VEECO INSTRUMENTS INC.

INDEX

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

PART I

Item 1. Business

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

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

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

Business Overviewneeds and maximize our system uptime.

We are focused on:

·Providing differentiated

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

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

·Expanding our portfolio to improve the performance of our systems, including spare parts, upgrades, and consumables to drive growth, reduce our customers’ cost of ownership, and improve customer satisfaction;

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

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

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

conditions; prices for MOCVD equipment. Following this investment wave, there was an oversupply of MOCVD equipment,LED chips; supply and demand dynamics; competition; and our business went into a deep decline.

The adoption of LEDs for solid state lighting helped drive improvementscustomers’ manufacturing plans. Given the recent competitive trends in industry conditions in 2014. LED technology offered energy and cost savings opportunities in lighting, which played an important role inChina, the global shift toward energy efficiency initiatives. LEDs are up to 80% more efficient than traditional incandescent bulbs and up to 25% more efficient than compact fluorescent bulbs. LED penetration into the lighting market is growing, and for the first time, LED unit demand for general lighting surpassed demand for displayand backlighting in 2015. While LED industry conditions softened in the second half of 2015, due largely to weak TVmarkets have become commoditized and LED display backlighting demand, we do not expect to benefitsignificant revenue from the ongoing adoption of LED lighting over time.these markets going forward.

MOCVD technology is equallyalso important in the manufacturing of red, orange, and yellow (“ROY”) LEDs, which are used inincreasingly for fine-pitch digital signage and automotive lighting applications. For these LEDs,applications, our K475 MOCVD platformtechnology is used to deposit highly uniform Arsenic PhosphideArsenides and Phosphides (“AsP”As/P”) films which create amber and red hues. While ROYoutput colors.

The Display market refers to LEDs or micro LEDs used directly for displays. Our MOCVD systems are predicted to grow at a slower pace than LED units for general lighting, we expect to benefit from growth driven by increased adoption of LED technology for automobiles and outdoor display/signage applications. In addition to depositing the critical GaN layer with our MOCVD products, our Precision Surface Processing (“PSP”) products address multiple etch and clean steps requiredwell suited for the LED manufacturing process.display market.

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

Global demand is increasing for advanced power electronics with greater energy efficiency, a smaller footprints,form factor, ability to operate at higher operating temperatures, faster switching capabilities, and greater reliability. These devices support many needs,applications, including more efficient IT servers, electrical motors, faster charging stations for electric vehicles, wind turbines, and photovoltaic power inverters.

While silicon-based transistors are widely used in power electronic devices today, GaN-on-SiliconGaN based power electronics developed on MOCVD toolssystems can potentially deliver higher performance (e.g., smaller power supply form factors, higher efficiency, and faster switching speeds). These devices are ideal for applications such as IT servers, where heat generation is an ever-increasing problem as server banks become largerIn addition to depositing the critical GaN layer with our MOCVD products, our wet etch and where heat managementclean products address multiple etch and energy efficiency requirements continuesclean steps required to rise.manufacture these advanced power electronics devices. In 2015,recent years, global industry leaders in power electronics continued to focushave focused on research and development (“R&D”) programs to commercialize this new technology. DeviceWe anticipate device manufacturers will likely begin to transition from development to production of these devices over the next couple of years; we can benefit from this transition as our customers invest in process equipment to support this production ramp-up.

inspection products are used for an increasing numbershape inspection of 3D topographies in memory and logic applications, including accelerometers for automobile airbags, pressure sensors for medical uses,which helps our customers improve their lithography and gyroscopes for a variety of consumer products, such as gaming consoles and mobile devices. One of the fastest growing MEMS applications has been RF filters for mobile devices, driven by increasingly complex wireless standards and the exponential growth of mobile data. In order to address these growing demands, a high-end smartphone can have as many as 60 discrete RF filters, a figure that has more than doubled in recent years. These trends are positive for us, particularly for our PSP products as well as our ion beam etch and Molecular Beam Epitaxy (“MBE”) products, which are used to create Bulk Acoustic Wave (“BAW”) and Surface Acoustic Wave (“SAW”) RF filters.deposition processes.

