VEECO INSTRUMENTS INC.

INDEX

This Annual Report on Form 10-K (“Form 10-K”) contains certain forward-looking information relating to Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” the “Company,” “Registrant,” “we,” “our,” or “us,” unless the context indicates otherwise) that is based on the beliefs of, and assumptions made by, our management as well as information currently available to management. When used in this Form 10-K, the words “believes,” “anticipates,” “expects,” “estimates,” “targets,” “plans,” “intends,” “will,” and similar expressions relating to the future are intended to identify forward-looking information. Discussions containing such forward-looking statements may be found in Part I.I, Items 1 and 3, Part II, Items 7 and 7A hereof, as well as within this Form 10-K generally. This forward-looking information reflects our current views with respect to future events and is subject to certain risks, uncertainties, and assumptions, including with respect to our pending acquisition of Ultratech, some of which are described under the caption “Risk Factors” in Part I, Item 1A, and elsewhere in this Form 10-K. Should one or more of these risks or uncertainties occur, or should our assumptions prove incorrect, actual results may vary materially from the forward-looking information described in this Form 10-K as believed, anticipated, expected, estimated, targeted, planned, or similarly identified. We do not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

PART I

Item 1. Business

We create process equipment that enables technologies for a cleanerBusiness Description and more productive world. We design, develop, manufacture, market, and support thin film equipment to meet the demands of key global trends such as improving energy efficiency, enhancing mobility, and increasing connectivity. Our equipment is used to make electronic devices which enable these trends, including light emitting diodes (“LEDs”), micro-electromechanical systems (“MEMS”), wireless devices, power electronics, hard disk drives (“HDDs”), and semiconductor devices. Our products are sold to semiconductor and advanced packaging device manufacturers, and we may also license our technology to our customers or partners.Overview

We develop highly differentiated, “best-in-class” equipment for critical performance steps in thin film processing. Our products provide leading technology at low cost-of-ownership. Core competencies in advanced thin film technologies and decades of specialized process know-how help us stay at the forefront of these rapidly advancing industries.

Headquartered in Plainview, New York, we were organized as a Delaware corporation in 1989. We are a leading manufacturer of innovative semiconductor and thin film process equipment which solve an array of challenging materials engineering problems for our customers. Our broad collection of MOCVD (metal organic chemical vapor deposition), MBE (molecular beam epitaxy), lithography, laser annealing, ion beam, and single wafer etch and clean technologies play an integral role in the fabrication of advanced semiconductor devices including Light Emitting Diodes (“LEDs”) for solid-state lighting and display, lasers for communications and 3D sensing, and RF filters for mobile phones. We design our systems to optimize technical performance and productivity to achieve superior cost of ownership for our customers. Veeco holds technology leadership positions across our served markets. We have sales and service operations across the Asia-Pacific region, Europe, and North America to directly address our customers’ needs.

Recent Developments

On February 2, 2017, Veeconeeds and Ultratech, Inc. (“Ultratech”), a leading supplier of lithography, laser-processing, and inspection systems used to manufacture semiconductor devices and LEDs, signed a definitive agreement for Veeco to acquire Ultratech. The Boards of Directors of both Veeco and Ultratech have unanimously approved the transaction.

Ultratech shareholders will receive (i) $21.75 per share in cash and (ii) 0.2675 of a share of Veeco common stock for each Ultratech common share outstanding. Based on Veeco’s closing stock price on February 1, 2017, the transaction consideration is valued at approximately $28.64 per Ultratech share. The implied total transaction value is approximately $815 million and the implied enterprise value is approximately $550 million, net of Ultratech’s net cash balance as of December 31, 2016. The transaction is expected to close in the second calendar quarter of 2017, subject to approval by Ultratech shareholders, regulatory approvals in the United States, and other customary closing conditions.

Business Overviewmaximize our system uptime.

We are focused on:

·Providing differentiated

Our products are purchased by semiconductor and thin film process equipment to address customers’ current production requirementscustomers in the following four markets: 1) Advanced Packaging, MEMS & RF Filters; 2) LED Lighting, Display & Compound Semiconductor; 3) Front-End Semiconductor; and next generation product development roadmaps;4) Scientific & Industrial.

·Investing to win through focused research and development in markets that we believe provide significant growth opportunities or are at an inflection point in process equipment requirements, including LED, power semiconductor devices, and advanced packaging technologies;

·Leveraging our sales channel and local process applications support teams to build strong strategic relationships with technology leaders;

·Cross-selling our product portfolio across our broad customer base and end markets to both maximize sales opportunities and diversify our business;

·Utilizing a combination of outsourced and internal manufacturing strategies to flex manufacturing capacity through industry investment cycles without compromising quality or performance; and

·Pursuing partnerships and acquisitions to expand our product portfolio into new and adjacent markets to drive sales growth.

Markets

Our array of process equipment systems are used in the creationproduction of a broad range of microelectronic components, including LEDs, MEMS,micro-electro mechanical systems (“MEMS”), radio frequency (“RF”) filters and amplifiers, power semiconductors,electronics, thin film magnetic heads (“TFMHs”), laser diodes, 3D NAND, DRAM, logic, and other semiconductor devices. OurMany of our systems are used to directly deposit precision materials critical to the operation of the device.  Some of our systems are involved in the precision removal of critical materials. Still other systems are used in the advanced packaging process flow of microelectronic components such as flip chip, Fan out Wafer Level Packaging (“FOWLP”), and other wafer level packaging approaches used in the modern integration of diverse semiconductor products, especially used in consumer electronics. Some of our customers who manufacture theseare interested in purchasing different types of systems from us for different applications in the same process line. In general, our customers purchase our systems to both produce current generation devices invest in our systemsvolume and to develop next generation products andwhich deliver more efficient, cost effective, and advanced technological solutions. We operate in aseveral highly cyclical business environment,environments, and our customers’ buying patterns are dependent upon industry trends. Ourtrends respective to that particular market. As our products are sold into multiple markets, and the following discussion focuses on the trends that most influence our business within each of those markets.

Lighting, DisplayAdvanced Packaging, MEMS & Power ElectronicsRF Filters

Advanced Packaging includes a portfolio of wafer-level assembly technologies that enable improved performance of electronic products, such as smartphones, high end servers, and graphical processors.

Demand for higher performance, increased functionality, smaller form factors, and lower power consumption in mobile devices, consumer electronics, and high performance computing is driving the adoption of advanced packaging technologies. Semiconductor Foundries (“Foundries”), Independent Device Manufacturers (“IDMs”), and Outsourced Semiconductor Assembly and Test (“OSATs”) companies are implementing multiple advanced packaging approaches including FOWLP, recently deployed in high-volume manufacturing, and copper-pillar to enable stacked memory devices. This increasing demand trend in Advanced Packaging is encouraging as our Lithography and Precision Surface Processing (“PSP”) wet etch and clean systems enable several process steps for Advanced Packaging.

MEMS devices are used for an increasing number of applications, including accelerometers for automobile airbags, pressure sensors for medical uses, and gyroscopes for a variety of consumer products, such as gaming consoles and mobile devices.

