to  greater
risks in this regard.*

     Foreign Regulations

      Numerous foreign government standards and regulations apply
to   Cymer's  products.   These  standards  and  regulations  are
continually  being  amended.  Although Cymer  endeavors  to  meet
foreign  technical  and  regulatory standards,  Cymer's  products
might  not  continue to comply with foreign government  standards
and  regulations,  or  changes thereto.  It  might  not  be  cost
effective for Cymer to redesign its products to comply with  such
standards  and regulations.  The inability of Cymer to design  or
redesign products to comply with foreign standards could  have  a
material  adverse effect on Cymer'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 Cymer's manufacturing process and on the facility leased
by  Cymer. Cymer believes that its activities conform to  present
governmental  regulations applicable to its  operations  and  its
current  facilities.  These regulations include those related  to
environmental, land use, public utility utilization and fire code
matters. Such governmental regulations might in the future impose
the  need  for  additional  capital equipment  or  other  process
requirements  upon  Cymer.   They  might  also

<PAGE>

restrict  Cymer's ability  to  expand  its operations.  The (1) 
adoption  of  such measures,  or  (2)  failure by Cymer to  comply
with  applicable environmental  and  land  use  regulations  or  to  
restrict  the discharge of hazardous substances, could subject Cymer to  
future liability  or  could  cause its manufacturing  operations  to  be
curtailed or suspended.

Risks of Product Liability Claims

     Cymer  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.  Cymer  might  experience
material product liability losses in the future.  Cymer maintains
insurance   against  product  liability  claims.  However,   such
coverage  might not continue to be available on terms  acceptable
to   Cymer.   Such  coverage  also  might  not  be  adequate  for
liabilities actually incurred.  Further, in the event that any of
Cymer's products prove to be defective, Cymer may need to  recall
or  redesign  such products.  A successful claim brought  against
Cymer in excess of available insurance coverage, or any claim  or
product  recall  that  results in significant  adverse  publicity
against  Cymer, could have a material adverse effect  on  Cymer's
business, financial condition and results of operations.

Possible Price Volatility of Common Stock

     The  following factors may significantly affect  the  market
price of Cymer's Common Stock:
  
     *    actual or anticipated fluctuations in Cymer's operating
          results,
     *    announcements of technological innovations,
     *    new products or new contracts by Cymer 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.  Such fluctuations have
often  been  unrelated  to  the operating  performance  of  these
companies.   The  market  price  of  Cymer's  Common  Stock   has
fluctuated substantially in recent periods, rising from $4 3/4 at
Cymer's initial public offering on September 18, 1996, to $48 3/4
on  August  22, 1997, and then declining to $5 7/8 on October  8,
1998, (these prices reflect Cymer's 2-for-1 stock split effective
as  of  August  21,  1997).  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  can  result  in
substantial  costs and a diversion of management's attention  and
resources.

Legal Matters
  
     Cymer  has  been  named as a defendant in  several  putative
shareholder  class action lawsuits which were filed in  September
and  October,  1998 in the U.S. District Court for  the  Southern
District  of California. Certain executive officers and directors
of Cymer are also named as defendants.  The plaintiffs purport to
represent  a  class of all persons who purchased  Cymer's  Common
Stock  between April 24, 1997 and September 26, 1997 (the  "Class
Period").   The  complaints  allege  claims  under  the   federal
securities laws.  The plaintiffs allege that Cymer and the  other
defendants made various material misrepresentations and omissions
during  the  Class  Period.  The complaints do  not  specify  the
amount  of damages sought.  The complaints have been consolidated
into  a  single action.  No lead plaintiff has yet been appointed
and  a  consolidated amended complaint has not  yet  been  filed.
Discovery has not yet commenced.  Cymer believes that it has good
defenses  to  the claims alleged in the lawsuits and will  defend
itself  vigorously against these actions.  The defense  of  these
actions  may cause some disruption 

<PAGE>

in Cymer's operations and  may from time to time distract management 
from day-to-day operations. The  ultimate  outcome  of  these  actions  
cannot  be  presently determined.  Accordingly, no provision for any 
liability or  loss that  may result from adjudication or settlement thereof 
has been made in the accompanying consolidated financial statements.

Anti-Takeover  Effect  of  Nevada  Law  and  Charter  and   Bylaw
Provisions; Availability of Preferred Stock for Issuance
     
     Nevada  law and Cymer'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 Cymer'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.  Such shares of Preferred Stock may have 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
Board  of Directors could use the issuance of Preferred Stock  or
of   rights   to  purchase  Preferred  Stock  to  discourage   an
unsolicited acquisition proposal.
     
Item  7A.  Quantitative and Qualitative Disclosures About  Market Risk

Foreign Currency Risk

     Cymer   conducts    business   in    several   international
currencies  through its worldwide operations. Due  to  the  large
volume of business Cymer manages in Japan, the Japanese operation
poses  the  greatest foreign currency risk.  Cymer uses financial
instruments, principally forward exchange contracts, in Japan  to
manage its foreign currency exposures.  Cymer does not enter into
forward exchange contracts for trading purposes.

     Cymer  enters  into foreign currency exchange  contracts  in
order  to  reduce the impact of currency fluctuations related  to
purchases of Cymer'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 income 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.

     At  December 31, 1998, Cymer had outstanding forward foreign
exchange  contracts to buy US$ 33.2 million for 4.2  billion  yen
under  foreign currency exchange facilities  with contract  rates
ranging  from  114.95  yen  to 144.84 yen  per  US$  and  various
expiration dates through September, 1999 (see Notes 1  and  4  to
Consolidated   Financial  Statements).   The   total   unrecorded
deferred  loss  and discount on these contracts at  December  31,
1998 was US$ 720,000 and $662,000, respectively.

Investment and Debt Risk

     Cymer maintains an investment portfolio consisting primarily
of government and corporate fixed income securities, certificates
of  deposit  and  commercial paper (see Note  3  to  Consolidated
Financial  Statements).  While it is Cymer's  general  intent  to
hold such securities until maturity, management will occasionally
sell  particular  securities for cash flow purposes.   Therefore,
Cymer's investments are classified as available-for-sale and  are
carried  on  the  balance  sheet  at  fair  value.   Due  to  the
conservative nature of the investment portfolio, a sudden  change
in  interest rates would not have a material effect on the  value
of the portfolio.

     In  August  1997,  Cymer  issued  $172.5  million  aggregate
principal  amount of Step-Up Convertible Subordinated  Notes  due
August 6, 2004 with interest payable semi-annually February 6 and
August 6, 

<PAGE>

commencing 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 
Cymer 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.   Cymer
cannot  redeem  the  Notes prior to August 9,  2000.  Thereafter,
Cymer  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  Cymer.   The indenture governing the Notes does not  restrict
the  incurrence  of senior indebtedness or other indebtedness  by
Cymer.   These  Notes are recorded at face value on  the  balance
sheets.   The  fair  value of such debt, based on  quoted  market
prices  at December 31, 1998 was $134.9 million.  As of  December
31,  1997  and  1998, $172.5 million in Convertible  Subordinated
Notes was outstanding.

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  Cymer's  directors under the  caption  "Nominees"
under the main caption "Proposal One - Election of Directors"  in
Cymer'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  Cymer's
fiscal  year ended December 31, 1998, is incorporated  herein  by
this reference.  For information regarding the identification and
business experience of Cymer'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  Cymer's  executive officers and directors under  the  caption
"Compliance  With Section 16(a) of the Exchange Act"  in  Cymer'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 Cymer'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  Cymer's   Proxy   Statement   is
incorporated herein by this reference.

