MATTSON TECHNOLOGY INC
10-K405, 1998-03-31
SPECIAL INDUSTRY MACHINERY, NEC
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                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549

                                   ---------------
                                          
                                     FORM 10-K


[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                    ACT OF 1934 
                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                EXCHANGE ACT OF 1934


                           Commission file number 0-21970

                            MATTSON TECHNOLOGY INC.
                -----------------------------------------------------
               (Exact name of registrant as specified in its charter)

          DELAWARE                                   77-0208119
- -------------------------------                   ---------------------
(State or other jurisdiction of                   (I.R.S. employer
 incorporation or organization)                   identification number)

                              3550 West Warren Avenue
                             Fremont,  California  94538
              -----------------------------------------------------
              (Address and zip code of principal executive offices)

Registrant's telephone number, including area code:  510-657-5900
                                                     -------------

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

Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
$0.001 Par Value per Share.

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 or any amendment to this
Form 10-K. [X]

Number of shares outstanding of registrant's Common Stock as of February 27,
1998: 14,220,115

As of February 27, 1998, the aggregate market value of voting Common Stock held
by non-affiliates of the registrant, based upon the closing for registrant's
Common Stock as reported in the Wall Street Journal, was $103,149,366.

<PAGE>

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents incorporated herein by 
reference contain forward-looking statements that have been made pursuant to 
the provisions of the Private Securities Litigation Reform Act of 1995.  Such 
forward-looking statements are based on current expectations, estimates and 
projections about the Company's industry, management's beliefs, and certain 
assumptions made by the Company's management.  Words such as "anticipates", 
"expects", "intends", "plans", "believes", "seeks", "estimates", variations 
of such words and similar expressions are intended to identify such 
forward-looking statements.  These statements are not guarantees of future 
performance and are subject to certain risks, uncertainties and assumptions 
that are difficult to predict; therefore, actual results may differ 
materially from those expressed or forecasted in any such forward-looking 
statements.  Such risks and uncertainties include those set forth herein 
under "Business--Factors That May Affect Future Results and Market Price of 
Stock" and "Management's Discussion and Analysis of Financial Condition and 
Results of Operations" as well as those noted in the documents incorporated 
herein by reference. Unless required by law, the Company undertakes no 
obligation to update publicly any forward-looking statements, whether as a 
result of new information, future events or otherwise. However, readers 
should carefully review the risk factors set forth in other reports or 
documents the Company files from time to time with the Securities and 
Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any 
Current Reports on Form 8-K.

                                       PART I
ITEM 1.   BUSINESS

Mattson Technology, Inc. ("Mattson" or the "Company") designs, manufactures and
markets advanced fabrication equipment for sale to the worldwide semiconductor
industry. The Company's goal is to provide advanced process capability combined
with a high productivity platform to achieve a substantial improvement in
productivity over competitive equipment, and to support this equipment with
world class support. 

Each step of the manufacturing process for integrated circuits (ICs) requires
specialized manufacturing equipment. Three of the principal steps in
manufacturing ICs are the deposition of insulating or conducting materials onto
a wafer, the projection of a pattern through a mask onto light sensitive
materials known as photoresist (photolithography), and the etching or removal of
the deposited material not covered by the pattern. Before these steps can be
repeated on the wafer, the photoresist must be removed ("stripped" or "ashed").
This cycle may be repeated as many as thirty times for the most advanced ICs. 

In 1991 the Company introduced its first product, the Aspen Strip system, a
photoresist removal system that uses diode source technology.  The product was
enhanced in 1993 to allow for a second process chamber and the use of a
"downstream" triode process. The Company commenced shipment in 1995 of a new
version of its Aspen Strip which utilizes inductively coupled plasma (ICP)
technology. In 1994, the Company introduced its second system, the Aspen CVD, a
plasma enhanced chemical vapor deposition system. In 1995, the Company
introduced its third system, the Aspen RTP, a rapid thermal processing system
which is currently in the early marketing phase.  In 1996, the Company
introduced a fourth product, the Aspen LiteEtch for isotropic etch processing.
The Aspen Strip, CVD, RTP and LiteEtch are based on the Aspen platform, which
includes wafer handling robotics, dual loadlocks, control electronics and system
software.

SEMICONDUCTOR MANUFACTURING PRODUCTIVITY

Increasing demand for ICs has resulted from the growth of existing markets and
the emergence of new markets such as multimedia, wireless communication and
portable computing. The increase in demand has been fueled by the industry's
ability to supply more complex, higher performance ICs, while continuing to
reduce cost per function. The more complex ICs and the attendant reductions in
feature size have necessitated advanced and expensive wafer fabrication
equipment, resulting in the escalation of the average cost of advanced wafer
fabrication facilities. For example, the average cost in 1984 for a 64 kilobit
dynamic random access memory IC (DRAM) fabrication facility was approximately
$60 million, as compared to the average cost today for a 64 megabit DRAM
fabrication facility of approximately $1 to $2 billion. 

                              2

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Advancements in semiconductor manufacturing equipment have enabled IC
manufacturers to increase productivity dramatically by reducing feature size,
increasing manufacturing yields, improving the uptime of wafer fabrication
equipment and increasing the wafer size. Although feature size will continue to
be reduced, the other historical sources of productivity growth are now reaching
diminishing returns: 

HIGHER YIELDS.  In the last ten years, manufacturing yields have increased
substantially and the time to reach maximum yield levels has decreased
significantly. For example, the percentage of good DRAMs per wafer during
initial production has increased from 20% ten years ago to over 80% at present.
The potential for further yield improvement is limited. 

IMPROVED UPTIME.  Wafer fabrication line reliability has improved markedly in
the last ten years. Since equipment uptime now normally exceeds 90%, there is
little room for improvement in equipment reliability. 

LARGER WAFER SIZES.  Leading edge wafer fabrication lines are currently using 8"
diameter wafers, up from 4" diameters ten years ago. Currently, a handful of IC
makers are starting up pilot lines for 12" diameter wafers, with the balance of
the manufacturers reporting plans to convert to 12" (300mm) production within
the next 2-3 years. 

As the industry achieved productivity gains from these sources during the last
ten years, wafer throughput actually declined. Demands from IC manufacturers for
higher yield and larger wafer sizes have resulted in a shift from batch
processing (multiple wafers simultaneously processed) to single wafer processing
(one wafer processed at a time). This shift has resulted in reduced throughput
and increased cost. 

Semiconductor equipment manufacturers have responded to the declining throughput
problem with cluster tools, which employ single wafer processing through the use
of a common wafer handling platform with several single wafer processing
chambers. However, cluster tools are highly complex systems, often resulting in
low reliability. The Company believes that this low reliability, combined with
only modestly improved throughput, has limited the ability of cluster tools to
meet the productivity needs of semiconductor manufacturers. 

Faced with diminishing productivity gains, IC manufacturers have increased their
emphasis on factors that contribute to overall manufacturing costs. This focus
has led to the use of cost of ownership ("COO") to measure productivity. COO
measures costs associated with operation of equipment in a fabrication line.
There is no accepted industry standard for calculating COO. The Company
calculates COO by estimating the total costs to operate a system including
depreciation, overhead, labor and materials, and dividing those costs by the
system's total wafer output. Because the Company, the Company's customers and
the Company's competitors may use different formulas for calculating COO, there
can be no assurance that the Company and the Company's customers and
competitors, each using the same data, would arrive at the same determination of
COO for a particular system. As used in this document, COO refers to the
Company's method of calculating COO as described in this paragraph. 

THE MATTSON SOLUTION - MODULAR CONTINUOUS PROCESSING

The Company believes its Aspen system provides higher productivity than
conventional single wafer systems and cluster tools. The Aspen system's modular
continuous processing architecture achieves this with high throughput, savings
of cleanroom floorspace and improvements in process control as compared to
conventional single wafer processing.

The Aspen system achieves higher throughput, savings in cleanroom floorspace
and enhanced process control by: 

SIMULTANEOUS PROCESSING.  The Company's Aspen systems process up to two wafers
concurrently in its RTP systems, up to four wafers concurrently (two in each
chamber) in its Strip and LiteEtch systems, and up to eight wafers concurrently
(four in each chamber) in its CVD systems.

                              3

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CONTINUOUS PROCESSING.  The Company's Aspen system substantially reduces
overhead time (the time during which the system is not actually processing
wafers). The Aspen system robotics can handle four wafers simultaneously,
reducing the overhead time during removal and insertion of the wafers into the
process chambers. Through the use of an inner loadlock, the Aspen system
eliminates the overhead time required to pump down the process chambers to a
vacuum and backfill the chambers to atmospheric pressure after processing. An
outer loadlock permits an operator to replace a cassette of processed wafers
with a new cassette while the system continues to process wafers in the inner
loadlock.  As a result of these factors, the Aspen Strip generally requires less
than 12 seconds of overhead time per wafer which the Company believes is a
substantial improvement over present competitive systems.

MODULARITY.  The Company's Aspen platform allows the use of one or two process
chambers, supporting various applications or increased capacity in any one
application. This modularity enables the Company to develop new systems by
adding a different process chamber to the platform. When a second chamber is
added, the COO is reduced. The commonality of parts, manufacturing techniques,
training, and documentation for the Aspen platform offers operating advantages
to the Company and its customers. 

FLOORSPACE SAVINGS.  As a result of higher throughput and modularity, customers
require fewer systems and can achieve a substantial savings in cleanroom
floorspace. 

ENHANCED PROCESS CONTROL.  The Aspen system's dedicated single wafer 
processing stations achieve the within-wafer process control benefits of 
conventional single wafer systems. In addition, dual loadlocks allow the 
process chambers to maintain constant pressure and temperature which improves 
upon the wafer-to-wafer repeatability of conventional single wafer systems. 
The higher throughput of the Aspen system permits the use of slower, more 
consistent and less damaging process technologies than are economically 
feasible in conventional single wafer systems.

STRATEGY

The Company's objective is to become a leading supplier of advanced processing
equipment to the worldwide semiconductor industry. The Company intends to
achieve this objective by providing advanced process capability combined with a
substantial improvement in productivity over competitive equipment, and by
supplying world class support. Specific elements of the Company's strategy
include: 

IMPROVED PROCESS TECHNOLOGY.  The Company seeks to enter segments of the
semiconductor equipment industry when traditional technologies are unable to
satisfy emerging process requirements. For example, submicron etching results in
residues that have required multiple acid processing steps for removal by
traditional stripping systems. The Aspen Strip's plasma processes are capable of
removing many of these residues without the need for the acid steps. 

HIGHER PRODUCTIVITY.  The Company's goal is to offer systems which have 
substantial improvements in productivity over the leading competitive 
equipment in each market it enters. The Company believes that its Aspen 
Strip, LiteEtch, CVD and RTP systems achieve this goal. In particular, the 
Company believes that its systems achieve improvements in throughput, which 
it considers an important factor in COO and productivity. The Company plans 
to use the same strategy to leverage the high productivity platform for 300mm 
production throughout its product lines, in a manner similar to the way it 
introduced its 200mm (8") product lines.

REDUCED TIME TO MARKET.  The Company's Aspen platform includes wafer handling
robotics, dual loadlocks, control electronics and system software. By basing new
systems on this platform, the Company is able to focus its development
activities almost exclusively on the process chamber. By basing new products on
the standard Aspen platform and the new 300mm Aspen 3 platform, the Company
believes it is able to develop new products quickly and at relatively low cost.

COMMITMENT TO GLOBAL MARKET.  From inception, the Company's strategy has been to
sell its systems to leading semiconductor manufacturers throughout the world.
The Company introduced its systems into Japan through Marubeni, which has
substantial experience in plasma equipment and CVD.  The Company has opened
service and support offices in Taiwan, Korea and Germany and a research,
development and engineering, and marketing office in Japan.  International sales
as a percentage of its total net sales for 1997, 1996, and 1995 were 65%, 76%,
and 67%, respectively. 

                              4

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PRODUCTS

To date, the Company has introduced four systems which are based upon the Aspen
platform: the Aspen Strip for photoresist stripping, the Aspen CVD for chemical
vapor deposition, the Aspen RTP for rapid thermal processing and the Aspen
LiteEtch for isotropic etching.

THE ASPEN STRIP

PHOTORESIST STRIPPING MARKET.  A stripping system removes photoresist etch
residues before further film deposition or diffusion processing. Traditional
strip systems use wet and dry chemistry technology. In traditional wet chemistry
strip systems, the photoresist is removed by immersing the wafer into acid or
solvent baths. Dry chemistry strip systems, such as the Company's Aspen ICP
Strip, create gaseous atomic oxygen  that is exposed to the wafer to remove the
photoresist. 

The demand for photoresist strip equipment has increased as the complexity and
number of strip steps required for each wafer have increased. Complex ICs
require a greater number of layers and a corresponding greater number of 
stripping steps with greater than 20 steps required for 64 Megabit DRAMs. The
increase in the number of strip steps in the semiconductor manufacturing process
has led to a need for semiconductor manufacturers to increase their photoresist
strip capacity. The increased complexity of the strip process has also led to
higher average selling prices of such equipment. According to Dataquest figures
published in February 1998, the market was estimated at $354 million for 1997,
and projected to reach $700 million by the year 2000.

EMERGING TECHNICAL REQUIREMENTS.  Fabrication of complex ICs with feature sizes
under 0.25 microns requires new strip technologies that have greater sensitivity
to residues, contamination drive-in and underlying film selectivities. With each
shift in feature size, the Company estimates that manufacturers typically
require a 2X reduction in the level of allowable contamination drive-in. In
addition to providing "gentler" non-damaging plasma, the strip system must also
meet the increasing demands of removing photoresist and sidewall polymers from
higher energy etch processes that require increased sidewall polymerization and
resist cross-linking to meet stringent profile control.

MATTSON'S STRIP TECHNOLOGY. To meet this demand, the Company markets 
worldwide three separate and distinct plasma strip source products, each 
designed for different design regimes. The most recent product offering uses 
a patented, inductively coupled plasma (ICP) technology to gently and 
thoroughly remove photoresist and residue from the wafer. This remote 
(downstream) plasma source generates a gentle, low energy plasma that 
achieves advanced "all dry" stripping with zero damage and low contamination 
drive-in results without additional post-strip chemical processing. The ICP 
technology is specifically designed for advanced semiconductor device 
manufacturing submicron processes 0.25 microns and below. When combined with 
the standard Aspen platform, the Company believes that the Aspen ICP Strip 
system provides significant cost of ownership advantages. 