Data Storage

The Data Storage market involves the storage of data in electromagnetic or other forms for use by a computer or device, including HDDs used in large capacity storage applications. While HDDs face significant competition 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. This is especially true for data center applications where large volumes of data storage are required to serve an increasingly mobile population. The HDD manufacturing industry continues to optimize its existing manufacturing capacity to address demand. While we have seen signs of capacity constraints in some process areas and have experienced incremental orders for our equipment in 2015, future orders are likely to be focused on implementation of new technologies as opposed to capacity expansion. Future demand for our data storage systems is unclear and orders are expected to fluctuate from quarter to quarter. Our process knowledge and magnetic materials expertise from the Data Storage market positions us well for certain front-end semiconductor and MEMS opportunities, as thin film magnetic manufacturing methods become increasingly used in these markets.

Scientific & Industrial

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

Our MBE systems are used by scientific research organizations and universities to drive new discoveries in the areas of materials science. MBE enables precise epitaxial crystal growth for a very wide variety of materials, which supports the development of new performance materials used for emerging technologies. MBE technology is also used in the manufacturing of specialized, lower volume products such as laser diodeshigh-power lasers and infrared sensors. Our toolsfully automated process equipment systems create highly uniform, Gallium-Arsenide (“GaAs”)and high purity GaAs or Indium-Phosphide (“InPh”)InP film layers, which are critical to the performance of these devices. Our PSP productswet etch and clean systems are also used toin the manufacture of infrared sensors.

Our Ion Beam Deposition, Ion Beam Etch, Physical Vapor Deposition (“IBD”PVD”), and lapping and dicing tools are used in data storage applications, including HDDs that will continue to provide significant value for mass storage and will remain an important part of large capacity storage applications. This is especially true for data center applications where large volumes of data storage are required to serve an increasingly mobile population. In addition, our IBD tools are used to produce high quality optical films for multiple applications including laser mirrors, optical filters, and anti-reflective coatings. Our tools deposit thin layers of advanced materials on various substrates to alter how light is reflected and transmitted. Our ability to precisely deposit high quality films with extremely low particulate levels make our ion beam deposition technology ideal for manufacturing defect-free EUV photomask blanks. The front-end semiconductor industry is expected to adopt EUV lithography to meet future device requirements. Future growth will depend on overall EUV production readiness.

Precision Surface Processing Systems (Wet Etch and Clean)

In December 2014, we acquired Solid State Equipment LLC, a leading innovator inWe offer single wafer wet etch and clean, and surface preparation equipment targetingsystems which target high growth segments in advanced packaging, MEMS, LEDs, and compound semiconductor markets, which we renamed PSP. The two core platforms acquired are the WaferEtch™ and the WaferStorm™. The WaferEtch platform provides highly uniform, selective etching with onboard end point detection for improved process control and yield. The flagship of the WaferEtch platform, the TSV Revealer™, is specifically configured to address the requirements of TSV reveal, which is the process where the backside of a wafer is thinned to reveal the copper interconnects. The TSV Revealer offers a significant cost of ownership reduction compared with dry etch processing by replacing up to four separate process steps.markets. The WaferStorm platform is based on PSP’s unique soak and sprayImmJET™ technology, which provides improved performance at a lower cost of ownership than conventional wet bench-only or spray-only approaches. This highly flexible platform targets solvent based cleaning applications that require a significant level of control.process control and flexibility. The WaferEtch® platform provides highly uniform, selective etching with onboard end point detection for improved process control and yield in bumping applications. In addition, PSP has developed a state-of-the-art solution with the WaferEtch platform to address the requirements of TSV reveal, in which the backside of a wafer is thinned to reveal the copper interconnects. PSP’s TSV technology offers a significant cost of ownership reduction compared with dry etch processing by replacing up to four separate process steps.