Item 13.  Certain Relationships and Related Transactions

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

<PAGE>

     With   the   exception   of  the  information   specifically
incorporated  by reference from Cymer's Proxy Statement  in  Part
III  of  this Annual Report on Form 10-K, Cymer'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  Cymer'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, 1997 
          and 1998....                                          F-2
          Consolidated Statements of  Income for the Years
          Ended December  31,  1996,  1997 and  1998............F-3
          Consolidated   Statements  of  Stockholders'   Equity
          (Deficit) for the Years Ended  December 31, 1996, 1997
          and  1998.........                                    F-4
          Consolidated  Statements of Cash Flows for  the  Years
          Ended December  31,  1996,  1997 and  1998............F-6
          Notes to Consolidated Financial Statements........... F-8

          (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, 1998.

     (c)  Exhibits.  The following exhibits are filed as part of,
or incorporated by reference into, this Annual Report on Form 10-K:
          
          3.1  Amended and Restated Articles of Incorporation of Registrant
               (incorporated herein by reference to Exhibit 3.1 to the
               Registrant's Registration Statement on Form S-1 (as amended) no.
               333-08383).

          3.2  Bylaws of Registrant (incorporated herein by reference to
               Exhibit 3.4 to the Registrant's Registration Statement on Form S-
               1 (as amended) no. 333-08383).

          4.1  Preferred Shares Rights Agreement, dated as of February 13,
               1998 between 

<PAGE>
               Cymer and ChaseMellon Shareholder Services, L.L.C.
               (incorporated herein by reference to Exhibit 1 to the
               Registrant's Form 8-A, dated February 20, 1998).

         4.2   Registration Rights Agreement, dated as of August 6, 1997,
               by and among Cymer, Morgan Stanley & Co. Incorporated and
               Montgomery Securities (incorporated herein by reference to
               Exhibit 4.2 to the Registrant's Form 8-K, dated August 6, 1997).

         4.3   Indenture, dated as of August 6, 1997, by and among Cymer
               and State Street Bank and Trust Company of California, N.A., as
               trustee thereunder (incorporated herein by reference to Exhibit
               4.1 to the Registrant's Form 8-K, dated August 6, 1997.)

        10.1   Form of Indemnification Agreement with Directors and
               Officers (incorporated herein by reference to Exhibit 10.1 to the
               Registrant's Registration Statement on Form S-1 (as amended) no.
               333-08383.

        10.2   Standard Industrial Lease - Multi-Tenant, dated August 19,
               1991, by and between Frankris Corporation and Cymer (incorporated
               herein by reference to Exhibit 10.15 to the Registrant's
               Registration Statement on Form S-1 (as amended) no. 333-08383).

        10.3   Master Lease Agreement, dated April 23, 1996,
               between   Tokai  Financial  Services   and   Cymer
               (incorporated herein by 10.19 to the  Registrant's
               Registration  Statement on Form S-1  (as  amended)
               no. 333-08383).

        10.4   Single-Tenant Industrial Lease, dated  December
               19,  1996, by and between AEW/LBA Acquisition  Co.
               II,   LLC   and  Cymer  (incorporated  herein   by
               reference  to  Exhibit 10.20 to  the  Registrant's
               Annual Report on Form 10K filed for the year ended
               December 31, 1996).

        10.5   Patent License Agreement, dated October  13,
               1989,  by and between Cymer and Patlex Corporation
               (incorporated herein by reference to Exhibit 10.13
               to the Registrant's Registration Statement on Form
               S-1 (as amended) no. 333-08383).

        10.6   Contract    Manufacturing   Agreement    --
               Lithography Laser, dated August 28, 1992,  by  and
               between   Cymer   and   Seiko   Instruments   Inc.
               (incorporated herein by reference to Exhibit 10.16
               to the Registrant's Registration Statement on Form
               S-1 (as amended) no. 333-08383).

        10.7   Product License and Manufacturing Agreement  --
               High  Power Laser, dated August 28, 1992,  by  and
               between   Cymer   and   Seiko   Instruments   Inc.
               (incorporated herein by reference to Exhibit 10.17
               to the Registrant's Registration Statement on Form
               S-1 (as amended) no. 333-08383).

        10.8   Agreement, dated December 14, 1994, between  Cymer
               and EO Technics Co., Ltd. (incorporated herein  by
               reference  to  Exhibit 10.18 to  the  Registrant's
               Registration  Statement on  Form S-1 (as  amended)
               no. 333-08383).

        10.9   Loan  Agreement,  dated August 15,  1991,  by  and
               between  Mitsubishi International Corporation  and
               Cymer (incorporated herein by reference to 

<PAGE>

               Exhibit 10.14  to  the Registrant's Registration Statement
               on Form S-1 (as amended) no. 333-08383).

       10.10   Loan Agreement, dated as of December
               8, 1997, by and among Silicon Valley Bank and Bank
               of  Hawaii,  as  co-lenders, and Cymer  and  Cymer
               Japan, Inc., as borrowers (incorporated herein  by
               reference  to  Exhibit 10.10 to  the  Registrant's
               Annual  Report on form 10-K/A filed for  the  year
               ended December 31, 1997).

       10.11   Amendment  to Loan Agreement,  dated  as  of
               April  27, 1998, by and among Silicon Valley  Bank
               and  Bank of Hawaii, as co-lenders, and Cymer  and
               Cymer  Japan,  Inc.,  as  borrowers  (incorporated
               herein  by  reference  to  Exhibit  10.11  to  the
               Registrant's  Annual Report on form  10-K/A  filed
               for the year ended December 31, 1997).

       10.12  Corporate Guaranty, dated December 8, 1997, from
               Cymer  to Silicon Valley Bank and Bank of  Hawaii,
               as co-lenders (incorporated herein by reference to
               Exhibit 10.12 to the Registrant's Annual Report on
               form 10-K/A filed for the year ended December  31,
               1997).

        10.13  1996 Stock Option Plan (incorporated herein by reference to
               Exhibit 10.3 to the Registrant's Registration Statement on Form
               S-1 (as amended) No. 333-08383).

        10.14  1996 Employee Stock Purchase Plan (incorporated herein by
               reference to Exhibit 10.4 to the Registrant's Registration
               Statement on Form S-1 (as amended) No. 333-08383).
              
        10.15 1996  Director  Option    Plan (incorporated herein by 
              reference to Exhibit  10.5 to the Registrant's Registration 
              Statement on Form S-1 (as amended) No. 333-08383).

        10.16 Employment Agreement, dated November 26, 1997,
              by   and   between  Robert  P.  Akins  and   Cymer
              (incorporated herein by reference to Exhibit 10.16
              to  the  Registrant's Annual Report on form 10-K/A
              filed for the year ended December 31, 1997).

        10.17 Employment Agreement, dated November 26, 1997,
              by  and  between William A. Angus, III  and  Cymer
              (incorporated herein by reference to Exhibit 10.17
              to  the  Registrant's Annual Report on form 10-K/A
              filed for the year ended December 31, 1997).

        10.18 Employment Agreement, dated November 26, 1997,
              by   and   between   Pascal   Didier   and   Cymer
              (incorporated herein by reference to Exhibit 10.18
              to  the  Registrant's Annual Report on form 10-K/A
              filed for the year ended December 31, 1997).

        10.19 Employment Agreement, dated November 26, 1997, by and
              between G. Scott Scholler and Cymer (incorporated herein by
              reference to Exhibit 10.19 to the Registrant's Annual Report on
              form 10-K/A filed for the year ended December 31, 1997).

