UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 0-16244

VEECO INSTRUMENTS INC.
(Exact Name of Registrant as Specified in Its Charter)

Registrant's telephone number, including area code(516) 677-0200

Website:www.veeco.com

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share

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

         Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes oý    No o

         Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 ý    No o

         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 references in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

         Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes    ý No

         The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the common stock on June 30, 2009July 1, 2011 as reported on The Nasdaq National Market, was $393,859,434.$2,057,494,571. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

At February 22, 2010,21, 2012, the Registrant had 39,929,51538,767,203 outstanding shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 14, 20104, 2012 are incorporated by reference into Part III of this Annual Report on Form 10-K.

SAFE HARBOR STATEMENT

        This Annual Report on Form 10-K (the "Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Items 1, 3, 7 and 7A hereof, as well as within this Report generally. In addition, when used in this Report, the words "believes," "anticipates," "expects," "estimates," "plans," "intends,""intends" and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. These risks and uncertainties include, without limitation, the following:

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Our operating results have been, and may continue to be, adversely affected by unfavorable market conditions;



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Market adoption of LED technology for general lighting could be slower than anticipated;



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Our failure to successfully implementmanage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations and our ability to realize the benefits of the recent increase in MOCVDadapt to fluctuating order volume;volumes;



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Manufacturing interruptionsThe further reduction or delays couldelimination of foreign government subsidies and economic incentives may adversely affect the future order rate for our ability to meet customer demand, while the failure to estimate customer demand accurately could result in excess or obsolete inventory and/or liabilities to our suppliers for products no longer needed;MOCVD equipment;



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We rely on a limited number of suppliers;Our operating results have been, and may continue to be, adversely affected by tightening credit markets;



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Our backlog is subject to customer cancellation or modification and such cancellation could result in decreased sales and increased provisions for excess and obsolete inventory and/or liabilities to our suppliers for products no longer needed;



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The failure to estimate customer demand accurately could result in excess or obsolete inventory and\or liabilities to our suppliers for products no longer needed, while manufacturing interruptions or delays could affect our ability to meet customer demand;



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The cyclicality of the industries we serve directly affects our business;



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



���

Our sales to HB LED and data storage manufacturers are highly dependent on these manufacturers' sales for consumer electronics applications, which can experience significant volatility due to seasonal and other factors. Thisfactors, which could materially adversely impact our future results of operations;



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Negative worldwide economic conditions could result in a decrease in our net sales and an increase in our operating costs, which could adversely affect our business and operating results;



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We are exposed to the risks of operating a global business, including the need to obtain export licenses for certain of our shipments;



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We are exposed toshipments and political risks associated with our entrance intoin the emerging solar industry;countries we operate;



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The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly;



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We operate in industries characterized by rapid technological change;



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We face significant competition;



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We depend on a limited number of customers, located primarily in a limited number of regions, that operate in highly concentrated industries;



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The cyclicality of the industries we serve directly affects our business;



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Our sales cycle is long and unpredictable;

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



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The price of our common shares may be volatile and could decline significantly;



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We are subject to foreign currency exchange risks;



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The enforcement and protection of our intellectual property rights may be expensive and could divert our valuablelimited resources;

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



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Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses;



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We may be required to take additional impairment charges for goodwill and indefinite-lived intangible assets or definite-lived intangible and long-lived assets;



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



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We are subject to the internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act;



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We are subject to risks of non-compliance with environmental, health and safety regulations;regulations.



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We have significant operations in California and other locations which could be materially and adversely impacted in the event of a natural disaster or other significant disruption;



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We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult; and



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The matters set forth in this Report generally, including the risk factors set forth in "Item 1A. Risk Factors."

        Consequently, such forward-looking statements should be regarded solely as the Company's current plans, estimates, and beliefs. The Company does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

Item 1.    Business

The Company

        Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco," the "Company" or "we") designs, manufactures, marketscreates Process Equipment solutions that enable technologies for a cleaner and services enabling solutions for customers in the high brightnessmore productive world. We design, manufacture and market equipment primarily sold to make light emitting diodediodes ("HB LED"LEDs") and hard-disk drives, as well as for emerging applications such as concentrator photovoltaics, power semiconductors, wireless components, microelectromechanical systems (MEMS), solar, data storage, scientific research, semiconductor, and industrial markets. We haveother next-generation devices.

        Veeco focuses on developing highly differentiated, "best-in-class" Process Equipment products for critical performance steps. Our products feature leading technology, positionslow cost-of-ownership and high throughput, offering a time-to-market advantage for our customers around the globe. Core competencies in our three business segments: Light Emitting Diode ("LED") & Solar Process Equipment, Data Storage Process Equipment,advanced thin film technologies, over 150 patents and Metrology.decades of specialized process know-how helps us to stay at the forefront of these demanding industries.

        In ourVeeco's LED & Solar segment we designdesigns and manufacturemanufactures metal organic chemical vapor deposition ("MOCVD") systems that are used to make HB LEDs or solar cells made of III-V compound semiconductors. Also within this segment we selland molecular beam epitaxy ("MBE") systems which are used in various applications including alternative energy (LED and Solar),components sold to manufacturers of LEDs, wireless devices, power devicessemiconductors, and in broad scientific research. We also make thermal evaporation sourcesconcentrator photovoltaics, as well as to R&D applications. In 2011 we discontinued the sale of our products related to Copper, Indium, Gallium, Selenide ("CIGS") solar systems technology.

Veeco's Data Storage segmentdesigns and a line of web and glass deposition systemsmanufactures the critical technologies used to create copper, indium, gallium, selenide ("CIGS") thin film solar cells.

        In our Data Storage segment, we design and manufacture equipment used in the production of thin film magnetic heads ("TFMHs") that read and write data on hard disk drives. OurThese technologies include equipment for "front and back-end" process steps such as ion beam etch (IBE), ion beam deposition (IBD), diamond-like carbon (DLC), physical vapor deposition (PVD), chemical vapor deposition (CVD), and slicing, dicing and slicinglapping systems.

        In our Metrology segment, we design and manufacture atomic force microscopes ("AFMs"), scanning probe microscopes ("SPMs"), stylus profilers, and fast 3D While these technologies are primarily sold to hard drive customers, they also have applications in optical microscopes, used to provide critical surface measurements in research and production environments. This broad line of products is used in universities, research facilities and scientific centers worldwide. In production environments (such as microelectronics and solar), precision manufacturing industries,(such as medical device manufacturing, automotive and aerospace)coatings and other related industries, our metrology instruments enable customers to monitor their products throughout the manufacturing process to improve yields, reduce costs, and improve product quality.markets.

        We serveVeeco's approximately 900 employees support our worldwide customers through our globalproduct and process development, training, manufacturing, and sales and service organization located throughout North America,sites in the U.S., Korea, Taiwan, China, Singapore, Japan, Europe Japan, and Asia Pacific. We have product development and marketing, engineering and manufacturing facilities located in New York, Arizona, California, Colorado, Minnesota, Massachusetts and New Jersey.other locations.

        Veeco Instruments was organized as a Delaware corporation in 1989.

Our Growth Strategy

        OurVeeco's growth strategy for growth and improved profitability focuses on the following key activities:consists of:

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Focusing our efforts on those technologies in which we have a leading market share, providingProviding differentiated Process Equipment technology solutions to address customers' next generation product development roadmaps;



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Leveraging ourInvesting to win through focused research and development spending intoin end markets that we believe offer high-growthprovide significant growth opportunities such as ouror are at an inflection point in Process Equipment requirements. Examples include LED, & Solar segment;power semiconductor devices, MEMS, and the concentrator photovoltaic market;



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ImprovingLeveraging our operational efficiencyworld-class sales channel and local process applications support to build strong strategic relationships with technology leaders in each segment through better supply chain management, best cost manufacturing and other activities to lower costs and increase profitability, and;all key regions;



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Developing strategic relationships with worldwide technology leaders and offering these customers high-quality, differentiatedExpanding our portfolio of service products that support their costimprove the performance of ownership requirements as well as serviceour systems, including spare parts, upgrades and applications support in orderconsumables to drive additional growth and improve their time-to-market on leading edge devices.customer satisfaction.



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Combining outsourced and internal manufacturing strategies to appropriately flex capacity through industry investment cycles;

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Pursuing partnerships and strategic mergers and acquisitions to expand our portfolio of Process Equipment technologies and accelerate our growth.

Business Overview and Industry Trends

        General Introduction:    Our thin film deposition, etch measurement and other technologies are applicable to the creation of a broad range of microelectronic components, including HB LEDs, solar cells, thin film magnetic heads and compound semiconductor devices.devices such as wireless components and power electronics. Our customers who manufacture these devices continue to invest in new technology equipment in order to advance their next generation products and deliver more efficient and cost effective technology solutions.

        Starting at the end of 2008 and continuing through the beginning of 2009,Following the global economic downturn, constrained financing environment and a slowdownrecession in capital spending on equipment impacted most of our end markets and customers. The early part of 2009 was extremely challenging for us in light of these industry conditions and we accelerated our restructuring activities, particularly facility consolidation and additional outsourced manufacturing initiatives. By mid-2009 we2008-2009, Veeco experienced a rapid improvement in business conditions due toin late 2009 and 2010. The combination of an improvement in capital spending by our exposure toglobal customers as well as our focus on high-growth end markets, such asparticularly LED, & Solar, where we believe we are well placed withand successful new product introductions enabled the Company to benefit from growth and market leading technologies that drive our customers' future product development roadmaps.share gains in 2010 and 2011. Veeco's revenues increased over 200% in 2010 and 5% in 2011.

        The following is a review of our three reportabletwo business segments and the multi-year technology trends that impact each.

        LED & Solar Business Overview and Trends:    We are a leading supplier of process equipment solutions used to create HBhigh brightness LEDs and solar cells. We are the only supplier of both MOCVD and MBE systems, the two key epitaxial deposition technologies used for these applications. MOCVD and MBE technologies are used to grow compound semiconductor materials (such as GaN (gallium nitride), GaAs (gallium arsenide), GaN (gallium nitride), As/P (arsenicAlInGaP (aluminum indium gallium phosphide) and InP (indium phosphide)) at the atomic scale. Epitaxy is the critical first step in compound semiconductor wafer fabrication and is considered to be the highest value added process, ultimately determining device functionality and performance.

        Strategies Unlimited, an LED industry research organization, forecasts that the market for HB LEDs will grow from $4.2 billion in 2007 to over $14.0 billion in 2013, for a compound annual growth rate ("CAGR") of 32%. We believe that the HB LED market, while cyclical, represents a high-growthmulti-year secular growth opportunity for us due to the expanding applications for HB LEDs, such as general illumination, backlighting for large screen flat panel TVs, (LCD—liquid crystal displays),mobile phones, tablet and laptop computers and automotive applications. According to Strategies Unlimited, a leading market research firm, 2010 revenues for high brightness LEDs for all applications grew by 108% to $11.2 billion, and general illumination. Indespite a slowdown in overall TV demand in 2011, grew by another 10% in 2011 to $12.3 billion.

        The demand for MOCVD tools to grow GaN based materials (the thin films that convert energy to light) to make LEDs for these applications grew dramatically beginning in mid-2009, with merchant industry shipments of MOCVD reactors growing from approximately 230 reactors in 2009, theto approximately 800 reactors in 2010 and over 700 in 2011 (Source: Veeco and competitor financial results). Established LED industry experienced significant growthleaders in Taiwan, U.S., Europe, Korea and Japan, as well as emerging players in China spurred by government incentives and economic development funding, all invested heavily in MOCVD equipment to ramp LED capacity. However, the industry is currently experiencing an overcapacity situation, evidenced by low tool utilization rates being reported by many key global customers. As a result, new orders for Veeco's MOCVD systems declined sharply in both the third and fourth quarters of 2011. In the short term, it is difficult for us to predict when the supply/demand of LEDs will return to equilibrium and what the demand for our MOCVD products will be. According to the Semiconductor Equipment and Materials Industry's (SEMI) January 2012 Opto/LED Fab Watch report, worldwide MOCVD purchases will decline by 40% in 2012 compared to 2011.