THE ASPEN STRIP.  The Aspen Strip consists of the standard Aspen platform
together with one or two processing chambers. Each chamber processes two wafers
at a time. System throughput varies with the resist thickness and is
approximately 60-120 wafers per hour with one chamber and 110-160 wafers per
hour with two chambers for most applications. The Company believes the two
chamber Aspen Strip offers a substantial reduction in COO relative to
conventional single wafer systems. In particular, the Company believes that its
systems achieve substantial improvements in throughput which result in a
substantial reduction in COO and that its systems allow customers to reduce wet
chemical steps, which makes it possible for the customer to achieve an even
greater reduction in COO by decreasing the number of systems needed. To meet the
increasingly stringent requirements of advanced strip processing, in 1997 the
Company introduced the Aspen ICP-SM- Strip system, which features a selectable
plasma mode source.  The Company is also extending the ICP source into the
emerging 300mm market by pairing it with the Aspen 3 platform for 300mm
manufacturing.


                              5

<PAGE>

THE ASPEN CVD

CVD MARKET.  CVD processes are used to deposit insulating (dielectric) and
conducting films on wafers. These films are the basic material used to form the
resistors, capacitors, and transistors of an integrated circuit. These materials
are also used to form the wiring and insulation between these electrical
components. The deposition of dielectric films has become a higher priority due
to the increasing number of metalization layers required and the difficulty of
insulating and interconnecting them. The Company's Aspen CVD system deposits
silane-based films, such as silicon dioxide (oxide) films, for interlayer and
intermetal dielectric applications, and silicon nitride (nitride) films, for
final passivation applications.  The Aspen CVD also deposits TEOS and
fluorinated TEOS.

EMERGING TECHNICAL REQUIREMENTS.  As feature sizes continue to decrease, CVD
process equipment must meet more stringent requirements. Particles or defect
densities must be minimized and controlled to achieve the desired yields. Film
properties such as stress, stoichiometry and conformality must also be improved
and more tightly controlled. Semiconductor manufacturers also place importance
on compatibility with metalization steps, such as aluminum deposition. Finally,
as process complexity increases, the number of CVD steps increases and
throughput and system productivity become significantly more important. 

MATTSON'S CVD TECHNOLOGY.  Plasma enhanced CVD allows the system to process
wafers at a relatively low temperature, reducing the risk of damage to aluminum
metalization layers during processing. Suppression of hillock formation in
aluminum interconnects is accomplished by limiting the time at higher
temperatures prior to deposition to 8-10 seconds. Film stress and density can be
controlled independent of process chemistry by the use of a low frequency RF
bias. Dual loadlocks isolate the process chamber from pressure and temperature
fluctuations, thereby reducing particulates and improving film quality and
repeatability. Continuous processing improves thickness uniformity and film
quality by randomizing small variations in deposition from one station to the
next. High throughput resulting from continuous processing permits the use of
slower, more consistent and less damaging process technologies than are
economically feasible in conventional single wafer systems. Defect density is
also improved through the use of an IN SITU plasma cleaning process that
automatically cleans the process chamber after every batch of wafers. 

THE ASPEN CVD.  The Aspen CVD system, like the Aspen Strip, is based on the
standard Aspen platform. The system can be configured with one or two process
chambers and each chamber can process four wafers at a time. The second chamber
can be used to increase throughput with a minimal increase in footprint. The
automatic cleaning cycle and simple system design reduces production downtime
and increases overall system availability. The Company believes that the Aspen
CVD system offers a significant improvement in COO over the leading competitive
system. Among the principal factors which the Company believes contribute to
such improved COO is the throughput of the Company's system and its lower price
as compared to the leading competitive system.

THE ASPEN RTP

An RTP (Rapid Thermal Processing) system heats semiconductor wafers for implant
annealing and formation of films on semiconductor wafer surfaces.  Traditional
RTP systems that use lamp heating technology operate at high temperature up to
1200DEG.  Celsius.  Diffusion furnace systems provide furnace annealing in both
high and low temperature regimes.  Low temperature RTP systems, such as the
Company's Aspen RTP system, apply heat to semiconductor wafers to cause a
variety of processing and chemical reactions, including: Titanium Silicide and
Cobalt Silicide formation; Titanium Nitride barrier formation and anneals;
thermal donor annihilation (TDA) and lower temperature reflows and implant
anneals, typically 600-900DEG.  Celsius.

As device geometries and thermal budgets shrink, Rapid Thermal Processing (RTP)
is emerging as a key semiconductor processing technology.  As the number of
layers on semiconductor wafers have increased, the demand for RTP machines
dedicated to specific applications in the fab has increased.

RTP technology must be able to meet ever more stringent requirements for
processing on semiconductor wafers.  Issues concerning uniformity and
repeatability affect the integrity of the IC.  IC makers also place importance
on the amount of  time a semiconductor wafer is exposed to heat to achieve a
certain process and the level of wafer throughput achieved by the system.

The Aspen RTP system is based on the Aspen platform and the principle of 
modular continuous processing, handling up to 110 wafers per hour for 
selected processes. The  simple design of the process chamber has no moving 
parts and no consumables, which contributes to its low preventative 
maintenance requirements. The Company believes that its single chamber Aspen 
RTP offers a substantial reduction in COO relative to conventional RTP 
systems.  

                              6

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THE ASPEN LITEETCH

ISOTROPIC ETCH MARKET.   An isotropic etch system performs a variety of blanket
or geometry etch processes on semiconductor wafers, processes which can be used
in as many as 10 steps in a typical 0.25 micron logic fab on 200 millimeter
wafers.  At this time, these processes include, but are not restricted to:
silicon soft etch (post-RIE contact cleanup); highly selective nitride stripping
for LOCOS or STI; backside nitride stripping; self-aligned-contact (SAC) nitride
stripping; isotropic contact and via etch; and passivation etch. 

Historically, both dry and wet chemistries have been used for isotropic etch
manufacturing processes. In some cases, more expensive anisotropic etchers with
low throughput have been used for isotropic etch applications, which has greatly
increased the cost of these non-critical manufacturing applications. Wet benches
require a large amount of cleanroom floorspace plus special handling and
disposal of chemicals, which increases associated costs and environmental
concerns. For isotropic etch applications, the Company believes that Aspen
LiteEtch offers the benefits of dry etch tools, including lower cost of
ownership than wet benches, floorspace savings and ease of use.

The Company's Aspen LiteEtch system is an isotropic etching system that uses dry
chemistry to create atomic etchant species in a gaseous form (plasma), which is
exposed to the wafer to remove various films for a variety of applications that
do not require a high-end anisotropic etcher.

EMERGING TECHNICAL REQUIREMENTS.  With ever-shrinking subgeometries, processes
used to remove films from wafers must be ever more selective to prevent damage
to the films in the underlying layers. This process capability and control is
necessary to achieve the high etch rates required and to provide the uniformity
and selectivity necessary for thin film etching. The ability to use additional
chemistries is often required to control etch rates, provide added selectivity
to underlying films, and to eliminate certain residues created during advanced
etch processing. 

MATTSON'S ISOTROPIC ETCH TECHNOLOGY. The Company's first isotropic etch product,
the Aspen LiteEtch, uses a patented, inductively coupled plasma (ICP) source-the
same source used in its Aspen Strip product. This downstream ICP source uses a
high pressure plasma process to produce a low energy plasma that achieves high
etch rates while minimizing electrically charged particles that can damage
sensitive semiconductor devices. By combining ICP technology designed for
advanced device manufacturing with the high throughput of the Aspen platform,
the Company believes that it provides significant cost of ownership advantages
over comparable equipment.

THE ASPEN LITEETCH. The Aspen LiteEtch system is comprised of the standard Aspen
platform together with one or two process chambers. A specially designed ceramic
tube allows for the use of additional chemistries without added contamination.
Each chamber processes two wafers at a time, while retaining single wafer
process control. For most applications, system throughput typically varies with
the process from 40 to 80 wafers per hour for a single chamber system and from
70 to 110 wafers per hour for a dual chamber system. The Company believes the
dual chamber Aspen LiteEtch offers a substantial reduction in cost of ownership
relative to anisotropic etch and wet bench systems. In particular, the Company
believes that Aspen LiteEtch systems achieve improvements in throughput which
result in a substantial reduction in COO; and that its systems allow customers
to further reduce COO by eliminating environmental concerns and costs associated
with the use of acids; and by freeing anisotropic etchers for high end
processing applications.


CUSTOMERS

The Company sells its products to leading IC manufacturers located in the United
States, Japan, the rest of the Pacific Rim and Europe. One end user customer,
TSMC, accounted for 11% of sales in 1997.  There were no individually
significant customers in 1996.  During 1995, sales to Toshiba Corporation
(through Marubeni Hytech Corporation) and Micron Technology accounted for 16%
and 15%, respectively, of total net sales during that period. While the Company
actively pursues new customers, there can be no assurance that the Company will
be successful in its efforts, and any significant weakening in customer demand
would have a material adverse effect on the Company. 

                              7

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MARKETING AND SALES

The Company sells its systems through a combination of a direct sales force, its
Japanese distributor and a manufacturers' sales representative. In addition to
the direct sales force at the Company's headquarters in Fremont, California, the
Company has domestic regional sales offices located in New Jersey, Arizona,
Oregon and Texas. The Company also maintains regional direct sales and support
offices in Taiwan, Korea, and Germany, and an office in Japan to provide
research, development and engineering, and marketing support for customers in
Japan and certain other Asian markets. The Company is continuing to invest
resources to increase the size of its direct sales force. 

The Company believes that strong sales in the Japanese market will be essential
to its future financial performance. As part of its strategy for penetrating the
Japanese market, the Company established a distributor relationship with
Marubeni in December 1990 and is substantially dependent upon its relationship
with Marubeni to address the Japanese market.  The Company formed a subsidiary
in Japan in October, 1995, in which Marubeni has a minority interest, in order
to provide research, development and engineering, and marketing support for
customers in Japan and certain other Asian markets. Although management believes
that it maintains a good relationship with Marubeni, there can be no assurance
that the relationship will continue. In the event of a termination of the
Company's distribution agreement with Marubeni, the Company's strategy to
increase its sales in Japan would be adversely affected and the Company would be
obligated to repurchase up to $1.0 million of inventory related to the Company's
sales to Marubeni. Although the Company intends to continue to invest
significant resources in Japan, including the hiring of additional personnel to
support Marubeni's efforts, there can be no assurance that the Company will be
able to maintain or increase its sales to the Japanese semiconductor industry. 

The Company also has personnel located in service and customer support offices
in Korea, Taiwan and Germany.  In Singapore, the Company utilizes a third party
manufacturers' sales representative.  The Company's arrangements with its
customers are generally on a purchase order basis and not pursuant to long term
contracts. 

International sales accounted for 65%, 76%, and 67% of total net sales in 1997,
1996 and 1995, respectively. The Company anticipates that international sales
will continue to account for a significant portion of net sales. International
sales are subject to certain risks, including unexpected changes in regulatory
requirements, exchange rates, tariffs and other barriers, political and economic
instability, difficulties in accounts receivable collections, extended payment
terms, difficulties in managing distributors or representatives, difficulties in
staffing and managing foreign subsidiary operations and potentially adverse tax
consequences.  Without limiting the generality of the foregoing, because of the
Company's dependence upon international sales in general, and on sales to Japan
and Pacific Rim countries in particular, the Company is particularly at risk to
effects from developments such as the recent Asian economic problems.  The
Company's foreign sales are also subject to certain governmental restrictions,
including the Export Administration Act and the regulations promulgated
thereunder. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations. 

CUSTOMER SUPPORT

The Company believes its customer support organization is critical to establish
the long-term customer relationships which often are the basis upon which
semiconductor manufacturers select their equipment vendor. The Company's
customer support organization is headquartered in Fremont, California, with
additional employees located in Arizona, Idaho, Maryland, Massachusetts, Texas,
Oregon, Virginia, Germany, Korea, Taiwan, and the United Kingdom. The Company's
strategy is to use local support personnel in regions where multiple systems are
in place. Marubeni provides service to the Company's customers located in Japan.
The Company's support personnel have technical backgrounds, with process,
mechanical, and electronics training, and are supported by the Company's
engineering and applications personnel. Support personnel install systems,
perform warranty and out-of-warranty service, and provide sales support. 

Warranty periods for Mattson systems range from 12 to 36 months after shipment
or acceptance, depending upon the purchase agreement. 

                              8

<PAGE>

BACKLOG

The Company schedules production of its systems based on both backlog and
regular sales forecasts. The Company includes in its backlog only those systems
for which the Company has accepted purchase orders and assigned shipment dates
within the next 12 months. All orders are subject to cancellation or delay by
the customer with limited or no penalty. As of December 31, 1997, the backlog
was approximately $41.5 million. Because of possible changes in delivery
schedules and cancellations of orders, the Company's backlog at any particular
date is not necessarily representative of actual sales for any succeeding
period.  In particular, during periods of industry downturns such as the current
period, the Company has experienced significant delays and cancellations
relating to orders which were previously booked and included in backlog.

RESEARCH, DEVELOPMENT AND ENGINEERING
     
The Company's research, development and engineering efforts are focused upon its
multi-product strategy.  In addition, during recent periods the Company has
devoted a significant amount of resources to the development of new products for
the 300mm market.

The Company maintains an applications laboratory in Fremont to test new systems
and customer-specific equipment designs. By basing products on the Aspen
platform, the Company believes that it is able to focus its development
activities on the process chamber and to develop new products quickly and at
relatively low cost.  For example, the Company believes it was able to reduce
new product development time on its CVD, RTP and LiteEtch products.  The Company
also hopes to leverage the high productivity platform for 300mm production
throughout its product lines, in a manner similar to the way it introduced its
200mm (8") product lines.