One of the fastest growing MEMS applications has been RF filters for mobile devices, driven by increasingly complex wireless standards, the proliferation of an increasing number of communication bands, the exponential growth of mobile data, and carrier aggregation. These trends are positive for us, particularly for our PSP products, where our technology is enabling some of the most challenging process steps, as well as our Ion Beam Etch (“IBE”) and MBE systems, which are used to create Bulk Acoustic Wave (“BAW”) and Surface Acoustic Wave (“SAW”) RF filters.

LED technologyLighting, Display & Compound Semiconductor

The LED industry has existed for more than 50 years; however, commercialexperienced multiple growth cycles brought on by the adoption of LEDs was limited to niche applications until the most recent decade. In the early 1990’s, researchers developed a process utilizingLED technology using Gallium Nitride (“GaN”) that created a low cost blue LED to produce white light. With that breakthrough, the LED industry started, and the number of applications for LEDs began to expand.

Since that time, the LED industry has experienced multiple growth cycles brought on by the adoption of LED technologylight for consumer and commercial applications. The first wave of LED growth was driven by mobile phones, which implemented the use of LED technology for display backlighting. The LED industry experienced its second period of rapid growth as LEDs were adopted for TV display backlighting. More recently, theThe adoption of LEDs for solid state, general lighting has givengave rise to a third wave of demand. LED technology offers energyFuture growth is anticipated in the compound semiconductor market driven by optical communication and cost savings opportunities in lighting, which align with the global shift toward energy efficiency initiatives.industrial applications requiring laser diodes, 3D sensing and world facing vertical cavity surface emitting lasers (“VCSELs”), micro-LED displays, 5G RF infrastructure adoption, and power electronics.

Our metal organic chemical vapor deposition (“MOCVD”)MOCVD technology is at the core of the manufacturing process for GaN-based LEDs. We have benefited with each growth cycle, as LED producers investinvested in MOCVD process equipment to capture share in these markets. Demand for our equipment has historically been cyclical in nature, influenced by multiple factors, including: macroeconomic

conditions; prices for LED chips; supply and demand dynamics; competition; and our customers’ manufacturing plans. However,Given the recent competitive trends in China, the general lighting and backlighting markets have become commoditized and we do not expect the ongoing adoption of LED lighting to drive the need for additional MOCVD capacity over the next several years.significant revenue from these markets going forward.

MOCVD technology is equallyalso important in the manufacturing of red, orange, and yellow (“ROY”) LEDs, which are used increasingly for fine-pitch digital signage and automotive lighting applications. For these applications, our MOCVD technology is used to deposit highly uniform Arsenic PhosphideArsenides and Phosphides (“AsP”As/P”) films which create amber and red hues. AsP MOCVD technology is also used to produce multiple other devices including infrared LEDs and vertical-cavity surface-emitting lasers (“VCSELS”) used for optical data communication. While the market opportunity for AsP MOCVD technology is smaller than the GaN MOCVD market for blue LEDs, we expect to also benefit from growth driven by increased adoption of LED technology for automobiles, outdoor display, signage, and other applications.output colors.

The Display market refers to LEDs or micro LEDs used directly for displays. Our MOCVD technologiessystems are also crucial inwell suited for the manufacturingdisplay market.

The Compound Semiconductor market broadly refers to the deposition of GaN-on-SiliconGaN or As/P based thin film compounds on a variety of substrates including Silicon, Gallium Arsenide (“GaAs”), Indium Phosphide (“InP”), and Silicon Carbide (“SiC”) to enable a variety of power electronicelectronics, RF, and photonics devices.

Global demand is increasing for advanced power electronics with greater energy efficiency, a smaller footprints,form factor, ability to operate at higher operating temperatures, faster switching capabilities, and greater reliability. These devices support many needs,applications, including

inspection products are used for an increasing numbershape inspection of 3D topographies in memory and logic applications, including accelerometers for automobile airbags, pressure sensors for medical uses,which helps our customers improve their lithography and gyroscopes for a variety of consumer products, such as gaming consoles and mobile devices. One of the fastest growing MEMS applications has been RF filters for mobile devices, driven by increasingly complex wireless standards, the exponential growth of mobile data, and carrier aggregation. In order to address these growing demands, the number of discrete RF filters in an average smartphone is expected to double from 50 to 100 by 2020. These trends are positive for us, particularly for our PSP products, where our technology is enabling some of the most challenging process steps, as well as our ion beam etch and Molecular Beam Epitaxy (“MBE”) products, which are used to create Bulk Acoustic Wave (“BAW”) and Surface Acoustic Wave (“SAW”) RF filters.deposition processes.

Data Storage

The Data Storage market involves the storage of data in electromagnetic or other forms for use by a computer or other devices, including HDDs used in large capacity storage applications. While HDDs face significant competition from flash memory, we believe that HDDs will continue to provide significant value for mass storage and will remain at the forefront of large capacity storage applications. This is especially true for data center applications where large volumes of data storage are required to serve an increasingly mobile population. The HDD manufacturing industry continues to optimize its existing manufacturing capacity to address demand. As a result, we expect future sales to be focused on implementation of new technologies as opposed to capacity expansion. Future demand for our data storage systems is unclear and sales are expected to fluctuate from quarter to quarter. Our process knowledge and magnetic materials expertise from the Data Storage market positions us well for certain front-end semiconductor and MEMS opportunities, as thin film magnetic manufacturing methods become increasingly used in these markets.

Scientific & Industrial

The Scientific and Industrial markets includemarket includes advanced materials research and a broad range of manufacturing applications including high-power fiber lasers, infrared detectors, thin film magnetic heads on hard disk drives (“HDDs”), and optical coatings, and extreme ultraviolet (“EUV”) photomasks blanks.coatings.

Our MBE systems are used by scientific research organizations and universities to drive new discoveries in the areas of materials science. MBE enables precise epitaxial crystal growth for a very wide variety of materials, which supports the

Precision Surface Processing Systems (Wet Etch and Clean)

Our Precision Surface Processing systemsWe offer single wafer wet etch and clean, and surface preparation solutionssystems which target high growth segments in advanced packaging, MEMS, LEDs, and compound semiconductor markets. The WaferStorm® platform is based on PSP’s unique ImmJET™ImmJET™ technology, which provides improved performance at a lower cost of ownership than conventional wet bench-only or spray-only approaches. This highly flexible platform targets solvent based cleaning applications that require a significant level of process control and flexibility. The WaferEtch® platform provides highly uniform, selective etching with onboard end point detection for improved process control and yield in bumping applications. In addition, PSP has developed a state-of-the-art solution with the WaferEtch platform to address the requirements of TSV reveal, in which the backside of a wafer is thinned to reveal the copper interconnects. PSP’s TSV technology offers a significant cost of ownership reduction compared with dry etch processing by replacing up to four separate process steps.