        While consumer electronics have been the dominant end markets for LED technology over the past decade, and for which most of the new MOCVD capacity was installed, these applications are expected to reach saturation in the next few years. Conversely, the general lighting market is in its infancy and we believe that thousands of additional MOCVD tools will be required over the next few years as LEDs penetrated laptop and television backlighting applications. In fact, Strategies Unlimitedbecome widely adopted for this much larger market application. Industry research group

IMS forecasts that LEDs for these applicationssolid state lighting will grow 122%represent $13.3 billion in revenue from 20092013 through 2013.2015, and that lighting will become the largest end market for LEDs during this time frame. As a comparison, LEDs for the TV backlighting market represented $4.3 billion in revenue from 2009-2011.

        As part of the shift toward more efficient energy use across the globe, we believe LED technology will play a key role as both an energy and cost savings lever in the area of lighting. We see this opportunity as both vast and long term in nature given that LED lighting is just now beginning to penetrate the global lighting market which accounts for close to 20% of world-wide electricity consumption. LED adoption is happening initially in outdoor and industrial lighting where high usage and lower efficiency make incumbent lighting costly. Further adoption across all forms of lighting is expected to occur in the coming years with rapidly declining LED costs, shortening payback periods versus conventional lighting technologies, and "ban-the-bulb" legislation now underway in more than 20 countries around the globe. Similar to Moore's Law in semiconductors, technology advancements in the LED industry have followed a consistent cadence known as Haitz's Law, which states that luminous flux for LEDs will increase 20X each decade, while over the same period costs will fall by 10x. This implies a 25-35% increase in efficacy in each generation of new LEDs. In addition to the incandescent bulb phase-outs, many countries have begun to implement policies to accelerate adoption of LEDs. These include China's "10 cities 10,000 lights" program, South Korea's "20-60" plan targeting 60% penetration of lighting on a national level by 2020, and Japan's "Basic Energy Plan" with specific goals for energy efficient lighting.

        Future equipment and capital spending will continue to drive cost reduction in LED technology through larger wafers, automation and dedicated equipment specifically designed to improve manufacturing yield and throughput for lighting class LED product. In order to gain market share in light ofmaximize this growth opportunity we have introducedaccelerated our R&D investments over the past few years to introduce several generations of MOCVD tools, most recently our TurboDisc® K-Series™ and MaxBright® MOCVD systems. By introducing new systems, we are focused on delivering better uniformity and repeatability, which helps our customers to make HB LEDs of consistent quality. We alsoquality, ultimately with the goal to deliver more, high quality LEDs at a lower manufacturing cost. Despite the forecasted decline in the MOCVD market in 2012, we intend to continue to invest heavily in research and development in order to deliver more advanced MOCVD solutions to our customers.customers and accelerate lighting industry adoption of LEDs. In addition to new systems sales, we are increasing our focus on supporting our customers with tool upgrades to improve their performance as well as selling additional after-market services, such as training, process applications support, warranties, spare parts and consumables.

        A related MOCVD application for us is in the solar market, since the same MOCVD tool that is critical to the LED manufacturing process can also be used to manufacture high-efficiency triple junction solar cells.cells, otherwise known as Concentrator Photovoltaic (CPV). Arsenide phosphide (As/P) MOCVD is the technology of choice to build the critical compound semiconductor layers for the CPV device. Veeco has also identifiedcurrently sells a small number of MOCVD systems each year for this new application. CPV Solar is emerging as a new technology niche with proof-of-concept scale installations (1MW or less), and in 2012 and 2013 multiple pilot production utility-scale projects are being developed around the thin filmworld. According to solar cell market as offering significant growthresearch firm GTM's 2011 report, new CPV installations will grow from under 5MW in 2010 to more than 1,000MW globally by 2015.

        Another new market opportunity tofor our MOCVD tools is the Company. The global energy dilemma is resultingpower semiconductor market. Silicon-based transistors are the mainstream forms of power electronic devices today. However, GaN-based power electronics, developed on MOCVD tools, can potentially deliver higher performance (higher efficiency and switching speed) than silicon. Global industry leaders in a significant amount of newpower electronics are currently working on research and spending into solar technologies as an alternative energy solution since it is non-polluting and has the potentialdevelopment programs, many in partnership with Veeco, to supply the world with high energy efficiency at low cost. While many of today's solar panels are based upon older silicon technologies, thin film CIGS solar cells offer the potential for lower manufacturing costs, and have the highest efficiencyexplore this new technology opportunity. Examples of the thin film technologies. According to a May 2008 report presented by the National Renewable Energy Labs ("NREL"), future CIGS Panel Photovoltaic ("PV") panels are projected to be "the most competitive thin film technology" based upon module efficiency and relative cost basis. CIGS solar panels have broad-based end marketwide array potential applications for solar farms, integrated building PVGaN-based power devices rooftop gridsinclude those in information technology and portable devices.consumer devices (power supplies,

        Since PV manufacturers often build their own equipment, thereinverters), automotive (hybrid automobiles) and industrial applications (power distribution, rail transportation and wind turbines). Additionally, Veeco is a market opportunity emerging for equipment suppliersactively engaged with customers around the globe that are developing GaN-on-Silicon (GaN-on-Si) based technologies to potentially lower LED manufacturing costs by depositing thin film materials on silicon rather than sapphire substrates.

        Veeco's MBE systems, sources and components are used to manufacture critical epilayers in varied end applications such as Veeco. In its October 2009 report, Greentech Media forecasted that the total available market for CIGS deposition systems would be greater than $850 million by 2012, a 74% compounded annual growth rate from 2008. To capitalize on this opportunity, in 2008 we purchased Mill Lane Engineering, a manufacturer of web deposition technology, to make flexible CIGS solar cells, fiber-optics, mobile phones, satellites, radar systems and in 2009 we significantly expanded our product linedisplays. Our business continues to create a "bestbe influenced by long-term market trends associated with the increasing demand for gallium arsenide (GaAs) devices to support the rapid adoption of breed" linesmart phones within the larger mobile phone handset market. Each one of deposition systems that can deposit materials on flexible (stainless steel)these complex devices contains an increasing number of power amplifiers or rigid (glass) substrates. Today Veeco supplies thermal evaporation componentsother compound semiconductor radio frequency (RF) components. Advanced RF solutions for leading edge smart phones and tablet computers are required to over 50% of CIGS companies worldwidesupport increasing data transfer volumes and has begun to penetrate CIGS customers with our deposition system solutions. We are increasing our research and development spending in CIGS technology since we believe it offers a significant growth opportunity over the next several years.

        Our LED & Solar segment now represents our largest segment.long term evolution (LTE) based wireless communications.

        Data Storage Business Overview and Trends:    Worldwide storage demand continues to increase, driven by proliferation of laptop and netbook PC's, intelligent internet storage, e-mail, external storage devices, and new consumer applications (e.g. digital video recorders) now reaching higher volume. While much has been written about the competition hard disk drives ("HDDs") face from flash memory, we believe that HDDs will continue to provide the best value for mass storage and will remain at the forefront of large capacity storage applications. In fact, the use of disk drives in many types of consumer applications has resulted in growth in the number of hard drive units shipped, which is expected to continue. According to data storage research firm TrendFocus's February 2010TrendFocus' August 2011 report, consumer electronic applications of HDDs are forecasted to grow at a CAGR of 11.9%8.1% from 20102011 to 2014.2015.

        While technology change continues in data storage, the industry is goinghas gone through a period of maturation, including vertical integration and consolidation, which has led to decreasedconsolidation. A recovery in capital investment. As a result of this consolidation and evolving customer landscape, we have taken actions to right-sizespending by our key data storage businesses and product lines. We refocused our research and development efforts, discontinued several product lines, andcustomers in 2009 completed2010, combined with the consolidationsuccessful introduction of several manufacturing facilities. We continuenew deposition tools to advance areal density, enabled Veeco to report revenue growth in both 2010 and 2011. Natural disasters in Japan (tsunami) and Thailand (floods) caused major disruptions to the HDD supply chain in 2011. Despite these disruptions the floods in Thailand resulted in an unexpected increase in orders in the fourth quarter of 2011.

        Throughout these cycles, Veeco continues to invest in research and development for next generation products fordeveloping systems to support advanced technologies such as heat assisted magnetic recording (HAMR). HAMR is a technology that magnetically records data on high-stability media using laser thermal assistance to first heat the data storage industry, and believematerial. HAMR takes advantage of high-stability magnetic compounds that can store single bits in a much smaller area than in current hard drive technology. Veeco's Data Storage business is centered around core technologies where we are well-aligned to customer's technology requirements and demand for lower cost of ownership tools.

        Metrology Business Overview and Industry Trends:    Our Metrology segment sells its products tohave a broad rangeleadership position. We utilize a flexible manufacturing strategy which helps mitigate the impact of industry and research customers. This businesscycles. In addition, Veeco's product development team has often trackedbegun to the growth of the economy and Gross Domestic Product,identify non-hard drive market applications (such as instruments are used in a wide range of industrial applications. A meaningful trend in the research industry is an increased requirement for instrumentation capable of measuring materials and their associated properties at the nanoscale. The ability to design and control material structures from the atomic to the micron scale is fundamentally important to the creation of new materials and structures which have potential to reduce emissions, increase manufacturing yields and contribute to a longer and improved quality of life. Nanoscience continues to receive significant funding from the U.S. and other governments as well as from industry.

        During the last two years we have refocused our Metrology business with new products that expand functionality and performance, which we believe has lead to market share expansion. Specifically, our Dimension® Icon®, Bioscope® Catalyst® and recently released MulitMode® 8 with ScanAsyst^TM AFMs are facilitating enhanced research in such areas as security, energy and biotechnology. We also believe that long-term growth opportunities exist in precision manufacturing segments such as medical device manufacturing, automotive, aerospace, clean energy (HB LED and Solar),MEMS) for our key Data Storage technologies including mechanical process tools, etch and microelectronics. Our recently released large sample White-Light Interferometer, the NPFLEX^TM and the NT9080^TM small sample 3D microscope address the needs of these industries as they transition from traditional 2D metrology to a more comprehensive and enhanced 3D paradigm.

        Metrology is also a key enabling technology in high tech manufacturing industries such as semiconductor and data storage. We have placed more than 450 fully automated AFM systems into these industries. These completely automated systems are used in-line by manufacturers of semiconductor chips and data storage TFMHs in their fabrication facilities. We believe that we are positioned to meet AFM metrology requirements of these industries as they emerge from a contraction cycle and enter a potential growth cycle.deposition technologies.

Our Products

        We have threetwo business segments, LED & Solar Process Equipment,and Data Storage Process Equipment, and Metrology.Storage. Net sales for these business segments is shown below forare illustrated in the years indicated:following table:

        See Note 1011 to our Consolidated Financial Statements for additional information regarding our reportable segments and sales by geographic location.

LED & Solar Process Equipment

        Metal Organic Chemical Vapor Deposition Systems:Systems (MOCVD):    We are one of the world's leading suppliers of MOCVD technology. MOCVD production systems are used to make GaN-based devices (green and blue HB LEDs) and As/P-based devices (red, orange and yellow HB LEDs), which are used today in television and laptop backlighting, general illumination, large area signage, specialty illumination and specialty illumination.many other applications. Our As/P MOCVD Systems also are used to make high-efficiency concentrator solar cells.photovoltaics. In 2011 Veeco introduced the industry's first production-proven multi-chamber MOCVD system, the MaxBright® for high-volume production of LEDs.

        Molecular Beam Epitaxy Systems:Systems (MBE):    MBE is the process of precisely depositing epitaxially aligned atomically thin crystal layers, or epilayers, of elemental materials onto a substrate in an ultra-high vacuum environment. For many compound semiconductors, MBE is the critical first step of the fabrication process, ultimately determining device functionality and performance. We provide MBE systems and components for the production of wireless devices (power amplifiers, high electron mobility transistors or hetero-junction bipolar transistors (pHEMTS and HBTs)) and a broad array of MBE components and systems forcompound semiconductor materials research and production applications and, in 2007, introduced a new line of thermal evaporation sources for the solar industry.

        Web and Glass Coaters for Flexible Solar Cells:    In the second quarter of 2008 we purchased Mill Lane Engineering, a manufacturer of web deposition equipment used to make CIGS solar cells. We have since expanded our product line to include "best of breed" solutions that perform 75% of the CIGS deposition steps on both flexible and rigid (glass) substrates. We believe that our FastFlex™ and FastLine™ systems offer high throughput and excellent performance for flexible thin film solar cell production, contributing to a lower cost of ownership for our customers.applications.