The markets in which the Company and its customers compete are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services. Because of continual changes in these
markets, the Company believes that its future success will depend, in part, upon
its ability to continue to improve its existing systems, process technologies,
and to develop systems and new technologies which compete effectively on the
basis of COO and performance. In addition, the Company must adapt its systems
and processes to technological changes and to support emerging industry
standards for target markets. The success of new system introductions is
dependent on a number of factors, including timely completion of new system
designs and market acceptance. There can be no assurance that the Company will
be able to improve its existing systems and process technologies or to develop
new technologies or systems. 

The Company's research, development and engineering expenses for the years 1997,
1996, and 1995, were $14.7 million, $11.5 million, and $6.3 million,
respectively, representing 19%, 16% and 11% of net sales, respectively. There
can be no assurance that the Company's research, development and engineering
efforts will result in the successful development of new products.

COMPETITION

The market for the Company's systems is highly competitive and is subject to
rapid technological change. Significant competitive factors include system
performance, COO, size of installed base, breadth of product line and customer
support. The Company believes that it competes in its chosen markets primarily
on the basis of system performance, COO and customer support. The Company
believes it can also compete on the basis of price due to the design of its
systems. 

The Company faces substantial competition in its chosen market segments from 
both established competitors and potential new entrants. Most of the 
Company's competitors (particularly for CVD systems) have broader product 
lines, have been in business longer, have more experience with high volume 
manufacturing, have broader name recognition, have substantially larger 
customer bases and have substantially greater financial, technical and 
marketing resources than the Company. There can be no assurance that these 
competitors will not also develop enhancements to or future generations of 
competitive products that will offer price or performance features that are 
superior to the Company's systems. In the United States and European plasma 
photoresist strip markets, the Company competes primarily with GaSonics, 
Matrix and Eaton (formerly Fusion). In Japan, the Company competes primarily 
with Canon, Plasma Systems Corporation, McElectronics (formerly Ramco), Tokyo 
Ohka and various Japanese vendors who have already established relationships 
with Japanese IC manufacturers. Competitors for its LiteEtch systems include 
Lam Research, GaSonics, Matrix, Tegal and Shibauru.  In the CVD market, the 
Company competes primarily with Applied Materials, Novellus, ASM and 
Watkins-Johnson. In the RTP market the Company competes with AG Associates 
and Applied Materials. In the isotropic etch market the Company competes with 
Lam Research, GaSonics, Matrix, Tegal, and Shibaura.

                              9

<PAGE>

MANUFACTURING

The Company's manufacturing operations are based in its Fremont facility and
consist of procurement, subassembly, final assembly, test and reliability
engineering. The Company's current systems are based on the Aspen platform,
enabling the Company to use a large number of common subassemblies and
components. Many of the major assemblies are procured complete from outside
sources. The Company focuses its internal manufacturing efforts on those
precision mechanical and electro-mechanical assemblies which differentiate its
systems from its competitors. The Company is implementing a quality control
program based on ISO-9001 and Sematech-generated measurement and improvement
methodologies. 

Certain of the Company's components are obtained from a sole supplier or a
limited group of suppliers. The Company generally acquires such components on a
purchase order basis and not under any long term supply contracts.  The
Company's reliance on outside vendors generally, and a limited group of
suppliers in particular, involves several risks, including a potential inability
to obtain an adequate supply of required components and reduced control over
pricing and timely delivery of components. Because the manufacture of certain of
these components and subassemblies is an extremely complex process and can
require long lead times, there can be no assurance that delays or shortages
caused by suppliers will not occur. Historically the Company has not experienced
any significant delays in manufacturing due to an inability to obtain components
and is not currently aware of any specific problems regarding the availability
of components which might significantly delay the manufacturing of its systems
in the future. However, any inability to obtain adequate deliveries or any other
circumstance that would require the Company to seek alternative sources of
supply or to manufacture such components internally could delay the Company's
ability to ship its systems and could have a material adverse effect on the
Company.   See "Business--Factors That May Affect Future Results and Market
Price of Stock."

The Company is subject to a variety of federal, state and local laws, rules and
regulations relating to the use, storage, discharge and disposal of hazardous
chemicals used during its sales demonstrations and research and development.
Public attention has increasingly been focused on the environmental impact of
operations which use hazardous materials. Failure to comply with present or
future regulations could result in substantial liability to the Company,
suspension or cessation of the Company's operations, restrictions on the
Company's ability to expand at its present locations or requirements for the
acquisition of significant equipment or other significant expense. To date,
compliance with environmental rules and regulations has not had a material
effect on the Company's operations. 

INTELLECTUAL PROPERTY

The Company relies on a combination of patent, copyright, trademark and trade
secret laws, non-disclosure agreements and other intellectual property
protection methods to protect its proprietary technology.  There can be no
assurance that the Company's competitors will not be able to legitimately
ascertain the non-patented proprietary information embedded in the Company's
systems, in which case the Company may be precluded from preventing the use of
such information. To the extent the Company wishes to assert its patent rights,
there can be no assurance that any claims of the Company's patents will be
sufficiently broad to protect the Company's technology or that the Company's
pending patent application will be approved. In addition, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, that any rights granted thereunder will provide
adequate protection to the Company, or that the Company will have sufficient
resources to prosecute its rights. 

Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any unresolved notices that the Company is infringing intellectual property
rights of others, there can be no assurance that such infringement claims will
not be asserted by third parties in the future. There also can be no assurance
in the event of such claims of infringement that the Company will be able to
obtain licenses on reasonable terms. The Company's involvement in any patent
dispute or other intellectual property dispute or action to protect trade
secrets and know-how could have a material adverse effect on the Company's
business. Adverse determinations in any litigation could subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from third parties and prevent the Company from manufacturing and selling its
products. Any of these situations could have a material adverse effect on the
Company. 


                              10

<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

In this Annual Report on Form 10-K and from time to time, the Company may make
forward looking statements regarding, among other matters, the Company's future
strategy, product development plans, productivity gains of its products,
financial performance and growth.  The forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.  Forward looking statements address matters which are
subject to a number of risks and uncertainties, including the following:

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS.  The Company derives most of its 
net sales from the sale of its photoresist stripping systems which typically 
have list prices ranging from approximately $375,000 to $750,000. At its 
current revenue level, each sale, or failure to make a sale, can have a 
material effect on the Company. The Company's backlog at the beginning of a 
quarter typically does not include all sales required to achieve the 
Company's sales objectives for that quarter. Consequently, the Company's net 
sales and operating results for a quarter depend on the Company shipping 
orders scheduled to be sold during that quarter and obtaining orders for 
systems to be shipped in that same quarter. A delay in a shipment near the 
end of a particular quarter may cause net sales in that quarter to fall 
significantly below the Company's expectations and may thus materially and 
adversely affect the Company's operating results for such quarter. Other 
factors which may lead to fluctuations in the Company's quarterly and annual 
operating results include: market acceptance of the Company's systems and its 
customers' products; substantial changes in revenues from significant 
customers; changes in overhead absorption levels due to changes in the number 
of systems manufactured; geographic mix of sales; timing of announcement and 
introduction of new systems by the Company and its competitors; seasonality; 
changes in product mix; delays in orders due to customer financial 
difficulties; and cyclicality in the semiconductor industry and the markets 
served by the Company's customers. In particular, the uncertainties regarding 
market conditions and customer order changes and cancellations arising from 
the recent market slowdown raise significant risks regarding fluctuating 
quarterly results.  As the Company continues to invest in accordance with its 
long-term strategy, fluctuating revenue levels will produce fluctuating 
results. Similarly, due to unpredictable order patterns, the Company's 
manufacturing efficiency can vary significantly from quarter to quarter which 
can adversely affect gross margins and net operating results.  The amount of 
time from the initial contact with the customer to the first order is 
typically nine to twelve months or longer and may involve competing capital 
budget considerations for the customer, thus making the timing of customer 
orders uneven and difficult to predict. Any delay or failure to receive 
anticipated orders, or any deferrals or cancellations of existing orders, 
could adversely affect the Company's financial performance. In addition, 
continued investments in research, development and engineering, and the 
development of a worldwide sales and marketing organization will result in 
significantly higher fixed costs which the Company will not be able to reduce 
rapidly if its net sales goals for a particular period are not met. The 
impact of these and other factors on the Company's operating results in any 
future period cannot be forecasted accurately. 

The Company has recently announced that it expects revenues for the 
First Quarter of fiscal 1998 will be in the range of $20 to $23 million, with 
a loss in the range of $.08 to $.12 per share. For the Second Quarter of 
1998, the Company currently expects that its revenues will be significantly 
lower than its current forecast for the first quarter. As a result, the 
Company currently expects to report a significantly higher net loss for the 
second quarter. Such estimates are preliminary and are subject to change. In 
particular, there can be no assurance that as a result of such announcement, 
the continuing industry downturn or other developments, that the Company's 
results for such periods or the periods thereafter will not be worse than 
currently expected.

MARKET ACCEPTANCE OF SYSTEMS.  Given that the Company's systems represent
alternatives to conventional strip, isotropic etch, CVD and RTP equipment
currently marketed by competitors, the Company believes that its growth
prospects depend in large part upon its ability to gain acceptance by a broader
group of customers of the efficacy of the Company's systems and technology. To
date, only the Company's strip products have gained widespread market
acceptance.  Because a substantial investment is required by semiconductor
manufacturers to install and integrate capital equipment into a semiconductor
production line, these manufacturers will tend to choose semiconductor equipment
manufacturers based on past relationships, product compatibility and proven
financial performance. Once a semiconductor manufacturer has selected a
particular vendor's capital equipment, the Company believes that the
manufacturer generally relies upon that equipment for the specific production
line application and frequently will attempt to consolidate its other capital
equipment requirements with the same vendor. Given these factors, there can be
no assurance that the Company will be successful in obtaining broader acceptance
of its systems and technology. The transition of the market to 300mm wafers will
present both an opportunity and a risk to the Company.  To the extent that the
Company is unable to introduce 300mm systems on a timely basis and which meet
customer requirements, the Company's business, results of operations and
financial condition could be materially and adversely affected.

                              11

<PAGE>

DEPENDENCE ON SIGNIFICANT CUSTOMER. The Company sells its products to leading 
IC manufacturers located in the United States, Japan, the rest of the Pacific 
Rim and Europe.  One end user customer, TSMC, accounted for 11% of sales in 
1997. There were no individually significant customers in 1996.  During 1995, 
sales to Toshiba Corporation (through Marubeni Hytech Corporation) and Micron 
Technology accounted for 16% and 15%, respectively, of total net sales during 
that period.  While the Company actively pursues new customers, there can be 
no assurance that the Company will be successful in its efforts, and any 
significant weakening in customer demand would have a material adverse effect 
on the Company. 

DEPENDENCE ON JAPANESE DISTRIBUTOR AND ASIAN MARKET.  The Company believes that
strong sales in the Japanese market will be essential to its future financial
performance. As part of its strategy for penetrating the Japanese market, the
Company established a distributor relationship with Marubeni and is
substantially dependent upon Marubeni to address the Japanese market.
Approximately 13% of the Company's net sales for the year ended December 31,
1997 were sold through Marubeni to customers in Japan. Although management
believes that it maintains a good relationship with Marubeni, there can be no
assurance that the relationship will continue. In the event of a termination of
the Company's distribution agreement with Marubeni, the Company's strategy to
increase its sales in Japan would be adversely affected and the Company would
have the obligation to repurchase up to $1 million of inventory related to the
Company's sales to Marubeni. Although the Company intends to continue to invest
significant resources in Japan, including the hiring of additional personnel to
support Marubeni's efforts, there can be no assurance that the Company will be
able to maintain or increase its sales to the Japanese semiconductor industry. 

The Company is also substantially dependent upon sales to Pacific Rim countries
generally.  During the fiscal year ended December 31, 1997, approximately 60% of
the Company's net sales were to customers based in the Pacific Rim.  As such,
the Company is particularly at risk with respect to effects from developments
such as the recent Asian economic problems.

LENGTHY SALES CYCLE.  Sales of the Company's systems depend, in significant 
part, upon the decision of a prospective customer to increase manufacturing 
capacity or to expand current manufacturing capacity, both of which typically 
involve a significant capital commitment. Once a semiconductor manufacturer 
has selected a particular vendor's capital equipment, the Company believes 
that the manufacturer generally relies upon that equipment for the specific 
production line application and frequently will attempt to consolidate its 
other capital equipment requirements with the same vendor. Accordingly, the 
Company's ability to receive orders from potential customers may depend upon 
such customers undertaking an evaluation for new equipment. For many 
potential customers, such an evaluation may occur infrequently. Following 
initial system qualification, the Company often experiences further delays in 
finalizing system sales while the customer evaluates and receives approvals 
for the purchase of the Company's systems and completes a new or expanded 
facility. The Company believes it must significantly increase its inventory 
investment in evaluation systems because they are used by many customers in 
their evaluation processes. Due to these factors, the Company's systems 
typically have a lengthy sales cycle during which the Company may expend 
substantial funds and management effort. There can be no assurance that any 
of the Company's efforts will be successful. 

CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY.  The Company's business depends in 
significant part upon capital expenditures by manufacturers of semiconductor 
devices, including manufacturers that are opening new or expanding existing 
fabrication facilities, which in turn depend upon the current and anticipated 
market demand for such devices and the products utilizing such devices. The 
semiconductor industry is highly cyclical and historically has experienced 
periods of oversupply, resulting in significantly reduced demand for capital 
equipment, including the systems manufactured and marketed by the Company. 
The Company saw sales growth in the first two quarters of 1996 
followed by a sales downturn in the last two quarters of 1996 and the first 
quarter of 1997.  Sales in the second through fourth quarters of 1997 showed 
continuous positive growth. The Company expects sales in the first, second and 
third quarters of 1998 to be significantly lower than in the last two 
quarters of 1997.  The Company anticipates that a significant portion of new 
orders will depend upon demand from semiconductor manufacturers building or 
expanding large fabrication facilities, and there can be no assurance that 
such demand will exist.  The Company's net sales and operating results will 
be materially and adversely affected by any downturns or slowdowns in the 
semiconductor market in the future. 