Laser Annealing Systems

The progression of Moore’s law has led semiconductor manufacturers to implement a variety of material and process changes to overcome the technical hurdles related to shrinking of feature sizes in integrated circuits. Along with new materials and smaller dimensions have come new process challenges. One such challenge has been new constraints on thermal annealing processes. One example is the thermal annealing of dopants for activation, in order to form the transistor junction, critical to the function and performance of a complementary metal-oxide semiconductor (“CMOS”) logic integrated circuit. In this and other thermal process steps, traditional lamp-based annealing techniques have challenges meeting the thermal budget (time/temperature regime) required by new materials and designs. Our Laser Spike Annealing (“LSA”) systems meet the industry demand for millisecond time-scale annealing, heating the wafer up to temperatures just below the silicon melting point over a range of ultra-short timeframes (microseconds to milliseconds), enabling thermal annealing solutions at the 65nm technology node and below. This advanced annealing technology provides solutions to the difficult challenge of fabricating ultra-shallow junctions and highly activated source/drain contacts at these advanced logic nodes. In addition, our proprietary hardware design enables outstanding temperature uniformity across the wafer and die, by minimizing the pattern-density effect, thus reducing absorption variations.

We have also developed a next generation melt anneal technology (“MELT”) targeted for annealing advanced logic devices at 7nm and below. As FinFET devices scale below the 10nm node, achieving the performance targets has become a challenge. To continue the roadmap, the industry is looking at new materials and the use of thermal processes that require nanosecond time-scale thermal annealing with temperatures exceeding the melting point. To help address this concern we have developed a unique (and patented) approach to nanosecond-scale thermal annealing. Our design utilizes two lasers; a millisecond laser as a low thermal budget localized preheat and a nanosecond laser “on top” of the millisecond laser to raise the peak temperature to the melt temperature of the material being processed beyond silicon melt. Similar to LSA, the MELT system architecture is targeted to reduce pattern effects and increase the process window. It is believed that nanosecond annealing will be required to meet the device targets at 7nm and below; the initial application being explored by customers is contact annealing aimed to improve reduce source/drain contact resistance, which has become a performance bottleneck at the most advanced FinFET nodes, and as devices continue to scale, we see the application space for our melt product expanding.

Ion Beam Deposition and Etch and Deposition Systems

Our NEXUS® IBD systems utilizeuse ion beam technology to deposit precise layers of thin films. IBD systems deposit high purity thin film layers and provide excellent uniformity and repeatability. Our NEXUS Ion Beam Etch (“IBE”)IBE systems utilize a charged particle beam consisting of ions to etch precise, complex features. The NEXUS systems may be included on our cluster system platform to allow either parallel or sequential deposition/etch processes. These systems are used primarily by data storage, semiconductor, and telecommunications device manufacturers in the fabrication of discrete and integrated microelectronic devices.

Our SPECTOR® Ion Beam Sputtering system was developed for high precision optical coatings and offers manufacturers state of the art optical thickness monitoring, improved productivity, and target material utilization, for cutting-edge optical interference coating applications. We also provide a broad array of ion beam sources. These technologies are applicable in the HDD industry as well as for optical coatings and other end markets. Our SPECTOR® Ion Beam Sputtering system was developed for high precision coatings and offers manufacturers state of the art optical thickness monitoring, improved productivity, and target material utilization, for cutting-edge optical interference coating applications.

Focus Lighting Tech Co. accounted for more than 10% of our total net sales in 2018; sales to OSRAM Opto Semiconductors accounted for more than 10% of our total net sales for 2016; sales to San’an Optoelectronics Co.2017 and KAISTAR Lighting (Xiamen) Co. each accounted for more than 10% of our total net sales in 2015; sales to HC SemiTek Corp. and Seoul Viosys Co. each accounted for more than 10% of our total net sales in 2014.2016. If any principal customer discontinues its relationship with us or suffers economic difficulties, our business prospects, financial condition, and operating results could be materially and adversely affected.

Research and Development

Our research and development functions are focused on the timely creation of new products and enhancements to existing products, both of which are necessary to maintain our competitive position. We collaborate with our customers to align our technology and product roadmaps to customer requirements. Our research and development activities take place at our facilities in San Jose, California; Waltham, Massachusetts; St. Paul, Minnesota; Somerset, New Jersey; Plainview, New York; Horsham, Pennsylvania; and Horsham, Pennsylvania.Singapore.

Our research and development expenses were approximately $81.0 million, $78.5 million, and $81.2 million, or approximately 24%, 16%, and 21% of net sales for the years ended December 31, 2016, 2015, and 2014, respectively. These expenses consisted primarily of salaries, project materials, and other product development and enhancement costs.

Employees

At December 31, 20162018 we had 7161,043 employees, of which there were 230302 in manufacturing and testing, 7595 in sales and marketing, 111221 in service and product support, 169281 in engineering and research and development, and 131144 in information technology, general administration, and finance. The success of our future operations depends on our ability to recruit and retain engineers, technicians, and other highly skilled professionals who are in considerable demand. We feel that we have adequate programs in place to attract, motivate, and retain our employees. We monitor industry practices to make sure that our compensation and employee benefits remain competitive. We believe that our employee relations are good. Refer to Item 1A, “Risk Factors,” for a description of risks associated with employee retention and recruitment.

If the markets in which we participate failcontinue to experience a recoverydeteriorations or experience a further downturn,downturns, this could have a further negativenegatively impact on our sales and revenue generation, margins, and operating expenses, and profitability.

are inferior. Many of these challenges are present in China, from which we have historically generated a significant portion of our revenue. These and other measures could adversely impact our revenues, margins, and financial condition.

Disruptions in our information technology systems or data security incidents could result in significant financial, legal, regulatory, business, and reputational harm to us.

We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store, process and transmit significant amounts of sensitive information, including intellectual property, proprietary business information, personal information, and other confidential information, including that of our customers and other business partners. It is critical that we do so in a secure manner to maintain the confidentiality, integrity, and availability of this sensitive information. We have also outsourced elements of our operations (including elements of our information technology infrastructure) to third parties, and as a result, we manage a number of third-party vendors who have access to our computer networks and our confidential information.

All information systems are subject to disruption, breach, or failure. Potential vulnerabilities can be exploited from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication, and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of expertise and motives (including industrial espionage), including organized criminal groups, nation states, and others. In addition to the extraction of sensitive information, attacks could include the deployment of harmful malware, ransomware, or other means which could affect service reliability and threaten the confidentiality, integrity, and availability of information. Significant disruptions in our, or our third-party vendors’, information technology systems or other data security incidents could adversely affect our business operations and result in the loss or misappropriation of, and unauthorized access to, sensitive information, which could result in financial, condition,legal, regulatory, business, and operating results. Alternatively, during periodsreputational harm to us.

On November 1, 2018, we announced the discovery of rapid growth,an attack on our computer system by what appears to be a highly-sophisticated actor. We notified law enforcement of the attack and retained forensic experts to assist with the investigation.  It currently remains unclear whether we mustwill be able to acquire and/determine the extent of the breach or develop sufficient manufacturing capacitythe potential impact on our operations. Also unclear is whether we will be able to meet customer demandidentify who is responsible for the attack, or whether we will be able to pursue legal action or other remedies. The attack, including the expenses incurred to address it, may have an adverse effect on our results of operations and attract, hire, assimilate,financial condition, may result in litigation, and retain a sufficient numbermay cause reputational harm. We are continuing to analyze the effects of qualified people. We cannot give assurancesthe incident, along with appropriate remediation to our information technology systems, and this analysis and the related remediation efforts could reveal that our net sales and operating results will not be adversely affected if our customers experience economic downturns or slowdowns in their businesses.other breaches have occurred. 