        10.20 Employment Agreement, dated October 21, 1998, by and between
              Edward P. Holtaway and Cymer.

<PAGE>

         21.1 Subsidiaries of Registrant

         23.1 Independent Auditors' Consent

         27.1 Financial Data Schedule for the year ended December 31, 1998

      (d)  Financial Statement Schedules.  See item 14, paragraph
(a) (2), above.

<PAGE>

                            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  18,  1999               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 Executive
     Robert P. Akins         Officer, and Chairman of the
                             Board
                             (Principal Executive Officer)   March 18, 1999

 /s/ WILLIAM A. ANGUS        Senior Vice President, Chief
     William A. Angus, III   Financial Officer and
                             Secretary
                             (Principal Financial Officer)   March 18, 1999
                             
 /s/ NANCY J. BAKER          Vice President, Corporate Finance,
     Nancy J. Baker          Treasurer and Chief Accounting
                             Officer
                             (Principal Accounting Officer)  March 18, 1999
                                                     
 /s/ RICHARD P. ABRAHAM      Director                        March 18, 1999
     Richard P. Abraham
                                                     
 /s/ KENNETH M. DEEMER       Director                        March 18, 1999
     Kenneth M. Deemer   
                                                     
 /s/ PETER J. SIMONE         Director                        March 18, 1999
     Peter J. Simone                               
                                                     
 /s/ GERALD F. TAYLOR        Director                        March 18, 1999
     Gerald F. Taylor                   
                                                     
 /s/ F. DUWAINE TOWNSEN      Director                        March 18, 1999
     F. Duwaine Townsen                             

<PAGE>

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,  1997  and  1998,  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,   1998.   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, 1997  and  1998,
and the results of their operations and their cash flows for each
of  the  three  years in the period ended December  31,  1998  in
conformity with generally accepted accounting principles.



DELOITTE & TOUCHE LLP
San Diego, California
February 2, 1999

<PAGE>

CYMER, INC.                                                            
CONSOLIDATED BALANCE SHEETS                                            
(In thousands, except share data)                                      
<TABLE>
<CAPTION>
                                                          December 31,    
ASSETS                                                 1997         1998   
CURRENT ASSETS:                                                        
<S>                                                 <C>          <C>
  Cash and cash equivalents                          $51,903      $53,130
  Short-term investments                              80,387       85,558 
  Accounts receivable - net                           59,140       50,909 
  Foreign exchange contracts receivable               31,267       22,145 
  Inventories                                         47,502       50,786 
  Deferred income taxes                               12,690       12,824 
  Prepaid expenses and other                           2,847        3,706 
        Total current assets                         285,736      279,058 
                                                                      
PROPERTY - net                                        48,031       51,937 
LONG-TERM INVESTMENTS                                 42,667       23,480 
DEFERRED TAXES - NON-CURRENT                           1,239        2,533 
OTHER ASSETS                                           8,446        7,310 
                                                                       
TOTAL ASSETS                                        $386,119     $364,318
                                                                       
LIABILITIES AND STOCKHOLDERS' EQUITY                                   
                                                                       
CURRENT LIABILITIES:                                                   
  Accounts payable                                   $22,615       $8,581 
  Accrued and other liabilities                       26,860       33,204 
  Foreign exchange contracts payable                  27,278       24,873 
  Income taxes payable                                 6,444        2,146 
  Revolving loan                                                   11,609 
        Total current liabilities                     83,197       80,413 
                                                                      
LONG-TERM LIABILITIES:                                                
  Convertible Subordinated Notes                     172,500      172,500 
  Other Liabilities                                    3,566        3,424 
MINORITY INTEREST                                      1,077        1,450 
COMMITMENTS AND CONTINGENCIES (NOTES 4, 5, 7, 10,                      
11 and 12)
                                                                       
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 28,724,000 and
 27,174,000 shares                                         29          27
 Paid-in capital                                      109,367     111,842 
 Treasury stock at cost (2,000,000 common shares)                 (24,871)
 Accumulated other comprehensive loss                  (2,254)     (1,627)
 Retained earnings                                     18,637      21,160 
           Total stockholders' equity                 125,779     106,531 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $386,119    $364,318

See Notes to Consolidated Financial Statements.                        
</TABLE>

<PAGE>

CYMER, INC.                                                            
CONSOLIDATED STATEMENTS OF INCOME                                      
(In thousands, except per share data)                                  
<TABLE>
<CAPTION>
                                                 Year Ended December 31,    
                                              1996        1997        1998    
REVENUES:                                                              
<S>                                         <C>        <C>         <C>
  Product sales                             $62,510    $201,191    $184,828     
  Other                                       2,485       2,456         313 
     Total revenues                          64,995     203,647     185,141 
COSTS AND EXPENSES:                                                    
  Cost of product sales                      35,583     123,654     125,713 
  Research and development                   11,742      24,971      30,152 
  Sales and marketing                         5,516      11,992      14,528 
  General and administrative                  4,270       8,586       9,487 
      Total costs and expenses               57,111     169,203     179,880 
                                                                       
OPERATING INCOME                              7,884      34,444       5,261 

OTHER INCOME (EXPENSE):                                                
  Foreign currency exchange gain (loss)-net     161        (359)        692 
  Interest and other income                     347       5,318       7,384 
  Interest and other expense                   (691)     (4,847)    (11,644) 
      Total other income (expense) -net        (183)        112      (3,568) 

INCOME BEFORE INCOME TAX (PROVISION)                                   
BENEFIT AND MINORITY INTEREST                 7,701      34,556       1,693 
                                                                       
INCOME TAX (PROVISION) BENEFIT               (1,191)     (8,639)      1,250
MINORITY INTEREST                                           141        (420) 
                                                                       
NET INCOME                                   $6,510     $26,058      $2,523 
                                                                       
EARNINGS PER SHARE:                                                    
  Basic:                                                               
    Earnings per share                        $0.33       $0.92       $0.09 
    Weighted average common shares       
     outstanding                             19,868      28,212      28,226 
  Diluted:                                                             
    Earnings per share                        $0.29       $0.86       $0.09 
    Weighted average common and potential
     common shares outstanding               22,420      30,267      29,566 
</TABLE>
                                                                       
See Notes to Consolidated Financial Statements.
<PAGE>

CYMER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)                                           
<TABLE>
<CAPTION>
                                                                        Accumulated     Retained
                                                                          Other         Earning     Stockholders'     Total
                                   Common Stock    Paid-in   Treasury  Comprehensive  (Accumulated     Equity      Comprehensive
                                 Shares   Amount   Capital    Stock     Income (Loss)    Deficit)     (Deficit)       Income   
                                                                                                        
<S>                            <C>         <C>  <C>        <C>             <C>          <C>            <C>            <C>
BALANCE, JANUARY 1, 1996        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                  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                  2,540        3    49,985                                                 49,988 
 Reversal of accretion of                                                                         
  redemption upon conversion
  of preferred stock                                                                       7,901          7,901 
 Net income                                                                                6,510          6,510            $6,510
 Other comprehensive income:                                              
  Translation adjustment, 
   net of tax                                                                (240)                         (240)             (240)
   Total comprehensive income                                                                                              $6,270

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 income                                                                               26,058         26,058           $26,058
 Other comprehensive income:                                            
 Translation adjustment, net                               
  of tax                                                                   (1,858)                       (1,858)           (1,858)
 Net unrealized gain on                                                                           
  available-for-sale investments,
  net of tax                                                                   49                            49                49
  Total comprehensive income                                                                                              $24,249
                                                                                                    
BALANCE, DECEMBER 31, 1997   28,724         29   109,367                   (2,254)        18,637        125,779
                                                                                                    
  Exercise of common stock
   options and warrants         365                 638                                      638
  Issuance of employee stock
   purchase plan shares          85               1,236                                    1,236 
  Stock repurchase of
   treasury stock            (2,000)        (2)            ($24,871)                     (24,873)
  Income tax benefit from
   stock options exercised                          601                                      601
  Net income                                                                               2,523          2,523            $2,523
  Other comprehensive income:                                                                      
  Translation adjustment, 
   net of tax                                                                 441                           441               441
  Net unrealized gain on                                             
   available-for-sale 
   investments, net of tax                                                    186                           186               186
  Total comprehensive income                                                                             $3,150
                                                                                                    
BALANCE, DECEMBER 31, 1998   27,174        $27 $111,842    ($24,871)       (1,627)       $21,160       $106,531
</TABLE>
                                                                              
See Notes to Consolidated Financial Statements.

