Executive Summary

We design, manufacture, market, and service enabling solutions for customers in the high-brightness light emitting diode ("HB-LED"), solar, data storage, scientific research, semiconductor, and industrial markets. We have leading technology positions in our three segments: Light Emitting Diode ("LED") & Solar Process Equipment, Data Storage Process Equipment, and Metrology.

In our LED & Solar segment, we design and manufacture metal organic chemical vapor deposition ("MOCVD") systems, molecular beam epitaxy ("MBE") systems and sources, and other types of deposition systems such as web and glass coaters, which we sell primarily to manufacturers of HB-LEDs and solar panels, as well as to scientific research customers.

In our Data Storage segment, we design and manufacture ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, and dicing and slicing products primarily used to create thin film magnetic heads ("TFMHs") that read and write data on hard disk drives.

In our Metrology segment, we design and manufacture atomic force microscopes ("AFMs"), scanning probe microscopes ("SPMs"), stylus profilers, and 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 storage and other industries, our metrology instruments enable customers to monitor their products throughout the 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 locations in North America, Europe, Japan, and the Asia Pacific region.

Highlights of the Second Quarter of 2009

† Revenue was $72.0 million, a 37% decrease from the second quarter of 2008, but up 15% from the first quarter of 2009.

† Orders were $98.7 million, down 28% from the second quarter of 2008, but up 86% from the first quarter of 2009.

† Net loss was $14.7 million, or ($0.47) per share, compared to net income of $3.5 million, or $0.11 per share, in the second quarter of 2008.

† Gross margins were 33.9%, compared to 41.7% in the second quarter of 2008.

† Restructuring charges totaled $1.9 million, principally consisting of personnel severance costs as well as lease-related and moving and consolidation costs associated with our Camarillo, CA facilities, which we vacated during the quarter.

The second quarter remained challenging for Veeco from a revenue and loss perspective due to the global economic slowdown that began in the fall of 2008. We have made significant progress on our cost and workforce reduction plans, various outsourcing initiatives and materials cost management.

Veeco's second quarter order improvement compared to the first quarter was primarily driven by significant sequential growth in LED & Solar bookings to $57 million, as LED manufacturers ramp production for TV and laptop backlighting applications. Data storage orders also improved 147% from the first quarter of 2009 to $19 million, with hard disk drive customers resuming both technology and capacity purchases. Metrology orders were $23 million, up 38% from the first quarter of 2009, due to new product traction and some improvement in scientific research spending.

Outlook

While Veeco remains cautious about overall economic conditions, we are encouraged by the improvement in bookings over the first quarter of 2009 for all three businesses. Veeco's backlog at June 30, 2009 was $160 million. The positive trends we experienced in the second quarter in our MOCVD business have accelerated into the beginning of this quarter driven by key customers' investments in LED capacity for backlighting applications. We have already received orders for a total of over $110 million in MOCVD systems during the month of July from

multiple customers in APAC. As a result of this pace of orders, we currently believe that third quarter LED & Solar bookings will be between $125 to 175 million. While we remain cautious to the possibility of cancellations and/or rescheduling of orders, based on these order trends it is our current expectation that Veeco's overall third quarter orders will be significantly higher than the second quarter.

Veeco's outlook for the remainder of the year looks significantly different than it did just one quarter ago, primarily due to the strong LED industry demand.
We are currently expecting that Veeco will return to EBITA profitability in the third quarter. Since the global economic situation remains uncertain, it is our intention to continue to carefully manage our expenses, while at the same time making selected investments that are required to support the MOCVD production ramp as well as our new CIGS solar equipment business. Veeco currently anticipates that its 2009 revenues will be in the range of $310 to $325 million.