                              12

<PAGE>

HIGHLY COMPETITIVE INDUSTRY.  The market for the Company's systems is highly 
competitive and is subject to rapid technological change. Significant 
competitive factors include system performance, cost of ownership, size of 
installed base, breadth of product line and customer support. Principal 
competitors for the Company's Aspen Strip systems include GaSonics, 
Eaton (formerly Fusion) and Matrix in the United States and Canon, Plasma 
Systems Corporation, McElectronics (formerly Ramco), Tokyo Ohka and various 
Japanese vendors who have already established relationships with Japanese IC 
manufacturers.  Competitors for its Aspen LiteEtch systems include Lam 
Research, GaSonics, Matrix, Tegal and Shibaura. Competitors for its Aspen CVD 
systems include Applied Materials, Novellus, ASM and Watkins-Johnson and 
competitors for its Aspen RTP system include AG Associates and Applied 
Materials. Most of the Company's competitors (particularly for CVD systems) 
have broader product lines, have been in business longer, have more 
experience with high volume manufacturing, have broader name recognition, 
have substantially larger customer bases, and have substantially greater 
financial, technical and marketing resources than the Company. In addition, 
to expand its sales, the Company must often replace competitors' systems. 
There can be no assurance that the Company's competitors will not develop 
enhancements to or future generations of competitive products that will offer 
price/performance features that are superior to the Company's systems. 

DEPENDENCE ON SINGLE SYSTEM.  To date, most of the Company's sales of systems 
have been Aspen Strip systems. The Company's continued sales growth will 
depend upon achieving market acceptance of its Aspen CVD, Aspen RTP and Aspen 
LiteEtch systems and future products. 

ACQUISITIONS.  The Company, as part of its business strategy, subject to 
certain regulatory approvals and other conditions, may make acquisitions of, 
or significant investments in, businesses that offer complementary products, 
services and technologies.  Any acquisitions or investments will be 
accompanied by the risks commonly encountered in acquisitions of businesses.  
Such risks include, among other things, the difficulty of assimilating the 
operations and personnel of the acquired businesses, the potential disruption 
of the Company's ongoing business, the inability of management to maximize 
the financial and strategic position of the Company or acquired or invested 
products, services, and technologies, the maintenance of uniform standards, 
controls and procedures and policies and the impairment of relationships with 
employees and customers as a result of any integration.  These factors could 
have a material adverse effect on the Company's business, results of 
operations or financial condition. Consideration paid for future 
acquisitions, if any, could be in the form of cash, stock, rights to purchase 
stock or a combination thereof.  Dilution to existing stockholders and to 
earnings per share may result to the extent that shares of stock or other 
rights to purchase stock are issued in connection with any such future 
acquisitions.

RAPID TECHNOLOGICAL CHANGE - NEW SYSTEMS.  The markets in which the Company and
its customers compete are characterized by rapidly changing technology, evolving
industry standards and continuous improvements in products and services. Because
of continual changes in these markets, the Company believes that its future
success will depend, in part, upon its ability to continue to improve its
systems and its process technologies and to develop new technologies and systems
which compete effectively on the basis of price and performance and which
adequately address customer requirements. In addition, the Company must adapt
its systems and processes to technological changes and to support emerging
target market industry standards. The success of new system introductions is
dependent on a number of factors, including timely completion of new system
designs and market acceptance. There can be no assurance that the Company will
be able to improve its existing systems and its process technologies or develop
new technologies or systems in a timely manner. In particular, the transition of
the market to 300mm wafers will present both an opportunity and a risk to the
Company.  To the extent that the Company is unable to introduce 300mm systems on
a timely basis and which meet customer requirements, the Company's business,
results of operations and financial condition could be materially and adversely
affected.  

SOLE OR LIMITED SOURCES OF SUPPLY.  The Company relies to a substantial extent
on outside vendors to manufacture many of the Aspen systems' components and
subassemblies. Certain of these are obtained from a sole supplier or a limited
group of suppliers. The Company's reliance on outside vendors generally, and a
sole or a limited group of suppliers in particular, involves several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over pricing and timely delivery of components.
Because the manufacture of certain of these components and subassemblies is an
extremely complex process and requires long lead times, there can be no
assurance that delays or shortages caused by suppliers will not occur. Any
inability to obtain adequate deliveries or any other circumstance that would
require the Company to seek alternative sources of supply or to manufacture such
components internally could delay the Company's ability to ship its systems and
could have a material adverse effect on the Company. 

                              13

<PAGE>

DEPENDENCE ON KEY PERSONNEL.  The Company's success depends to a large extent
upon the efforts and abilities of Brad Mattson, Chairman and Chief Executive
Officer, and other key managerial and technical employees. The loss of
Mr. Mattson or other key employees could have a material adverse effect on the
Company.  The Company has not entered into written employment agreements with
its executive officers. The success of the Company's business will also depend
upon its ability to continue to attract and retain qualified employees,
particularly those highly skilled design and process engineers involved in the
manufacture of existing systems and the development of new systems and
processes. The competition for such personnel is intense. 

INTERNATIONAL SALES.  International sales accounted for 65%, 76%, and 67% of
total net sales in 1997, 1996 and 1995, respectively. The Company anticipates
that international sales will continue to account for a significant portion of
net sales. International sales are subject to certain risks, including
unexpected changes in regulatory requirements, exchange rates, tariffs and other
barriers, political and economic instability, difficulties in accounts
receivable collections, extended payment terms, difficulties in managing
distributors or representatives, difficulties in staffing and managing foreign
subsidiary operations and potentially adverse tax consequences. Without limiting
the generality of the foregoing, because of the Company's dependence upon
international sales in general, and on sales to Japan and Pacific Rim countries
in particular, the Company is particularly at risk to effects from developments
such as the recent Asian economic problems. The Company's international sales
are also subject to certain governmental restrictions, including the Export
Administration Act and the regulations promulgated thereunder. The Company's
sales to date have been denominated in U.S. dollars and as a result, there have
been no losses related to currency fluctuations on sales.  There can be no
assurance that any of these factors will not have a material adverse effect on
the Company. 

INTELLECTUAL PROPERTY RIGHTS.  The Company relies on a combination of patent,
copyright, trademark and trade secret laws, non-disclosure agreements and other
intellectual property protection methods to protect its proprietary technology.
The Company believes that patents are of less significance in this industry than
such factors as innovative skills, technical expertise and know-how of its
personnel. There can be no assurance that the Company's competitors will not be
able to legitimately ascertain the non-patented proprietary information embedded
in the Company's systems, in which case the Company may be precluded from
preventing the use of such information. To the extent the Company wishes to
assert its patent rights, there can be no assurance that any claims of the
Company's patents will be sufficiently broad to protect the Company's
technology. In addition, there can be no assurance that any patents issued to
the Company will not be challenged, invalidated or circumvented, that any rights
granted thereunder will provide adequate protection to the Company, or that the
Company will have sufficient resources to prosecute its rights. 

Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any unresolved notices that the Company is infringing intellectual property
rights of others, there can be no assurance that such infringement claims will
not be asserted by third parties in the future. There also can be no assurance
in the event of such claims of infringement that the Company will be able to
obtain licenses on reasonable terms. The Company's involvement in any patent
dispute or other intellectual property dispute or action to protect trade
secrets and know-how could have a material adverse effect on the Company.
Adverse determinations in any litigation could subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from third parties and prevent the Company from manufacturing and selling its
systems. Any of these situations could have a material adverse effect on the
Company. 

ENVIRONMENTAL REGULATIONS.  The Company is subject to a variety of federal,
state and local laws, rules and regulations relating to the use, storage,
discharge and disposal of hazardous chemicals used during sales demonstrations
and research and development. Public attention has increasingly been focused on
the environmental impact of operations which use hazardous materials. To the
best of the Company's knowledge, it is in compliance with all federal, state and
local environmental regulations. However, failure to comply with present or
future regulations could result in substantial liability to the Company,
suspension or cessation of the Company's operations, restrictions on the
Company's ability to expand at its present locations or requirements for the
acquisition of significant equipment or other significant expense. 

                              14

<PAGE>

VOLATILITY OF STOCK PRICE.  In the past, the market price of the Common Stock of
the Company has been subject to significant volatility and has declined
substantially from its highs.  There can be no assurance that the market price
of the Common Stock of the Company will not decline in the future.  The Company
believes that a variety of factors could cause the price of the Company's Common
Stock to fluctuate, perhaps substantially, including: announcements of
developments related to the Company's business; fluctuations in the Company's
operating results and order levels; general conditions in the semiconductor
industry or the worldwide economy; announcements of technological innovations;
new products or product enhancements by the Company or its competitors;
developments in patents or other intellectual property rights; and developments
in the Company's relationships with its customers, distributors and suppliers.
In addition, in recent years the stock market in general, and the market for
shares of small capitalization stocks in particular, has experienced extreme
price fluctuations which have often been unrelated to the operating performance
of affected companies. Such fluctuations could adversely effect the market price
of the Company's Common Stock. 

EMPLOYEES

As of February 27, 1998 the Company had 372 employees. There were 88 employees
in manufacturing operations, 100 in research, development and engineering, 148
in sales, marketing and field service and customer support, and 36 in general,
administrative and finance. 

The success of the Company's future operations depends in large part on the
Company's ability to recruit and retain qualified employees, particularly those
highly skilled design, process and test engineers involved in the manufacture of
existing systems and the development of new systems and processes. The
competition for such personnel is intense. There can be no assurances that the
Company will be successful in retaining or recruiting key personnel. None of the
Company's employees is represented by a labor union and the Company has never
experienced a work stoppage, slowdown, or strike. The Company considers its
relationships with its employees to be good. 

ITEM 2.   PROPERTIES

The Company maintains its headquarters in Fremont, California.  During the 
year ended December 31, 1997 the Company increased its facilities square 
footage by leasing additional office space. The Company's leased 61,000 
square foot facility has been supplemented with an additional 30,000 square 
feet of space located near the head office. The leases for these facilities 
expire in February and August 1999, respectively.  The Company's future 
growth may require that it secure additional facilities or expand its current 
facility further before the term of its headquarters' lease expires. Any move 
to new facilities or expansion could be disruptive and could have a material 
adverse effect on the operations and financial performance of the Company. 
The Company also leases sales offices in Yokohama, Japan; Seoul, Korea; 
Hsinchu, Taiwan; and Oberwossen, Germany with expiration dates from February 
1998 to August, 2000.

ITEM 3.  LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party
or to which any of its properties is subject.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

                              15

<PAGE>

                                      PART II

ITEM 5.  MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS

STOCK LISTING
Mattson Technology's common stock has been traded on the over-the-counter market
since the Company's Initial Public Offering on September 28, 1994, and is quoted
on the NASDAQ Stock Market under the symbol "MTSN".  The following table sets
forth the high and low closing prices as reported by the Nasdaq National Market
for the periods indicated.

<TABLE>
<CAPTION>
 1997                                                HIGH      LOW
- -----------------------------------------------------------------------
<S>                                                 <C>      <C>
 FIRST                                              11 5/8    9 3/8
 SECOND                                             10 3/4    7 7/16
 THIRD                                              16       10 11/16
 FOURTH                                             14 7/8    7

 1996
- -----------------------------------------------------------------------
 FIRST                                              16 1/2    9
 SECOND                                             16 1/4   10 5/8
 THIRD                                              12 1/4    7 3/4
 FOURTH                                             11 1/4    8 3/8
</TABLE>

The Company has never paid cash dividends on its common stock and has no present
plans to do so.  As of February 27, 1998, there were approximately 176
shareholders of record.

                              16

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA
- -------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FIVE-YEAR SUMMARY

<TABLE>
<CAPTION>
December 31,                                              1997     1996      1995      1994      1993
- ------------------------------------------------------------------------------------------------------
<S>                                                   <C>      <C>       <C>       <C>      <C>
STATEMENT OF OPERATIONS DATA:
Net sales(1)                                          $ 76,730 $ 73,260  $ 55,342  $ 19,551 $  3,479 
Net income (loss)                                        1,431    6,465    10,492     3,018     (831)
Net income (loss) per share (2):
     Basic                                            $   0.10 $   0.46  $   0.80  $   0.34 $  (0.12)
     Diluted                                          $   0.09 $   0.42  $   0.71  $   0.29 $  (0.12)
BALANCE SHEET DATA:
Total assets                                          $ 84,443 $ 84,489  $ 74,089  $ 32,479 $  2,906 
Manditorily Redeemable Convertible Preferred Stock           -        -         -        -     7,340 

Total stockholders' equity (deficit) (3)              $ 68,184 $ 69,115  $ 61,076  $ 28,292 $ (7,106)
</TABLE>


QUARTERLY DATA
(unaudited)
<TABLE>
                                                                  FIRST    SECOND     THIRD    FOURTH
December 31, 1997                                               QUARTER   QUARTER   QUARTER   QUARTER
- ------------------------------------------------------------------------------------------------------
<S>                                                            <C>       <C>       <C>       <C>
Net sales                                                      $ 13,023  $ 16,571  $ 22,633  $ 24,503
Gross profit                                                      6,565     8,306    11,849    12,880
Net income (loss)                                                 (568)        55       949       995
Net income (loss) per share (2):
     Basic                                                     $ (0.04)  $   0.00  $   0.07  $   0.07
     Diluted                                                   $ (0.04)  $   0.00  $   0.06  $   0.07

                                                                  FIRST    SECOND     THIRD    FOURTH
December 31, 1996                                               QUARTER   QUARTER   QUARTER   QUARTER
- ------------------------------------------------------------------------------------------------------
Net sales                                                      $ 22,002  $ 23,244  $ 14,005  $ 14,009
Gross profit                                                     12,820    13,295     6,819     7,095
Net income (loss)                                                 3,538     3,455     (105)     (423)
Net income (loss) per share (2):
     Basic                                                     $   0.26  $   0.25  $ (0.01)  $ (0.03)
     Diluted                                                   $   0.23  $   0.23  $ (0.01)  $ (0.03)
</TABLE>

(1)  Includes sales through a related party distributor for each yearly period
     as follows: 1995 - $16,994, 1994 - $8,435, and 1993 - $2,179.  See Note 6
     of Notes to the Consolidated Financial Statements.
(2)  As restated  upon adoption of Statement of Financial Accounting  Standards
     (SFAS) No. 128. See Note 1 of the Notes to  Consolidated Financial
     Statements.
(3)  The Company has not paid and does not intend to pay dividends in the
     foreseeable future. 