<PAGE>
CYMER, INC.                                                             
CONSOLIDATED STATEMENTS OF CASH FLOWS                                   
(In thousands)                                                          
<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                            1996       1997        1998    
OPERATING ACTIVITIES:                                                   
<S>                                       <C>       <C>          <C>
  Net income                               $6,510    $26,058      $2,523   
  Adjustments to reconcile net income                                   
   to net cash provided by
   (used for) operating activities:                                   
    Depreciation and amortization           2,284      7,606      16,001   
      Minority interest                                 (141)        420   
      Deferred income taxes                (1,432)   (11,295)     (1,683)
      Loss on disposal of property            223                    436   
    Change in assets and liabilities:
      Accounts receivable                 (15,436)   (43,467)     12,865   
      Foreign exchange contracts
       receivable                          (9,317)   (24,819)     12,022
      Inventories                         (10,512)   (32,288)     (2,110)
      Prepaid expenses and other assets    (4,919)    (1,029)       (331)
        Accounts payable                    5,501     15,684     (12,815)
        Accrued and other liabilities       8,769     18,602       5,344   
        Foreign exchange contracts        
         payable                            8,396     21,397      (5,664)
        Income taxes payable                2,609      6,166      (3,789)
        Other                                (674)       194               
           Net cash provided by (used for)
            operating activities           (7,998)   (17,332)     23,219
INVESTING ACTIVITIES:                                                   
  Acquisition of property                 (11,090)   (42,209)    (19,621)
  Disposal of property                         16        147               
  Purchases of investments                (13,715)  (140,939)    (74,604)
  Proceeds from sold or matured           
   investments                              1,900     29,370      88,571 
      Net cash used for investing 
        activities                        (22,889)  (153,631)     (5,654) 
                                                                        
FINANCING ACTIVITIES:                                                   
  Net borrowings (payments) under                                       
   revolving loan and security agreements  (1,036)    (1,750)     10,083
  Proceeds from issuance of                      
   convertible subordinated notes                    172,500
  Debt issue costs                                    (5,228)
  Proceeds from issuance of redeemable                                  
   convertible preferred stock              6,050                         
  Proceeds from issuance of common       
    stock                                  79,935      2,125       1,874   
  Purchase of treasury stock                                     (24,871)
  Net discounting of commercial drafts     (1,240)
  Payments on capital lease obligations      (159)      (395)       (579) 
      Net cash provided by (used for)
       financing activities                83,550    167,252     (13,493) 
                                                                        
EFFECT OF EXCHANGE RATE CHANGES ON                                      
CASH AND CASH EQUIVALENTS                     727        209      (2,845) 
                                                                        
NET INCREASE (DECREASE) IN CASH AND                                  
  CASH EQUIVALENTS                         53,390     (3,502)      1,227
CASH AND CASH EQUIVALENTS AT BEGINNING                               
  OF YEAR                                   2,015     55,405      51,903
                                                              
CASH AND CASH EQUIVALENTS AT END OF YEAR  $55,405    $51,903     $53,130
                                                              
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                          
  INFORMATION:
  Interest paid                              $467       $671      $6,617
                                                              
  Income taxes paid                           $14    $11,991      $4,205
                                                              
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               $573     $1,950        $102
                                                              
</TABLE>
                                                              
See Notes to Consolidated Financial Statements.

<PAGE>


CYMER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   
   Nature  of  Operations  - Cymer, Inc.,  its  wholly-owned  and
   majority-owned   subsidiaries,  (collectively,   "Cymer")   is
   engaged  primarily  in  the  development,  manufacturing   and
   marketing  of  excimer  lasers for sale  to  manufacturers  of
   photolithography   tools   in  the   semiconductor   equipment
   industry.   Cymer sells its product to customers primarily  in
   Japan, the Netherlands and the United States.
   
   Principles  of  Consolidation  -  The  consolidated  financial
   statements  include the accounts of Cymer, Inc.,  its  wholly-
   owned  subsidiaries,  Cymer Japan Inc.  (Cymer  Japan),  Cymer
   Singapore,  Pte Ltd. (Cymer Singapore) and Cymer B.V.  in  the
   Netherlands    (Cymer    B.V.),   and    its    majority-owned
   subsidiaries,  Cymer  Korea,  Inc.  (Cymer  Korea)  and  Cymer
   Southeast  Asia, Inc. (Cymer SEA).  Cymer, Inc.  owns  70%  of
   Cymer  Korea  and 75% of Cymer SEA.  Cymer sells  its  excimer
   lasers  in Japan primarily through Cymer Japan.  Cymer  Korea,
   Cymer  SEA,  Cymer Singapore and Cymer B.V. 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.
   
   Recent Accounting Pronouncements
   
   In  June  1997, the Financial Accounting Standards Board  (the
   "FASB")  issued  Statement of Financial  Accounting  Standards
   ("SFAS")  No. 130, Reporting Comprehensive Income.   SFAS  No.
   130  establishes requirements for disclosure of  comprehensive
   income  and  became effective for Cymer 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 Cymer as a component  of
   stockholders'  equity.   Cymer adopted  this  standard  as  of
   December  31,  1998  and  the  December  31,  1997  and   1996
   financial  statements have been reclassified  to  reflect  the
   change.  See Note 8.
   
   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.  Cymer adopted  this  new
   standard  as  of  December 31, 1998. This  standard  does  not
   materially affect current reporting or disclosures.  See  Note
   13.
   
   In  February  1998, the FASB issued SFAS No.  132,  Employers'
   Disclosures about Pensions and Other Postretirement  Benefits.
   SFAS  No.  132  standardizes the disclosure  requirements  for

<PAGE>

   pension  and  other  postretirement  benefits  to  the  extent
   practicable,  requires additional information  on  changes  in
   benefit  obligations and fair values of plan assets that  will
   facilitate   financial   analysis,  and   eliminates   certain
   disclosure.    It   does  not  change   the   measurement   or
   recognition  of those plans.  Cymer adopted this  standard  as
   of  December  31,  1998.  This standard  does  not  materially
   effect Cymer's current reporting or disclosures.
   
   In  June  1998,  the FASB issued SFAS No. 133, Accounting  for
   Derivative Instruments and Hedging Activities.  SFAS  No.  133
   establishes accounting and reporting standards for  derivative
   instruments  and  for hedging activities.   The  new  standard
   will  become effective for Cymer for the year ending  December
   31,  2000.   Interim  reporting  of  this  standard  will   be
   required.   Cymer  has not yet assessed  the  effect  of  this
   standard on Cymer's current reporting and disclosures.
   
   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  - Cymer's investments are composed  primarily  of
   government    and    corporate   fixed   income    securities,
   certificates  of deposit and commercial paper.   While  it  is
   Cymer's   general   intent  to  hold  such  securities   until
   maturity,   management  will  occasionally   sell   particular
   securities   for  cash  flow  purposes.   Therefore,   Cymer'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 $235,000  at  December  31,
   1998  and  are included in stockholders' equity as accumulated
   other comprehensive income (loss).  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,
   Cymer  adopted 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.  No such
   losses occurred in 1997 or 1998.
   
