STOCKREPORTS

Ultratech Stepper, Inc.

Nasdaq Symbol UTEK In S&P SmallCap 600

Recent Price 21.88 52 Wk Range 29.00 - 14.50

Yield Nil 12-Mo. P/E 15.0

Quantitative Evaluation: Outlook (1 Lowest - 5 Highest) NA Fair Value NA Risk HIGH Earn/Div Rank NR
Technical Evaluation: BEARISH since 03/97 Rel. Strength Rank (1 Lowest - 99 Highest) 52 Insider Activity NA

Overview 19-MAY-97

Reflecting the slowdown in construction of new semiconductor fabrication facilities (fabs), we expect revenues to decline about 15% to 20% in 1997. Continued weakness in the company's mix-and-match business will offset strength in the thin-film head (TFH) business. Revenues should begin to improve sequentially by the end of the year as the recent rebound in the semiconductor industry will lead to higher capital equipment sales. The lower volume will pressure gross margins, although this will be partially offset by favorable changes in the product mix. We anticipate the company reducing operating expenses in response to the lower sales. In addition, interest income from UTEK's healthy cash reserves will add stability to results. Overall, EPS will decline about 41% to $1.18 from 1996's $1.66. Our 1997 estimate includes a one-time charge of approximately $0.12 that was taken in the first quarter in connection with the recent acquisition of Lepton, Inc.

Valuation 19-MAY-97

The shares have sold off sharply in recent months, in part due to fears that semiconductor manufacturers' near-term purchases of lithography systems will emphasize advanced technology. This would negatively impact sales of the company's cost-saving mix-and match steppers. While we don't feel the market fears are without merit, the shares remain attractively valued at 15X our 1997 earnings estimate. The TFH business remains strong, as UTEK holds a dominant market share of lithography equipment for disk drives. In addition, the company's emerging P-Gild operation has huge long-run potential. Also adding to the appeal of the shares is a solid balance sheet, with no-long term debt and a cash balance of nearly $8.00 a share.

Key Stock Statistics

Fiscal Year Ending Dec. 31

Dividend Data: No cash dividends have been paid. The company intends to retain earnings for use in its business and does not expect to pay cash dividends in the foreseeable future.

Business Summary 19-MAY-97

Although Ultratech (UTEK) manufactures high-technology machinery to serve high technology companies, management would be the first to admit that its products do not feature the latest and best technology. Instead, the company's strategy is to provide photolithography equipment (steppers) that reduces costs for manufacturers of integrated circuits (IC) and thin-film head (TFH) magnetic recording devices. Photolithography is one of the most critical and expensive steps in IC and TFH manufacturing. According to the Semiconductor Industry Association, up to 35% of the cost of processing silicon is related to photolithography.

Steppers are used to image device features on the surface of wafers by selectively exposing a light-sensitive polymer photoresist coated on a wafer surface, through a photomask containing the master image of a particular device layer. Depending on design complexity, this step may be repeated up to 25 times during the production of a single chip.

UTEK's systems cost only about 50% as much as competing steppers, but are less precise. The company's products specifically address non-critical layer (greater than 0.65 micron linewidths) operations. Using a strategy called mix-and-match (M&M), UTEK's steppers share the processing load with higher-priced steppers that are designed for processing critical layers. The alternative to M&M is for chip makers to use high priced systems for all layers. Usually less than 50% of an IC's layers are considered critical.

The company currently offers three different series of systems for use in the semiconductor fabrication process: the model 1500 Series, which addresses the markets for scanner replacement and high volume/low cost semiconductor fabrication; the model 2244i and Saturn Wafer Stepper, which address the mix and match market in advanced semiconductor fabrication; and the Titan Wafer Stepper, which addresses the market for photosensitve polyimide applications as well as the markets served by the model 1500 Series.

The company also supplies photolithography systems to the TFH market with its model 1700 series, model 2700 series, model 4700 series, and new model 6700 series.

Steppers for both IC and TFH production offer feature size capabilities ranging from 1.2 microns to .65 microns and are priced from $800,000 to $2.1 million.

The company is expected to formally announce in July 1997 the formation of a new division for its projection gas immersion laser doping (P-Gild) products. P-Gild merges photolithography, doping and annealing technology into a single tool to decrease process steps. The company believes the total market for P-Gild products can be approximately $1 billion in a few years.

Capitalization

Long Term Debt: None (3/97).

Curr. Ratio	6.4	4.9	3.9	2.9	NA	NA	NA	NA	NA	NA
% LT Debt of Cap.	Nil	Nil	0.5	2.1	NA	NA	NA	NA	NA	NA
% Net Inc.of Revs.	18.2	15.3	12.1	7.6	3.7	3.6	NA	NA	NA	NA
% Ret. on Assets	13.4	13.8	13.6	NA	NA	NA	NA	NA	NA	NA
% Ret. on Equity	16.1	17.3	18.6	NA	NA	NA	NA	NA	NA	NA

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--3050 Zanker Road, San Jose, CA 95134. Tel--(408) 321-8835. Chrmn, Pres & CEO--A. W. Zafiropoulo. VP-Fin, CFO, Secy & Treas--W. G. Leunis III. Dirs--M. C. Child, G. Harrison, K. A. Levy, J. L. Parkinson, A. W. Zafiropoulo. Transfer Agent & Registrar--Bank of Boston. Incorporated--in Delaware in 1992. Empl-- 562. S&P Analyst: Stephen T. Madonna, CFA

This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 1997