                                       17

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
         OF OPERATIONS

                                      OVERVIEW

Mattson Technology, Inc. ("Mattson" or  the "Company") designs, manufactures 
and markets advanced fabrication equipment to semiconductor manufacturers 
worldwide. The Company began operations in 1989 and shipped its first 
photoresist removal product, the Aspen Strip, in 1991. The Company's current 
product line is based on a modular Aspen platform which accommodates two 
process chambers supporting increased throughput.  The Company currently 
offers Aspen Strip, CVD, RTP and LiteEtch products.

The Company has derived substantially all of its sales from Aspen Strip 
systems. In addition, the Company derives sales from CVD, LiteEtch and RTP 
systems as well as spare parts and maintenance services.

The  Company experienced sales growth in each quarter throughout 1997.  
However, the Company has recently announced that the Company expects that its 
revenues for the First Quarter of fiscal 1998 will be in the range of $20 to 
$23 million, with a loss in the range of $.08 to $.12 per share. For the 
Second Quarter of 1998, the Company currently expects that its revenues will 
be significantly lower than its current forecast for the first quarter. As a 
result, the Company currently expects to report a significantly higher net 
loss for the second quarter. Such estimates are preliminary and are subject 
to change. In particular, there can be no assurance that as a result of such 
announcement, the continuing industry downturn or other developments, that 
the Company's results for such periods or the periods thereafter will not be 
worse than currently expected.  There can be no assurance that the Company 
will be able to regain sales growth or profitability.  Future results will 
depend on a variety of factors, particularly overall market conditions and 
also timing of significant orders, the ability of the Company to successfully 
market its CVD, RTP and LiteEtch products as well as to bring new systems to 
market, the timing of new product releases by the Company's competitors, the 
Company's ability to successfully and timely introduce systems for the 300mm 
market, patterns of capital spending by the Company's customers, market 
acceptance of new and/or enhanced versions of Company systems, changes in 
pricing by the Company, its competitors, customers, or suppliers and the mix 
of products sold.  In order to support long term growth in its business, the 
Company has increased its expense levels.  As a result, the Company is 
dependent upon increases in sales in order to maintain profitability.  If the 
Company's sales do not increase, the current levels of operating expenses 
could materially and adversely affect the financial results of the Company.

As a result of the well publicized Asian economic problems, many semiconductor
manufacturers have been delaying or canceling previously planned new equipment
purchases.  The cyclicality and uncertainties regarding overall market
conditions continue to present significant challenges to the Company and have a
significant adverse impact on the Company's ability to forecast near term
revenue expectations.  The ability of the Company to modify its operations in
response to short term changes in market conditions is limited.  The extent and
duration of the Asian financial crisis and the short term and ultimate impact on
the Company and its results of operations and financial condition cannot be
precisely predicted.

In response to the impact of the Asian economic problems, the Company has 
initiated further cost control measures.  These include a reduction of full 
time and temporary employees equivalent to approximately 15% of its total 
work force. The executive staff has taken a 10% pay cut and the Company has 
implemented tighter controls over spending.  The Company will record charges 
relating to such actions during the quarter ending March 29, 1998, but the 
impact of lower cost levels will not be realized until the quarter ending 
June 28, 1998.

The Company formed a subsidiary in Japan in October 1995, Mattson Technology
Center K.K. ("MTC"), in which Marubeni, the Company's distributor in Japan, has
a 19% interest.  The subsidiary was formed in order to provide research,
development and engineering, and marketing support for Japan and certain other
Asian markets.  These activities, to some extent, had previously been provided
by Marubeni.  The Company also modified its distributor arrangement with
Marubeni which increased the selling price of systems sold through them. 
Marubeni is still primarily responsible for sales and support in Japan.

The Company generally recognizes a sale upon shipment of a system.  However,
from time to time, the Company allows customers to evaluate systems.  The
Company does not recognize the associated sale until and unless an evaluation
system is accepted by the customer.

                                       18

<PAGE>

The Company was incorporated in California in November 1988 and completed its
initial public offering on October 5, 1994.  In September 1997, the Company was
reincorporated in the State of Delaware.


RESULTS OF OPERATIONS

The following table sets forth the statement of operations data of the Company
expressed as a percentage of net sales for the years indicated:

<TABLE>
<CAPTION>
                                                    1997    1996  1995
- -----------------------------------------------------------------------
<S>                                                 <C>     <C>   <C>
 Net sales                                           100%   100%  100%
 Cost of sales                                        48%    45%   45%
 Gross margin                                         52%    55%   55%
 Research, development and engineering                19%    16%   11%
 Selling, general and administrative                  32%    29%   21%

 Income from operations                                1%    10%   23%

 Income before provision for income taxes              3%    13%   26%

 Net income                                            2%     9%   19%
</TABLE>

NET SALES 

Net sales for 1997 increased to $76.7 million compared to $73.3 million in 
1996 and $55.3 million in 1995.  Net sales in 1997 increased 5% as a result 
of a 3% increase in unit shipments and a 2% increase in average selling 
prices (ASP's). Net sales in 1996 increased 33% as a result of a 14% increase 
in unit shipments and a 15% increase in ASP's.  Sales to date consist 
principally of single and dual chamber Aspen Strip and to a lesser extent, 
CVD and LiteEtch systems, spare parts and service revenue. See 
"Business--Factors That May Affect Future Results and Market Price of Stock." 
Higher ASP's have resulted primarily from increasing sales of the newer CVD 
and LiteEtch systems.  

International sales, which are predominantly to customers based in Japan and 
the Pacific Rim (which includes Taiwan, Singapore and Korea), accounted for 
65%, 76%, and 67% of total net sales for the years ended December 31, 1997, 
1996 and 1995, respectively.  All sales are denominated in U.S. dollars. The 
Company anticipates that international sales will continue to account for a 
significant portion of sales, primarily due to orders from customers in Japan 
and the Pacific Rim.  The Company's operating results have been, and in the 
future will likely be, materially and adversely affected by any significant 
market downturn in Japan or the Pacific Rim such as has recently been 
experienced as a result of the Asian economic problems. 

GROSS MARGIN

Gross margins for 1997 decreased to 52% compared to 55% in 1996 and 1995.  
Gross margins declined in 1997 primarily as a result of pricing pressures and 
manufacturing variances due to the higher inefficiencies associated with the 
slowdown in the second half of 1996 and the first two quarters of 1997. Gross 
margins on shipments through Marubeni increased in 1996 as a result of the 
1995 agreement, as described above. This increase was offset by manufacturing 
inefficiencies associated with the slowdown in the second half of 1996. 

The Company's gross margin will continue to be affected by a variety of 
factors. In particular, lower economies of scale have adversely affected 
gross margin over the prior year and may affect gross margin in the future. 
Lower gross margins will result given the Company's increased manufacturing 
overhead with lower sales levels expected by the Company for the first two 
quarters of fiscal 1998 augmented by a higher level of finished goods at 
December 31, 1997. During 1997, the Company experienced substantial pricing 
pressure and there can be no assurance that the Company will not continue to 
experience pricing pressures in the future.  The Company's gross margin on 
international sales, other than sales through Marubeni, is substantially the 
same as domestic sales.  Sales to Marubeni typically carry a lower gross 
margin as Marubeni is still primarily responsible for sales and support costs 
in Japan.  In addition, the Company has incurred additional research, 
development and engineering and marketing expenses primarily through the 
Company's Japanese subsidiary, Mattson Technology Center K.K. ("MTC")

                                       19

<PAGE>

The Company's reliance on outside vendors generally, and a sole or a limited
group of suppliers in particular, involves several risks, including a potential
inability to obtain an adequate supply of required components and reduced
control over pricing and timely delivery of components.  Any inability to obtain
adequate deliveries or any other circumstance that would require the Company to
seek alternative sources of supply or to manufacture such components internally
could delay the Company's ability to ship its systems and could have a material
adverse effect on the Company, including an increase in the Company's cost of
sales and therefore an adverse impact on gross margin.  The continuing
uncertainties regarding market conditions and customer order changes also
contribute to lower manufacturing efficiency and could result in lower gross
margins.  In addition, new system introductions and enhancements may also have
an adverse effect on gross margin due to the inefficiencies associated with
manufacturing new products.

RESEARCH, DEVELOPMENT AND ENGINEERING  

Research, development and engineering expenses for 1997 were $14.7 million, or
19% of  sales, compared to $11.5 million, or 16% of sales in 1996 and $6.3
million, or 11% of sales in 1995. The increase in expenses for 1997 was
primarily due to salaries and related expenses which increased to $6.1 million
from $5.4 million in 1996 and $3.5 million in 1995 and engineering project
materials which increased to $3.1 million in 1997 from $2.0 million in 1996 and
$1.1 million in 1995.  The increase in salaries and related expenses was due to
increases in personnel required to support the Company's anticipated long-term
future growth, including the support of the Company's multi-product strategy and
development of a new platform to support 300mm wafers.  The increase in
engineering project materials was due to ongoing and new product development.
Research, development and engineering expenses also increased in 1996 compared
to 1995 due to the Company's establishment of a subsidiary in Japan, as
described above.  Increases in research, development and engineering expenses as
a percentage of revenue in 1996 and 1997 largely resulted from continued
investment in new product.  The Company believes that continued investment in
research and development, including its multi-product strategy and its 300mm
development program, is critical to maintaining a strong technological position
in the industry. However, there can be no assurance that the Company will be
able to improve its existing systems and process technologies or to develop new
technologies or systems. See "Business--Factors That May Affect Future Results
and Market Price of Stock."

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses for 1997 were $24.5 million, or 
32% of net sales, compared to $20.9 million, or 29%, in 1996 and $11.4 
million, or 21% in 1995.  The increase in expenses was primarily due to 
salaries, commissions and related expenses which increased to $16.7 million 
from $13.1 million in 1996 and $7.3 million in 1995 and travel and 
entertainment expenses which increased to $3.0 million from $2.7 million in 
1996 and $1.2 million in 1995.  The increase in salaries and related expenses 
was due to increases in personnel required to support the Company's 
anticipated long-term future growth. The increase in travel and entertainment 
expenses was primarily due to increases in sales activity and support 
activity.  Buildings and utilities also increased to $2.0 million from $1.2 
million in 1996, primarily as a result of an additional 31,000 square feet 
leased and the increased building lease costs due to the renewal of the lease 
of the Company's headquarters in Fremont, California. Selling, general and 
administrative expenses increased in 1996 compared to 1995 due to the 
Company's establishment of a subsidiary in Japan, as described above, the 
continued investment in sales and support offices in Taiwan, Korea and 
Germany and the expansion of the Company's headquarters facilities. See 
"Business--Factors That May Affect Future Results and Market Price of Stock."

TAX PROVISION

During 1997, 1996 and 1995 the Company provided taxes at an effective tax rate
of 24.0%, 33.0% and 27.9%, respectively.  The 1997 and 1996 tax rate is less
than the federal statutory rate as a result of benefits derived from the
Company's foreign sales corporation and the research and development tax credit,
which Congress reinstated effective July 1, 1996.  The 1995 tax rate is less
than the federal statutory rate as a result of realization of deferred tax
assets of $1.4 million previously reserved and tax credits, partially offset by
state taxes.  

IMPACT OF YEAR 2000

Some of the Company's older computer programs were written using two digits 
rather than four to define the applicable year.  As a result, those computer 
programs have time-sensitive software that may recognize a date using "00" as 
the year 1900 rather than the year 2000.  This could cause a system failure 
or miscalculations causing disruptions of operations, including, among other 
things, a temporary inability to process transactions, send invoices, or 
engage in similar normal business activities.

                                       20

<PAGE>


The Company has commenced a Year 2000 date conversion project to address
necessary changes and an implementation strategy.  The "Year 2000 Computer
Problem" creates risks for the Company from unforeseen problems in its own
computer systems and from third parties with whom the Company deals on financial
transactions.  The Company does not anticipate that it will incur material
expenditures for the resolution of any Year 2000 issues related either to its
own information systems, databases and programs, or its products.  However,
there can be no assurance that the Company will not experience serious
unanticipated negative consequences or material costs caused by undetected
errors.  In addition, the Company could be adversely impacted by Year 2000
issues faced by major distributors, suppliers, customers, vendors and financial
service organizations with which the Company interacts.  Management is in the
process of determining the impact, if any, that third parties who are not Year
2000 compliant may have on the operations of the Company.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board  (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income".  SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements for periods
beginning after December 15, 1997.  Comprehensive income, as defined, includes
all changes in equity (net assets) during a period from non-owner sources
including unrealized gains and losses on available for sale securities. 
Reclassification of financial statements for earlier periods for comparative
purposes is required.  The Company will adopt SFAS 130 beginning in 1998 and
such adoption will not have a material effect on the Company's financial
position or results of operations. 

In June 1997, the FASB issued SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information".  This statement establishes standards for
the way companies report information about operating segments in annual
financial statements for periods beginning after December 31, 1997.  It also
establishes standards for related disclosures about products and services,
geographical areas and major customers.  It is not expected that adoption of
SFAS No. 131 will have any impact on the Company's consolidated financial
statements.

FACTORS AFFECTING FUTURE OPERATING RESULTS

The Company's operating results are subject to a variety of risks characteristic
of the semiconductor manufacturing equipment industry, including intense
competition, fluctuating demand, significant volatility, rapid technological
change, and booking and shipment uncertainties.  The Company is actively
developing new products that it believes will meet future customer needs, but no
assurance can be given that its efforts will be successful.  Fluctuations in the
Company's operating results could occur in the future due to any of these
factors or many others, including those discussed in the Overview, general
economic conditions or other conditions specific to the semiconductor equipment
manufacturing industry.  See "Business--Factors That May Affect Future Results
and Market Price of Stock."

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and short term investments equaled $34.2 million at December
31, 1997.  The Company had no long term debt.  Stockholder's equity at December
31, 1997 was approximately $68 million.

Cash generated from operations has been sufficient historically to fund the 
Company's investment in research and development activities and Company 
growth.