Results of Operations:



Three Months Ended June 30, 2009 and 2008


The following table shows our Condensed Consolidated Statements of Operations,
percentages of sales, and comparisons between the three months ended June 30,
2009 and 2008 (dollars in thousands):



                                   Three Months Ended                     Dollar and
                                        June 30,                          Percentage
                              2009                    2008                  Change
Net sales             $  72,020      100.0 %  $ 114,449      100.0 % $ (42,429 )    (37.1 )%
Cost of sales            47,636       66.1       66,719       58.3     (19,083 )    (28.6 )
Gross profit             24,384       33.9       47,730       41.7     (23,346 )    (48.9 )
Operating expenses:
Selling, general,
and administrative
expense                  19,822       27.5       24,311       21.3      (4,489 )    (18.5 )
Research and
development expense      13,163       18.3       15,145       13.2      (1,982 )    (13.1 )
Amortization
expense                   1,831        2.5        2,426        2.1        (595 )    (24.5 )
Restructuring
expense                   1,944        2.8            -          -       1,944     (100.0 )
Asset impairment
charge                      304        0.4            -          -         304     (100.0 )
Other income, net           (77 )     (0.1 )       (382 )     (0.3 )       305      (79.8 )
Total operating
expenses                 36,987       51.4       41,500       36.3      (4,513 )    (10.9 )
Operating (loss)
income                  (12,603 )    (17.5 )      6,230        5.4     (18,833 )   (302.3 )
Interest expense,
net                       1,698        2.4        1,700        1.4          (2 )     (0.1 )
(Loss) income
before income           (14,301 )    (19.9 )      4,530        4.0     (18,831 )   (415.7 )
Income tax
provision                   402        0.6        1,129        1.0        (727 )    (64.4 )
(Loss) income
including
noncontrolling
interest                (14,703 )    (20.4 )      3,401        3.0     (18,104 )   (532.3 )
Noncontrolling
interest                    (23 )     (0.0 )        (70 )        -          47      (67.1 )
Net (loss) income     $ (14,680 )    (20.4 )% $   3,471        3.0 % $ (18,151 )   (522.9 )%

Net Sales and Orders



Net sales of $72.0 million for the three months ended June 30, 2009 were down
37.1% compared to the comparable 2008 quarter.  The following is an analysis of
sales and orders by segment and by region (dollars in thousands):



                                      Sales                                               Orders
                 Three Months Ended       Dollar and Percentage         Three Months Ended          Dollar and            Book-to-Bill
                      June 30,                    Change                     June 30,            Percentage Change           Ratio
                  2009        2008             Year to Year              2009        2008          Year to Year          2009      2008
Segment
Analysis
LED & Solar
Process
Equipment      $   31,882   $  45,090   $      (13,208 )     (29.3 )% $   56,342   $  52,061   $      4,281      8.2 %    1.77      1.15
Data Storage
Process
Equipment          17,593      36,762          (19,169 )     (52.1 )      19,318      51,716        (32,398 )  (62.6 )    1.10      1.41
Metrology          22,545      32,597          (10,052 )     (30.8 )      23,010      32,735         (9,725 )  (29.7 )    1.02      1.00
Total          $   72,020   $ 114,449   $      (42,429 )     (37.1 )% $   98,670   $ 136,512   $    (37,842 )  (27.7 )%   1.37      1.19
Regional
Analysis
Americas       $   23,864   $  44,688   $      (20,824 )     (46.6 )% $   20,660   $  52,769   $    (32,109 )  (60.8 )%   0.87      1.18
Europe,
Middle East
and Africa
("EMEA")           14,889      23,142           (8,253 )     (35.7 )      16,193      19,131         (2,938 )  (15.4 )    1.09      0.83
Japan               4,511       5,989           (1,478 )     (24.7 )       7,434       7,809           (375 )   (4.8 )    1.65      1.30
Asia Pacific       28,756      40,630          (11,874 )     (29.2 )      54,383      56,803         (2,420 )   (4.3 )    1.89      1.40
Total          $   72,020   $ 114,449   $      (42,429 )     (37.1 )% $   98,670   $ 136,512   $    (37,842 )  (27.7 )%   1.37      1.19

Sales declined in each segment in the second quarter of 2009 compared with the second quarter in 2008 due to our customers' reluctance to invest in capital equipment during the current difficult economic conditions. LED & Solar Process Equipment sales were down 29.3% from the second quarter of 2008 primarily due to a pause in capacity spending as LED customers absorb the equipment purchased from Veeco during the last two years. However, the book-to-bill ratio in that segment increased to 1.77 from 1.15 in the comparable quarter of 2008, indicating an improvement in business outlook for the LED business. Data Storage Process Equipment segment sales

declined by 52.1% from the second quarter of 2008 due to the slowdown in capital spending by our data storage customers. Additionally, Metrology sales decreased by 30.8% from the second quarter of 2008, primarily due to a slowdown in the research, industrial and data storage markets. By region, net sales decreased by 46.6%, 35.7%, 24.7%, and 29.2% in the Americas, EMEA, Japan, and Asia Pacific, respectively. We believe that there will continue to be quarter-to-quarter variations in the geographic distribution of sales.