Laser Annealing Systems

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

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

Ion Beam Deposition and Etch and Deposition Systems

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

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

Molecular Beam Epitaxy Systems

MBEMolecular beam epitaxy is the process of precisely depositing epitaxially-aligned atomically-thin crystalline layers, or epilayers, of elemental materials onto a substrate in an ultra-high vacuum environment. We are thea leading supplier of MBE systems worldwide.

Our MBE systems, sources, and components are used to develop and manufacture critical epitaxial layerscompound semiconductor devices in a wide variety of applications such as solar cells,high-power fiber lasers, infrared detectors, mobile phones, radar systems, high efficiency solar cells, and displays.basic materials science research. For many compound semiconductors, MBE is the critical step of the fabrication process, ultimately determining device functionality and overall performance. We provideoffer a full complement of MBE systems and componentscustomized for the specific end application depositing on single 3” substrates up to fully automated production of wireless devices (e.g., power amplifiers, high electron mobility transistors, or hetero-junction bipolar transistors) and a broad array of research applications for new compound semiconductor materials. In 2013, we introduced the GENxplor™ R&D MBE System, the industry’s first fully-integrated MBE system for the compound semiconductor research and development market.systems that can deposit on seven 6” substrates simultaneously. The GENxplor® MBE system creates high quality epitaxial layers on substrates up to 3” in diameter and is ideal for cutting edgecutting-edge research on a wide variety of materials including gallium arsenide,GaAs, antimonides, nitrides, and oxides. Our GEN2000The GENxcel® and

Focus Lighting Tech Co. and KAISTAR Lighting (Xiamen) Co. eachaccounted for more than 10% of our total net sales in 2018; sales to OSRAM Opto Semiconductors accounted for more than 10% of our total net sales for 2015; sales to HC SemiTek Corp.2017 and Seoul Viosys Co. each accounted for more than 10% of our total net sales in 2014; sales to HC SemiTek Corp. accounted for more than 10% of our total net sales in 2013.2016. If any principal customer discontinues its relationship with us or suffers economic difficulties, our business prospects, financial condition, and operating results could be materially and adversely affected.

Research and Development

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

Our research and development expenses were approximately $78.5 million, $81.2 million, and $81.4 million, or approximately 16%, 21%, and 25% of net sales for the years ended December 31, 2015, 2014, and 2013, respectively. These expenses consisted primarily of salaries, project materials, and other product development and enhancement costs.

Suppliers

We outsource a portion of our manufacturingcertain functions to third parties, including the manufacture of all or substantially allseveral of our MOCVD systems, ion beam and other data storage systems, and ion sources. We primarilysystems. While we rely on several suppliersour outsourcing partners to perform their contracted functions, we maintain some level of internal manufacturing capability for the manufacturing of these systems. In addition, certainRefer to Item 1A, “Risk Factors,” for a description of the componentsrisks associated with our reliance on suppliers and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers.outsourcing partners.

Backlog

Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months, and a deposit when required. Our backlog decreased to $186.0$288.3 million at December 31, 20152018 from $286.7

We also rely upon trade secret protection for our confidential and proprietary 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

At December 31, 20152018 we had 7831,043 employees, of which there were 200302 in manufacturing and testing, 8695 in sales and marketing, 147221 in service and product support, 201281 in engineering and research and development, and 149144 in information technology, general administration, and finance. The success of our future operations depends on our ability to recruit and retain engineers, technicians, and other highly skilled professionals who are in considerable demand. We feel that we have adequate programs in place to attract, motivate, and retain our employees. We monitor industry practices to make sure that our compensation and employee benefits remain competitive. However, there can be no assurance that we will be successful in recruiting or retaining key personnel. We believe that our employee relations are good. Refer to Item 1A, “Risk Factors,” for a description of risks associated with employee retention and recruitment.