Cash and cash equivalents increased by $4.0 million in 1997.  Net cash 
provided by operating activities in 1997 was $3.1 million.  The net cash 
provided in 1997 was primarily attributable to net income of $1.4 million, 
non cash depreciation charges of $2.9 million, a decrease in receivable 
balances of $1.2 million, offset by an increase in inventories of $6.1 
million. Net cash provided by investing activities in 1997 was $3.4 million 
primarily from the sales and maturities of short term securities of $25.0 
million, partially offset by purchases  of short-term investments of $16 
million and the acquisition of property and equipment of $4.7 million.  Net 
cash used by financing activities in 1997 was $2.2 million primarily from the 
repurchase of the Company's Common Stock, partially offset by the net 
proceeds from the issuance of Common Stock.

                                       21
<PAGE>

The Company's Board of Directors has authorized the Company to repurchase during
the next three years up to 1,000,000 shares of the Company's Common Stock in the
open market from time to time.  As of February 27, 1998, the Company had
14,220,115 shares outstanding.  The purpose of the repurchase program is to
acquire shares to fund the Company's stock based employee benefit programs,
including the employee stock purchase plan and the stock option plan.

The Company believes that existing cash balances and short-term investments will
be sufficient to meet the Company's cash requirements during the next twelve
months.  However, depending upon its rate of growth and profitability, the
Company may require additional equity or debt financing to meet its working
capital requirements or capital equipment needs.  There can be no assurance that
additional financing will be available when required or, if available, will be
on terms satisfactory to the Company.  

MARKET RISK DISCLOSURE

As of December 31, 1997, the Company's investment portfolio consisted of 
fixed income securities.  These securities, like all fixed income 
instruments, are subject to interest rate risk and will decline in value if 
market interest rates increase.  If market interest rates were to increase 
immediately and uniformly by 10% from levels of December 31, 1997, the 
decline in the fair value of the portfolio would not be material.  
Additionally, the Company has the ability to hold its fixed income 
investments until maturity and therefore, the Company would not expect to 
recognize such an adverse impact in income or cash flows. The Company has 
international facilities and is, therefore, subject to foreign currency 
exposure.  To date, exposure to the Company related to exchange rate 
volatility has not been significant.  If foreign currency rates fluctuate by 
10% from rates at December 31, 1997, the effect on the Company's financial 
position and results of operations would not be material.  However, there can 
be no assurance that there will not be a material impact in the future.

The local currency is the functional currency for all foreign sales operations
except those in Japan, where the U.S. dollar is the functional currency.  Gains
or losses from translation of foreign operations where the local currencies are
the functional currency are included as a separate component of stockholders'
equity.


                                       22

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                      Page
                                                                      ----
<S>                                                                   <C>
      Consolidated Financial Statements:

      Consolidated Balance Sheet as of                                 24
         December 31, 1997 and 1996

      Consolidated Statement of Income                                 25
         for the years ended December 31,
         1997, 1996 and 1995

      Consolidated Statement of                                        26
         Stockholders' Equity for the
         three years ended December 31, 1997

      Consolidated Statement of Cash Flows                             27
         for the years ended December 31,
         1997, 1996 and 1995

      Notes to Consolidated Financial Statements                       28

      Report of Independent Accountants                                37

      Financial Statement Schedules:
         All schedules are omitted because they are either 
         not applicable or the required information is shown
         in the consolidated financial statements or notes 
         thereto.
</TABLE>

                                    23

<PAGE>

MATTSON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
December 31,                                                        1997       1996
- -------------------------------------------------------------------------------------
<S>                                                                 <C>        <C>
ASSETS
Current assets:
   Cash and cash equivalents                                    $ 25,583   $ 21,547
   Short-term investments                                          8,598     16,620
   Accounts receivable, net                                       14,784     15,954
   Inventories                                                    19,068     12,954
   Deferred taxes                                                  4,222      4,197
   Prepaid expenses and other current assets                       1,000        882
                                                                --------   --------
      Total current assets                                        73,255     72,154
Property and equipment, net                                       11,188      9,373
Other assets                                                           -      2,962
                                                                --------   --------
                                                                $ 84,443   $ 84,489
                                                                --------   --------
                                                                --------   --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                           $    3,349  $   1,240
   Accrued liabilities                                            12,910     14,134
                                                                --------   --------
      Total current liabilities                                   16,259     15,374
                                                                --------   --------

Commitments and contingencies (Note 9)

Stockholders' equity:
   Common Stock, par value $0.001, 60,000 shares authorized;
      14,289 issued, 14,189 outstanding in 1997 and 14,197 
       shares issued and outstanding in 1996                          14         14
   Additional paid in capital                                     57,418     57,566
   Cumulative translation adjustments                               (290)       (54)
   Treasury stock, at cost                                        (1,075)         -
   Other                                                               -        (36)

   Retained earnings                                              12,117     11,625
                                                                --------   --------
      Total stockholders' equity                                  68,184     69,115
                                                                --------   --------
                                                                $ 84,443   $ 84,489
                                                                --------   --------
                                                                --------   --------

</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      24

<PAGE>

MATTSON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF INCOME
- -------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
December 31,                                         1997           1996          1995
- -----------------------------------------------------------------------------------------
<S>                                                <C>         <C>           <C>
Net sales                                          $ 76,730    $    73,260   $    55,342 
Cost of sales                                        37,130         33,231        24,958 
                                                   --------    -----------   -----------
    Gross profit                                     39,600         40,029        30,384 
                                                   --------    -----------   -----------
Operating expenses:
   Research, development and engineering             14,709         11,507         6,330 
   Selling, general and administrative               24,495         20,900        11,416 
                                                   --------    -----------   -----------
      Total operating expenses                       39,204         32,407        17,746 
                                                   --------    -----------   -----------
Income from operations                                  396          7,622        12,638 
Interest and other income                             1,486          2,027         1,906 
                                                   --------    -----------   -----------
Income before provision for income taxes              1,882          9,649        14,544 
Provision for income taxes                              451          3,184         4,052 
                                                   --------    -----------   -----------
Net income                                         $  1,431    $     6,465    $   10,492 
                                                   --------    -----------   -----------
                                                   --------    -----------   -----------

Net income per share:
   Basic                                           $   0.10   $       0.46  $       0.80
                                                   --------    -----------   -----------
                                                   --------    -----------   -----------
   Diluted                                         $   0.09   $       0.42  $       0.71
                                                   --------    -----------   -----------
                                                   --------    -----------   -----------

Shares used in computing net income per share:
   Basic                                             14,117         13,997        13,109
                                                   --------    -----------   -----------
                                                   --------    -----------   -----------
   Diluted                                           15,311         15,275        14,854
                                                   --------    -----------   -----------
                                                   --------    -----------   -----------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       25

<PAGE>

MATTSON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                  Additional
                                       Common      Paid In            Cumulative   Treasury Stock    Retained
                                        Stock       Capital           Translation                    Earnings
                                    Shares Amount   Amount     Other  Adjustments  Shares   Amount   (Deficit)    Total
                                    -------------------------------------------------------------------------------------
<S>                                 <C>    <C>    <C>         <C>        <C>       <C>      <C>       <C>       <C>
Balance at December 31, 1994        12,388 $   13 $   33,727  $  (223)   $      -       -   $      -  $ (5,225) $  28,292
Sale of Common Stock, net              983      1     20,674        -           -       -          -         -     20,675
Exercise of stock options              276      -        255        -           -       -          -         -        255
Shares issued under employee
  stock purchase plan                  132      -        774        -           -       -          -         -        774
Income tax benefits realized from
  activity in employee stock plans       -      -        454        -           -       -          -         -        454
Repayment of notes receivable            -      -          -       65           -       -          -         -         65
Amortization of deferred
  compensation                           -      -          -       56           -       -          -         -         56
Net unrealized gain on
  investments                            -      -          -       29           -       -          -         -         29
Cumulative translation
  adjustments                            -      -          -        -         (16)      -          -         -        (16)
Net income                               -      -          -        -           -       -          -    10,492     10,492
                                    ------  -----  ---------   ------      ------    ----   --------   -------   --------
Balance at December 31, 1995        13,779     14     55,884      (73)        (16)      -          -     5,267     61,076
Purchase of Common Stock, net          (65)             (442)       -           -       -          -      (107)      (549)
Exercise of stock options              255      -        286        -           -       -          -         -        286
Shares issued under employee
  stock purchase plan                  228      -      1,596        -           -       -          -         -      1,596
Income tax benefits realized from
  activity in employee stock plans       -      -        285        -           -       -          -         -        285
Amortization of deferred
  compensation                           -      -        (43)      60           -       -          -         -         17
Net unrealized loss on
  investments                            -      -          -      (23)          -       -          -         -        (23)
Cumulative translation
  adjustments                            -      -          -        -         (38)      -          -         -        (38)
Net income                               -      -          -        -           -       -          -     6,465      6,465
                                    ------  -----  ---------   ------      ------    ----   --------   -------   --------
Balance at December 31, 1996        14,197     14     57,566      (36)        (54)      -          -    11,625     69,115
                                    ------  -----  ---------   ------      ------    ----   --------   -------   --------


Purchase of Common Stock, net         (335)     -    (2,197)       -           -    (100)    (1,075)     (939)    (4,211)
Exercise of stock options              183      -        261        -           -       -          -         -        261
Shares issued under employee
  stock purchase plan                  244      -      1,598        -           -       -          -         -      1,598
Income tax benefits realized from
  activity in employee stock plans       -      -        190        -           -       -          -         -        190
Amortization of deferred
  compensation                           -      -          -       13           -       -          -         -         13
Net unrealized loss on
  investments                            -      -          -       23           -       -          -         -         23
Cumulative translation
  adjustments                            -      -          -        -        (236)      -          -         -       (236)
Net income                               -      -          -        -           -       -          -     1,431      1,431
                                    ------  -----  ---------   ------      ------    ----   --------   -------   --------
Balance at December 31, 1997        14,289  $  14  $  57,418   $    -      $ (290)   (100)  $( 1,075)  $12,117   $ 68,184
                                    ------  -----  ---------   ------      ------    ----   --------   -------   --------
                                    ------  -----  ---------   ------      ------    ----   --------   -------   --------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                    26

<PAGE>

MATTSON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,                                                  1997      1996         1995
- ---------------------------------------------------------------------------------------------
<S>                                                        <C>       <C>           <C>
Cash flows from operating activities:
   Net income                                              $  1,431   $  6,465      $ 10,492
   Adjustments to reconcile net income to
    net cash provided by (used in) operating activities:
      Depreciation and amortization                           2,856      1,963           505
      Deferred taxes                                            (25)    (2,184)       (2,013)
      Deferred compensation related to stock options             13         17            56
      Changes in assets and liabilities:
         Accounts receivable                                  1,170     (1,966)       (9,565)
         Inventories                                         (6,114)    (2,115)       (8,501)
         Prepaid expenses and other current assets             (118)      (455)         (311)
         Other assets                                         2,962     (2,962)            -
         Accounts payable                                     2,109     (2,647)        2,724
         Accrued liabilities                                 (1,224)     5,293         6,556
                                                           --------   --------      --------
Net cash provided by (used in) operating activities           3,060      1,409           (57)
                                                           --------   --------      --------

Cash flows from investing activities:
   Acquisition of property and equipment                     (4,671)    (6,685)       (2,376)
   Purchases of short-term investments                      (16,468)   (36,293)      (39,521)
   Sales and maturities of short-term investments            24,513     47,511        21,894
                                                           --------   --------      --------
Net cash provided by (used in) investing activities           3,374      4,533       (20,003)
                                                           --------   --------      --------

Cash flows from financing activities:
   Proceeds from the issuance of Common Stock, net            2,049      1,882        21,704
   Repurchase of Common Stock                                (4,211)      (549)            -
   Repayment of notes receivable from shareholders               -          -             65
                                                           --------   --------      --------
Net cash provided by (used in) financing activities          (2,162)     1,333        21,769
                                                           --------   --------      --------

Effect of exchange rate changes                                (236)       (38)          (16)
                                                           --------   --------      --------

Net increase in cash and cash equivalents                     4,036      7,237         1,693
Cash and cash equivalents, beginning of period               21,547     14,310        12,617
                                                           --------   --------      --------
Cash and cash equivalents, end of period                   $ 25,583   $ 21,547      $ 14,310
                                                           --------   --------      --------
                                                           --------   --------      --------

Supplemental disclosures:
   Cash paid for income taxes                              $    629   $  4,701      $  4,163
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       27

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Mattson Technology, Inc. (the "Company") was incorporated in California on 
November 18, 1988. In September, 1997 the Company was reincorporated in the 
State of Delaware.  As part of the reincorporation, each outstanding share of 
the California corporation, no par value common stock, was converted 
automatically to one share of the new Delaware corporation $0.001 par value 
common stock. The financial statements have been restated to reflect this 
change as though the change  had taken place as of the earliest period 
presented.

The Company designs, manufactures and markets advanced fabrication equipment 
to the semiconductor manufacturing industry worldwide.  The Company operates 
in one industry segment. 

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and 
its subsidiaries.  All significant intercompany accounts and transactions 
have been eliminated. 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 revenue and expenses 
during the reported periods.  Actual results could differ from those 
estimates.

The Company's fiscal year ends on December 31.  The Company's fiscal quarters 
end on the Sunday closest to March 31, June 30 and September 30.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all highly liquid investments with a maturity of three 
months or less when purchased to be cash equivalents.  Short-term investments 
consist of commercial paper and U.S. Treasury securities with maturities of 
more than three months.  Investments are classified as "available for sale," 
and are measured at market value.  Net unrealized gains or losses are 
recorded as a separate component of stockholders' equity until realized.  Any 
gains or losses on sales of investments are computed by specific 
identification.  At December 31, 1996 and 1997 the difference between market 
value and cost was not significant.  

INVENTORIES

Inventories are stated at the lower of standard cost, which approximates 
actual cost, using the first-in, first-out method, or market. 

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using the 
straight-line method based upon the useful lives of the assets which range 
from three to five years.  Leasehold improvements are amortized using the 
straight-line method over the term of the related lease or the estimated 
useful lives of the improvements, whichever is less.   

COMMON STOCK

In October, 1995, the FASB issued Statement of Financial Accounting Standards 
No. 123, "Accounting for Stock-Based Compensation" (FAS 123).  In accordance 
with the provisions of  FAS 123, the Corporation applies APB Opinion No. 25 
in accounting for its stock option plans and, accordingly, does not recognize 
compensation cost because the exercise price equals the market price of the 
underlying stock at date of grant.  Note 3 to the Consolidated Financial 
Statements contains a summary of the pro forma effects to reported net income 
and earnings per share for 1997, 1996 and 1995 for compensation cost based on 
the fair value of the options granted at grant date as prescribed by FAS 123.