Orders for the second quarter of 2009 decreased by 27.7% from the comparable 2008 period. However, orders for LED & Solar Process Equipment increased by 8.2% over the second quarter 2008. This increase was principally driven by LED manufacturers ramping up production for television and laptop backlighting applications. The 62.6% decrease in Data Storage Process Equipment orders resulted from customers continuing to be cautious about their capital spending. The 29.7% decrease in Metrology orders is due to low demand from customers in the semiconductor, research and industrial markets.

Our overall book-to-bill ratio for the second quarter of 2009, which is calculated by dividing orders received in a given period by revenue recognized in the same time period, was 1.37 to 1, an improvement over the ratio of 1.19 to 1 in the comparable quarter of 2008. Our backlog as of June 30, 2009 was $160 million, compared to $147.2 million as of December 31, 2008. During the quarter ended June 30, 2009, we experienced backlog adjustments of approximately $1.8 million, consisting of $1.1 million for order cancellations and $0.7 million of adjustments related to foreign currency translation. Due to changing business conditions and weak capital equipment spending by certain customers in our businesses, we may continue to experience cancellations and/or rescheduling of orders. Despite some indications of improvement over the first quarter of 2009, particularly in our LED & Solar Process Equipment segment, we still expect 2009 to be a challenging year for the Company overall.

Gross Profit

Gross profit for the quarter ended June 30, 2009, was 33.9%, compared to 41.7% in the second quarter of 2008, primarily due to the significant decline in sales. LED & Solar Process Equipment gross margins decreased to 32.7% from 41.4% in the prior-year period, primarily due to the significant decrease in sales volume and unfavorable product mix as compared to the prior-year period. Data Storage Process Equipment gross margins decreased to 34.3% from 40.2% in the prior-year period, due to reduced sales volume. Metrology gross margins decreased to 35.2% from 43.8%, principally due to lower sales volume and a less favorable product mix and pricing in Metrology instruments.

Operating Expenses

Selling, general and administrative expenses decreased by $4.5 million, or 18.5%, from the prior-year period, primarily due to lower salary and related expenses resulting from the personnel reductions taken as part of management's restructuring plan, a reduction in incentive bonus and profit-sharing expense, and lower commissions as well as cost savings initiatives resulting in less travel and entertainment, marketing, and other operating and occupancy expenses.

Research and development expense decreased $2.0 million from the second quarter of 2008, primarily due to a more focused approach to Metrology and Data Storage product development that resulted from our restructuring activities. As a percentage of sales, research and development increased to 18.3% in the second quarter of 2009 from 13.2% in the second quarter of 2008, as a result of lower sales volume. The Company continues to invest in higher-growth end market opportunities, particularly in its LED & Solar segment.

Amortization expense was $1.8 million in the second quarter of 2009, compared to $2.4 million in the second quarter of 2008, due to reduced intangible assets resulting from asset impairment charges taken during the fourth quarter of 2008.

Restructuring expense of $1.9 million for the second quarter of 2009 consists of $0.8 million of personnel severance costs resulting from a reduction in workforce. In addition, there were $0.9 million of lease-related costs and $0.3 million of moving and consolidation costs incurred in our Data Storage Process Equipment segment associated with vacating our Camarillo, CA facilities. In addition to the $1.9 million in restructuring expense, we incurred $0.3 million of asset impairment costs. No such costs were incurred in the second quarter of 2008.

Interest Expense, Net

Net interest expense was $1.7 million in the second quarter in each of 2009 and 2008, comprised in both years of $1.0 million in cash net interest expense and $0.7 million in non-cash interest expense related to the implementation of FASB Staff Position No. APB 14-1 ("FSP APB 14-1"), Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).See "Recent Accounting Pronouncements" for a further discussion of the implementation of FSP APB 14-1.