Financial Information About Segments and Geographic Areas

We operate as a single reportable segment and report our financial results in four geographic regions: the United States; China; Europe, Middle East, and Africa (“EMEA”); and the Rest of World (“ROW”). Refer to Note 18, “Segment Reporting and Geographic Information,” in the Notes to the Consolidated Financial Statements for financial data pertaining to our geographic operations.

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

A reduction or eliminationWe are exposed to the risks of foreign government subsidies and economic incentives may adversely affect the future order rate for our MOCVD equipment.operating a global business.

We generateMost of our sales are to customers located outside of the United States, and we expect sales from non-U.S. markets to continue to represent a significant portion of our revenue in China. In recent years, the Chinese government has provided various incentives to encourage development of the LED 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 purchase more of our MOCVD equipment than these customers might have purchased without these subsidies. The availability of these subsidies has varied over time and may end at some pointsales in the future. A reduction or elimination of these incentives may result in a reduction in future orders for our MOCVD equipment in this region, which could materiallyOur non-U.S. sales and adversely affect our business, financial condition, and results of operations.  In addition, in an effort to promote Chinese competition, the Chinese government could impose restrictions on the receipt of these subsidies, including requirements that the purchased equipment be sourced locally.

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

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

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

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

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

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

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

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

We are also exposed to potential risks associated with unexpected product performance issues. Our product designs and manufacturing processes are complex and could contain unexpected product defects, especially when products are first introduced. Unexpected product performance issues could result in significant costs and damages, including increased service and warranty expenses, the need to provide product replacements or modifications, reimbursement for damages caused by our products, product recalls, related litigation, and product write-offs and disposal costs. These costs could be substantial and our reputation could be harmed, resulting in reduced demand forown. Policing unauthorized use of our products and could have a negative effect ontechnologies is difficult and time consuming and the laws of other countries may not protect our business, financial condition, and results of operations.

We have a concentrated customer base, located primarily in a limited number of regions, which operate in highly concentrated industries.

Our customer base continues to be highly concentrated. Orders from a relatively limited number of customers have accounted for, and likely will continue to account for, a substantial portion ofproprietary rights as fully or as readily as U.S. laws. Given these limitations, our net sales, which may lead customers to demand pricing and other terms less favorable to us. Our five largest customers accounted for 55% of our total net sales in 2015. Customer consolidation activity involving some of our largest customers could result in an even greater concentration of our sales in the future. Management changes at key customer accounts could result in a loss of future sales due to vendor preferences or other reasons and may introduce new challenges in managing customer relationships.

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

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

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

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

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

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

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

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

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

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

Our customer base is also highly concentrated in terms of geography, and the majorityAs part of our saleslong term strategy, we may pursue future acquisitions of other companies or assets which could potentially increase our assets. We are required to customers locatedtest our long-lived assets, including acquired intangible assets and property, plant, and equipment, for recoverability and impairment whenever there are indicators of impairment such as an adverse change in a limited numberbusiness climate. Adverse changes in business conditions or worse-than-expected performance by these acquired companies could negatively impact our estimates of countries. In 2015, 51%future operations and result in impairment charges to these assets. For example, during the second quarter of 2018, we recorded an asset impairment charge of $252.3 million related to the intangible assets acquired as part of our total net sales were to customers located in China. Dependence upon sales emanating from a limited numberacquisition of regions increasesUltratech, Inc. If our risk of exposure to local difficultiesassets are further impaired, our financial condition and challenges, such as those associated with regional economic downturns, political instability, fluctuating currency exchange rates, natural disasters, social unrest, pandemics, terrorism, or acts of war. Our reliance upon customer demand arising primarily from a limited number of countries could materially adversely impact our future results of operations.operations could be materially and adversely affected.

We face significant competition.