Data Storage Process Equipment

        Ion Beam Deposition ("IBD") Systems:    Our NEXUS® IBD systems utilize ion beam technology to deposit precise layers of thin films and may be included on our cluster system platform to allow either parallel or sequential etch/deposition processes. IBD systems deposit high purity thin film layers and

provide maximum uniformity and repeatability. In addition to IBD systems, we provide a broad array of ion beam sources. These technologies are applicable in the hard drive industry as well as for optical coatings and other end markets.

        Ion Beam Etch ("IBE") Systems:    Our NEXUS IBE systems which etch precise, complex features for use primarily by data storage and telecommunications device manufacturers in the fabrication of discrete and integrated microelectronic devices.

        Physical Vapor Deposition ("PVD") Systems:    Our NEXUS PVD systems offer manufacturers a highly flexible deposition platform for developing next-generation data storage applications.

        Diamond-Like Carbon ("DLC") Deposition Systems:    Our DLC deposition systems deposit protective coatings on advanced TFMHs.

        Chemical Vapor Deposition ("CVD") Systems:    Our NEXUS CVD systems introduced to the market in 2008, deposit conformal films for advanced TFMH applications.

        Precision Lapping, Slicing, and Dicing Systems:    Our Optium® products generally are used in "back-end" applications in a data storage fab where TFMHs or "sliders" are fabricated. This equipment includes lapping tools, which enable precise material removal within three nanometers, which is necessary for next generation TFMHs. We also manufacture instrumentstools that slice and dice wafers into rowbars and TFMHs.

Metrology

        Our metrology product line includes atomic force/scanning probe microscopes, optical metrology tools, and stylus profilers for a wide range of applications in research and industry.

        Atomic Force/Scanning Probe Microscopes:    We have the world's most comprehensive product portfolio of research AFMs and SPMs, used in leading edge nano-scale materials research, in HB LED, solar, biological and nanotechnology applications. Our NanoScope® and Dimension products lead the industry and are synonymous with leading-edge performance and are widely used by leading universities and corporate research centers worldwide. Building upon our long-standing leadership position in AFM technology we continue to develop new products for production and research applications. We also produce a broad range of automated AFM/SPM products designed for data storage, semiconductor and research and other industrial applications.

        The atomic force microscope investigates the sample surface directly using a probe consisting of a very sharp tip, or probe, mounted on a microscopic spring arm (a cantilever). The interaction of the probe with the surface is detected by measuring deflections of the cantilever with an optical beam system. AFMs make these measurements on almost any surface; in air, vacuum or under fluids; and with minimal sample preparation.

        Stylus Profilers:    Stylus profilers are used to produce cross-sectional representations and/or quantitative measurements, which are displayed on a video monitor. Our Dektak® stylus profiler systems utilize a precision translation stage which creates relative motion between the sample and a diamond tipped stylus. Stylus profilers are widely used for height, width, pitch, and roughness measurements of features on semiconductor devices, magnetic and optical storage media (such as hard drives), flat panel displays, and hybrid circuits.

        Optical Metrology Products:    Substantially all of our optical metrology instruments are designed to make non-contact surface measurements using either interferometry or a spinning disc confocal architecture. These processes involve the use of either white light or laser sources to measure surface roughness and shape. Our White-Light Interometers create interference patterns from the optical path difference between the test surface and a reference surface. Using a combination of phase shifting interferometry and vertical scanning interferometry, these instruments are designed to rapidly and

precisely measure and characterize a range of surface sizes and shapes. Our series of confocal microscopes employ a spinning disc design which facilitates faster image acquisition, a limitation of traditional laser-based scanning confocal microscopes. Veeco's microscopes can address a wide gamut of applications from angstrom to micron features.

Service and Sales

        We sell our products and services worldwide through various strategically located sales and service facilities in the U.S., Europe and Asia Pacific, and Japan, and we believe that our customer service organization is a significant factor in our success. We provide service and support on a warranty, service contract or an individual service-call basis. We offer enhanced warranty coverage and services, including preventative maintenance plans, on-call and on-site service plans and other comprehensive service arrangements, product and application training, consultation services, and a 24-hour hotline service for certain products. We believe that offering timely support creates stronger relationships with customers and provides us with a significant competitive advantage. Revenues from the sale of parts, service and support represented approximately 16%10%, 19%,8% and 21%16% of our net sales for the years ended December 31, 2009, 2008,2011, 2010 and 2007,2009, respectively. Parts sales represented approximately 11%6%, 14%,5% and 17%9% of our net sales for those periods,years, respectively, and service and support sales were 5%4%, 5%,3% and 4%7%, respectively.

Customers

        We sell our products to many of the world's major HB LED, solar data storage and semiconductorhard drive manufacturers andas well as to customers in other industries, research centers, and universities. We rely on certain principal customers for a significant portion of our sales. Sales to Elec-Tech International Co. Ltd. and Sanan Optoelectronics each accounted for more than 10% of Veeco's total net sales in 2011, LG Electronics,Innotek Co. Ltd., Seoul OptoDevice Co. Ltd. and Sanan Optoelectronics each accounted for more than 10% of Veeco's total net sales in 2010 and LG Innotek Co. Ltd. and Seagate Technology, Inc. each accounted more than 10% of Veeco's total net sales in 2009 and sales to Seagate Technology, Inc. accounted for 10% or more of Veeco's total net sales in 2008 and 2007.2009. If any principal customer discontinues its relationship with us or suffers economic difficulties, our business, prospects, financial condition and operating results could be materially and adversely affected.

Research and Development and Marketing

        Our marketing and research and development functions are organized by business unit. We believe that this organizational structure allows each business unit manager to more closely monitor the products for which he is responsible, resulting in more efficient marketing and research and development. Our research and development activities are organized by business unit and take place at our facilities in Plainview, New York; Camarillo, California; Ft. Collins, Colorado; Somerset, New Jersey; St. Paul, Minnesota; and Korea.

        We believe that continued and timely development of new products and enhancements to existing products are necessary to maintain our competitive position. We work collaboratively with our customers to help ensure our technology and product roadmaps are aligned with customer requirements. Our research and development programs are organized by product linebusiness unit and new or improved products have been introduced into each of our product lines in each of the past three years.

        Our research and development expenses were approximately $57.4$96.6 million, $60.4$56.9 million and $61.2$37.8 million, or approximately 15.1%10%, 13.6%,6% and 15.2%13% of net sales for the years ended December 31, 2009, 2008,2011, 2010 and 2007,2009, respectively. These expenses consisted primarily of salaries, project material,materials and other product development and enhancement costs.

Suppliers

        We currently outsource and plan to increase the outsourcing of, certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, data storage process equipmentData Storage systems solar deposition systems,and ion sources and certain components in our metrology products.sources. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain internal manufacturing capability for these systems at least until such time as we have qualified one or more alternate suppliers to perform this manufacturing. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make

alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows, and relationships with our customers.

In addition, certain of the components and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect our operating results.

Product Development and Marketing

        Our principal activities, which consist of product development, integration, test operations and assembly, are organized by product and take place at our facilities in Plainview and Clifton Park, New York; Santa Barbara and Camarillo, California; Tucson, Arizona; Ft. Collins, Colorado; Somerset, New Jersey; St. Paul, Minnesota; and Lowell, Massachusetts.

Product Organization

        Our sales, marketing, manufacturing and research and development functions are organized by product families. We believe that this organizational structure allows each product family manager to more closely monitor the products for which he is responsible, resulting in more efficient sales, marketing, manufacturing, and research and development. We emphasize customer responsiveness, customer service, high-quality products, and an interactive management style. By implementing these management philosophies, we believe that we have increased our competitiveness and are well-positioned for future growth.

Backlog

        Our backlog increaseddecreased to $402.0$332.9 million atas of December 31, 20092011 from $147.2$535.4 million atas of December 31, 2008.2010. During the year ended December 31, 2009,2011, we experienced net backlog adjustments of approximately $4.5$41.4 million. The adjustments consisted of $38.1 million consisting of $3.8 million for order cancellations and $0.7$3.3 million of adjustmentsrelated to other order adjustments. During the year ended December 31, 2011, we had a net positive adjustment related to foreign currency translation.translation of $0.1 million.

        Our backlog consists of product orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months and an appropriatea deposit, where required.

Competition

        In each of the markets that we serve, we face substantial competition from established competitors, some of which have greater financial, engineering manufacturing, and marketing resources than us, as well as from smaller competitors. In addition, many of our products face competition from alternative technologies, some of which are more established than those used in our products. Significant factors for customer selection of metrology and process equipmentour tools include system performance, accuracy, repeatability, ease of use, reliability, cost of ownership and technical service and support. We believe that we are competitive based on the customer selection factors in each market we serve. None of our competitors compete with us across all of our product lines.

        We compete with process equipment manufacturers such as Aixtron, Anelva, Applied Materials, Centrotherm,Canon Anelva Corporation, DCA Instruments, Leybold Optics, Oerlikon Balzers, Oxford Instruments, Toyo Nippon Sanso Oerlikon, and Riber. We compete with metrology product manufacturers such as Agilent, Hitachi, KLA-Tencor, Seiko, Zygo and a variety of small manufacturers.

Intellectual Property

        Our success depends in part on our proprietary technology. Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, there can be

no assurance that we will be able to protect our technology adequately or that competitors will not be able to develop similar technology independently.

        We have patents and exclusive and non-exclusive licenses to patents owned by others covering certain of our products, which we believe provide us with a competitive advantage. We have a policy of seeking patents on inventions concerning new products and improvements as part of our ongoing research, development and manufacturing activities. We believe that there is no single patent or exclusive or non-exclusive license to patents owned by others that is critical to our operations, as the success of our business depends primarily on the technical expertise, innovation, customer satisfaction and experience of our employees.

        We also rely upon trade secret protection for our confidential and propriety information. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or that we can meaningfully protect our trade secrets. In addition, we cannot be certain that we will not be sued by third parties alleging that we have infringed their patents or other intellectual property rights. If any third party sues us, our business, results of operations or financial condition could be materially adversely affected.

Employees

        AtAs of December 31, 2009,2011, we had 1,005917 employees, of which there were 221195 in manufacturing and testing, 146118 in sales and marketing, 152187 in service 42 inand product support, 302288 in engineering, research and development and 142129 in information technology, general administration and finance. In addition, we also had 46 temporary employees/outside contractors, which support our variable cost strategy. The success of our future operations depends in large part on our ability to recruit and retain engineers,

technicians and other highly-skilled professionals who are in considerable demand. We feel that we have adequate programs in place to attract, motivate and retain our employees, and weemployees. We plan to monitor industry practices to make sure that our compensation and employee benefits remain competitive. However, there can be no assurance that we will be successful in recruiting or retaining key personnel. We believe that our relations with our employees are good.

Available Information

        We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the "SEC"). The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site ishttp://www.sec.gov.

Internet Address

        We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website iswww.veeco.com. We provide a link on our website, under Investors—Financial Info—Financial—SEC Filings, through which investors can access our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports. These filings are posted to our website, as soon as reasonably practicable after we electronically file such material with the SEC.

Item 1A.    Risk Factors

Risk Factors That May Impact Future Results

        In addition to the other information set forth herein, the following risk factors should be carefully considered by shareholders of and potential investors in the Company.

Our operating results have been, and may continue to be, adversely affected by unfavorable market conditions.

        Market conditions relative to the segments in which we operate have deteriorated significantly in many of the countries and regions in which we do business, and may remain depressed for the foreseeable future. Our MOCVD order volumes decreased significantly in the latter part of 2011 and are expected to remain depressed during 2012 and possibly beyond. Foreign government incentives designed to encourage the development of the LED industry have been curtailed, and the demand for our MOCVD products has softened. We have experienced and may continue to experience customer rescheduling and, to a lesser extent, cancellations of orders for our products. Actual market conditions and ordering volumes in 2012 and beyond may be worse than currently forecasted. Continuing adverse market conditions relative to our products would negatively impact our business, and could result in:

•

Further reduced demand for our products;



•

Further rescheduling and cancellations of orders for our products, resulting in negative backlog adjustments;



•

Increased price competition and lower margin for our products;



•

Increased competition from sellers of used equipment or lower-priced alternatives to our products;



•

Increased risk of excess and obsolete inventories;



•

Increased risk in the collectability of amounts due from our customers;

•

Increased risk in potential reserves for doubtful accounts and write-offs of accounts receivable;



•

Disruptions in our supply chain as we reduce our purchasing volumes and limit our contract manufacturing operations; and



•

Higher operating costs as a percentage of revenues.