   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.

<PAGE>   

   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, 1998 was $134.9 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 $2,485,000,
   $2,456,000 and $313,000 for the years ended December 31,
   1996, 1997 and 1998, respectively.
   
   Warranty  Expense  -  Cymer generally  warrants  its  products
   against  defects for the earlier of 17 to 24 months  from  the
   date  of  shipment or 12 months after acceptance by  the  end-
   user.  Cymer accrues a provision for warranty expense for  all
   products  sold which is included in cost of product  sales  in
   the  consolidated  statements of income.  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,   Cymer
   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.  Cymer 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 Cymer'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
   separate  component  of consolidated stockholders'  equity  as
   accumulated  other  comprehensive income  (loss).   Gains  and
   losses  resulting  from  foreign  currency  transactions   are
   included in the consolidated statements of operations.
   
   Foreign   Exchange  Contracts  -  Cymer  enters  into  foreign
   currency  exchange contracts in order to reduce the impact  of
   currency   fluctuations  related  to  purchases   of   Cymer'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 income 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.
   
   Cymer  recognized  net gains from the above  foreign  currency
   exchange  contracts of $1,920,000, $5,758,000  and  $4,547,000
   for  the  years  ended  December  31,  1996,  1997  and  1998,
   respectively.

<PAGE>

   The  face amount of the  underlying  contracts  was  $16,123,000, 
   $88,339,000 and $83,006,000 at December  31, 1996,  1997  and  1998, 
   respectively.  Cymer  had  outstanding forward  foreign exchange contracts 
   at December  31,  1998  to  buy  $33.2 million for 4.2 billion yen under 
   foreign  currency exchange facilities with banks in Japan and the United  
   States (see  Note  4).   The  total  unrecorded  deferred  loss   and
   discount  on  these  contracts as of  December  31,  1998  was
   approximately  $720,000  and  $662,000,  respectively.    Such
   contracts expire on various dates through September 1999.
   
   Concentration of Credit Risk - Cymer invests its  excess  cash
   in  an effort to preserve capital, provide liquidity, maintain
   diversification  and  generate  returns  relative  to  Cymer's
   corporate  investment policy and prevailing market conditions.
   Cymer  has  not  experienced  any  losses  on  its  cash   and
   investment  accounts.  Cymer 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,
                                     1996        1997        1998
     Customer                              (in thousands)
     <S>                          <C>          <C>         <C>
     A                            $20,123      $80,156     $57,900
     B                             19,134       51,480      36,916
     C                             12,586       49,441      67,729
     D                              6,555       11,697      10,833
</TABLE>

   Receivables  from  these  customers  totaled  $51,467,000  and
   $42,320,000 at December 31, 1997 and 1998, respectively.
   
   Revenues  from  Japanese  customers,  generated  primarily  by
   Cymer  Japan,  accounted for 61%, 65% and 48% of revenues  for
   the   years   ended  December  31,  1996,   1997   and   1998,
   respectively.   Revenues from a customer  in  the  Netherlands
   accounted  for  19%,  24% and 37% of revenues  for  the  years
   ended December 31, 1996, 1997 and 1998, respectively.
   
   Revenues  from stockholders totaled $52,114,000,  $131,636,000
   and  $94,816,000 for the years ended December 31,  1996,  1997
   and 1998, respectively.
   
   Earnings  Per Share - In February 1997, the FASB issued   SFAS
   No.  128,  Earnings Per Share, (EPS), 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 and is computed by dividing net  income  or
   loss  attributable  to common stockholders  by  the  weighted-
   average  of common shares outstanding for the period.  Diluted
   EPS  reflects  the  potential dilution  that  could  occur  if
   securities   or   other  contracts  to  issue   common   stock
   (convertible  preferred  stock, warrants  to  purchase  common
   stock  and  common  stock  options using  the  treasury  stock
   method)  were  exercised  or  converted  into  common   stock.
   Potential  common  shares in the diluted EPS  computation  are
   excluded  in  net  loss  periods  as  their  effect  would  be
   antidilutive.   EPS  for  all periods have  been  computed  in
   accordance  with SFAS No. 128.  Cymer 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:
<PAGE>
<TABLE>
<CAPTION>
                                                 Year ended December 31,
                                              1996        1997        1998
                                                  (In thousands, except
                                                    per share amounts)
                                                                          
             <S>                            <C>         <C>          <C>
             Net income                     $6,510      $26,058      $2,523
                                                                          
             Basic earnings per share        $0.33        $0.92       $0.09
             Basic weighted average 
              common shares outstanding     19,868       28,212      28,226
                                                                          
             Effect of dilutive securities:
               Warrants                        560          121         111
               Options                       1,992        1,934       1,229
             Diluted weighted average                                  
               common and potential
               common shares outstanding    22,420       30,267      29,566
             Diluted earnings per share      $0.29        $0.86       $0.09
</TABLE>
   
   Weighted  average  options  to  purchase  9,764,  412,000  and
   2,364,000  shares  of common stock, which  expire  at  various
   dates  through  2008  were outstanding  for  the  years  ended
   December  31, 1996, 1997 and 1998, respectively, and were  not
   included  in the computation of diluted earnings per share  as
   the  options'  exercise prices were greater than  the  average
   market  prices  of  the common shares.  In addition,  for  the
   years   ended   December  31,  1997  and   1998,   Convertible
   Subordinated Notes and related interest expense of  $4,249,000
   and   $9,732,000,  respectively,  were  not  included  in  the
   diluted earnings per share computation as they were also anti-
   dilutive.
   
   Stock  Split  -  On August 7, 1997, Cymer declared  a  2-for-1
   stock  split  of its common stock effective August  21,  1997.
   The  par value of the common stock 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.
   
                                                      December 31,
    2.  BALANCE SHEET DETAILS                      1997         1998
                                                    (in thousands)
    ACCOUNTS RECEIVABLE:                                         
      Trade                                      $56,856       $49,052
      Other                                        3,030         2,629
                                                  59,886        51,681
      Less allowance for doubtful accounts          (746)         (772)
      Total                                      $59,140       $50,909

<PAGE>

                                                       December 31,
                                                    1997          1998
                                                      (in thousands)
    INVENTORIES:                                                 
      Raw materials                               $24,365        $25,471
      Work-in-progress                             18,394         12,946
      Finished goods                                4,743         12,369
      Total                                       $47,502        $50,786
                                                                 
    PROPERTY - at cost:                                          
      Furniture and equipment                     $30,202        $38,465
      Capitalized lasers                           10,163         15,960
      Leasehold improvements                       19,083         21,695
      Construction in process                       1,435          3,309
                                                   60,883         79,429
      Less accumulated depreciation and
        amortization                              (12,852)       (27,492)
      Total                                       $48,031        $51,937
                                                                 
    ACCRUED AND OTHER LIABILITIES:                               
      Warranty and installation reserves          $15,730        $19,000
      Payroll and payroll related                   2,735          3,622
      Interest                                      3,920          7,651
      Other                                         4,475          2,931
      Total                                       $26,860        $33,204


3. INVESTMENTS
   
     Investments consist of the following:
     
                                                       December 31,
                                                    1997          1998
                                                      (in thousands)
     Short-term:                                         
       Municipal Bonds                            $32,923       $50,053
       Corporate Bonds                             14,151        21,143
       Certificates of Deposit                     14,113            
       Commercial Paper                             8,900         7,863
       Auction Market Preferred                     5,000            
       U.S. Government Agencies                     3,000         4,999
       Other                                        2,300         1,500
                                                    
       Total                                      $80,387       $85,558
                                                    
     Long-term:                                          
       Municipal Bonds                            $29,670       $16,426
       Corporate Bonds                             12,997         7,054
                                                    
     Total                                        $42,667       $23,480

<PAGE>

   Investments   are   recorded  at   fair   value.    Short-term
   investments  mature within one year and long-term  investments
   mature  in  one year to 18 months.  See also "Investments"  in
   Note 1.
   