We operateWhile we are engaged in industries characterized by rapid technological change.remediation and have implemented, and are continuing to implement, security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such remediation and security measures will successfully prevent further security incidents. Additional information technology system disruptions, whether from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war or other causes, could result in a material disruption in our business operations, force us to incur significant costs and engage in litigation, harm our reputation, and subject us to liability under laws, regulations, and contractual obligations.

EachWe may be unable to effectively enforce and protect our intellectual property rights. 

Our success depends in part upon the protection of the industries in which we operate is subjectour intellectual property rights. We rely primarily on patent, copyright, trademark, and trade secret laws, as well as nondisclosure and confidentiality agreements and other methods, to rapid technological change. Our abilityprotect our proprietary information, technologies, processes, and brand identity. We own various U.S. and international patents and have additional pending patent applications relating to remain competitive depends oncertain of our ability to enhance existing products and developtechnologies. The process of seeking patent protection is lengthy and manufacture new products in a timelyexpensive, and cost effective manner and to accurately predict technology transitions. Because new product development commitments must be made well in advance of sales, we must anticipate the future demand for products when selecting which development programs to fund and pursue. Our financial results depend to a great extent on the successful introduction of several new products, many of which require achieving increasingly stringent technical specifications. We cannot be certain that wepending or future applications will actually result in issued patents or that issued patents will be successful in selecting, developing, manufacturing, and marketing newof sufficient scope or strength to provide meaningful protection or commercial advantage. In addition, our intellectual property rights may be circumvented, invalidated, or rendered obsolete by the rapid pace of technological change, or through efforts by others to reverse engineer our products or new technologies or in enhancing existing products. Our performance may be adversely affected ifdesign around patents that we are unable to accurately predict evolving market trends and related customer needs and to effectively allocate our resources among new and existing products and technologies.

We are also exposed to potential risks associated with unexpected product performance issues. Our product designs and manufacturing processes are complex and could contain unexpected product defects, especially when products are first introduced. Unexpected product performance issues could result in significant costs and damages, including increased service and warranty expenses, the need to provide product replacements or modifications, reimbursement for damages caused by our products, product recalls, related litigation, and product write-offs and disposal costs. These costs could be

In addition, our outsourcing strategy requires that we share certain portions of our technology with our outsourcing partners, which poses additional risks of infringement and trade secret misappropriation. Infringement of our rights by a third party, possibly for purposes of developing and selling competing products, could result in uncompensated lost market and revenue opportunities. Similar exposure could result in the event that former employees seek to compete with us through their unauthorized use of our intellectual property and proprietary information. We cannot be certain that the protective steps and measures we have taken will prevent the misappropriation or unauthorized use of our proprietary information and technologies, nor can we be ablecertain that applicable intellectual property laws, regulations, and policies will not be changed in a manner detrimental to do so. In addition, because a relatively small numberthe sale or use of large manufacturers, many of whom are our customers, dominateproducts.

Litigation has been required in the industries in which they operate, itpast, and may be especially difficult for usrequired in the future, to replace these customers if we lose their business. A significant portionenforce our intellectual property rights, protect our trade secrets, and to determine the validity and scope of orders in our backlog are orders from our principal customers.

In addition, a substantial investment is required by customers to install and integrate capital equipment into a production line.proprietary rights of others. As a result once a manufacturer has selected a particular vendor’s capital equipment,of any such litigation, we could lose our ability to enforce one or more patents, incur substantial costs, and jeopardize relationships with current or prospective customers or suppliers. Any action we take to enforce or defend our intellectual property rights could absorb significant management time and attention, and could otherwise negatively impact our operating results.

We may be subject to claims of intellectual property infringement by others.

We receive communications from time to time from other parties asserting the existence of patent or other rights which they believe cover certain of our products. We also periodically receive notice from customers who believe that we are required to indemnify them for damages they may incur related to infringement claims made against these customers by third parties. Our customary practice is to evaluate such assertions and to consider the manufacturer generally relies uponavailable alternatives, including whether to seek a license, if appropriate. However, we cannot ensure that equipment forlicenses can be obtained or, if obtained, will be on acceptable terms or that costly litigation or other administrative proceedings will not occur. If we are not able to resolve a claim, negotiate a settlement of the specific production line applicationmatter, obtain necessary licenses on commercially reasonable terms, or successfully prosecute and frequently will attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, if a customer selects a competitor’s product over ours, wedefend our position, our business, financial condition, and results of operations could experience difficulty selling to that customer for a significant period of time.be materially and adversely affected.

Furthermore, we doThe price of our common shares is volatile, has declined significantly, and could further decline.

The stock market in general and the market for technology stocks in particular has experienced significant volatility. The trading price of our common shares has declined significantly, and could continue to decline independent of the overall market, and shareholders could lose all or a substantial part of their investment. The market price of our common shares could fluctuate significantly in response to several factors, including among others:

As with many technology companies, the price of our common shares has fluctuated significantly in the past and is likely to be volatile in the future. Securities class action litigation is often brought against a company following periods of volatility in the market price of its securities. We have defended security class actions lawsuits in the past, and are currently defending such a lawsuit now. These lawsuits, if and when brought, can result in substantial costs and a diversion of management’s attention and resources, which can adversely affect our financial condition, results of operations, and liquidity.

We may be required to take additional impairment charges on assets.

We are required to assess goodwill and indefinite-lived intangible assets annually for impairment, or on an interim basis whenever certain events occur or circumstances change, such as an adverse change in business climate or a decline in the overall industry, that would more likely than not have long-term contracts withreduce the fair value below its carrying amount. We maintain a single reporting unit, and as such, if our customers. Asstock price decreases to the point where our fair value, as determined by our adjusted market capitalization, is less than the carrying value of our single reporting unit, this would also indicate a result, our agreements with our customers do not provide any assurance of future sales,potential impairment, and we are exposedmay be required to competitive price pressure on each new order we attempt to obtain. Our failure to obtain new sales orders from new or existing customers would have a negative impact onrecord an impairment charge in that period, which could adversely affect our results of operations. Such an impairment charge was taken by the Company during the fourth quarter of 2018, in the amount of $122.8 million.

Our customer base is also highly concentrated in terms of geography, and the majorityAs part of our saleslong term strategy, we may pursue future acquisitions of other companies or assets which could potentially increase our assets. We are required to customers locatedtest our long-lived assets, including acquired intangible assets and property, plant, and equipment, for recoverability and impairment whenever there are indicators of impairment such as an adverse change in a limited numberbusiness climate. Adverse changes in business conditions or worse-than-expected performance by these acquired companies could negatively impact our estimates of countries. In 2016, 26%future operations and result in impairment charges to these assets. For example, during the second quarter of 2018, we recorded an asset impairment charge of $252.3 million related to the intangible assets acquired as part of our total net sales were to customers located in China. Dependence upon sales emanating from a limited numberacquisition of regions increasesUltratech, Inc. If our risk of exposure to local difficultiesassets are further impaired, our financial condition and challenges, such as those associated with regional economic downturns, political instability, fluctuating currency exchange rates, natural disasters, social unrest, pandemics, terrorism, or acts of war. Our reliance upon customer demand arising primarily from a limited number of countries could materially adversely impact our future results of operations.operations could be materially and adversely affected.

We face significant competition.