        If the markets in which we participate experience a protracted downturn and/or a slow recovery period, this could negatively impact our sales and revenue generation, margins and operating expenses, and consequently have a material adverse effect on our business, financial condition and results of operations.

Market adoption of LED technology for general lighting could be slower than anticipated.

        Our future business prospects depend largely on the adoption of LED technology for general illumination applications, including residential, commercial and street lighting markets. Potential barriers to adoption include higher initial costs and customer familiarity with, and substantial investment and know-how in, existing lighting technologies. While the use of LED technology for general lighting has grown in recent years, challenges remain and widespread adoption may not occur at currently projected rates. The adoption of, or changes in, government policies that discourage the use of traditional lighting technologies may impact LED adoption rates and, in turn, the demand for our products. Furthermore, if new technologies evolve as a viable alternative to LED devices, our current products and technology could be placed at a competitive disadvantage or become obsolete altogether. Delays in the adoption of LED technology for general lighting purposes could materially and adversely affect our business, financial condition and results of operations.

Our failure to successfully implementmanage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations and our ability to realize the benefits of the recent increase in MOCVDadapt to fluctuating order volume.volumes.

        To better align our costs with market conditions, increase the percentage of variable costs relative to total costs and to increase productivity and operational efficiency, we have outsourced certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, data storage process equipmentData Storage systems solar deposition systems,and ion sources and certain components of our Metrology products. In addition, to supplement our current staffing and our planned hiring to meet the recent increase in MOCVD orders, we are planning to use technical staffing firms and contractors to assist with certain aspects of MOCVD system installation and testing at customer sites.sources. We are relying heavily on our outsourcing partners to successfully executeperform their contracted functions and to allow us the ramp in MOCVD system production,flexibility to filladapt to changing market conditions, including periods of significantly diminished order volumes. If our outsourcing partners do not perform as required, or if our outsourcing model does not allow us to realize the substantial increase in recent MOCVD orders.intended cost savings and flexibility, our results of operations (and those of our third party providers) may be adversely affected. Disputes and possibly litigation involving third party providers could result and we could suffer damage to our reputation. Dependence on contract manufacturing and outsourcing may also adversely affect our ability to satisfy the recent strong demand for our MOCVD equipment and to bring other new products to market. If our outsourcing partners do not perform successfully, our results of operations may be adversely affected and we could suffer damage to our reputation. Although we attempt to select reputable providers, it is possible that one or more of these providers could fail to perform as we expect. In addition, the expanded role of third party providers has required and will continue to require us to implement changes to our existing operations and adopt new procedures and processes for retaining and managing these providers in order to realize operational efficiencies, assure quality, and protect our intellectual property. If we do not timely and effectively develop and implementmanage our outsourcing strategy or if third party providers do not perform as anticipated, we may not realize the benefits of the recent increase in MOCVD order volume or gross margin or productivity improvements and we may experience operational difficulties, increased costs, manufacturing and/or installation interruptions or delays, inefficiencies in the structure and/or operation of our supply chain, loss of intellectual property rights, quality issues, increased product time-to-market and/or inefficient allocation of human resources, any or all of which could materially and adversely affect our business, financial condition and results of operations.

Manufacturing interruptionsThe further reduction or delays couldelimination of foreign government subsidies and economic incentives may adversely affect the future order rate for our abilityMOCVD equipment.

        Approximately 66% and 29% of our revenues were generated in China for the years ended December 31, 2011 and December 31, 2010, respectively. In recent years, the Chinese government has provided various incentives to meet customer demand, whileencourage development of the failureLED industry, including subsidizing a significant portion of the purchase cost of MOCVD equipment. These subsidies have enabled and encouraged certain customers in this region to estimate customer demand accurately couldpurchase more of our MOCVD equipment than these customers might have purchased without these subsidies. These subsidies have now been curtailed and are expected to further decline over time and may end at some point in the future. The further reduction or elimination of these incentives may result in excess or obsolete inventory and\or liabilities to our suppliers for products no longer needed.

        Our business depends on our ability to supply equipment, services and related products that meet the rapidly changing technical and volume requirements of our customers, which dependsa further reduction in part on the timely delivery of parts, components and subassemblies (collectively, parts) from suppliers. Some key parts may be subject to long lead-times and/or obtainable only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the United States. We may experience significant interruptions of our manufacturing operations, delays in our ability to deliver products or services, increased costs or customer order cancellations as a result of:

•

the failure or inability of suppliers to timely deliver quality parts;



•

volatility in the availability and cost of materials;



•

difficulties or delays in obtaining required import or export approvals;

•

information technology or infrastructure failures;



•

natural disasters (such as earthquakes, floods or storms); or



•

other causes (such as regional economic downturns, pandemics, political instability, terrorism, or acts of war) could result in delayed deliveries, manufacturing inefficiencies, increased costs or order cancellations.

        In addition, our need to rapidly increase our business and manufacturing capacity to meet unanticipated increases in demand may be limited by working capital constraints of our suppliers and may exacerbate any interruptions in our manufacturing operations and supply chain and the associated effect on our working capital. Moreover, if actual demandfuture orders for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. The volatility of demand for capitalMOCVD equipment increases capital, technical and other risks for companies in the supply chain. Any or all of these factorsthis region which could materially and adversely affect our business, financial condition and results of operations.

We rely on a limited number        A related risk is that many customers use or had planned to use Chinese government subsidies, in addition to other incentives from the Chinese government, to build new manufacturing facilities or to expand existing manufacturing facilities. Delays in the start-up of suppliers.

        We currently outsource, and planthese facilities or the cancellation of construction plans altogether, together with other related issues pertaining to increasecustomer readiness, could adversely impact the outsourcing of, certain functions to third parties, including the manufacture of all or substantially alltiming of our new MOCVD systems, data storage process equipment systems, solar deposition systems, ion sources and certain components in our metrology products. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain internal manufacturing capability for these systems at least until such time as we have qualified one or more alternate suppliers to perform this manufacturing. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows, and relationships with our customers.

        In addition, certain of the components and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary,revenue recognition, could result in further order cancellations, and could have other negative effects on our financial condition and operating results.

Our operating results have been, and may continue to be, adversely affected by tightening credit markets.

        As a prolonged interruptionglobal company with worldwide operations, we are subject to volatility and adverse consequences associated with worldwide economic downturns. As seen in supply or a significant increaserecent years, in the priceevent of onea worldwide downturn, many of our customers may delay or more components,further reduce their purchases of our products and services. If negative conditions in the global credit markets prevent our customers' access to credit, product orders in these channels may decrease which could result in lower revenue. Likewise, if our suppliers face challenges in obtaining credit, in selling their products or otherwise in operating their businesses, they may become unable to continue to offer the materials we use to manufacture our products. With the recent downturn in our MOCVD segment, we have experienced, and may continue to experience, lower than anticipated order levels, cancellations of orders in backlog, rescheduling of customer deliveries, and attendant pricing pressures, all of which could adversely affect our operatingresults of operations.

        Furthermore, tightening macroeconomic measures and monetary policies adopted by China's government aimed at preventing overheating of China's economy and controlling China's high level of inflation have limited, and may continue to limit, the availability of financing to our customers in this region. Limited financing, or delays in the timing of such financing, may result in delays and cancellations of shipments of our products (and associated revenues) conditioned on such financing.

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

Our backlog is subject to customer cancellation or modification and such cancellation could result in decreased sales and increased provisions for excess and obsolete inventory and/or liabilities to our suppliers for products no longer needed.

        Customer purchase orders are subject to cancellation or rescheduling by the customer, generallysometimes with limited or no penalties. Often, we have incurred expenses prior to such cancellation without adequate monetary compensation. During the year ended December 31, 2009,2011, we experienced net backlog adjustments of approximately $4.5$41.4 million. The adjustment consisted of $38.1 million consisting of $3.8 million for order cancellations and $0.7$3.3 million related to other order adjustments, partially offset by $0.1 million of adjustments related to foreign currency translation. With ourThe current high backlog, aand forecasted downturn in one or more of our served marketsMOCVD segment could result in a significant increasefurther increases in order cancellations and/or reschedulings.postponements.

        We record a provision for excess and obsolete inventory based on historical and future usage trends and other factors including the consideration of the amount of backlog we have on hand at any particular point in time. If our backlog is canceled or modified, our estimates of future product demand may prove to be inaccurate, in which case we may have understated the provision required for excess and obsolete inventory. In the future, if we determine that our inventory is overvalued, we will be required to recognize such costs in our financial statements at the time of such determination. In addition, we place orders with our suppliers based on our customers' orders to us. If our customers cancel their orders with us, we may not be able to cancel our orders with our suppliers and may be

required to take a charge for these cancelled commitments to our suppliers. Any such charges could be material to our results of operations and financial condition.

The failure to estimate customer demand accurately could result in excess or obsolete inventory and\or liabilities to our suppliers for products no longer needed, while manufacturing interruptions or delays could affect our ability to meet customer demand.

        Our business depends on our ability to accurately forecast and supply equipment, services and related products that meet the rapidly changing technical and volume requirements of our customers, which depends in part on the timely delivery of parts, components and subassemblies (collectively, parts) from suppliers. The current uncertain worldwide economic conditions and market instabilities make it increasingly difficult for us (and our customers and our suppliers) to accurately forecast future product demand. If actual demand for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If we overestimate the demand for our products, excess inventory could result which could be subject to heavy price discounting, which could become obsolete, and which could subject us to liabilities to our suppliers for products no longer needed. In addition, the volatility of demand for capital equipment increases capital, technical and other risks for companies in the supply chain.

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

•

the failure or inability of suppliers to timely deliver quality parts;



•

volatility in the availability and cost of materials;



•

difficulties or delays in obtaining required import or export approvals;



•

information technology or infrastructure failures;



•

natural disasters (such as earthquakes, tsunamis, floods or storms); or

•

other causes (such as regional economic downturns, pandemics, political instability, terrorism, or acts of war) could result in delayed deliveries, manufacturing inefficiencies, increased costs or order cancellations.

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

The cyclicality of the industries we serve directly affects our business.

        Our business depends in large part upon the capital expenditures of manufacturers in the HB LED and data storage markets. We are subject to the business cycles of these industries, the timing, length, and volatility of which are difficult to predict. These industries have historically been highly cyclical and have experienced significant economic downturns in the last decade. As a capital equipment provider, our revenues depend in large part on the spending patterns of these customers, who often delay expenditures or cancel or reschedule orders in reaction to variations in their businesses or general economic conditions. In downturns, we must be able to quickly and effectively align our costs with prevailing market conditions, as well as motivate and retain key employees. However, because a proportion of our costs are fixed, our ability to reduce expenses quickly in response to revenue shortfalls may be limited. Downturns in one or more of these industries, including the current MOCVD downturn, have had and will likely have a material adverse effect on our business, financial condition and operating results. Alternatively, during periods of rapid growth, we must be able to acquire and/or develop sufficient manufacturing capacity to meet customer demand, and attract, hire, assimilate and retain a sufficient number of qualified people. We cannot give assurances that our net sales and operating results will not be adversely affected if our customers experience economic downturns or slowdowns in their businesses.

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

        We currently outsource certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, Data Storage systems and ion sources. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain some level of internal manufacturing capability for these systems. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows, and relationships with our customers.

        In addition, certain of the components and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect our operating results.

Our sales to HB LED and data storage manufacturers are highly dependent on these manufacturers' sales for consumer electronics applications, which can experience significant volatility due to seasonal and other factors, which could materially adversely impact our future results of operations.