4.   CREDIT FACILITIES
   
   Loan  and  Security Agreement - In 1996, Cymer had a Loan  and
   Security  Agreement (the "Agreement") that provided for  three
   revolving  loan facilities and a loan with a bank  to  provide
   for  combined  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). In 1997, the outstanding balance was paid off  and
   the Agreement was terminated.
   
   Revolving  Loan  Agreements  -  In  1997  Cymer  had  a   loan
   Agreement  (the  "1997  Agreement")  which  provided  for  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 1997 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.
   
   In  1998 Cymer entered into a Loan Agreement (the "Agreement")
   which  provides  for an unsecured optional currency  revolving
   loan   facility  with  two  banks  to  provide  for   combined
   borrowings  of up to a maximum of $15.0 million with  interest
   on  outstanding  borrowings at LIBOR  plus  1.40%.  There  was
   $11.6  million  outstanding under this Agreement  at  December
   31, 1998 at an interest rate of 2.13%.
   
   The  Agreement  requires  Cymer to  maintain  compliance  with
   certain  financial  statement and other  covenants  including,
   among  other  items,  tangible  net  worth,  quick  ratio  and
   profitability  requirements.  As of December 31,  1998,  Cymer
   was in compliance with all such covenants.
   
   Advances  Against  Commercial Drafts  -   In  1997  Cymer  had
   advances   against   commercial  drafts   representing   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 were  for
   a  maximum  of 10.7 billion yen (approximately $81.9  million)
   as  of  December  31,  1997.   These  commercial  drafts  were
   discounted  at 2.125% at December 31, 1997 and matured  within
   120  days.   There were no drafts outstanding at December  31,
   1998.
   
   Foreign  Exchange  Facilities -  Cymer  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  14.3  billion  yen in 1997 and 1998  to  be  utilized  for
   forward  contracts  for periods of up  to  one  year.   As  of
   December  31,  1997 and 1998, respectively,  4.2  billion  yen
   ($36.4  million) and 1.1 billion yen ($8.9 million) was  being
   utilized  under  the foreign exchange facility  (see  "Foreign
   Exchange Contracts" in Note 1).
   
   The  foreign  exchange facility with the  United  States  bank
   provides  up to $100.0 million in 1997 and 1998 to be utilized
   for spot and future foreign exchange contracts for periods  of
   up  to  one  year. $44.9 million and $24.3 million  was  being
   utilized  under the foreign exchange facility as  of  December
   31,  1997  and 1998, respectively.  This facility is  part  of
   the  Revolving Loan Agreements discussed above and is  subject
   to the same covenants.

<PAGE>   
5. CONVERTIBLE SUBORDINATED NOTES
   
   In  the  third  quarter of 1997, Cymer 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,
   commencing 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 Cymer  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.  Cymer cannot redeem the Notes  prior  to
   August  9, 2000.  Thereafter, Cymer 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  Cymer.    The
   indenture   governing  the  Notes  does   not   restrict   the
   incurrence  of  senior indebtedness or other  indebtedness  by
   Cymer.   As  of December 31, 1997 and 1998, $172.5 million  in
   Convertible Subordinated Notes was outstanding.
   
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
   
   Upon  Cymer'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 Cymer's common stock or  warrants
   to  purchase  common stock.  The conversion of  the  preferred
   stock  and  warrants to common stock 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 on the Redeemable Convertible
   Preferred  Stock of $7,901,000 was recorded as a reduction  of
   the accumulated deficit.
   
7. STOCKHOLDERS' EQUITY (DEFICIT)
   
   Preferred   Stock   -   Pursuant  to   Cymer'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,  1998,  Cymer  had
   warrants outstanding to purchase 124,000 shares of its  common
   stock  at  a  weighted average purchase  price  of  $1.69  per
   share.  The warrants expire in 2000 and 2001.

<PAGE>
 
   Stock Option and Purchase Plans - Cymer has three plans as
   follows:
   
                                                 Common Shares
                                                Designated for
                                                   Issuance
                                
       (i)   1987 Stock Plan                      3,000,000
      (ii)   1996 Stock Option Plan               4,250,000
     (iii)   1996 Employee Stock Purchase Plan      500,000
                                      
             Total                                7,750,000
   
   (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 Cymer'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 Cymer.  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 Cymer'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
   Cymer's common stock on the date of grant. Options issued under
   the 1996 Stock 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.  This plan was amended
   in 1998 by the shareholders to increase the plan shares issuable
   from 3,000,000 to 4,250,000.
   
   (iii)    1996 Employee Stock Purchase Plan (the "ESPP") -  The
   ESPP  is  intended to qualify under Section 423 of  the  Code.
   Under  the  ESPP, an eligible employee may purchase shares  of
   common  stock from Cymer 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  Cymer's
   common  stock  as  of  the first day of each  offering  period
   under  the  ESPP or (ii) the fair market value of  the  common
   stock at the end of the offering period.
   
   In  1996  Cymer had adopted a 1996 Director Option  Plan  (the
   "Director  Option Plan") whereby 200,000 shares were  reserved
   for  Board  of  Director  option grants.   There  were  80,000
   options  issued under the Director Option Plan in  1997.   The
   plan was dissolved in October 1997 by the Board of Directors.

<PAGE>
   
   Stock option transactions are summarized as follows (in
   thousands, except per share data):
   
                                                      Weighted Average
                                     Number of         Exercise Price
                                      Shares            Per Share
                                             
   Outstanding, January 1, 1996       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
     Granted                          1,731             $  20.31
     Exercised                         (359)            $   1.74
     Terminated                      (1,351)            $  25.90
                                                   
   Outstanding, December 31, 1998     4,068             $  14.21
                                            
   Exercisable, December 31, 1996       586             $   0.31
   Exercisable, December 31, 1997       846             $   3.73
   Exercisable, December 31, 1998     1,447             $   8.26
   
   Cymer  applies  APB Opinion No. 25 and related interpretations
   in   accounting  for  its  employee  stock  option  and  stock
   purchase  plans  (see Note 1).  Accordingly,  no  compensation
   expense  has  been recognized for its stock-based compensation
   plan,  as the options are granted at the fair market value  of
   Cymer's common stock on the date of grant.
   