We face significant competition throughout the world, which may increase as certain markets in which we operate continue to evolve. Some of our competitors have greater financial, engineering, manufacturing, and marketing resources than us. Other competitors are located in regions with lower labor costs and other reduced costs of operation. In addition, our ability to compete in foreign countries against local manufacturers may be hampered by nationalism, social attitudes, laws, regulations, and policies within such countries that favor local companies over U.S. companies or that are otherwise designed to promote the development and growth of local competitors. Furthermore, we face competition from smaller emerging equipment companies whose strategy is to provide a portion of the products and services we offer, with a focused approach on innovative technology for specialized markets. New product introductions or enhancements by us or our competitors could cause a decline in sales or loss of market acceptance of our existing or prior generation products. Increased competitive pressure could also lead to intensified price competition resulting in lower margins. Our failure to compete successfully with these other companies would seriously harm our business.

To remain competitive, we may enter into strategic alliances with customers, suppliers, and other third parties to explore new market opportunities and possible technological advancements. These alliances may require significant investments of capital and other resources and often involve the exchange of sensitive confidential information. The success of these

programs to fund and pursue. Our financial results depend on the successful introduction of new products, many of which require the achievement of increasingly stringent technical specifications. We may not be successful in selecting, developing, manufacturing, and marketing new products and new technologies or in enhancing our existing products. Our performance may be adversely affected if we are unable to accurately predict evolving market trends and related customer needs and to effectively allocate our resources among new and existing products that meetand technologies.

We are also exposed to potential risks associated with unexpected product performance issues. Our product designs and manufacturing processes are complex and could contain unexpected product defects, especially when products are first introduced. Unexpected product performance issues could result in significant costs and damages, including increased service and warranty expenses, the rapidly changing technicalneed to provide product replacements or modifications, reimbursement for damages caused by our products, product recalls, related litigation, product write-offs, and volume requirements of our customers, which depends in part on the timely delivery of parts, components, and subassemblies (collectively, “parts”) from suppliers. Uncertain worldwide economic conditions and market instabilities make it difficult for us (and our customersdisposal costs. These costs could be substantial and our suppliers) to accurately forecast future product demand. If actualreputation could be harmed, resulting in a reduced demand for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing, or expediting delivery of parts. If we overestimate the demand for our products,

selects a competitor’s product over ours, we have not secured fails or is otherwise unablecould experience difficulty selling to pay us, or if financial institutions providing lettersthat customer for a significant period of credit become insolvent. A significant loss in collections on our accounts receivable would have a negative impact on our financial condition and results of operations.time.

WeFurthermore, we do not have long-term contracts with our customers. As a result, our agreements with our customers do not provide assurance of future sales, and we are exposed to the risks of operating a global business, including the needcompetitive price pressures on new orders we attempt to obtain export licenses for certain of our shipments and political risks in the countries we operate.obtain.

MostOur customer base is also highly concentrated in terms of geography, and the majority of our sales are to customers located outside of the United States. We expect sales from non-U.S. markets to continue to represent a significant portion of our sales in the future. Our non-U.S. sales and operations are subject to risks inherent in conducting business outside the United States, many of which are outside our control, including:

·difficulties in managing a global enterprise, including staffing, managing distributors and representatives, and repatriating cash in a tax efficient manner;

·limited number of countries. Dependence upon sales emanating from a limited number of regions increases our risk of exposure to local difficulties and challenges, such as those associated with regional economic downturns, varying foreign government support, and unstable political environments;

Our backlog is subject to customer cancellation or modification which could result in regions wheredecreased sales, increased inventory obsolescence, and liabilities to our suppliers for products no longer needed.

Customer purchase orders may be cancelled or rescheduled by the customer, sometimes with limited or no penalties, which may result in increased or unrecoverable costs for the Company. We adjust our backlog for such cancellations, contract modifications, and delivery delays that result in a delivery period in excess of one year, among other items. A downturn in one or more of our businesses could result in an increase in order cancellations and postponements.

We write-off excess and obsolete inventory based on historical trends, future usage forecasts, and other factors including the amount of backlog we operatehave on hand. If our backlog is canceled or modified, our estimates of future product demand may adversely affect or disruptprove to be inaccurate, in which case we may have understated the write-off required for excess and obsolete inventory. In the future, if we determine that our business andinventory is overvalued, we will be required to recognize associated costs in our financial statements at the time of such determination. In addition, we place orders with our suppliers based on our customers’ orders. If our customers cancel their orders with us, we may not be able to cancel our orders with our suppliers. Any such charges could be materially adverse to our results of operations.operations and financial condition.

Furthermore, productsWe may be unable to obtain required export licenses for the sale of our products.

Products which are either manufactured in the United States or based on U.S. technology are subject to the U.S. Export Administration Regulations (“EAR”) when exported to and re-exported from international jurisdictions, in addition to the local jurisdiction’s export regulations applicable to individual shipments. Currently, our MOCVD, depositionMBE, and certain other systems and certain of our other products are controlled for export under the EAR. Licenses or proper license exceptions may be required for the shipment of our products to certain customers or countries. Obtaining an export license or determining whether an export license exception exists often requires considerable effort by us and cooperation from the customer, and customer-facility readiness andwhich can add time to the order fulfillment process. While we have generally been successful in obtainingWe may be unable to obtain required export licenses in a timely manner, there can be no assurance that this will continue or that anunable to qualify for export license canexceptions and, as a result, we may be obtained in each instance where it is required. If an export license is required but cannot be obtained, then we will not be permittedunable to export the productproducts to the customer.our customers. The administrative processing, potential delay and risk of ultimately not obtaining anrequired export licenseapprovals pose a particular disadvantage to us relative to our non-U.S. competitors who are not required to comply with U.S. export controls. Non-compliance with the EAR or other applicable export regulations could result in a wide range of penalties including the denial of export privileges, fines, criminal penalties, and the seizure of commodities. In the event that anyan export regulatory body determines that any of our shipments violate applicable export regulations, we could be fined significant sums and/orand our export capabilities could be restricted, which could have a material adverse impact on our business.

Our operating results may be adversely affected by tightening credit markets.

As a global company with worldwide operations, we are subject to volatility and adverse consequences associated with economic downturns in different parts of the world. In the event of a downturn, many of our customers may delay or reduce their purchases of our products and services. If negative conditions in the credit markets prevent our customers from obtaining credit or necessary financing, product orders in these channels may decrease, which could result in lower revenue. In addition, we may experience cancellations of orders in backlog, rescheduling of customer deliveries, and attendant pricing pressures. If our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their businesses, their ability to continue to supply materials to us may be negatively affected.

In addition, we finance some of our sales through trade credit. In addition to ongoing credit evaluations of our customers’ financial condition, we seek to mitigate our credit risk by obtaining deposits and letters of credit on certain of our sales arrangements. We could suffer significant losses if a customer whose accounts receivable we have not secured fails or is otherwise unable to pay us, or if financial institutions providing letters of credit become insolvent. A loss in collections on our accounts receivable would have a negative impact on our financial condition and results of operations.

Our failure to estimate customer demand accurately could result in inventory obsolescence, liabilities to our suppliers for products no longer needed, and manufacturing interruptions or delays which could affect our ability to meet customer demand.