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

To remain competitive, we may enter into strategic alliances with customers, suppliers, and other third parties to explore new market opportunities and possible technological advancements. These alliances may require significant investments of capital and other resources and often involve the exchange of sensitive confidential information. The success of these alliances may depend on factors over which we have limited control and will likely require ongoing cooperation and good faith efforts from our strategic partners. Strategic alliances are inherently subject to significant risks, and the inability to effectively manage these risks could materially and adversely affect our business and operating results.

The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly.We operate in industries characterized by rapid technological change.

We derive a substantial portionEach of our net salesthe industries 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, a delay of only a week or two can impact which period revenue is reported in and can cause volatility in our revenue for a given reporting period. Our quarterly

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

We are also exposed to potential risks associated with unexpected product performance issues. Our product designs and manufacturing processes are complex and could contain unexpected product defects, especially when products are first introduced. Unexpected product performance issues could result in significant costs and damages, including increased service and warranty expenses, the rapidly changing technicalneed to provide product replacements or modifications, reimbursement for damages caused by our products, product recalls, related litigation, product write-offs, and volume requirements of our customers, which depends in part on the timely delivery of parts, components, and subassemblies (collectively, “parts”) from suppliers. Uncertain worldwide economic conditions and market instabilities make it difficult for us (and our customersdisposal costs. These costs could be substantial and our suppliers) to accurately forecast future product demand. If actualreputation could be harmed, resulting in a reduced demand for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing, or expediting delivery of parts. If we overestimate the demand for our products, excess inventory could result, which could be subject to heavy price discounting, which could become obsolete, and/or which could subject us to liabilities to our suppliers for products no longer needed. Similarly, we may be harmed in the event that our competitors overestimate the demand for their products and engage in heavy price discounting practices as a result. In addition, the volatility of demand for capital equipment increases capital, technical, and other risks for companies in our 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:

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

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

MostOur customer base is also highly concentrated in terms of geography, and the majority of our sales are to customers located outsidein a limited number of countries. Dependence upon sales emanating from a limited number of regions increases our risk of exposure to local difficulties and challenges, such as those associated with regional economic downturns, political instability, trade wars and other trade disruptions, fluctuating currency exchange rates, natural disasters, social unrest, pandemics, terrorism, and acts of war. Our reliance upon customer demand arising primarily from a limited number of countries could materially and adversely impact our future results of operations.

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

Our business depends in large part upon the capital expenditures of manufacturers in the LED, smartphones, data storage, and other device markets. We expect sales from non-U.S. marketsare subject to continuethe business cycles of these industries, the timing, length, and volatility of which are difficult to representpredict. These industries have historically been highly cyclical and have experienced significant economic downturns in the last decade. As a significantcapital equipment provider, our revenue depends 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 portion of our salescosts are fixed, our ability to reduce expenses quickly in the future. Our non-U.S. sales and operations are subjectresponse to risks inherent in conducting business outside the United States, many of which are outside our control, including:

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

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

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

·pressures from foreign customers and foreign governments for us to increase our operations and sourcing in the foreign country;

·longer sales cycles and difficulty in collecting accounts receivable;

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

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

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

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

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

WeOur operating results may be exposed to liabilities under the Foreign Corrupt Practices Act and any determination that we violated these or similar laws could have a material adverse effect on our business.adversely affected by tightening credit markets.

WeAs a global company with worldwide operations, we are subject to volatility and adverse consequences associated with economic downturns in different parts of the Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit improper payments or offersworld. In the event of payments to foreign government officials, as defined by the statute, for the purpose of obtaining or retaining business. In addition,a downturn, many of our customers have policies limitingmay delay or prohibiting usreduce their purchases of our products and services. If negative conditions in the credit markets prevent our customers from providing certain typesobtaining credit or amounts of entertainment, meals, or gifts to their employees. It is our policy to implement safeguards to discouragenecessary financing, product orders in these practices by our employees and representatives. However, our safeguardschannels may prove to be ineffective and our employees, consultants, sales agents, or distributors may engagedecrease, which could result in conduct for which we may be held responsible.lower revenue. In addition, we may acquireexperience cancellations of orders in backlog, rescheduling of customer deliveries, and attendant pricing pressures. If our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their businesses, their ability to continue to supply materials to us may be negatively affected.