   The  following  table summarizes the impact  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:
<TABLE>
<CAPTION>
   
   
                                              For the year ended December 31,
                                             1996           1997          1998
                                                                                         
     <S>                                 <C>           <C>            <C>
     Impact on net income                ($218,000)    ($7,600,000)   ($15,228,000)

     Impact on earnings per share:                               
         basic                              ($0.01)         ($0.27)         ($0.54)
         diluted                            ($0.01)         ($0.25)         ($0.52)
                                                                                              
     Estimated weighted average                                        
       fair market value of options 
       granted or shares purchased
       using the Black-Scholes                                  
       pricing model:
         Options                             $1.75          $17.36          $11.57
         ESPP                                                                $9.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                              For the year ended December 31,
                                             1996          1997           1998
    <S>                                <C>              <C>              <C>
    Weighted average assumptions:
       dividend yield                        None           None           None
       volatility rate                       107%            88%            85%
       risk free interest rates         5.33% to 6.68%   5.37% to 6.83%  4.07% to 5.66%
       assumed forfeiture rate                 3%             5%              5%
       expected life - Options              5 years        5 years         5 years
                       ESPP                   N/A            N/A          .5 years
</TABLE>
   
   The  following table summarizes information as of December 31,
   1998   concerning   currently  outstanding   and   exercisable
   options:
<TABLE>
<CAPTION>
   
           Options Outstanding                                 Options Exercisable
                                  Weighted Average        Weighted                           Weighted
   Range of          Number         Remaining              Average           Number           Average
Exercise Prices   Outstanding     Contractual Life      Exercise Price     Exercisable    Exercise Price
                 (in thousands)      (years)                             (in thousands)
<C>                <C>                 <C>                 <C>             <C>                 <C>
$0.25-$2.50        1,174,650           1.66                 $1.14            833,349            $1.04
$3.00-$19.34         895,701           6.33                $13.16            225,855            $9.99
$20.13-$21.03      1,017,239           5.84                $20.58            294,810           $20.77
$22.56-$27.38        885,804           8.37                $23.22             56,581           $25.94
$33.75-$33.75         94,218           3.56                $33.75             36,897           $33.75

                   4,067,612           5.24                $14.21          1,447,492            $8.26
</TABLE>

Common  Shares  Reserved - As of December  31,  1998,  Cymer  had
reserved  the  following number of shares  of  common  stock  for
issuance (in thousands):


      Issuance under stock option and purchase plans          1,790
      Exercise of common stock purchase warrants                124
         Total                                                1,914
    
Treasury  Stock  -  On  January  28, 1998,   Cymer's   Board   of
Directors  authorized Cymer to repurchase up to $50.0 million  of
Cymer's common stock from time to time on the open market or   in
privately    negotiated   transactions.   As   of   December  31,
1998,    Cymer  had  repurchased 2,000,000 shares at  a  cost  of
$24.9 million.

Option  Repricing  -  On  January  28,  1998,  Cymer'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.  In  accordance
with  APB  Opinion  No. 25, Cymer did not incur any  compensation
expense as a result of this repricing for the year ended December
31, 1998.

Stockholder Rights Plan -  On February 13, 1998, Cymer's Board of
Directors adopted a Stockholder Rights Plan.  Under the terms  of
the  plan, rights were distributed as a dividend at a rate of one
preferred  share  purchase  right on each  outstanding  share  of
Cymer's  common stock held by 

<PAGE>

stockholders of record  as  of  the close  of  business on March 2, 1998.  
All additional  shares  of common  stock  issued prior to February 13, 2008, 
the  expiration date  for  all rights, are to receive the dividend  at  the  
same rate.   The exercise price for each one-thousandth of a preferred
share  issuable  pursuant  to  the  exercise  of  a  right  shall
initially be $100.00, subject to adjustment under the plan.  Such
rights  are  exercisable only upon certain  change  of  ownership
events as defined in the plan.  The rights are designed to assure
that  all Cymer stockholders receive fair and equal treatment  in
the  event of any proposed takeover of Cymer and to guard against
partial  tender offers and other abusive tactics to gain  control
of  Cymer without paying all stockholders the fair value of their
shares, including a control premium.

8.   REPORTING COMPREHENSIVE INCOME

  Effective  January  1,  1998,  Cymer  adopted  SFAS  No.   130,
Reporting  Comprehensive Income.  SFAS No. 130 requires reporting
and  displaying  comprehensive income and its components,  which,
for  Cymer, include foreign currency translation adjustments  and
unrealized  holding  gains  and  losses  on  available  for  sale
securities  that  are currently being presented  by  Cymer  as  a
component of stockholders' equity.   The adoption of SFAS No. 130
had  no  impact  on  Cymer's results of operations  or  financial
position.   In  accordance  with SFAS No.  130,  the  accumulated
balance  of other comprehensive income (loss) is disclosed  as  a
separate component of stockholders' equity.  Prior year financial
statements  have been reclassified to conform to the requirements
of SFAS No. 130.
  
  The following table summarizes the change in each component  of
accumulated other comprehensive income (loss) for the three years
in the period ended December 31, 1998:
<TABLE>
<CAPTION>
                                          Total unrealized
                                              gains on          Accumulated
                           Translation   available-for-sale       other
                           adjustment,      investments,       comprehensive
                           net of tax        net of tax        income (loss)
                                                               
<S>                       <C>                    <C>            <C>
January 1, 1996  
   Beginning balance        ($205)                                ($205)
   Period net charge         (240)                                 (240)
December 31, 1996
   Balance                   (445)                                 (445)
   Period net charge       (1,858)                $49            (1,809)
December 31, 1997
   Balance                 (2,303)                 49            (2,254)
   Period net charge          441                 186               627
December 31, 1998
   Balance                ($1,862)               $235           ($1,627)
</TABLE>

9.   INCOME TAXES
  
   The   components  of  the  provision  for  income  taxes   are
   summarized as follows:
   
                                            Year ended December 31,
                                         1996         1997        1998
                                                (in thousands)
       Current income taxes:                              
         Federal                       $1,605       $16,174       ($751)
         State                                        1,127          10
         Foreign                        1,004         2,700       1,213
                                                          
       Total                            2,609        20,001         472

<PAGE>

                                             Year ended December 31,
                                         1996          1997         1998
                                                  (in thousands)
       Deferred income taxes:                             
         Federal                         (131)       (5,103)      (2,029)
         State                            (12)         (360)        (552)
         Foreign                         (352)         (611)         859
                                                          
       Total                             (495)       (6,074)      (1,722)
                                                          
       Reduction in valuation  
        allowance                        (923)       (5,288)
       Income tax provision (benefit)  $1,191        $8,639       ($1,250)
   
   The  income  tax  provision (benefit) is different  from  that
   which  would  be  obtained by applying the  statutory  Federal
   income  tax  rate  (35%) to income before income  tax  expense
   (benefit).   The items causing this difference for the  period
   are as follows:
   
                                              Year ended December 31,
                                           1996        1997        1998
                                                              
     Provision at statutory rate         $2,618      $12,095       $592
     Foreign provision in excess of                     
       Federal statutory rate               562        1,659      2,504
     State income taxes, net of
       Federal benefit                     (123)         484       (152)
     Foreign sales corporation taxes, 
       net of Federal tax                  (339)        (449)    (3,270)
     Federal tax credits                   (193)        (587)      (499)
     Japanese imported product credits                  (622)
     Tax exempt interest, net of 
      disallowed expenses                                          (563)
     Miscellaneous/other items              245          968        138
     Reduction in valuation allowance    (1,579)      (4,909)

     Provision (benefit) at effective
      tax rate                           $1,191       $8,639    ($1,250)

   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 Cymer's net deferred tax assets are as follows:

                                                     December 31,
                                              1997                 1998
                                                   (in thousands)
     Reserves and accruals not 
      currently deductible                  $11,780              $12,699
     Accrued Japanese enterprise tax            739                  296
     State taxes                               (563)                (756) 
     Tax credits carryforwards                                     1,577
     Difference between book and tax
      basis of inventory and fixed assets       355                  (91)
     Tax effect of foreign currency
      translation adjustments                 1,239                  945
     Other                                      379                  687
     Net deferred tax assets                $13,929              $15,357
     Less: current portion                  (12,690)             (12,824)
     Net non-current deferred tax assets     $1,239               $2,533

<PAGE>

    Cymer eliminated its valuation allowance in 1997 due to management's
    belief that current year activity made realization of such benefit more
    likely than not.

10. COMMITMENTS AND CONTINGENCIES

    Leases - Cymer 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 
    terms.  Cymer 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, Cymer 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 sheets.