The success of our business depends in part on our ability to accurately forecast and supply equipment and services that meet the rapidly changing technical and volume requirements of our customers. To meet these demands, we depend on the timely delivery of parts, components, and subassemblies from our suppliers. Uncertain worldwide economic conditions and market instabilities make it difficult for us (and our customers) to accurately forecast future product demand. If actual demand for our products is different than expected, we may purchase more or fewer parts than necessary or incur costs for canceling, postponing, or expediting delivery of parts. If we overestimate the demand for our products, excess inventory could result which could be subject to heavy price discounting, which could become obsolete, and which could subject us to liabilities to our suppliers for products no longer needed. Similarly, we may be harmed in the event that our competitors overestimate the demand for their products and engage in heavy price discounting practices as a result. In addition, the volatility of demand for capital equipment poses risks for companies in our supply chain, including challenges associated with inventory management and fluctuating working capital requirements.

Furthermore, certain key parts may be subject to long lead-times or may be obtainable only from a single supplier or limited group of suppliers, and some sourcing and assembly is provided by suppliers located in countries other than the United States. We may experience significant interruptions in our manufacturing operations, delays in our ability to timely deliver products or services, increased costs, or customer order cancellations as a result of:

In addition, in the event of an unanticipated increase in demand for our products, our need to rapidly increase our business and manufacturing capacity may be exposedlimited by working capital constraints of our suppliers, which may cause or exacerbate interruptions in our manufacturing and supply chain operations. Any or all of these factors could materially and adversely affect our business, financial condition, and results of operations.

Our failure to liabilities undersuccessfully manage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations.

To better align our costs with market conditions, increase the Foreign Corrupt Practices Actpercentage of variable costs relative to total costs, and to increase productivity and operational efficiency, we have outsourced certain functions to third parties, including the manufacture of several of our systems. While we maintain some level of internal manufacturing capability for these systems, we rely on our outsourcing partners to perform their contracted functions to allow us flexibility to adapt to changing market conditions, including periods of significantly diminished order volumes. If our outsourcing partners do not perform as required, or if our outsourcing model does not allow us to realize the intended cost savings and flexibility, our results of operations (and those of our third party providers) may be adversely affected. Disputes and possibly litigation involving third party providers could result and we could suffer damage to our reputation. Dependence on contract manufacturing and outsourcing may also adversely affect our ability to bring new products to market. Although we attempt to select reputable providers, one or more of these providers could fail to perform as we expect. If we do not effectively manage our outsourcing strategy or if third party providers do not perform as anticipated, we may not realize the benefits of productivity improvements and we may experience operational difficulties, increased costs, manufacturing and installation interruptions or delays, inefficiencies in the structure and operation of our supply chain, loss of intellectual property rights,

quality issues, increased product time-to-market, and an inefficient allocation of our human resources, any determination that we violated these or similar lawsall of which could materially and adversely affect our business, financial condition, and results of operations.

We rely on a limited number of suppliers, some of whom are our sole source for particular components.

Certain of the parts, components, and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, as necessary, could result in a prolonged interruption in our ability to supply related products, a failure on our part to meet the demands our customers, and a significant increase in the price of related products, which could adversely affect our business, financial condition, and results of operations.

Our inability to attract, retain, and motivate employees could have a material adverse effect on our business.

We are subjectOur success depends in part upon our ability to the Foreign Corrupt Practices Act (“FCPA”)attract, retain, and motivate employees, including those in executive, managerial, engineering and marketing positions, as well as highly skilled and qualified technical personnel. Attracting, retaining, and motivating such qualified personnel may be difficult due to challenging industry conditions, competition for such personnel by other lawstechnology companies, consolidations and relocations of operations, and workforce reductions, and there can be no assurance that prohibit improper payments or offers of payments to foreign government officials, as defined by the statute, for the purpose of obtainingwe will be successful in recruiting or retaining business. In addition, many ofkey personnel. We have entered into employment agreements with certain key personnel but our customersinability to attract, retain, and motivate key personnel could have policies limiting or prohibiting us from providing certain types or amounts of entertainment, meals, or gifts to their employees. It is our policy to implement safeguards to discourage these practices by our employees and representatives. However, our safeguards may prove to be ineffective and our employees, consultants, sales agents, or distributors may engage in conduct for which we may be held responsible. In addition, we may acquire a company that has engaged in unlawful conduct in the past, and be held responsible for this conduct through successor liability principles. Violations of the FCPA or similar laws or similar customer policies may result in severe criminal or civil sanctions or the loss of supplier privileges to a customer, and we may be subject to other liabilities, which could negatively affectmaterial adverse effect on our business, financial condition, and results of operations.

We are exposed to risks associated with business combinations, acquisitions, and strategic investments.

We have completed several significant acquisitions and investments in the past and we will consider new opportunities in the future. Acquisitions and investments involve numerous risks, many of which are unpredictable and beyond our control, including the following:

In addition, if we issue equity securities to pay for an acquisition or investment, the ownership percentage of our then-current shareholders would be reduced and the value of the shares held by these shareholders could be diluted, which could adversely affect the price of our stock. If we use cash to pay for an acquisition or investment, the payment could significantly reduce the cash that would be available to fund our operations, pay our indebtedness, or be used for other purposes, which could have a negative effect on our business.

We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act and any delays or difficultydifficulties in satisfying these requirements or negative reports concerning our internal controls could adversely affect our future results of operations and our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a report by management on the effectiveness of our internal control over financial reporting. Ongoing compliance with this requirement is complex, costly, time-consuming, and is subject to significant judgment. If our internal controls are ineffective or if our management does not timely assess the adequacy of such internal controls, our ability to file timely and accurate periodic reports may be impeded. Any delays in filing may cause us to face the following risks and concerns, among others:

Any or all of the foregoing could result in the commencement of stockholder lawsuits against the Company. Any such litigation, as well as any proceedings that could arise as a result of a filing delay and the circumstances which gave rise to it, may be time consuming and expensive, may divert management attention from the conduct of our business, could have a material adverse effect on our business, financial condition, and results of operations, and may expose us to costly indemnification obligations to current or former officers, directors, or other personnel, regardless of the outcome of such matters, which may not be adequately covered by insurance.

Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial results.

Changes in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results. New accounting pronouncements orand taxation rules can have a material impact on revenue recognition practices, effective tax rates, results of operations, and our financial condition. On December 22, 2017, President Trump signed into law the statute commonly referred to as the Tax Cuts and Jobs Act (“2017 Tax Act”), which made broad and complex changes to the U.S. tax code. This change could materially affect our financial position and tax attributes carryforward. In addition, varying interpretations of accounting pronouncements or taxation practices, have occurred and may occur in the future. New rules, changes to existing rules, or the questioning of our current or past practices such(such as those associated with our transfer pricing,pricing), may adversely affect our reported financial results.

Our income taxes canmay change.

We are subject to income tax on a jurisdictional or legal entity basis and significant judgment is required in certain instances to allocate our taxable income to a jurisdiction and to determine the related income tax expense and benefits. Losses in one jurisdiction generally may not be used to offset profits in other jurisdictions. As a result, changes in the mix of our earnings (or losses) between jurisdictions, among other factors, could alter our overall effective income tax rate, possibly resulting in significant tax rate increases.