SALES RECOGNITION

System sales are generally recognized upon shipment. However, in certain 
circumstances, the Company allows customers to evaluate systems, and since 
customers can return such systems to the Company any time with limited or no 
penalty, the Company does not recognize the associated sale until an 
evaluation system is accepted by the customer. Income related to sales of up 
to $1,000,000 to the Company's distributor in Japan is deferred under the 
rights of return provisions of the distribution agreement (see Note 6). 
Service and maintenance contract revenue, which to date has been 
insignificant, is recognized on a straight-line basis over the service period 
of the related contract. A provision for the estimated future cost of system 
installation and warranty is recorded at the time revenue is recognized. 

                                       28

<PAGE>

FOREIGN CURRENCY ACCOUNTING

The local currency is the functional currency for all foreign operations 
except those in Japan, where the U.S. dollar is the functional currency.  
Gains or losses from translation of foreign operations where the local 
currencies are the functional currency are included as a component of 
stockholders' equity. Foreign currency transaction gains and losses have not 
been material.

NET INCOME PER SHARE

The Company has adopted Financial Accounting Standards Board (FASB) Statement 
128 effective with the quarter and year ended December 31, 1997.  All 
earnings per share data has been restated to reflect the FASB 128 method of 
computation. FASB 128 requires dual presentation of basic and diluted 
earnings per share (EPS) on the face of the income statement.  Basic EPS is 
computed by dividing income available to common stockholders (numerator) by 
the weighted average number of common shares outstanding (denominator) for 
the period.  Diluted EPS gives effect to all dilutive potential common shares 
outstanding during the period.  The computation of diluted  EPS uses the 
average market prices during the period.

During the years ended December 31, 1997, 1996 and 1995 there were no 
differences between the numerators used for the basic and diluted EPS 
calculations and the total amount of the differences in the denominators in 
those years is attributable to the effect of dilutive stock options.

RECLASSIFICATION

Certain 1996 and 1995 balances have been reclassified to conform to the 1997 
presentation.

2.   BALANCE SHEET DETAIL
      (IN THOUSANDS)

<TABLE>
<CAPTION>
December 31,                                                   1997       1996
- --------------------------------------------------------------------------------
<S>                                                         <C>        <C>
INVENTORIES:
     Purchased parts and raw materials                      $  7,648   $  6,763
     Work-in-process                                           7,606      4,634
     Finished goods                                            2,266        734
     Evaluation systems                                        1,548        823
                                                            --------   --------
                                                            $ 19,068   $ 12,954
                                                            --------   --------
                                                            --------   --------
PROPERTY AND EQUIPMENT:
     Machinery and equipment                                $  8,277   $  6,971
     Furniture and fixtures                                    4,412      2,329
     Leasehold improvements                                    1,264      1,360
     Construction-in-progress                                  1,956      1,023
                                                            --------   --------
                                                              15,909     11,683
     Less: accumulated depreciation and amortization          (4,721)    (2,310)
                                                            --------   --------
                                                            $ 11,188    $ 9,373
                                                            --------   --------
                                                            --------   --------
ACCRUED LIABILITIES:
     Warranty, installation and retofit reserve             $  4,756   $  3,378
     Accrued compensation and benefits                         2,199      1,252
     Income taxes                                              1,971      2,082
     Commissions                                               1,277      1,082
     Deferred income                                           1,598      4,966
     Other                                                     1,109      1,374
                                                            --------   --------
                                                            $ 12,910   $ 14,134
                                                            --------   --------
                                                            --------   --------
</TABLE>

                                      29

<PAGE>

3.  CAPITAL STOCK

COMMON STOCK

In October, 1994, the Company completed its Initial Public Offering (IPO) of
Common Stock, which resulted in the sale of 4,600,000 shares.  The Company
received net proceeds of $25.0 million.  In June, 1995, the Company completed a
secondary public offering of Common Stock, which resulted in the sale of
2,553,696 shares.  Of these shares, 983,090 were offered by the Company for
which the Company received net proceeds of $20.7 million and 1,570,606 were
offered by selling shareholders.

In 1996 the Board of Directors authorized the Company to repurchase up to 
500,000 shares of the Company's Common Stock in the open market.  As of 
December 31, 1997, 500,000 shares had been repurchased by the Company for 
funding the Company's Employee Stock Purchase Plan.  There were 400,000 
shares purchased, prior to the reincorporation in Delaware in September 1997,
which were retired. The 100,000 shares repurchased after the reincorporation 
in Delaware are held as treasury stock. 

STOCK OPTION PLAN

In September 1989, the Company adopted an incentive and non-statutory stock
option plan (the "Plan") under which a total of 4,300,000 shares of Common Stock
have been reserved for future issuance including increases of 600,000 shares in
1995, 1,000,000 shares in 1996 and 300,000 shares in 1997.  Options granted
under the Plan are for periods not to exceed ten years.  Incentive stock option
and non-statutory stock option grants under the Plan must be at prices at least
100% and 85%, respectively, of the fair market value of the stock on the date of
grant. The options generally vest 25% one year from the date of grant, with the
remainder vesting 1/36th per month, thereafter. 

In February 1994, the Company granted 260,000 options to employees to purchase
Common Stock at $0.20 to $0.50 per share. The Company recorded deferred
compensation related to these grants of $193,000 which was amortized as
compensation expense over the related vesting period of the options.  At
December 31, 1997, the deferred compensation was fully amortized.

The following table summarizes activity under the Plan (in thousands, except
prices): 

<TABLE>
<CAPTION>
                                 SHARES                                        WEIGHTED
                                AVAILABLE       OPTIONS         OPTION         AVERAGE
                                FOR GRANT     OUTSTANDING        PRICE      EXERCISE PRICE
                                ---------     -----------    -------------- --------------
<S>                             <C>           <C>            <C>            <C>
Balance at December 31, 1994       251           2,010       $ 0.20 - 10.41   $   1.76

Shares authorized                  600               -
Options granted                   (626)            626       $ 8.50 - 28.38   $  19.59
Options exercised                    -            (276)      $ 0.20 -  3.00   $   0.92
Options canceled                    39             (39)      $ 0.20 - 28.38   $   6.93
                               -------         -------
Balance at December 31, 1995       264           2,321       $ 0.20 - 28.38   $   6.62

Shares authorized                1,000               -
Options granted                 (1,240)          1,240       $ 8.50 - 16.50   $  10.08
Options exercised                    -            (255)      $ 0.20 -  9.00   $   1.12
Options canceled                   762            (762)      $ 0.20 - 28.38   $  17.35
                               -------         -------
Balance at December 31, 1996       786           2,544       $ 0.20 - 24.50   $   5.62

Shares authorized                  300               -
Options granted                   (926)            926       $ 7.00 - 15.25   $   9.66
Options exercised                    -            (182)      $ 0.20 - 12.25   $   1.43
Options canceled                   221            (221)      $ 0.20 - 23.25   $   9.48
                               -------         -------
Balance at December 31, 1997       381           3,067       $ 0.20 - 24.50   $   6.82
                               -------         -------
                               -------         -------
</TABLE>

                                     30

<PAGE>

In 1996, the Board of Directors approved a proposal under which all employees,
other than executive officers, could elect to cancel certain options in exchange
for grants of new options with exercise prices which were equal to the fair
value of the Company's Common Stock on the date of the Board's approval and for
which a new four year vesting period commenced as of the new date of grant. 
Options for the purchase of a total of 598,200 shares were canceled in exchange
for newly issued options.

The following table summarizes information about stock options outstanding at
December 31, 1997: (amounts in thousands except exercise price and contractual
life)

<TABLE>
<CAPTION>
                                      OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                     ------------------------------------------------     -------------------------------
                                         WEIGHTED-
                        NUMBER            AVERAGE           WEIGHTED-         NUMBER           WEIGHTED
    RANGE OF         OUTSTANDING        REMAINING           AVERAGE        EXERCISABLE        AVERAGE
 EXERCISE PRICES     AT 12/31/97     CONTRACTUAL LIFE    EXERCISE PRICE    AT 12/31/97     EXERCISE PRICE
- ----------------     -----------     -----------------   ---------------   ------------    ---------------
<S>                  <C>             <C>                 <C>               <C>             <C>
$ 0.20 - $ 2.00           780           4.6 years          $   1.01            748           $   0.98 
$ 2.20 - $ 8.75           742                 6.9          $   6.05            273           $   4.52 
$ 8.88 - $ 9.00            91                 7.7          $   9.00             51           $   8.98 
$ 9.25 - $ 9.38           864                 9.1          $   9.37            146           $   9.37 
$ 9.50 - $24.50           590                 7.4          $  11.41            143           $  11.24 
                        -----            --------          --------          -----           --------
$ 0.20 - $24.50         3,067                 7.0          $   6.82          1,361           $   3.97 
                        -----            --------          --------          -----           --------
                        -----            --------          --------          -----           --------
</TABLE>

The weighted average grant date fair value of stock options granted in 1997,
1996 and 1995 was approximately $4.67, $3.83, and $9.47, respectively.

Compensation cost for the fair value of each incentive stock option grant is
estimated on the date of grant using the Black-Scholes option pricing model for
the multiple option approach with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                       1997    1996     1995
                                                     ------  ------   ------
<S>                                                  <C>     <C>      <C>
     Expected dividend yield                              -       -        -
     Expected stock price volatility                   0.60    0.63     0.61
     Risk-free interest rate                           6.0%    5.7%     6.7%
     Expected life of options (from vesting date)    1 year  1 year   1 year
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

In August 1994, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan") under which 1,000,000 shares of Common Stock have been reserved
for future issuance, including an increase of 200,000 shares in 1995, 65,000 in
1996 and 400,000 shares in 1997.  The Purchase Plan is administered generally
over offering periods of 24 months, with each offering period divided into four
consecutive six-month purchase periods beginning May 1 and November 1 of each
year.  Eligible employees may designate not more than 15% of their cash
compensation to be deducted each pay period for the purchase of Common Stock
under the Purchase Plan and participants may not purchase more than $25,000
worth of Common Stock in any calendar year or 10,000 shares in any offering
period.  On the last business day of each purchase period, shares of Common
Stock are purchased with the employees' payroll deductions accumulated during
the six months, at a price per share of 85% of the market price of the Common
Stock on the date immediately preceding the offering date or the date
immediately preceding the purchase date, whichever is lower.  Approximately
$312,000 and $227,000 was accrued for use to purchase shares under the Purchase
Plan at December 31, 1997 and 1996, respectively.

The weighted average grant date fair value of employee purchase plan rights
granted in 1997, 1996 and 1995 was approximately $2.96, $4.36, and $7.00,
respectively.

                                     31

<PAGE>

Compensation cost is recognized for the estimated fair value of the employees'
stock purchase rights using the Black-Scholes option pricing model with the
following average assumptions:

<TABLE>
<CAPTION>
                                                       1997       1996      1995
                                                   --------   --------  --------
<S>                                                <C>        <C>       <C>
     Expected dividend yield                              -          -         -
     Expected stock price volatility                   0.60       0.63      0.61
     Risk-free interest rate                           6.0%       5.7%      6.7%
     Expected life of options (from vesting date)  6 months   6 months  6 months
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable.  In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.  Because
the Company's employee stock options and employee stock purchase plan have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of the Company's
employee's stock option and the employee stock purchase plan. 

PROFORMA EFFECT OF STOCK BASED COMPENSATION PLANS

In accordance with the provisions of FAS 123, the Company applies APB Opinion
25 in accounting for its Incentive Stock Option and Employee Stock Purchase
plans and accordingly, does not recognize compensation cost in the statement of
operations because the exercise price of the employees stock options equals the
market price of the underlying stock on the date of grant.  If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date as prescribed by FAS 123, net income and earnings per
share would have been reduced to the pro forma amounts indicated in the table
below:


<TABLE>
<CAPTION>
Year ended December 31,                                 1997    1996      1995
- ---------------------------------------------------------------------------------
<S>                                                 <C>       <C>      <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     Net income - as reported                         $1,431  $6,465   $10,492
     Net income (loss) - pro forma                  $(2,154)  $2,838    $9,120
     Net income per share - as reported:
        Basic                                         $ 0.10  $ 0.46    $ 0.80
        Diluted                                       $ 0.09  $ 0.42    $ 0.71
     Net income (loss) per share - pro forma:
        Basic                                       $ (0.15)  $ 0.20    $ 0.70
        Diluted                                     $ (0.15)  $ 0.19    $ 0.62
</TABLE>

4.  INCOME TAX PROVISION
(in thousands)

The components of income before provision for income taxes are as follows:

<TABLE>
<CAPTION>
 December 31,                                   1997      1996       1995
- --------------------------------------------------------------------------
<S>                                           <C>      <C>      <C>
 Domestic income                              $1,347   $ 9,055  $  14,471
 Foreign income                                  535       594         73
                                              ------   -------   --------
    Income before provision for income taxes  $1,882   $ 9,649   $ 14,544
                                              ------   -------   --------
                                              ------   -------   --------
</TABLE>

                                      32

<PAGE>

The provision for income taxes consists of the following:

<TABLE>
December 31,                         1997      1996        1995
- ----------------------------------------------------------------
<S>                                <C>      <C>       <C>
Current:
   Federal                         $  237   $ 4,640   $   4,981
   State                                2       415       1,043
   Foreign                            237       313          41
                                   ------   -------   ---------
Total Current                         476     5,368       6,065
                                   ------   -------   ---------
Deferred:
   Federal                            180    (1,933)     (1,839)
   State                             (205)     (251)       (174)
Total Deferred                        (25)   (2,184)     (2,013)
                                   ------   -------   ---------
    Provision for income taxes     $  451   $ 3,184   $   4,052
                                   ------   -------   ---------
                                   ------   -------   ---------
</TABLE>

The provision for income taxes reconciles to the amount computed by multiplying
income before tax by the U.S. statutory rate of 35% as follows:

<TABLE>
<CAPTION>
December 31,                                           1997       1996        1995
- ----------------------------------------------------------------------------------
<S>                                                   <C>      <C>         <C>
Provision at statutory rate                           $ 659    $ 3,377     $ 5,090
Research and development tax credits                   (307)      (190)          -
Realized deferred tax assets previously reserved          -          -      (1,436)
State taxes, net of federal benefit                      51        106         801
Foreign earnings taxed at higher rates                   81        111           -
Benefit of foreign sales corporation                    (51)      (354)       (431)
Other                                                    18        134          28
                                                      -----    -------     -------
Total provision for income taxes                      $ 451    $ 3,184     $ 4,052
                                                      -----    -------     -------
                                                      -----    -------     -------
</TABLE>

Deferred tax assets are comprised of the following:

<TABLE>
<CAPTION>
December 31,                               1997       1996        1995
- ----------------------------------------------------------------------
<S>                                    <C>        <C>         <C>
Reserves not currently deductible      $  3,506   $  3,042    $  1,621
Deferred income                             638      1,155         257
Other                                        78          -         135
                                       --------   --------    --------
Total net deferred taxes               $  4,222   $  4,197    $  2,013
                                       --------   --------    --------
                                       --------   --------    --------
</TABLE>

During 1995 the Company realized $1.4  million of deferred tax assets
previously reserved, reducing the valuation allowance by a corresponding amount.