        The demand for HB LEDs and hard disk drives is highly dependent on sales of consumer electronics, such as flat-panel televisions and computer monitors, computers, tablets, digital video recorders, camcorders, MP3\4 players, smartphones, cell phones and cell phones. Our sales to HB LED manufacturers are also highly dependent on end market adoption of LED technology into general illumination applications. Manufacturesother mobile devices. Manufacturers of HB LEDs and hard disk drives are among our largest customers and have accounted

for a substantial portion of our revenues for the past several years. Factors that could influence the levels of spending on consumer electronic products include consumer confidence, access to credit, volatility in fuel and other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs and other macroeconomic factors affecting consumer spending behavior. These and other economic factors have had and could continue to have a material adverse effect on the demand for our customers' products and, in turn, on our customers' demand for our products and services and on our financial condition and results of operations. Furthermore, if manufacturers of HB LEDs have in the past overestimated their potential market share growth. If this growth is currently overestimated or is overestimated in the future, we may experience further cancellations of orders in backlog, postponementrescheduling of customer deliveries, obsolete inventory and/or liabilities to our suppliers for products no longer needed.

        In addition, the demand for some of our customers' products can be even more volatile and unpredictable due to the possibility of competing technologies, such as flash memory as an alternative to hard disk drives. Should flash memory become cost competitive it may result in a rapid shift in demand from the hard disk drives made by our customers to alternative storage technologies. Unpredictable fluctuations in demand for our customers' products or rapid shifts in demand from our customers' products to alternative technologies could materially adversely impact our future results of operations.

Negative worldwide economic conditions could result in a decrease in our net sales and an increase in our operating costs, which could adversely affect our business and operating results.

        Revenue in our Data Storage and Metrology segments decreased 48% and 24%, respectively, from 2008 to 2009, and revenue in our LED & Solar Process Equipment segment decreased 30% from the first half of the 2008 compared to the first half of 2009, due in part to the recent worldwide economic downturn. If the downturn continues or worsens, many of our customers may delay or further reduce their purchases of our products and services. If negative conditions in the global credit markets prevent our customers' access to credit, product orders in these channels may decrease which could result in lower revenue. Likewise, if our suppliers face challenges in obtaining credit, in selling their products or otherwise in operating their businesses, they may become unable to continue to offer the materials we use to manufacture our products. Our results of operations would be further adversely affected if we were to experience lower than anticipated order levels, cancellations of orders in backlog, postponement of customer deliveries, or pricing pressure as a result of this prolonged slowdown.

        In addition, current negative worldwide economic conditions and market instability make it increasingly difficult for us, our customers and our suppliers to accurately forecast future product demand, which could result in obsolete inventory and/or liabilities to our suppliers for products no longer needed.

        Furthermore, we finance a portion of our sales through trade credit. In addition to ongoing credit evaluations of our customers' financial condition, we seek to mitigate our credit risk by obtaining

deposits and/or letters of credit on certain of our sales arrangements. We could suffer significant losses if a customer whose accounts receivable we have not secured fails or is otherwise unable to pay us. A significant loss in collections on our accounts receivable would have a negative impact on our financial results.

We are exposed to the risks of operating a global business, including the need to obtain export licenses for certain of our shipments.shipments and political risks in the countries we operate.

        Approximately 77%90% of our 20092011 net sales, 90% of our 2010 net sales and 63%79% of our 20082009 net sales were generated from sales outside of the United States. We expect sales from non-U.S. markets to continue to represent a significant, and possibly increasing, portion of our sales in the future. Our non-U.S. sales and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including:

•

difficulties in managing a global enterprise, including staffing, managing distributors and representatives, and repatriation of earnings,



•

regional economic downturns, varying foreign government support, and unstable political environments,



•

political and social attitudes, laws, rules, regulations and policies within countries that favor domestic companies over non-domestic companies, including government-supported efforts to promote the development and growth of local competitors,



•

longer sales cycles and difficulty in collecting accounts receivable,



•

multiple, conflicting, and changing governmental laws and regulations, including import/export controls and other trade barriers,



•

reliance on various information systems and information technology to conduct our business, which may be vulnerable to cyber attacks by third parties or breached due to employee error, misuse or other causes that could result in business disruptions, loss of or damage to intellectual property, transaction errors, processing inefficiencies, or other adverse consequences should our security practices and procedures prove ineffective, and



•

different customs and ways of doing business.

        ManyThese challenges, many of these challengeswhich are present inassociated with sales into China, a large potential market for our products and an area that we anticipate will present a significant opportunity for growth. These conditions in China and other foreign economies may continue and recur again in the future, which could have a material adverse effect on our business. In addition, political instability, terrorism, acts of war or epidemics in regions where we operate may adversely affect or disrupt our business and results of operations.

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

We are exposed to risks associated with our entrance into the emerging solar industry.

        An increasing strategic focus for Veeco is to supply equipment to the solar industry. In addition to the other risk factors described herein, the solar industry is characterized by other specific risks, including:

•

changes in demand for solar photovoltaic ("PV") products arising from, among other things, the cost and performance of solar PV technology compared to other energy sources, such as oil, coal, wind, hydroelectric and nuclear;



•

the adequacy of or changes in government energy policies, including the availability and amount of government subsidies or incentives for solar power;



•

whether thin film solar technologies, in particular Copper Indium Gallium Selenide ("CIGS") technology, will be broadly adopted as a viable solar technology; and



•

customers' and end-users' access to affordable financial capital.

        If we do not successfully manage the risks resulting from these and other changes occurring in the solar industry, its business, financial condition and results of operations could be materially and adversely affected.

        In addition, solar is a relatively new market for us and poses the following additional challenges:

•

the need to attract, motivate and retain employees with skills and expertise in this new area;



•

new and more diverse customers and suppliers, including some with limited operating histories, uncertain and/or limited funding and/or evolving business models;



•

different customer service requirements;



•

new and/or different competitors with potentially more financial or other resources and industry experience; and



•

third parties' intellectual property rights and our ability to secure necessary intellectual property rights with respect to our emerging technologies.

        If we do not successfully manage the risks resulting from its entry into the solar market, our business, financial condition and results of operations could be materially and adversely affected.

The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly.

        We derive a substantial portion of our net sales in any fiscal period from the sale of a relatively small number of high-priced systems. As a result, the timing of recognition of revenue for a single transaction could have a material effect on our sales and operating results for a particular fiscal period. As is typical in our industry, orders, shipments, and customer acceptances often occur during the last few weeks of a quarter. As a result, delay of only a week or two can often shift the related booking or net salessale into the next quarter, which could adversely affect our reported results for the prior quarter. Our quarterly results have fluctuated significantly in the past, and we expect this trend to continue. If our orders, shipments, net sales or operating results in a particular quarter do not meet expectations, our stock price may be adversely affected.

We operate in industries characterized by rapid technological change.

        The HB LED, solar, data storage, semiconductor, and scientific research and industrial industriesAll of our businesses are subject to rapid technological change. Our ability to remain competitive depends on our ability to enhance existing products and develop and manufacture new products in a timely and cost effective

manner and to accurately predict technology transitions. Because new product development commitments must be made well in advance of sales, we must anticipate the future demand for products in selecting which development programs to fund and pursue. Our financial results for 20102012 and in the future will depend to a great extent on the successful introduction of several new products, many of which require achieving increasingly stringent technical specifications. We cannot be certain that we will be successful in selecting, developing, manufacturing and marketing new products or new technologies or in enhancing existing products.

We face significant competition.

        We face significant competition throughout the world in each of our reportable segments, which may increase as certain markets in which we operate continue to expand. ManySome of our competitors have greater financial, engineering, manufacturing, and marketing resources than us. In addition, we face competition from smaller emerging equipment companies whose strategy is to provide a portion of the products and services we offer, usingwith a focused approach on innovative technology to sell products intofor specialized markets. New product introductions or enhancements by our competitors could cause a decline in sales or loss of market acceptance of our existing products. Increased competitive pressure could also lead to intensified price competition resulting in lower margins. Our failure to compete successfully with these other companies would seriously harm our business.

We depend on a limited number of customers, located primarily in a limited number of regions, that operate in highly concentrated industries.

        Our customer base is and has been highly concentrated. Orders from a relatively limited number of customers have accounted for, and likely will continue to account for, a substantial portion of our net sales, which may lead customers to demand pricing and other terms less favorable to us. Based on net sales, our five largest customers accounted for 39%41%, 33%,55% and 34%52% of our total net sales in 2011, 2010 and 2009, 2008, and 2007, respectively. Recent customer consolidation activity involving some of our largest customers, particularly in our Data Storage segment, may result in an even greater concentration of our sales in the future.

        If a principal customer discontinues its relationship with us or suffers economic setbacks, our business, financial condition, and operating results could be materially and adversely affected. Our ability to increase sales in the future will depend in part upon our ability to obtain orders from new customers. We cannot be certain that we will be able to do so. In addition, because a relatively small number of large manufacturers, many of whom are our customers, dominate the industries in which they operate, it may be especially difficult for us to replace these customers if we lose their business. A substantial portion of orders in our backlog are orders from our principal customers.

        In addition, a substantial investment is required by customers to install and integrate capital equipment into a production line. As a result, once a manufacturer has selected a particular vendor's capital equipment, we believe 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, if a customer selects a competitor's product over ours for technical superiority or other reasons, we could experience difficulty selling to that customer for a significant period of time.

        Furthermore, we do not have long-term contracts with our customers. As a result, our agreements with our customers do not provide any assurance of future sales and we are exposed to competitive price pressure on each new order we attempt to obtain. Our failure to obtain new sales orders from new or existing customers would have a negative impact on our results of operations.

The cyclicality of the industries we serve directly affects our business.

        Our business dependscustomer base is also highly concentrated in large partterms of geography, and the majority of our sales are to customers located in a limited number of countries. In 2011, 75% of our total net sales were to customers located in China, Taiwan and Korea alone. Dependence upon the capital expendituressales emanating from a limited number of manufacturers in the HB LED, solar, data storage,regions increases our risk of exposure to local difficulties and semiconductor markets,challenges, such as well as customers in the scientific research and industrial market. We are subject to the business cycles of these industries, the timing, length, and volatility of which are difficult to predict. These industries have historically been highly cyclical, have experienced significantthose associated with regional economic downturns, inpolitical instability, fluctuating currency exchange rates, natural disasters, social unrest, pandemics, terrorism or acts of war. In addition, we may encounter challenges associated with political and social attitudes, laws, rules, regulations and policies within these countries that favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the last decadedevelopment and have suffered significant adverse consequences in the current economic downturn. As a capital equipment provider, our revenues depend in large part on the spending patternsgrowth of these customers, who often delay expenditures or cancel or reschedule orders in reaction to variations in their businesses or general economic conditions. In downturns, we must be able to quickly and effectively align our costs with prevailing market conditions, as well as motivate and retain key employees. However, because a proportion of our costs are fixed, our ability to reduce expenses quickly in response to revenue shortfalls may be limited. A downturn in one or more of these industries could have a material adverse effect on our business, financial condition, and operating results. During periods of rapid growth, we must be able to acquire and/or develop sufficient manufacturing capacity to meetlocal competitors. Our reliance upon customer demand and attract, hire, assimilate, and retainarising primarily from a sufficientlimited number of qualified people. We cannot give assurances thatcountries could materially adversely impact our net sales and operatingfuture results will not be adversely affected if our customers experience economic downturns or slowdowns in their businesses.of operations.

Our sales cycle is long and unpredictable.

        Historically, we have experienced long and unpredictable sales cycles (the period between our initial contact with a potential customer and the time when we recognize revenue from that customer). Our sales cycle can range up to twelve months.months or longer. The timing of an order often depends on the capital expenditure budget cycle of our customers, which is completely out of our control. In addition, the time it takes us to build a product to customer specifications (the "build cycle") typically ranges from one to six months, followed in certain cases by a period of customer acceptance during which the customer evaluates the performance of the system and may potentially reject the system. With the uncertainty and limited visibility related to the recent economic downturn, many customers are reluctant to place orders for delivery in the future. Moreover, asAs a result of the build cycle and evaluation periods, the period between a customer's initial purchase decision and

revenue recognition on an order often varies widely, and variations in length of this period can cause further fluctuations in our operating results. As a result of our lengthy sales cycle, we may incur significant research and development expenses and selling and general and administrative expenses before we generate the related revenues for these products. We may never generate the anticipated revenues if a customer cancels or changes plans. Variations in the length of our sales cycle could also cause our net sales and, therefore, our cash flow and net income to fluctuate widely from period to period.