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

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

The success of our business depends in part on our ability to accurately forecast and supply equipment and services that has engaged in unlawful conductmeet the rapidly changing technical and volume requirements of our customers. To meet these demands, we depend on the timely delivery of parts, components, and subassemblies from our suppliers. Uncertain worldwide economic conditions and market instabilities make it difficult for us (and our customers) to accurately forecast future product demand. If actual demand for our products is different than expected, we may purchase more or fewer parts than necessary or incur costs for canceling, postponing, or expediting delivery of parts. If we overestimate the demand for our products, excess inventory could result which could be subject to heavy price discounting, which could become obsolete, and which could subject us to liabilities to our suppliers for products no longer needed. Similarly, we may be harmed in the past,event that our competitors overestimate the demand for their products and be held responsibleengage in heavy price discounting practices as a result. In addition, the volatility of demand for this conduct through successor liability principles. Violations of the FCPA or similar laws or similar customer policies may resultcapital equipment poses risks for companies in severe criminal or civil sanctions or the loss of supplier privileges to a customer,our supply chain, including challenges associated with inventory management and wefluctuating working capital requirements.

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

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

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

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

quality issues, increased product time-to-market, and an inefficient allocation of our human resources, any or all of which could materially and adversely affect our business, financial condition, and results of operations.

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

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

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

Our success depends in part upon our ability to attract, retain, and motivate employees, including those in executive, managerial, engineering and marketing positions, as well as highly skilled and qualified technical personnel. Attracting, retaining, and motivating such qualified personnel may be difficult due to challenging industry conditions, competition for such personnel by other technology companies, consolidations and relocations of operations, and workforce reductions, and there can be no assurance that we will be successful in recruiting or retaining key personnel. We have entered into employment agreements with certain key personnel but our inability to attract, retain, and motivate key personnel could have a material adverse effect on our business, financial condition, and results of operations.

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

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

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

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

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

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

We have indebtedness in the form of convertible senior notes which could adversely affect our financial position, prevent us from implementing our strategy, and dilute the ownership interest of our existing shareholders.

In January of 2017, we issued $345 million of 2.70% Convertible Senior Notes due 2023 (“Convertible Senior Notes”). The Convertible Senior Notes are convertible into Company common stock at an initial conversion rate of 24.98 shares of Company common stock per $1,000 principal amount of the Convertible Senior Notes. The Company is obligated to repurchase the Convertible Senior Notes upon the occurrence of certain events described in the indenture relating to the Convertible Senior Notes. The degree to which we are leveraged could have negative consequences, including but not limited to the following:

Our ability to meet our payment obligations under the Convertible Senior Notes depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient for us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to implement one or more of these alternatives, we may be requiredunable to take additional impairment chargesmeet our debt payment obligations, which could have a material adverse effect on assets.our business, results of operations, and financial condition.

WeFurthermore, if the Convertible Senior Notes 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 inconverted into shares of Company common stock, the overall industry, thatissuance of additional shares of Company common stock would more likely than not reducedilute the fair value below its carrying amount. We are also required to test our long-lived assets, including acquired intangible assets and property, plant, and equipment, for recoverability and impairment whenever there are indicators of impairment, such as an adverse change in business climate.

As partownership interest of our long-term strategy, we may pursue future acquisitions of other companies or assets whichexisting shareholders and could potentially increasehave a dilutive effect on our assets. Adverse changes in business conditions could materially impact our estimates of future operations and result in impairment chargesnet income per share to these assets. In the future, a significant decline inextent that the market price of our common stock

amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our financial results, the trading price of our common shares could decline significantly independentstock, and the trading price of the overall market, and shareholders could lose all or a substantial part of their investment. The market price of our common shares could fluctuate significantly in response to several factors, including, among others:Convertible Senior Notes.