                                      33

<PAGE>

5.  EMPLOYEE BENEFIT PLANS

RETIREMENT/SAVINGS PLAN

Effective April 1, 1994, the Company implemented a retirement/savings plan which
qualifies as a thrift plan under section 401(k) of the Internal Revenue Code.
All employees who are twenty-one years of age or older are eligible to
participate in the Plan. The Plan allows participants to contribute up to 20% of
the total compensation that would otherwise be paid to the participant, not to
exceed the amount allowed by applicable Internal Revenue Service guidelines. The
Company may make a discretionary matching contribution equal to the percentage
of the participant's contributions. To date the Company has not made a matching
contribution. 

PROFIT SHARING PLAN

In February 1994, the Company implemented a profit sharing plan, wherein, as
determined by the board of directors, a percentage of income from operations is
accrued and distributed to all employees excluding management. The total charge
to operations for the years ended December 31, 1997, 1996 and 1995 under the
profit sharing plan was approximately $85,000, $411,000, and $552,000,
respectively.

6. CERTAIN TRANSACTIONS

The Company has a distribution agreement with Marubeni, a Japanese distributor. 
Marubeni owned approximately 4% of the Company's Common Stock at December 31,
1997. In addition, the Company formed a subsidiary in Japan in October 1995 in
which Marubeni has a minority interest.  Prior to January 1996, one member of
the Company's board of directors was also a Vice President of Marubeni. In
January 1996, this board member left Marubeni and the Company's board of
directors and accepted a position with the Company's Japanese subsidiary. 
Transactions between the Company and Marubeni prior to January 1996 were
considered related party transactions.  

The following is a summary of the Company's transactions with the distributor
(in thousands): 

<TABLE>
<CAPTION>
December 31,                                           1997      1996      1995
- --------------------------------------------------------------------------------
<S>                                                <C>      <C>       <C>
Net sales through the distributor for the period   $  9,987 $  22,804 $  16,994
Accounts receivable at period end                     1,555     2,255     1,402
Deferred income at period end                           591       591       591
Minority interest in joint venture                      200       204       189
</TABLE>

In the event of termination of the distribution agreement, the Company would be
obligated to repurchase up to a maximum of $1,000,000 of inventory related to
the Company's sales to Marubeni. The Company recorded deferred income at the
time of sale to cover this right of return. At December 31, 1997 and 1996,
deferred income of $591,000 related to this agreement resulted from deferred
revenue of $1,000,000 less the estimated inventory value to the Company of
$409,000.
 
The Company purchases certain inventory parts from a supplier company which is
majority owned by the CEO of the Company. The Company believes the terms of
these purchases are no less favorable than could be obtained from third party
suppliers. Net purchases were $739,000, $991,000 and $997,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.

                                   34

<PAGE>

7.  INDUSTRY AND GEOGRAPHIC INFORMATION 

The Company currently operates in a single industry segment.  The Company
markets its products in the United States and in foreign countries through its
sales personnel, independent sales representatives, and distributors.  All
transactions are denominated in U.S. dollars. The Company has one manufacturing
facility located in the United States.  The Company's geographic sales as a
percent of net revenues are as follows: 

<TABLE>
<CAPTION>
December 31,                           1997    1996     1995
- --------------------------------------------------------------
<S>                                   <C>      <C>      <C>
United States                           35%     24%      33%
Japan                                   13%     31%      31%
Pacific Rim                             46%     39%      30%
Europe                                   6%      6%       6%
                                       ---     ---      ---
                                       100%    100%     100%
                                       ---     ---      ---
                                       ---     ---      ---
</TABLE>

8.  FINANCIAL INSTRUMENTS, CONCENTRATION OF CREDIT RISK AND SALES TO SIGNIFICANT
    CUSTOMERS

CURRENCY SWAP CONTRACTS

Currency swap contracts are entered into primarily to hedge against the 
short-term impact of fluctuations in the Yen denominated monetary assets of 
the subsidiary in Japan.  At December 31, 1997, the Company had a contract to 
sell 25.0 million Yen ($0.2 million) which matures in 1998.  Because the 
impact of movements in currency exchange rates on currency swap contracts 
offsets the related impact on the underlying items being hedged, these 
financial instruments do not subject the Company to speculative risk that 
would otherwise result from changes in currency exchange rates.  Net foreign 
currency gains and losses to date have not been material.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant 
concentrations of credit risk consist principally of cash equivalents, 
short-term investments, trade accounts receivable and financial instruments 
used in hedging activities.

The Company invests in a variety of financial instruments such as certificates
of deposit, corporate bonds and treasury bills.  The  Company, by policy, limits
the amount of credit exposure to any one financial institution or commercial
issuer.

The fair values of the Company's cash and cash equivalents and short-term
investments are not significantly different than cost.  All short-term
investments mature within one year.

                                    35

<PAGE>

The Company's trade accounts receivable are derived from sales in the United 
States, Japan, other Pacific Rim countries and Europe. The Company performs 
ongoing credit evaluations of its customers (semiconductor manufacturers and 
its Japanese distributor) and to date has not experienced any material 
losses. As of December 31, 1997 and 1996, the Company had an allowance for 
doubtful accounts of $100,000. 

The Company is exposed to credit loss in the event of non-performance by 
counterparties on the currency swap contracts used in hedging activities.  
The Company does not anticipate nonperformance by these counterparties.

For purposes of determining sales to significant customers, the Company 
includes sales to customers through its distributor (at the sales price to 
the distributor) and excludes the distributor as a significant customer. The 
following table summarizes the percentage of net sales to significant 
customers: 

<TABLE>
<CAPTION>

December 31,                         1997  1996   1995
- -------------------------------------------------------
<S>                                  <C>   <C>    <C>
A                                      3%    7%    16%
B                                       -     -    15%
C                                     11%    6%     5%
</TABLE>

9. COMMITMENTS AND CONTINGENCIES

The Company leases its facilities under operating leases which expire at various
dates through 2000 with minimum annual rental commitments as follows (in
thousands):

<TABLE>
<S>                                          <C>
           1998                              $  1,477
           1999                                   572
           2000                                    34
                                             --------
                                             $  2,083
                                             --------
                                             --------
</TABLE>

Rent expense was $1,755,000, $1,421,000 and $390,000 for 1997, 1996, and 
1995, respectively.

The Company is party to certain claims arising in the ordinary course of 
business.  While the outcome of these matters is not presently determinable, 
management believes they will not have a material adverse effect on the 
financial position or results of the operations of the Company.

                                    36

<PAGE>

Report of Independent Accountants
- -----------------------------------------------------------------------------

To the Board of Directors and Stockholders of
Mattson Technology, Inc.

In our opinion, the accompanying consolidated balance sheet and the related 
consolidated statements of income, of stockholders' equity and of cash flows 
present fairly, in all material respects, the financial position of Mattson 
Technology, Inc. and its subsidiaries at December 31, 1997 and 1996, and the 
results of their operations and their cash flows for each of the three years 
in the period ended December 31, 1997, in conformity with generally accepted 
accounting principles.  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 of 
these statements in accordance with generally accepted auditing standards 
which 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, assessing 
the accounting principles used and significant estimates made by management, 
and evaluating the overall financial statement presentation.  We believe that 
our audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
San Jose, California
January 22, 1998


                                      37

<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     Not applicable.
                                      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item will be set forth in the 1998 Proxy 
Statement under the captions "Election of Directors" and "Additional 
Information" and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by this item will be set forth in the 1998 Proxy 
Statement under the caption  "Executive Compensation and Other Matters" and 
is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information related to security ownership of certain beneficial owners and 
security ownership of management will be set forth in the 1998 Proxy 
Statement under the caption  "Security Ownership of Management and Principal 
Stockholders" and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item will be included in the 1998 Proxy 
Statement under the caption "Certain Relationships and Related Transactions" 
and is incorporated herein by reference.


                                      PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)(2)  FINANCIAL STATEMENTS

     The financial statements and schedules filed as part of this report are
     listed on the Index to Consolidated Financial  Statements in Item 8 on page
     23.

(a)(3)  EXHIBITS

     The documents listed on the Exhibit Index appearing at page 40 of this
     Report are filed herewith.  The 1998 Proxy Statement shall be deemed to
     have been "filed" only to the extent portions thereof are expressly
     incorporated herein by reference.  Copies of the exhibits listed in the
     Exhibit Index will be furnished, upon request, to holders or beneficial
     owners of the Company's Common Stock.
     
     Each management contract or compensatory plan or arrangement listed in the
     Exhibit Index has been marked with the letter "C" to identify it as such.
     
(b)  REPORTS ON FORM 8-K

          None

                                         38

<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.

                     MATTSON TECHNOLOGY, INC. (Registrant)


     By:    / s/ Brad Mattson                March 31, 1998
         --------------------------
         Brad Mattson
         Chief Executive Officer


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/                      Chief Executive                         March 31, 1998
- ---------------------          Officer and Director
Brad Mattson                   (Principal Executive Officer)
                      

/s/                      Vice President - Finance                March 31, 1998
- ---------------------          and Chief Financial Officer
Richard Mora                   (Principal Financial and
                               Accounting Officer)

/s/                      Director                                March 31, 1998
- ---------------------
Stephen Ciesinski


/s/                      Director                                March 31, 1998
- ---------------------
John Savage


/s/                      Director                                March 31, 1998
- ---------------------
Shigeru Nakayama


/s/                      Director                                March 31, 1998
- ---------------------
Kenneth Smith 

                                       39

<PAGE>


                                   EXHIBIT INDEX

The following Exhibits to this report are filed herewith, or if marked with 
an asterisk (*), are incorporated herein by reference.  Each management 
contract or compensatory plan or arrangement has been marked with the letter 
"C" to identify it as such.

<TABLE>
<CAPTION>
                                                                      Management Contract           Prior Filing or
Exhibit                                                               or Compensatory Plan          Sequential Page
Number    Description                                                 or Arrangement                Number Herein 
- --------  -----------                                                 --------------------          ----------------
<C>       <S>                                                         <C>                           <C>
 3.1      Restated Articles of Incorporation of the Company                                         (1)
 3.2      Bylaws of the Registrant                                                                  (1)
 4.1      Form of Stock Certificate                                                                 (1)
10.1      Marubeni Japanese Distribution Agreement, as amended                                      (2)
10.2      1989 Stock Option plan, as amended                                              C         (3)
10.3      1994 Employee Stock Purchase Plan                                               C         (1)
10.4      Form of Indemnification Agreement                                               C         (1)
21.1      Subsidiaries of Registrant
23.1      Consent of Independent Accountants
27        Financial Data Schedule
</TABLE>

(1)       Incorporated by reference to the corresponding Exhibit previously
          filed as an Exhibit to the Registrant's Registration Statement on
          Form S-1 filed August 12, 1994 (33-92738), as amended.

(2)       Incorporated by reference to the corresponding Exhibit previously 
          filed as an Exhibit to Registrant's Form 10-K for fiscal year 1996.


(3)       Incorporated by reference to the corresponding Registrant's
          Registration Statement on Form S-8 filed October 31, 1997
          (333-3929)

                                     40

<PAGE>

                                                                 EXHIBIT 21.1


                              MATTSON TECHNOLOGY, INC.
                                          
                           SUBSIDIARIES OF THE REGISTRANT
                                          
                                          
                                          
                                          
                            MATTSON INTERNATIONAL, INC.
                           MATTSON TECHNOLOGY CENTER K.K.
                             MATTSON INTERNATIONAL GMBH
                                          

<PAGE>
                                                                  EXHIBIT 23.1

                         CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in the Registration 
Statements on Forms S-8 (No. 333-39129, No. 33-85272 and No. 33-94972) of 
Mattson Technology, Inc., of our report dated January 22, 1998 appearing on 
page 37 of this Annual Report on Form 10-K.

PRICE WATERHOUSE LLP
San Jose, California
March 30, 1998



<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOUND ON PAGES 24 AND 25 OF THE COMPANY'S FORM 10K FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             JAN-01-1997
<PERIOD-END>                               DEC-31-1997
<CASH>                                          25,583
<SECURITIES>                                     8,598
<RECEIVABLES>                                   14,784
<ALLOWANCES>                                         0
<INVENTORY>                                     19,068
<CURRENT-ASSETS>                                73,255
<PP&E>                                          11,188
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                                  84,443
<CURRENT-LIABILITIES>                           16,259
<BONDS>                                              0
                                0
                                          0
<COMMON>                                            14
<OTHER-SE>                                      84,429
<TOTAL-LIABILITY-AND-EQUITY>                    84,443
<SALES>                                         76,730
<TOTAL-REVENUES>                                76,730
<CGS>                                           37,130
<TOTAL-COSTS>                                   37,130
<OTHER-EXPENSES>                                39,204
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                  1,882
<INCOME-TAX>                                       451
<INCOME-CONTINUING>                              1,431
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     1,431
<EPS-PRIMARY>                                     0.10
<EPS-DILUTED>                                     0.09
        

</TABLE>


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