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

        Our success depends upon our ability to attract, retain, and motivate key employees, including those in executive, managerial, engineering and marketing positions, as well as highly skilled and qualified technical personnel and personnel to implement and monitor our financial and managerial controls and reporting systems. Attracting, retaining, and motivating such qualified personnel may be difficult due to challenging industry conditions, competition for such personnel by other technology companies, consolidations and relocations of operations and workforce reductions. OurWhile we have entered into Employment Agreements with certain key personnel, our inability to attract, retain, and motivate key personnel could have a material adverse effect on our business, financial condition or operating results.

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

        The stock market in general and the market for technology stocks in particular, has experienced volatility that has often been unrelated to the operating performance of companies. If these market or industry-based fluctuations continue, the trading price of our common shares could decline significantly independent of our actual operating performance, and shareholders could lose all or a substantial part of their investment. As an example of our volatility, during 2009 our stock traded from a low of $3.22 to a high of $34.84 per share. The market price of our common shares could fluctuate significantly in response to several factors, including among others:

•

general stock market conditions and uncertainty, such as those occasioned by thea global liquidity crisis, negative financial news, and thea failure of several large financial institutions;



•

receipt of substantial orders or cancellations for our products;



•

actual or anticipated variations in our results of operations;



•

announcements of financial developments or technological innovations;



•

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



•

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



•

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



•

the occurrence of major catastrophic events.

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

We are subject to foreign currency exchange risks.

        We are exposed to foreign currency exchange rate risks that are inherent in our anticipated sales, sales commitments and assets and liabilities that are denominated in currencies other than the United States dollar. Although we attempt to mitigate our exposure to fluctuations in currency exchange rates, these hedging activities may not always be available or adequate to eliminate, or even mitigate, the impact of our exchange rate exposure. Failure to sufficiently hedge or otherwise manage foreign currency risks properly could materially and adversely affect our revenues and gross margins.

The enforcement and protection of our intellectual property rights may be expensive and could divert our valuablelimited resources.

        Our success depends in part upon the protection of our intellectual property rights. We rely primarily on patent, copyright, trademark and trade secret laws, as well as nondisclosure and confidentiality agreements and other methods, to protect our proprietary information, technologies and processes. We own various United States and international patents and have additional pending patent applications relating to certain of our products and technologies. The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage. In addition, our intellectual property rights may be circumvented, invalidated or rendered obsolete by the rapid pace of technological change. Policing unauthorized use of our products and technologies is difficult and time consuming. Furthermore, the

laws of other countries may less effectively protect our proprietary rights than U.S. laws. Our outsourcing strategy requires that we share certain portions of our technology with our outsourcing partners, which poses additional risks of infringement and trade secret misappropriation. Infringement of our rights by a third party, possibly for purposes of developing and selling competing products, could result in uncompensated lost market and revenue opportunities. Similar exposure could result in the event that former employees seek to compete with us, through their unauthorized use of our intellectual property and proprietary information. We cannot be certain that the steps we have taken will prevent the misappropriation or unauthorized use of our proprietary information and technologies, particularly in foreign countries where the laws may not protect our proprietary intellectual property rights as fully or as readily as United States laws. Further, we cannot be certain that the laws and policies of any country, including the United States, with respect to intellectual property enforcement or licensing will not be changed in a way detrimental to the sale or use of our products or technology.

        We may need to litigate to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights of others. As a result of any such litigation, we could lose our ability to enforce one or more patents or incur substantial unexpected operating costs. Any action we take to enforce our intellectual property rights could be costly and could absorb significant management time and attention, which, in turn, could negatively impact our operating results. In addition, failure to protect our trademark rights could impair our brand identity.

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

        From time to time we have received communications from other parties asserting the existence of patent or other rights which they believe cover certain of our products. We also periodically receive notice from customers who believe that we are required to indemnify them for damages they may incur related to infringement claims made against these customers by third parties. Our customary practice is to evaluate such assertions and to consider the available alternatives, including whether to seek a license, if appropriate. However, we cannot ensure that licenses can be obtained or, if obtained, will be on acceptable terms or that costly litigation or other administrative proceedings will not occur. If we are not able to resolve a claim, negotiate a settlement of the matter, obtain necessary licenses on

commercially reasonable terms, and/or successfully prosecute or defend our position, our business, financial condition, and results of operations could be materially and adversely affected.

Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses.

        We have considered numerous acquisition opportunities and completed several significant acquisitions in the past. We may consider acquisitions of, or investments in, other businesses in the future. Acquisitions involve numerous risks, many of which are unpredictable and beyond our control, including:

•

difficulties and increased costs in integrating the personnel, operations, technologies and products of acquired companies;



•

diversion of management's attention while evaluating, pursuing, and integrating the business to be acquired;



•

potential loss of key employees of acquired companies, especially if a relocation or change in responsibilities is involved;



•

difficulties in managing geographically dispersed operations in a cost-effective manner;



•

lack of synergy or inability to realize expected synergies;

•

increased amortization expense relating to intangible assets; and



•

the potential impairment and write-down of amounts capitalized as intangible assets and goodwill as part of the acquisition, as a result of technological advancements or worse-than-expected performance by the acquired company.

        Our inability to effectively manage these risks could materially and adversely affect our business, financial condition, and operating results.

        In addition, if we issue equity securities to pay for an acquisition, the ownership percentage of our then-existing shareholders would be reduced and the value of the shares held by these shareholders could be diluted, which could adversely affect the price of our stock and convertible subordinated notes.stock. If we use cash to pay for an acquisition, the payment could significantly reduce the cash that would be available to fund our operations or other purposes, including making payments on the convertible subordinated notes. There can be no assurance that financing for future acquisitions will be available on favorable terms or at all.purposes.

We may be required to take additional impairment charges for goodwill and indefinite-lived intangible assets or definite-lived intangible and long-lived assets.

        We are required to assess goodwill and indefinite-lived intangible assets annually for impairment, or on an interim basis whenever certain events occur or circumstances change, such as an adverse change in business climate or a decline in the overall industry, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We are also required to test our definite-lived intangible and long-lived assets, including acquired intangible assets and property, plant and equipment, for recoverability and impairment whenever there are indicators of impairment, such as an adverse change in business climate.

        In 2008 During 2011 we discontinued our CIGS solar systems business. As a result we recorded ana $2.1 million asset impairment charge, of $73.0 million consisting of $52.3 million relatedrelating to goodwill, $5.0 million of indefinite-lived intangible assets $14.6and a $10.8 million goodwill impairment charge related to definite-lived intangiblethe write-off of these assets and $1.1 million in property, plant and equipment.(see Note 3 of our Consolidated Financial Statements).

        At December 31, 2009,2011, we had $59.4$55.8 million of goodwill and $89.5$114.3 million of intangible and long-lived assets.assets, including $86.1 million of property, plant and equipment and $2.3 million of assets

held for sale. As part of our long-term strategy, we may pursue future acquisitions of other companies or assets which could potentially increase our goodwill and intangible and long-lived assets. Adverse changes in business conditions could materially impact our estimates of future operations and result in additional impairment charges to these assets. If our goodwill or intangible and long-lived assets were to become further impaired, our results of operations could be materially and adversely affected.

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

        Changes in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results. For example, under new guidance for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), we recorded additional non-cash interest expense in each reporting period during which our subordinated convertible notes were outstanding. The adoption of this new guidance did have a material effect on our consolidated financial position, results of operations, and earnings per share. This additional interest expense will not require the use of cash. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies" below. Other newNew accounting pronouncements or taxation rules and varying interpretations of accounting pronouncements or taxation practices have occurred and may occur in the future. New rules, changes to existing rules, if any, or the questioning of current practices may adversely affect our reported financial results or change the way we conduct our business.

We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act.

        Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a report of management on the effectiveness of our internal control over financial reporting. Ongoing compliance with this requirement is complex, costly and time-consuming. Although our assessment, testing, and evaluation resulted in our conclusion that, as of December 31, 2009,2011, our internal controls over financial reporting were effective, we cannot predict the outcome of our testing in future periods. If our internal controls are ineffective in future periods, or if our management does not timely assess the adequacy of such internal controls, we could be subject to regulatory sanctions, the public's perception of our Company may decline and our financial results or the market price of our shares could be adversely affected.

We are subject to risks of non-compliance with environmental, health and safety regulations.

        We are subject to environmental, health and safety regulations in connection with our business operations, including but not limited to regulations related to the development, manufacture, and use of our products. Failure or inability to comply with existing or future environmental and safety regulations could result in significant remediation liabilities, the imposition of fines and/or the suspension or termination of development, manufacture, or use of certain of our products, each of which could have a material adverse effect on our business, financial condition, and results of operations.

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

        Our Metrology segment designs and manufactures our atomic force microscopes and other products in Camarillo and Santa Barbara, California. Our operations in these and other locations, as well as those of our customers in the U.S., the Asia-Pacific region and in other areas could be subject to natural disasters or other significant disruptions, including earthquakes, tsunamis, fires, hurricanes, floods, water shortages, other extreme weather conditions, medical epidemics, acts of terrorism, power shortages and blackouts, telecommunications failures, and other natural and manmade disasters or disruptions. Two such occurrences in 2011 include the earthquake and tsunami in Japan and the severe flooding in Thailand. In the event of such a natural disaster or other disruption, we could experience disruptions or interruptions to our operations or the operations of our suppliers, distributors, resellers or customers; destruction of facilities; and/or loss of life, all of which could materially increase our costs and expenses and materially and adversely affect our business, revenue and financial condition.

We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult.

        We have adopted, and may in the future adopt, certain measures that may have the effect of delaying, deferring or preventing a takeover or other change in control of our Company that a holder of our common stock might not consider in its best interest. These measures include:

•

"blank check" preferred stock;



•

classified board of directors;



•

shareholder rights plan or "poison pill;" and



•

certain certificate of incorporation and bylaws provisions.

        Our board of directors has the authority to issue up to 500,000 shares of preferred stock and to fix the rights (including voting rights), preferences and privileges of these shares ("blank check" preferred). Such preferred stock may have rights, including economic rights, senior to our common

stock. As a result, the issuance of the preferred stock could have a material adverse effect on the price of our common stock and could make it more difficult for a third party to acquire a majority of our outstanding common stock.

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

        We have adopted a shareholder rights plan, under which we have granted to our shareholders rights to purchase shares of junior participating preferred stock. This plan or "poison pill" could discourage a takeover that is not approved by our board of directors but which a shareholder might consider in its best interest, thereby adversely affecting our stock price.

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

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

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        Our corporate headquarters and our principal product development and marketing, manufacturing, research and development and sales and servicetraining facilities, as well as the approximate size and the segments which utilize such facilities, are:

(1)

Our LED & Solar Process Equipment segment utilizes approximately 95,000 square feet of this facility. The balance is available for expansion.

(2)

OurWe vacated this facility during the fourth quarter of 2010 in conjunction with the sale of our Metrology segment utilizes approximately 75,000 square feet ofto Bruker. We are actively marketing this facility. The balance is availableoffice for expansion.sale.

(3)

We vacated this facility during the second quarter of 2009 in conjunction with the outsourcing of manufacturing for certain Data Storage Process Equipment product lines. We have reoccupied a portion of this space and are marketing thisthe remaining space for sublease.

(4)

We vacated our former Woodbury headquartersthese facilities during the firstthird quarter of 20082011 in conjunction with the discontinuance of our CIGS Solar systems business.

(5)

We have the option to renew this lease for three consecutive two year terms and consolidated our operations into our Plainview, New York manufacturingalso have the option to purchase this facility. We are marketing this office space for sublease.

        The St. Paul, Minnesota facility is subject to a mortgage which, at December 31, 2009,2011, had an outstanding balance of $3.1$2.7 million. We also lease small offices in Chadds Ford, PennsylvaniaSanta Clara, California and Edina, Minnesota for sales and service. Our foreign subsidiaries lease space for use as sales and service centerssubsidiaries lease office space in England, France, Germany, Netherlands, Japan, Korea, Malaysia, Singapore, Thailand, ChinaPhilippines and Taiwan.China. We believe our facilities are adequate to meet our current needs.

Item 3.    Legal Proceedings

Environmental

        We may, under certain circumstances, be obligated to pay up to $250,000 in connection with the implementation of a comprehensive plan of environmental remediation at our Plainview, New York facility. We have been indemnified by the former owner for any liabilities we may incur in excess of $250,000

$250,000 with respect to any such remediation. No comprehensive plan has been required to date. Even without consideration of such indemnification, we do not believe that any material loss or expense is probable in connection with any remediation plan that may be proposed.