We are regularly audited by various tax authorities. Income tax audit assessments or changes in tax laws, regulations, or other interpretations may result in increased tax provisions which could materially affect our operating results in the period or periods in which such determinations are made or changes occur.

In addition, our effective tax rate could increase if we determine that it is no longer more likely than not that we are able to utilizerealize our remaining net deferred tax assets, if we are unable to generate sufficient future taxable income in certain jurisdictions, or if we are otherwise required to increase our valuation allowances against our deferred tax assets.

amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our financial results, the trading price of our common stock, and the trading price of the Convertible Senior Notes.

In addition, under certain circumstances convertible debt instruments (such as the Convertible Senior Notes) that may be settled entirely or partly in cash can be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Convertible Senior Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Convertible Senior Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method or that we will continue to expect to settle the principal balance in cash. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Convertible Senior Notes, our diluted earnings per share could be adversely affected.

The price of our common shares is volatile and could decline significantly.

The stock market in general and the market for technology stocks in particular has experienced volatility. If these industry-based market fluctuations continue, the trading price of our common shares could decline significantly independent of the overall market, and shareholders could lose all or a substantial part of their investment. The market price of our common shares could fluctuate significantly in response to several factors, including, among others:

·difficult macroeconomic conditions, unfavorable geopolitical events, and general stock market uncertainties, such as those occasioned by a global liquidity crisis and a failure of large financial institutions;

·receipt of large orders or cancellations of orders for our products;

·issues associated with the performance and reliability of our products;

·actual or anticipated variations in our results of operations;

·announcements of financial developments or technological innovations;

·our failure to meet the performance estimates of investment research analysts;

·changes in recommendations and/or financial estimates by investment research analysts;

·strategic transactions, such as acquisitions, divestitures, or spin-offs;

·the dilutive impact of our Convertible Notes; and

·the occurrence of major catastrophic events.

Significant price and value fluctuations have occurred with respect to our publicly traded securities and technology companies generally. The price of our common shares is likely to be volatile in the future. In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management’s attention and resources, which could materially and adversely affect our financial condition, results of operations, and liquidity.

Our board of directors is divided into three classes with each class serving a staggered three-year term. The existence of a classified board makes it more difficult for our shareholders to change the composition (and therefore the policies) of our board of directors, and therefore the Company’s policies, in a relatively short period of time.

We have adopted certain certificate of incorporation and bylaws provisions which have anti-takeover effects. These include: (a) requiring certain actions to be taken at a meeting of shareholders rather than by written consent, (b) requiring a super-majority of shareholders to approve certain amendments to our bylaws, (c) limiting the maximum number of directors, and (d) providing that directors may be removed only for “cause.” These measures and those described above may have the effect of delaying, deferring, or preventing a takeover or other change in control of our Company that a holder of our common stock might consider to be in the holder’s best interest.

In addition, we are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The operation of Section 203 may have anti-takeover effects, which could delay, defer, or prevent a takeover attempt that a holder of our common stock might consider to be in the holder’s best interest.

environmental and safety regulations, which vary from jurisdiction to jurisdiction, could result in significant remediation liabilities, the imposition of fines, and/orand the suspension or termination of research, development, or use of certain of our products, each of which could have a material adverse effect on our business, financial condition, and results of operations. In addition, some of our operations involve the storage, handling, and use of hazardous materials that may pose a risk of fire, explosion, or environmental release. Such events could result from acts of terrorism, natural disasters, or operational failures and may result in injury or loss of life to our employees and others, local environmental contamination, and property damage. These events might cause a temporary shutdown of an affected facility, or portion thereof, and we could be subject to penalties or claims as a result. Each of these events could have a material adverse effect on our business, financial condition, and results of operations.

Regulations related to conflict minerals will force us to incur additional expenses, may make our supply chain more complex, and may result in damage to our relationships with customers.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted requirements for companies that manufacture products that contain certain minerals and metals, known as conflict minerals. These rules require public companies to perform diligence and to report annually to the SEC whether such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adversely affect the sourcing, availability, and pricing of minerals we use in the manufacture of our products. In addition, we have incurred and will continue to incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals used in our products. Given the complexity of our supply chain, we may not be able to ascertain the origins of these minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. We may also face difficulties in satisfying customers who may require that our products be certified as conflict mineral free, which could harm our relationships with these customers and lead to a loss of revenue. These requirements could limit the pool of suppliers that can provide conflict-free minerals, and we may be unable to obtain conflict-free minerals at competitive prices, which could increase our costs and adversely affect our manufacturing operations and our profitability.

We have significant operations in locations which could be materially and adversely impacted in the event of a natural disaster, an act of terrorism, or other significant disruption.

Our operations in the United States, in the Asia-Pacific region, and in other areas could be subject to natural disasters or other significant disruptions, including earthquakes, tsunamis, fires, hurricanes, floods, water shortages, other extreme weather conditions, medical epidemics, power shortages and blackouts, telecommunications failures, and other natural and manmade disasters or disruptions. In the event of such a natural disaster or other disruption, we could experience disruptions or interruptions to our operations orand to the operations of our suppliers, distributors, resellers orand customers, destruction of facilities and/orand loss of life, all of which could materially increase our costs and expenses and materially and adversely affect our business, financial condition, and results of operations. In addition, various regions of the world in which we do business are subject to the threat of terrorism and acts of war. Any act of terrorism or war that affects the economy or the industries in which we operate could result in significant harm to us, including the loss of life and property, manufacturing and transportation delays, disruptions in our supply chain, the need to comply with enhanced security measures, and other increased costs.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters and principal research and development, manufacturing, and sales and service facilities are:

(1) We consolidated our business into one building, leaving the adjacent building for sale.

(2) Currently in the process of consolidating manufacturing sites and expect to vacate these locations during 2017.

In addition to the above, we lease a small office in Edina, MinnesotaMalta, New York for sales and service and our foreign sales and service subsidiaries lease office space in China, Germany, Japan, Malaysia, Philippines, Singapore, South Korea, Thailand, and the United Kingdom. We believe our facilities are adequate to meet our current needs.

Item 3. Legal Proceedings

On June 8, 2018, an Ultratech shareholder who received Veeco and certain other parties were namedstock as defendants inpart of the consideration for the Ultratech acquisition filed a lawsuit filed on April 25, 2013purported class action complaint in the Superior Court of the State of California, County of Sonoma. The plaintiffSanta Clara, captioned Wolther v. Maheshwari et al., Case No. 18CV329690, on behalf of himself and others who purchased or acquired shares of Veeco pursuant to the registration statement and prospectus which Veeco filed with the SEC in connection with the Ultratech acquisition (the “Wolther Action”). On August 2 and August 8, 2018, two purported class action complaints substantially similar to the Wolther Action were filed on behalf of different plaintiffs in the lawsuit, Patrick Colbus, sought unspecifiedsame court as the Wolther Action. These cases have been consolidated with the Wolther Action, and a consolidated complaint was filed on December 11, 2018. The consolidated complaint seeks to recover damages and asserted claims that he suffered burnsfees under Sections 11, 12, and other injuries while cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleged,15 of the Securities Act of 1933 for, among other things, thatalleged false/misleading statements in the molecular beam epitaxy system was defectiveregistration statement and thatprospectus relating to the Ultratech acquisition, relating primarily to the alleged failure to disclose delays in the advanced packaging business, increased MOCVD competition in China, and an intellectual property dispute. The defendants filed a demurrer on January 10, 2019, asking the court to dismiss the consolidated complaint for failure to state a claim. The demurrer is scheduled to be heard by the court on March 15, 2019. Veeco failedbelieves this lawsuit is without merit and intends to adequately warnvigorously contest this matter.