    Rent expense under operating leases is recognized on a straight-line basis
    over the life of the related leases and totaled approximately $1,052,000,
    $2,863,000 and $4,043,000 for the years ended December 31, 1996, 1997 and
    1998, respectively.

    The net book value of assets under capital leases at December 31, 1997 and
    1998 was approximately $2,101,000 and $1,651,000, net of accumulated
    depreciation of approximately $523,000 and $915,000, respectively.

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

    Year Ending December 31,                      Operating        Capital

    1999                                            $2,923           $738
    2000                                             2,959            730
    2001                                             3,004            383
    2002                                             2,892             28
    2003                                             2,724              5
    Thereafter                                      18,033

    Total                                          $32,535          1,884
    Less amount representing interest                                 365
    Present value of minimum lease payments                         1,519
    Less current portion                                              580
    Long term obligations under capital leases                       $939

    Patent License Agreement - Cymer has a patent license agreement for 
    a non-exclusive worldwide license to certain patented laser technology.
    Under the terms of the agreement, Cymer is required to pay royalties
    ranging from 0.25% to 5.0% of gross sales and leases as defined

<PAGE>

    depending on the total amounts attained.  Royalty fees totaled $226,000,
    $49,000 and $100,000 for the years ended December 31, 1996, 1997 and
    1998, respectively.

    Employee Savings Plan - Cymer 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, Cymer matched 100% of each
    eligible employee's contributions, up to $500.00 per year.  Cymer 
    contributed $187,000 to the plan for the year ended December 31, 1997 and
    $221,000 for the year ended December 31, 1998.  There were no matching
    contributions in 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
    Allowance and Pension Plan accounted for using the book reserve method.
    Expense under these plans totaled $37,000, $172,000 and $379,000 for
    the years ended December 31, 1996, 1997 and 1998 respectively.

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

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

11. CLASS ACTION LAWSUITS

    Cymer has been named as a defendant in several putative shareholder class
    action lawsuits which were filed in September and October, 1998 in the
    U.S. District Court for the Southern District of California.  Certain
    executive officers and directors of Cymer are also named as defendants.
    The plaintiffs purport to represent a class fo all persons who purchased
    Cymer's Common Stock between April 24, 1997 and September 26, 1997 (the
    "Class Period").  The complaints allege claims under the federal securities
    laws.  The plaintiffs allege that Cymer and the other defendants made
    various material misrepresentations and omissions during the Class Period.
    The complaints do not specify the amount of damages sought.  The complaints
    have been consolidated into a single action.  No lead plaintiff has yet
    been appointed and a consolidated amended complaint has not yet been
    filed.  Discovery has not yet commenced.  Cymer believes that it has
    good defenses to the claims alleged in the lawsuits and will defend itself
    vigorously against these actions.  The defense of these actions may
    cause some disruption in Cymer's operations and may from time to time
    distract management from day-to-day operations.  The ultimate outcome
    of these actions cannot be presently determined.  Accordingly, no provision
    for any liability or loss that may result from adjudication or
    settlement thereof has been made in the accompanying consolidated
    financial statements.

<PAGE>

12. RELATED PARTY TRANSACTIONS

    Collaborative Arrangement - Cymer has a collaborative arrangement with a
    Japanese company that is also a stockholder of Cymer.  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
      Cymer's Series D Redeemable Convertible Preferred Stock at $4.25 per
      share with net proceeds to Cymer of $1,909,000.  Such stock was
      converted into common stock in 1996 (see Note 6).

      Product License Agreement - Cymer granted to the stockholder the 
      exclusive right in Japan to manufacture and sell one of Cymer's
      products and subsequent enhancements thereto.  Cymer 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, Cymer 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 Cymer 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 1996, 1997 and 1998.

      Contract Manufacturing Agreement - The stockholder has agreed to
      manufacture for Cymer another of its products.  Cymer will be
      required to purchase a specified percentage of its total annual
      product, as defined, from the stockholder.  The agreement expires
      in August 2001, and will automatically renew for two-year terms
      unless one year's notice is given by either party.  Cymer made
      $477,000, $14.1 million and $13.9 million in purchases under this
      agreement in 1996, 1997 and 1998, respectively.

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

      Sales and Marketing - The Japanese company is to assist Cymer 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, Cymer 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, 1996 and
      1997 totaled $1,284,000 and $150,000, respectively.  The aggregate
      $2,000,000 consideration was met in January, 1997.

      Royalties - Cymer 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 and
      shall continue as long as products are manufactured by the third party
      contractor.  Consideration expensed under the agreement for the years
      ended December 31, 1997 and 1998 was $252,000 and $293,000, respectively.
      There was no consideration under the agreement in 1996.

<PAGE>

13. SEGMENTED INFORMATION

    Cymer designs, manufactures and sells excimer laser systems, 
    replacement parts and support services for use in photolithography
    systems used in the manufacture of semiconductors with critical
    feature sizes. In accordance with SFAS No. 131, Cymer currently
    considers its business to consist of one reportable operating
    segment.  See Note 1.

    Geographic Information

    Presented below is information regarding sales, income from operations,
    and identifiable assets, classified by operations located in the United
    States, Japan, Korea, Taiwan, Singapore and the Netherlands.  Cymer
    sells its excimer lasers in Japan through Cymer Japan.  Intercompany
    sales to the subsidiaries are primarily at 85% of the price of products
    sold to outside customers.  All significant intercommpany balances are
    eliminated in consolidation.  The majority of consolidated costs and
    expenses are incurred in the United States and are reflected in the
    operating loss from the United States operations.

                                             Year Ended December 31
                                         1996        1997        1998
    Sales:

      United States                    $26,918      $75,432    $93,144
      Japan                             38,077      128,075     88,571
      Korea, Taiwan, Singapore
       and Netherlands                                  140      3,426

      Total                            $64,995     $203,647   $185,141

    Operating income (loss):

      United States                   ($13,974)    ($30,186)  ($44,117)
      Japan                             21,858       65,786     47,359
      Korea, Taiwan, Singapore
       and Netherlands                               (1,156)     2,019

       Total                            $7,884      $34,444     $5,261

    Indentifiable assets:

      United States                   $105,902     $310,019   $287,871
      Japan                             23,565       72,427     67,792
      Korea, Taiwan, Singapore
       and Netherlands                                3,673      8,655

       Total                          $129,467     $386,119   $364,318

<PAGE>

14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                       QUARTERLY RESULTS OF OPERATIONS
                                   (in thousands except for per share data)

                                        Year ended December 31, 1997
                                     1st       2nd       3rd        4th

        Revenues                  $36,971    $50,132   $57,468   $59,076
        Gross Profit              $14,749    $19,027   $20,289   $23,472
        Operating income (loss)    $6,970     $7,970    $9,605    $9,899
        Net income (loss)          $4,408     $7,430    $7,047    $7,173
        Basic earnings (loss)
         per share                  $0.16      $0.26     $0.25     $0.25
        Diluted earnings (loss)
         per share                  $0.14      $0.24     $0.23     $0.24

                                        Year ended December 31, 1998
                                     1st        2nd       3rd        4th

        Revenues                  $49,679    $53,022   $44,448    $37,992
        Gross profit              $18,998    $18,792   $15,557     $5,768
        Operating income (loss)    $4,854     $3,991    $3,090    ($6,674)
        Net income (loss)          $2,703     $1,689    $1,453    ($3,322)
        Basic earnings (loss)
         per share                  $0.09      $0.06     $0.05     ($0.12)
        Diluted earnings (loss)
         per share                  $0.09      $0.06     $0.05     ($0.12)

<PAGE>