        We are aware that petroleum hydrocarbon contamination has been detected in the soil at the site of a facility formerly leased by us in Santa Barbara, California. We have been indemnified for any liabilities we may incur which arise from environmental contamination at the site. Even without consideration of such indemnification, we do not believe that any material loss or expense is probable in connection with any such liabilities.

        The former owner of the land and building in which our Santa Barbara, California in which our former Metrology operations arewere located (which business was sold to Bruker on October 7, 2010), has disclosed that there are hazardous substances present in the ground under the building. Management believes that the comprehensive indemnification clause that iswas part of the purchase contract relating to the purchase of such land provides adequate protection against any environmental issues that may arise. We have provided Bruker with similar indemnification as part of the sale.

Non-Environmental

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

Item 4.    Submission of Matters to a Vote of Security HoldersMine Safety Disclosures—Not Applicable

        None.

PART II

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

        Our common stock is quoted on The NASDAQ National Market under the symbol "VECO." The 20092011 and 20082010 high and low closing bid prices by quarter are as follows:

        On February 22, 2010,21, 2012, the closing bid price for our common stock on the NASDAQ National Market was $37.28$28.89 and we had 372131 shareholders of record.

        In December 2001 and January 2002, we issued $220.0 million of 4.125% convertible subordinated notes (the "Old Notes") in a private placement. During the first quarter of 2006, we repurchased $20.0 million of these notes, reducing the amount outstanding from $220.0 million to $200.0 million. During the first quarter of 2007, we repurchased an additional $56.0 million of these notes, reducing the amount outstanding from $200.0 million to $144.0 million. During the second quarter of 2007, we issued new convertible subordinated notes (the "New Notes") pursuant to privately negotiated exchange agreements with certain holders of the Old Notes to exchange $118.8 million aggregate principal amount of the Old Notes for approximately $117.8 million aggregate principal amount of New Notes. Following the exchange transactions, approximately $25.2 million of Old Notes remained outstanding. The remaining Old Notes were convertible, at the option of the holder, at any time on or prior to maturity into shares of common stock at a conversion price of $38.51 per share. We repaid the outstanding principal amount of the remaining $25.2 million of Old Notes outstanding. The New Notes bear interest at 4.125% per annum and mature on April 15, 2012. These notes are convertible, at the option of the holder, at any time during the period beginning on January 15, 2012 through the close of business on the second day prior to April 15, 2012 and earlier, upon the occurrence of certain events, including our common stock trading at prices 130% of the conversion price for a specified period. Such notes are convertible at a price of $27.23 per share. We pay interest on these notes on April 15 and October 15 of each year.

        We have not paid dividends on our common stock. We intend to retain future earnings for the development of our business and, therefore, do not anticipate that the Board of Directors will declare or pay any dividends on the common stock in the foreseeable future. The Board of Directors will determine future dividend policy based on our consolidated results of operations, financial condition, capital requirements and other circumstances.

Stock Performance Graph

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Veeco Instruments Inc., The S&P Smallcap 600 Index,
The PHLX Semiconductor Index, And A Peer Groupand the RDG MidCap Technology Index

*

$100 invested on 12/31/0406 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

Copyright© 20102012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

ASSUMES $100 INVESTED ON DEC. 31, 20042006
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31

        Information is presented assuming $100 invested on December 31, 2004 and the reinvestment of dividends, if any. The Peer Group Index consists of the following companies: ASM International N.V., Axcelis Technologies Inc., FEI Company, FSI International Inc., Mattson Technology Inc., Rudolph Technologies Inc., Semitool Inc., Varian Semiconductor Equipment Associates Inc. and Zygo Corp.

Item 6.    Selected Consolidated Financial Data

        The financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K.

(1)

On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The action was completed on September 27, 2011. Accordingly, the results of operations for the CIGS solar

systems business have been recorded as discontinued operations in the accompanying consolidated results of operations for all periods presented. During the year ended December 31, 2011, total discontinued operations include pre-tax charges totaling $69.8 million. These charges include an asset impairment charge totaling $6.2 million, a goodwill write-off of $10.8 million, an inventory write-off totaling $27.0 million, charges to settle contracts totaling $22.1 million, lease related charges totaling $1.4 million and personnel severance charges totaling $2.3 million.

(2)

On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology's operating results are accounted for as discontinued operations in determining the consolidated results of operations. The sales transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with Bruker, $22.9 million of proceeds was held in escrow and was restricted from use for one year from the closing date of the transaction to secure certain specified losses arising out of breaches of representations, warranties and covenants we made in the stock purchase agreement and related documents. The restriction relating to the escrowed proceeds was released on October 6, 2011. As part of the sale we incurred transaction costs, which consisted of investment bank fees and legal fees, totaling $5.2 million. The Company recognized a pre-tax gain on disposal of $156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China.

In addition, operating income and income from continuing operations includes a restructuring credit of $0.2 million.

(3)

Operating loss and net loss attributable to Veecofrom continuing operations include restructuring expenses of $7.7$4.5 million, as well as an asset impairment charge of $0.3 million for property, plant and equipment no longer being utilized in our Data Storage Process Equipment segment and a $1.5 million inventory write-off associated with data storageData Storage legacy products.

(2)(4)

Operating loss and net loss attributable to Veecofrom continuing operations include a $73.3$51.4 million asset impairment charge of which $52.3$30.4 million was related to goodwill and $21.0 million was related to other long-lived assets, a restructuring charge of $10.6$9.4 million consisting of lease-related commitments, the mutually agreed-upon termination of the employment agreement with our former CEO and personnel severance costs, an inventory write-off of $2.9 million included in cost of sales and $1.5 million in cost of sales related to the required purchase accounting adjustment to write up inventory to fair value in connection with the purchase of Mill Lane Engineering.costs. Net loss attributable to Veecofrom continuing operations also reflects a net gain from the early extinguishment of debt in the amount of $3.8 million.

(3)(5)

Operating loss and net loss attributable to Veecofrom continuing operations include restructuring expenses of $6.7$4.8 million, as well as charges of $1.1 million and $4.8 million associated with the write-off of property and equipment and inventory, respectively, related to product lines discontinued as part of

management's cost reduction plan. Net loss attributable to Veecofrom continuing operations also reflects a net gain from the early extinguishment of debt in the amount of $0.7 million.

(4)

Operating income and net income attributable to Veeco are net of a write-off of $1.2 million of in-process research and development projects related to the Fluens acquisition. Net income attributable to Veeco also reflects a net gain from the early extinguishment of debt in the amount of $0.3 million.

(5)

Operating income and net loss attributable to Veeco include restructuring expenses of $1.2 million.

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

Executive Summary

        Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco," the "Company" or "we") creates Process Equipment solutions that enable technologies for a cleaner and more productive world. We design, manufacture and market equipment primarily sold to make light emitting diodes ("LEDs") and service enabling solutionshard-disk drives, as well as for customers in the HB LED, solar, data storage, scientific research, semiconductor,emerging applications such as concentrator photovoltaics, power semiconductors, wireless components, microelectromechanical systems (MEMS), and industrial markets. We haveother next-generation devices.

        Veeco focuses on developing highly differentiated, "best-in-class" Process Equipment products for critical performance steps. Our products feature leading technology, positionslow cost-of-ownership and high throughput, offering a time-to-market advantage for our customers around the globe. Core competencies in our three segments: LED & Solar Process Equipment, Data Storage Process Equipment,advanced thin film technologies, over 150 patents and Metrology.decades of specialized process know-how helps us to stay at the forefront of these demanding industries.

        In ourVeeco's LED & Solar segment we designdesigns and manufacture MOCVD systems, MBEmanufactures metal organic chemical vapor deposition ("MOCVD") and molecular beam epitaxy ("MBE") systems and sources, and other types of deposition systems such as web and glass coaters, which we sellcomponents sold to manufacturers of HB LEDs, wireless devices, power semiconductors, and solar panels,concentrator photovoltaics, as well as to scientific research customers.R&D applications. In 2011 we discontinued the sale of our products related to Copper, Indium, Gallium, Selenide ("CIGS") solar systems technology.

        In ourVeeco's Data Storage segment we designdesigns and manufacture ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and dicing and slicing systems primarilymanufactures the critical technologies used to create TFMHsthin film magnetic heads ("TFMHs") that read and write data on hard disk drives.

        In our Metrology segment, we design These technologies include ion beam etch (IBE), ion beam deposition (IBD), diamond-like carbon (DLC), physical vapor deposition (PVD), chemical vapor deposition (CVD), and manufacture AFMs, SPMs, stylus profilers,slicing, dicing and lapping systems. While these technologies are primarily sold to hard drive customers, they also have applications in optical interferometers used to provide critical surface measurements in research and production environments. This broad line of products is used in universities, research facilities and scientific centers worldwide. In production environments such as semiconductor, data storagecoatings and other industries,markets.

        Veeco's approximately 900 employees support our metrology instruments enable customers to monitor their products throughout thethrough product and process development, training, manufacturing, process to improve yields, reduce costs, and improve product quality.

        We currently maintain facilities in Arizona, California, Colorado, Massachusetts, Minnesota, New Jersey and New York, with sales and service locationssites in Minnesota, Pennsylvania, France, England, Germany, Netherlands,the U.S., Korea, Taiwan, China, Singapore, Japan, Singapore, China, Taiwan, Korea, Malaysia, PhilippinesEurope and Thailand.

        During 2009, we continued our multi-quarter plan to improve profitability and reduce and contain spending. We made progress against the initiatives that management set, continued our restructuring plan and executed activities with a focus on creating a more variable, cost-effective organization. These activities included downsizing and consolidating some locations, reducing our workforce, consultants and discretionary expenses and realigning our sales organization and engineering groups. In conjunction with these activities, we recognized a restructuring charge of approximately $7.7 million, an inventory write-off of $1.5 million related to legacy semiconductor products, included in cost of sales in our Consolidated Statement of Operations and an asset impairment charge of $0.3 million.other locations.

Summary of Results for 20092011

        Despite the extremely challenging market environment during the first half of 2009, for the full year we reported a lower net loss, a positive impact from our cost containment initiatives, and a significantly improved balance sheet as a result of the cash flow from operations and the sale of our common stock in November. We made progress to refocus the business and drive R&D investments to higher-growth end market opportunities.Selected financial highlights include:

•

Revenue decreased $62.7 million, or 14%,increased 5% to $380.1$979.1 million in 20092011 from $442.8$930.9 million in 2008. We experienced a 24% revenue increase in our2010. LED & Solar business and declines of 48% and 24%revenues increased 4% to $827.8 million from $795.6 million in our2010. Data Storage and Metrology businesses, respectively;revenues increased 12% to $151.3 million from $135.3 million in 2010;



•

Orders were $639.5down 27%, to $817.9 million in 20092011, compared to $424.4$1,121.6 million in 2008;2010;



•

Our gross margin remained consistent at 40%increased slightly, to 48.4%, for 2009 and 2008. While gross2011 compared to 48.3% for 2010. Gross margins were up in LED & Solar decreased from 38.5%48.3% in 20082010 to 40.7% in 2009, they were down in both Metrology and48.0%, while Data Storage 41.0% and 40.5% in 2008gross margins increased from 48.4% to 40.5% and 37.0% in 2009, respectively, due primarily to the significant decline in sales volume;50.7%.



•

Our selling, general and administrative expenses decreased by $7.4increased to $95.1 million, or 8.0%up from the prior year. Selling general and administrative expenses were 22.5%$87.3 million in 2010, remaining at about 10% of net sales in 2009, compared with 21.0% of net sales in the prior year;sales.



•

Our research and development expenses decreased $2.9increased to $96.6 million from the prior year. As a percentage$56.9 million in 2010. Research and development expenses were 10% of net sales research and development expense increased to 15.1% from 13.6% in the prior year;2011, compared with 6% in 2010;



•

Net loss attributable to Veeco for 2009income from continuing operations in 2011 was ($15.6)$190.5 million compared to a net loss attributable to Veeco of ($75.2)$277.2 million in 2008. Our 2008 results include the impact of $88.3 million in asset impairment, restructuring and other charges partially offset by a net gain from the early extinguishment of debt in the amount of $3.8 million;2010;



•

Net loss attributable to VeecoDiluted net income from continuing operations per share was ($0.48)$4.63 compared to ($2.40)$6.52 in 2008; and



•

We generated net cash of $44.8 million during 2009, principally due to the issuance of $130.1 million of common stock and stock option exercises of $12.6 million and cash provided by operations of $57.8 million, partially offset by cash used in investing activities of $154.8 million.2010.