·difficult macroeconomic conditions, unfavorable geopolitical events, and generalIn addition, under certain circumstances convertible debt instruments (such as the Convertible Senior Notes) that may be settled entirely or partly in cash can be accounted for utilizing the treasury stock market uncertainties, such as those occasioned by a global liquidity crisis and a failuremethod, the effect of large financial institutions;

·receiptwhich is that the shares issuable upon conversion of large orders or cancellations of orders for our products;

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

·actual or anticipated variations in our results of operations;

·announcements of financial developments or technological innovations;

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

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

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

·the occurrence of major catastrophic events.

Significant price and value fluctuations have occurred with respect to our publicly traded securities and technology companies generally. The price of our common shares is likely to be volatileConvertible Senior Notes are not included in the future. Incalculation of diluted earnings per share except to the past, securities class action litigation often has been brought against a company following periodsextent that the conversion value of volatilitythe Convertible Senior Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in the market price of its securities. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management’s attention and resources, which could materially and adversely affect our financial condition, results of operations, and liquidity.

The enforcement and protection of our intellectual property rights may be expensive and/or divert our limited 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 U.S. 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, or through efforts by others to reverse engineer our products or design around patents that we own. Given these limitations, our success will depend in part upon our ability to innovate ahead of our competitors.

Furthermore, policing unauthorized use of our products and technologies is difficult and time consuming, and 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.shares, are issued. We cannot be certainsure that the steps we have takenaccounting standards in the future will preventcontinue to permit 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 fullytreasury stock method or as readily as U.S. laws. Further, we cannot be certain that

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

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

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

Despite the above measures, an activist shareholder could undertake action to implement governance, strategic, or other changes to the Company which a holder of our common stock might not consider to be in the holder’s best interest. Such activities could interfere with our ability to execute our strategic plans, be costly and time consuming, disrupt our operations, and divert the attention of management and our employees.

We are exposed to various risks associated with global regulatory requirements.

As a public company with global operations, we are subject to the laws of the United States and multiple foreign jurisdictions, and the rules and regulations of various governing bodies, which may differ among jurisdictions. We are required to comply with legal and regulatory requirements pertaining to such matters as privacy, labor laws, immigration, customs, trade, taxes, corporate governance, conflict minerals and other social responsibility legislation, and antitrust regulations, among others. These laws and regulations, which are ever-evolving and at times complex and inconsistent, impose costs on our business and divert management time and attention from revenue-generating activities. Changes to or ambiguities in these laws and regulations may create uncertainty regarding our compliance requirements. While we intend to invest the required resources to comply with these regulatory requirements, if we are found by a court or regulatory agency to have failed in these efforts, our business, financial condition, and results of operations could be adversely affected.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and other similar laws.

We are subject to the Foreign Corrupt Practices Act of 1977 (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign government officials, as defined by the statute, for the purpose of obtaining or retaining business. In addition, many of our customers have policies limiting or prohibiting us from providing certain types or amounts of entertainment, meals, or gifts to their employees. It is our policy to implement safeguards to discourage these practices by our employees and representatives. However, our safeguards may prove to be ineffective and our employees, consultants, sales agents, or distributors may engage in conduct for which we may be held responsible. In addition, we may acquire a company that has engaged in unlawful conduct in the past, and be held responsible for this conduct through successor liability principles. Violations of the FCPA or similar laws or similar customer policies may result in severe criminal or civil sanctions or the loss of supplier privileges to a customer and we may be subject to other liabilities, which could negatively affect our business, financial condition, and results of operations.

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, recycling and disposal of related materials, and the operation and use of our facilities and real property. Failure or inability to comply with existing or future

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

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

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted requirements for companies that manufacture products that contain certain minerals and

Item 2. Properties

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

(1) We consolidated our business into one building, leavingIn addition to the adjacent building held for sale.