On December 21, 2018, a purported Veeco stockholder filed a derivative action in the Superior Court of the potential risksState of California, County of Santa Clara, captioned Vladimir Gusinsky Revocable Trust v. Peeler, et al., Case No. 18CV339925, on behalf of nominal defendant Veeco. The complaint seeks to assert claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment against current and former Veeco directors premised on purported misstatements and omissions in the system. In April 2016,registration statement relating to the parties settledUltratech acquisition. On January 2, 2019, the court ordered this action stayed until the case management conference, which is scheduled for March 15, 2019. Veeco believes this lawsuit is without any admission of wrongdoing. The settlement amount was fully covered by Veeco’s insurance.merit and intends to vigorously contest this matter.

We areThe Company is involved in various other legal proceedings arising in the normal course of our business. We doThe Company does not believe that the ultimate resolution of these matters will have a material adverse effect on ourits consolidated financial position, results of operations, or cash flows.

Item 4. Mine Safety Disclosures

Not Applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on The NASDAQ Stock Market under the symbol “VECO.” The 2016 and 2015 high and low closing bid prices by quarter are as follows:

On February 14, 2017, the closing price for our common stock on The NASDAQ Stock Market was $26.35, and we had 83 shareholders of record.

We have not paid dividends on our common stock. The Board of Directors will determine future dividend policy based on our consolidated results of operations, financial condition, capital requirements, and other circumstances.

Issuer Purchases of Equity Securities

During fiscal years 2018, 2017, and 2016, we repurchased 1.0 million shares, 0.2 million shares, and 0.7 million shares of our common stock for $11.3 million, $3.0 million, and $13.1 million, respectively, through our share repurchase programs. On October 28, 2015,December 11, 2017, our Board of Directors authorized a program to repurchase up to $100 million of ourthe Company’s outstanding common stock to be completed through December 11, 2019, after completion of the previous program on October 28, 2017. We did not repurchasepurchase any shares during the fourth quarter of 2016.2018. At December 31, 2016, $22.32018, $14.3 million of the $100 million had been utilized. Repurchases are expected tomay be made from time to time on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. The timing and amount of future repurchases, if any, will depend upon market conditions, SEC regulations, and other factors. The repurchases would be funded using available cash balances and cash generated from operations. The program does not obligate us to acquire any particular amount of common stock and may be modified or suspended at any time at our discretion.

Stock Performance Graph

*$100 invested on 12/31/11 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Copyright©2017 Standard & Poor’s, a division of S&P Global. All rights reserved.

ASSUMES $100 INVESTED ON DEC. 31, 20112013

ASSUMES DIVIDENDS REINVESTED

FISCAL YEAR ENDING DEC. 31

Item 6. Selected Financial Data

The information set forth below should be read in conjunction with the “Results of Operations” section included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

Executive Summary

We are a leading manufacturer of innovative semiconductor and thin film process equipment. Our proven MOCVD, lithography, laser annealing, ion beam, and single wafer etch and clean technologies play an integral role in producing LEDs for solid-state lighting and displays, and in the fabrication of advanced semiconductor devices. With equipment designed to optimize performance, yield, and cost of ownership, we hold technology leadership positions in all these served markets.

We design, manufacture, andcategorize our revenue by the key market thin film process equipment aligned to meet the demands of key global trends such as energy conservation, mobility, and the ‘internet of things.’segments into which we sell. Our equipment is primarily used to make components for electronic devices including LEDs, displays, power electronics, wireless devices, smartphones, MEMS, and HDDs. We develop highly differentiated equipment for critical performance steps in thin film processing. Our products provide leading technology at low cost-of-ownership and high volume productivity. Core competencies in advanced thin film technologies, patent protection, and decades of specialized process know-how help us stay at the forefront of these rapidly advancing markets.

Our portfolio of technology solutions sell into four key market areas: Lighting, Display & Power Electronics;markets are: Advanced Packaging, MEMS & RF; Scientific & Industrial; and Data Storage.

A majority of our sales inRF Filters; LED Lighting, Display & Power ElectronicsCompound Semiconductor; Front-End Semiconductor; and Scientific & Industrial.

Sales in the Advanced Packaging, MEMS & RF Filter market were derived fromdriven by Lithography and PSP systems. Advanced Packaging opportunities remained soft in 2018 as mobile supply chains were dealing with excess capacity due to weak mobile device forecasts. While Advanced Packaging has typically been associated with logic devices, recent traction in DRAM packaging with our lithography systems has been encouraging. We remain well positioned for future growth in these markets, supported by trends such as mobile connectivity, automotive electronics, big data processing, and 5G infrastructure deployment, as well as the longer term growth of FOWLP and other Advanced Packaging applications.

Sales in the LED Lighting, Display & Compound Semiconductor market were driven by the continued shipment of MOCVD systems to customers who manufacture LEDs. Demandin China for general lighting and backlighting. However, orders for LED manufacturing equipment fluctuates quarter-to-quarter depending on various factors, including but not limited to macroeconomic conditions, customer utilization rates, demand for TVs and smartphones, and the rate of LED adoptionsystems have softened as customers digest recently added capacity for general lighting. Startinglighting and backlighting. Additionally, a more competitive landscape has emerged in the second halfChina, and as a result of 2015, weak LED demand for TV backlighting adversely impactedthis commoditization, we do not expect sales in this market to be a large portion of our MOCVD equipment. TV demand began to improve in 2016, particularly for larger sized panels, which require more LEDs to backlight compared with smaller panel sizes. At the same time,revenue going forward. More recently, we have seen an increase in LED demand for fine-pitch digital signage. These trends have led to increased demand for our MOCVD equipment and build-up

Results of Operations

On February 2,Effective January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The results of operations for 2017 Veeco and Ultratech, Inc. (“Ultratech”), a leading supplier of lithography, laser-processing, and inspection systems used2016 have been recast for the new standard. Refer to manufacture semiconductor devices and LEDs, signed a definitive agreementNote 1, “Significant Accounting Policies” for Veeco to acquire Ultratech. The Boards of Directors of both Veeco and Ultratech have unanimously approved the transaction.additional information.

Ultratech shareholders will receive (i) $21.75 per share in cash and (ii) 0.2675 of a share of Veeco common stock for each Ultratech common share outstanding. Based on Veeco’s closing stock price on February 1, 2017, the transaction consideration is valued at approximately $28.64 per Ultratech share. The implied total transaction value is approximately $815 million and the implied enterprise value is approximately $550 million, net of Ultratech’s net cash balance as of December 31, 2016. The transaction is expected to close in the second calendar quarter of 2017, subject to approval by Ultratech shareholders, regulatory approvals in the United States, and other customary closing conditions.

Results of Operations

Years Ended December 31, 20162018 and 20152017

The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for 20162018 and 20152017 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, represented by our single operating segment.