Business Highlights of 20092011

        Starting with very difficultIn 2011, Veeco achieved revenue of $979.1 million and net income from continuing operations of $190.5 million. During the first half of 2011 Veeco experienced strong levels of business driven by growth in LED, including new orders in excess of $300 million in second quarter of 2011. Business conditions 2009 ended with recordbegan to deteriorate mid-year due to oversupply in the LED market and Veeco's bookings slowed dramatically in the third and fourth quarter results for Veeco in termsquarters of revenue performance. Some of our successes included improving product development, maximizing manufacturing efficiencies and supply chain management, and strengthening our sales channel. Some other key accomplishments during 2009 included:the year.

•

Veeco increased growth and profitabilityVeeco's revenue increase in our LED & Solar segment which is also referredwas primarily due to as our "green" equipment business. In LED we penetratedpenetration of new customers, including strong adoption of our MOCVD technology by a rapidly expanding Chinese customer base, increased R&D investment, launched a next-generationmarket share, and the introduction of the industry's first multi-chamber MOCVD system, and ramped our manufacturing capacity utilizing a scalable, outsourced model. In Solar we launched two new CIGS product platforms for web and glass and won new customers in Asia.System, the MaxBright.



•

We successfully restructured ourVeeco's Data Storage business including consolidationdelivered record revenue and profit levels as a result of overheadstrong technology alignment with our key customers, and locations, eliminating significant fixed overhead and dramatically reducing our labor costs. Veeco remains well-aligned with customers on key technology requirements.



•

Veeco launched five new AFM products or scanning modes and two new Optical Metrology products in 2009. Metrology's breakeven level was dramatically lowered through operational improvements, supply chain management and other initiatives.flexible manufacturing strategy.

Outlook

        With record backlogVeeco's first quarter 2012 revenue is currently forecasted to be between $115 million and $140 million. Earnings per share are currently forecasted to be between $0.04 and $0.25.

        We don't see signs of $402 million at the end of December 2009, Veeco begins 2010 with strong momentum. Business patterns in LED remain strongnear-term improvement in the firstLED environment and the current overcapacity situation could mean that MOCVD orders remain at these depressed levels for multiple quarters. In Data Storage, while overall market conditions are healthy, the continued consolidation of our customer base will likely mean that order patterns will fluctuate from quarter to date, similar to what we experienced in the latter half of 2009, with multi-tool system orders being quoted across a large number of customers. Leading global LED manufacturers are showing strong interest in our newly introduced

K465i™ MOCVD system. We are increasing manufacturing capacity to satisfy customer demand, with a current plan to ramp capacity to 45 or more tools this quarter and approximately 70 by the second quarter and to 120 by the fourth quarter of 2010, if customer demand requires. We believe our Data Storage business, with its lower breakeven structure and backlog of $60 million ending 2009, is in excellent position starting 2010. We remain well aligned with our key customers and plan to introduce new technologies to continue to advance areal densities for thin film magnetic heads. In Metrology, we have a deep new product pipeline and the business returned to segment profitability in both Q3 and Q4 2009. We currently expect all three Veeco businesses to grow revenues and improve operating results in 2010.quarter.

        As we look toward the future, we believe that the HBThe LED industry is atcurrently experiencing an overcapacity situation, evidenced by low tool utilization rates being reported by many key global customers. As a result, new orders for Veeco's MOCVD systems declined sharply in both the beginningthird and fourth quarters of 2011 and we do not see signs of a multi-yearnear-term improvement in MOCVD tool investment cycle as HBbusiness conditions. In the short term, it is difficult for us to predict when the supply/demand of LEDs increase their penetrationwill return to equilibrium and what the demand for our MOCVD products will be. According to the Semiconductor Equipment and Materials Industry's (SEMI) January 2012 Opto/LED Fab Watch report, worldwide MOCVD purchases will decline by 40% in laptop and TV backlighting, and gain momentum for general illumination. We are also seeing strong interest in our thermal deposition solutions for the manufacturing of CIGS solar cells, and believe that2012 compared to 2011. While Veeco is well positioned to increase our businesscurrently expecting revenue growth in this market. In addition, overall business conditions in ourits Data Storage and Metrology segments appearMBE businesses in 2012, the Company has forecasted that total revenue will decline from 38-48% in 2012 to be improving fromin the trough levels we experienced last year andrange of $500-600 million as a result of the cyclical downturn in early 2009.MOCVD equipment purchases.

        Our outlook discussion above constitutes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our expectations regarding future results are subject to risks and uncertainties. Our actual results may differ materially from those anticipated.

        You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made.

Results of Operations

Years Ended December 31, 20092011 and 20082010

        The following table shows our Consolidated Statements of Operations,Income, percentages of sales and comparisons between 20092011 and 20082010 (dollars in 000s):

Net Sales and Orders

        Net sales of $380.1$979.1 million for the year ended December 31, 2009,2011, were down 14.2%up 5.2% compared to 2008.2010. The following is an analysis of sales and orders by segment and by region (dollars in 000s):

        By segment, LED & Solar Process Equipment sales increased 23.7%4.1% in 2011 primarily due to anincreases in shipments of our newest systems as compared to 2010 (3.9% increase in end userMOCVD reactor shipments from 2010) as a result of the high demand which slowed by the beginning of the second half 2011 for HB LED backlighting applications and strong customer acceptance of Veeco's newest generation systems. Offsetting this increase,applications. Data Storage Process Equipment and Metrology sales were down 48.2% and 23.6%also increased 11.8%, respectively, primarily as a result of a slowdownan increase in capital spending by data storage customers for capacity and the continued slowdown in the semiconductor and research and industrial markets.technology buys. LED & Solar Process Equipment sales represented 54.0%84.5% of total sales for the year ended December 31, 2009, up2011, down from 37.4%85.5% in the prior year period.year. Data Storage Process Equipment sales accounted for 20.3%15.5% of net sales, downup from 33.7%14.5% in the prior year period. Metrology sales accounted for 25.7% of net sales for the year ended December 31, 2009, down from 28.9% in the prior year period.year. By region, net sales increased by 33.0%10.0% in the Asia Pacific, primarily due to MOCVD sales to HB LED customers, whilecustomers. In addition, sales in the Americas Europe, Middle Eastincreased 8.6% and Africa ("EMEA")sales in EMEA decreased 37.4%. We believe that there will continue to be year-to-year variations in the geographic distribution of sales.

        Orders in 2011 decreased 27.1% compared to 2010, primarily attributable to a 32.8% decrease in LED & Solar orders that were principally driven by a mid-year deterioration due to oversupply in the LED market, slowing orders dramatically in the third and Japan declined 45.5%fourth quarters after hitting a peak in the second quarter of 2011. Data Storage orders increased 9.0% from the continued increase in our customer's capital spending for capacity and technology buys.

        Our book-to-bill ratio for 2011, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 0.84 to 1 compared to 1.20 to 1 in 2010. Our backlog as of December 31, 2011 was $332.9 million, compared to $535.4 million as of December 31, 2010. During the year ended December 31, 2011, we experienced a net backlog adjustment of approximately $41.4 million. The adjustment consisted of $38.1 million of order cancellations and $3.3 million related to other order adjustments. During the year ended December 31, 2011, we had a positive adjustment related to foreign currency translation of $0.1 million. For certain sales arrangements we require a deposit for a portion of the sales price before shipment. As of December 31, 2011 and 2010 we had deposits and advanced billings of $57.1 million and $129.2 million, respectively.

Gross Profit

        Gross profit was $474.3 million or 48.4% for 2011 compared to $449.5 million or 48.3% in 2010. LED & Solar gross margins decreased to 48.0% from 48.3% in the prior year, primarily due to higher overhead costs and service support spending, partially offset by increases in volume, favorable product mix and lower average material costs. Data Storage gross margins increased to 50.7% from 48.4% in the prior year due to increased sales volume and a favorable product mix, partially offset by higher overhead costs and service support spending.

Operating Expenses

        Selling, general and administrative expenses increased by $7.9 million or 9.0%, 17.1%from the prior year primarily to support the increased level of business in our LED & Solar segment. Selling, general and 48.9%administrative expenses were 9.7% of net sales in 2011, compared with 9.4% of net sales in the prior year.

        Research and development expense increased $39.6 million or 69.6% from the prior year, primarily due to continued product development in areas of high-growth for end market opportunities in our LED & Solar segment. As a percentage of net sales, research and development expense increased to 9.9% from 6.1% in the prior year.

        Amortization expense increased $1.0 million from the prior year, primarily resulting from the increase in intangible assets as a result of our acquisition of a privately held company that occurred during the second quarter of 2011.

        Restructuring expense of $1.3 million for the year ended December 31, 2011, consisted of personnel severance costs associated with the company-wide reduction of approximately 65 employees in our workforce. Restructuring credit of $0.2 million for the year ended December 31, 2010, was attributable to a change in estimate in our Data Storage segment.

        During 2011, the Company recorded a $0.6 million asset impairment charge related to the disposal of equipment associated with the discontinuance of a certain product line in our LED & Solar segment.

Interest Expense, net

        Interest expense, net for 2011 was $0.8 million, comprised of $1.4 million in cash interest expense, $1.9 million in non-cash interest expense relating to net amortization of our short-term investments and $1.3 million in non-cash interest expense relating to our convertible debt, which was retired during the first half of 2011 creating a loss on extinguishment of approximately $3.3 million. Interest expense was partially offset by $3.8 million in interest income earned on our cash and short-term investment balances. Interest expense, net for 2010 was $6.6 million, comprised of $4.7 million in cash interest expense, $0.4 million in non-cash interest expense relating to our short-term investments and $3.1 million in non-cash interest expense relating to our convertible debt, partially offset by $1.6 million in interest income earned on our cash and short-term investment balances. The non-cash interest expense is related to accounting rules that requires a portion of convertible debt to be allocated to equity in 2011 and 2010 and accretion of debt discounts and amortization of debt premiums related to our short-term investments in 2011 and 2010.

Income Taxes

        The income tax provision attributable to continuing operations for the year ended December 31, 2011 was $81.6 million or 30.0% of income before taxes compared to $19.5 million or 6.6% of income before taxes in the prior year. The 2011 provision for income taxes included $9.6 million relating to our foreign operations and $72.0 million relating to our domestic operations. The 2010 provision for income taxes included $8.0 million relating to our foreign operations and $11.5 million relating to our domestic operations. Our 2010 effective tax rate was lower than our 2011 effective tax rate as a result of the utilization of our domestic net operating loss and tax credit carry forwards due to the reversal of

our valuation allowance during 2010. Our 2011 effective tax rate is lower than the statutory rate as a result of the jurisdictional mix of earnings in our foreign locations, which impacted the effective tax rate by approximately 1.9%, and other favorable tax benefits including the Domestic Production Activities Deduction and the Research and Development Credit, which impacted the effective tax rate by approximately 3.4%.

Discontinued Operations

        Discontinued operations represent the results of the operations of our disposed Metrology segment, which was sold to Bruker on October 7, 2010, and our CIGS solar systems business, which was discontinued on September 27, 2011, reported as discontinued operations. The 2011 results reflect an operational loss before taxes of $1.6 million related to the Metrology segment and an operational loss before taxes of $90.3 million related to the CIGS solar systems business. The 2010 results reflect an operational loss before taxes of $0.8 million and a gain on disposal of $156.3 million before taxes related to the Metrology segment and an operational loss before taxes of $25.7 million related to the CIGS solar systems business.

Years Ended December 31, 2010 and 2009

        The following table shows our Consolidated Statements of Operations, percentages of sales and comparisons between 2010 and 2009 (dollars in 000s):

Net Sales and Orders

        Net sales of $930.9 million for the year ended December 31, 2010, were up 229.8% compared to 2009. The following is an analysis of sales and orders by segment and by region (dollars in 000s):