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

Item 3. Legal Proceedings

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

On December 21, 2018, a purported Veeco stockholder filed a derivative action in the Superior Court of the potential risksState of California, County of Santa Clara, captioned Vladimir Gusinsky Revocable Trust v. Peeler, et al., Case No. 18CV339925, on behalf of nominal defendant Veeco. The complaint seeks to assert claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment against current and former Veeco directors premised on purported misstatements and omissions in the system. Duringregistration statement relating to the first quarter of 2016,Ultratech acquisition. On January 2, 2019, the parties agreedcourt ordered this action stayed until the case management conference, which is scheduled for March 15, 2019. Veeco believes this lawsuit is without merit and intends to settle the lawsuit, without any admission of wrongdoing. The settlement amount is expected to be fully covered by our insurance and, as a result, is not expected to have a material impact on our financial condition or results of operations.vigorously contest this matter.

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

Item 4. Mine Safety Disclosures

Not Applicable.

PART II

Our common stock is quoted on The NASDAQ Stock Market under the symbol “VECO.” The 2015 and 2014 high and low closing bid prices by quarter are as follows:

On February 10, 2016, the closing bid price for our common stock on The NASDAQ Stock Market was $17.52 and we had 90 shareholders of record.

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

Issuer Purchases of Equity Securities

ShareDuring fiscal years 2018, 2017, and 2016, we repurchased 1.0 million shares, 0.2 million shares, and 0.7 million shares of our common stock for $11.3 million, $3.0 million, and $13.1 million, respectively, through our share repurchase activity during the three months endedprograms. On December 31, 2015 is as follows:

On October 28, 2015,11, 2017, our Board of Directors authorized a program to repurchase up to $100 million of ourthe Company’s outstanding common stock to be completed through December 11, 2019, after completion of the previous program on October 28, 2017. We did not purchase any shares during the fourth quarter of 2018. At December 31, 2015, $9.22018, $14.3 million of the $100 million had been utilized. Repurchases are expected tomay be made from time to time on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. The timing and amount of future repurchases, if any, will depend upon market conditions, SEC regulations, and other factors. The repurchases would be funded using available cash balances and cash generated from operations. The program does not obligate us to acquire any particular amount of common stock and may be modified or suspended at any time at our discretion.

Stock Performance Graph

ASSUMES $100 INVESTED ON DEC. 31, 20102013

ASSUMES DIVIDENDS REINVESTED

FISCAL YEAR ENDING DEC. 31

Item 6. Selected Financial Data

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

(1) Information presented excludes the results

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

Executive Summary

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

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

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

A majority of our sales inRF Filters; LED Lighting, Display & Power Electronics were derived from customers who manufacture LEDs. Demand for LED manufacturing equipment fluctuates quarter-to-quarter depending on various factors, including but not limited to macroeconomic conditions, customer utilization rates, demand for TVsCompound Semiconductor; Front-End Semiconductor; and smartphones, and the rate of LED adoption for general lighting. Demand increased in 2014 and through the first half of 2015, supported by ongoing adoption of LED lighting for commercial and residential purposes. However, weak economic conditions in China and steep declines in LED demand for TV display backlighting resulted in LED unit oversupply through the second half of 2015. Accordingly, customers delayed their LED investment plans which adversely impacted our bookings, and we expect this will continue to negatively impact demand for our MOCVD equipment into 2016. While we have limited visibility to determine when demand for LED units will improve, industry analysts project LED lighting adoption will continue, and we believe this will require additional capacity purchases over the next several years as macroeconomic conditions improve. Our MOCVD architecture has been developed to support the most significant industry trends,

Results of Operations

ResultsEffective January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The results of Operationsoperations for 2017 and 2016 have been recast for the new standard. Refer to Note 1, “Significant Accounting Policies” for additional information.

Years Ended December 31, 20152018 and 20142017

The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for 20152018 and 20142017 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, represented by our single operating segment.