Income Taxes

The income tax provision for the quarter ended June 30, 2009 was $0.4 million compared to $1.1 million in the second quarter of 2008. The 2009 provision for income taxes included $0.3 million relating to our foreign operations, which continue to be profitable, and $0.1 million relating to our domestic operations. The 2008 provision for income taxes included $0.8 million relating to our foreign operations, and $0.3 million relating to our domestic operations. Due to significant domestic net operating loss carryforwards, which are fully reserved by a valuation allowance, our domestic operations are not expected to incur significant income taxes for the foreseeable future.

Six Months Ended June 30, 2009 and 2008


The following table shows our Condensed Consolidated Statements of Operations,
percentages of sales, and comparisons between the six months ended June 30, 2009
and 2008 (dollars in thousands):



                                     Six Months Ended                    Dollar and
                                         June 30,                        Percentage
                               2009                   2008                 Change
Net sales               $ 134,869    100.0 %  $ 216,756      100.0 % $ (81,887 )   (37.8 )%
Cost of sales              90,103     66.8      126,400       58.3     (36,297 )   (28.7 )
Gross profit               44,766     33.2       90,356       41.7     (45,590 )   (50.5 )
Operating expenses:
Selling, general, and
administrative
expense                    38,429     28.5       46,939       21.7      (8,510 )   (18.1 )
Research and
development expense        26,049     19.3       29,871       13.8      (3,822 )   (12.8 )
Amortization expense        3,660      2.7        4,382        2.0        (722 )   (16.5 )
Restructuring expense       6,375      4.7        2,875        1.3       3,500     121.7
Asset impairment
charge                        304      0.3          285        0.1          19       6.7
Other income, net           1,409      1.0         (378 )     (0.2 )     1,787    (472.8 )
Total operating
expenses                   76,226     56.5       83,974       38.7      (7,748 )    (9.2 )
Operating income          (31,460 )  (23.3 )      6,382        3.0     (37,842 )  (592.9 )
Interest expense, net       3,407      2.6        3,305        1.5         102       3.1
(Loss) income before

Net Sales and Orders



Net sales of $134.9 million for the six months ended June 30, 2009 were down
37.8% compared to the comparable 2008 period.  The following is an analysis of
sales and orders by segment and by region (dollars in thousands):



                                     Sales                                              Orders
                 Six Months Ended        Dollar and Percentage         Six Months Ended           Dollar and          Book-to-Bill
                     June 30,                    Change                    June 30,           Percentage Change           Ratio
                 2009        2008             Year to Year             2009        2008          Year to Year         2009     2008
Segment
Analysis
LED & Solar
Process
Equipment      $  54,084   $  87,222   $      (33,138 )     (38.0 )% $  84,863   $  90,738   $     (5,875 )  (6.5 )%   1.57     1.04
Data Storage
Process
Equipment         34,498      60,840          (26,342 )     (43.3 )     27,136      92,326        (65,190 ) (70.6 )    0.79     1.52
Metrology         46,287      68,694          (22,407 )     (32.6 )     39,721      62,707        (22,986 ) (36.7 )    0.86     0.91
Total          $ 134,869   $ 216,756   $      (81,887 )     (37.8 )% $ 151,720   $ 245,771   $    (94,051 ) (38.3 )%   1.12     1.13
Regional
Analysis
Americas       $  43,833   $  77,766   $      (33,933 )     (43.6 )% $  32,232   $  93,410   $    (61,178 ) (65.5 )%   0.74     1.20
EMEA              33,150      41,029           (7,879 )     (19.2 )     27,497      35,014         (7,517 ) (21.5 )    0.85     0.85
Japan              9,987      22,743          (12,756 )     (56.1 )     14,360      16,779         (2,419 ) (14.4 )    1.44     0.74
Asia Pacific      47,899      75,218          (27,319 )     (36.3 )     77,631     100,568        (22,937 ) (22.8 )    1.62     1.34
Total          $ 134,869   $ 216,756   $      (81,887 )     (37.8 )% $ 151,720   $ 245,771   $    (94,051 ) (38.3 )%   1.12     1.13

Sales declined in each segment in the six months ended June 30, 2009 compared with the same period in 2008 due to our customers' reluctance to invest in capital equipment during the current difficult economic conditions. LED & Solar Process Equipment sales were down 38.0% from the same period of 2008 primarily due to a pause in capacity spending as LED customers absorb the equipment purchased from Veeco during the last two years. Data Storage Process Equipment segment sales declined by 43.3% from the same period of 2008 due to a slowdown in capital spending by our data storage customers. Additionally, Metrology sales decreased by 32.6% from the same period of 2008, primarily due to a slowdown in the research, industrial and data storage markets. By region, net sales decreased by 43.6%, 19.2%, 56.1%, and 36.3% in the Americas, EMEA, Japan, and Asia Pacific, respectively. We believe that there will continue to be quarter-to-quarter variations in the geographic distribution of sales.

Orders for the six months ended June 30, 2009 decreased by 38.3% from the comparable 2008 period. On a segment basis, orders for LED & Solar Process Equipment decreased by 6.5% from the comparable period in 2008, principally driven by economic conditions in recent quarters, which had caused some potential customers to delay investing in these emerging markets. The 70.6% decrease in Data Storage Process Equipment orders resulted from customers continuing to significantly slow down their capital spending. The 36.7% decrease in Metrology orders is due to low demand from customers in the semiconductor and research and industrial markets.

Our overall book-to-bill ratio, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 1.12 for the six months ended June 30, 2009, vs. 1.13 for the comparable period in 2008. However the book-to-bill ratio for the LED & Solar Process Equipment segment improved to 1.57 to 1 from 1.04 to 1 in the same period in 2008. Our backlog as of June 30, 2009 was $160 million, compared to $147.2 million as of December 31, 2008. During the six months ended June 30, 2009, we experienced backlog adjustments of approximately $3.9 million, consisting of $2.9 million for order cancellations and $1.0 million of adjustments related to foreign currency translation. Due to changing business conditions and weak capital equipment spending by certain customers in our businesses, we may continue to experience cancellations and/or rescheduling of orders. Despite some indications of improvement over the first quarter of 2009, particularly in the LED & Solar Process Equipment segment, we still expect 2009 to be a challenging year for the Company as we continue to experience weak new order conditions and customers foregoing capacity and technology investments in our Data Storage and Metrology segments.

Gross Profit

Gross profit for the six months ended June 30, 2009, was 33.2%, compared to 41.7% in the comparable 2008 period, primarily due to the significant decline in sales. LED & Solar Process Equipment gross margins decreased from 41.2% in the prior-year period to 31.3%, primarily due to the significant decrease in sales volume as compared to the prior-year period. Additionally, Data Storage Process Equipment gross margins decreased from 38.3% in the prior-year period to 30.9%, due to reduced sales volume as well as a charge of $1.5 million to write-off inventory in the first quarter of 2009 associated with certain discontinued data storage product lines. Metrology gross margins decreased from 45.3% in the prior year period to 37.2%, principally due to lower sales volume and a less favorable product mix in Metrology instrumentation product sales.

Operating Expenses

Selling, general and administrative expenses decreased by $8.5 million, or 18.1%, from the prior-year period, primarily due to lower salary and related expenses resulting from the personnel reductions taken as part of management's restructuring plan, a reduction in incentive bonuses and profit sharing, and decreased commissions expense, as well as cost savings initiatives resulting in less consulting, legal, and professional fees and travel and entertainment expenses.

Research and development expense decreased $3.8 million from the comparable period of 2008, primarily due to a more focused approach to metrology and data storage product development resulting from our restructuring activities. As a percentage of sales, research and development increased to 19.3% in the six months ended June 30, 2009 from 13.8% in the same period in 2008 as a result of lower sales.

Amortization expense was $3.7 million in the six months ended June 30, 2009, compared to $4.4 million in comparable period of 2008, due to reduced intangible assets resulting from asset impairment charges taken during the fourth quarter of 2008.

Restructuring expense of $6.4 million for the six months ended June 30, 2009 consists of $5.2 million of personnel severance costs resulting from a reduction in workforce. In addition, there were $0.9 million of lease-related costs and $0.3 million of moving and consolidation costs incurred in our Data Storage Process Equipment segment associated with vacating our Camarillo, CA facilities. In addition to the $6.4 million restructuring expense, there was also a $0.3 million asset impairment charge. Restructuring expense of $2.9 million incurred in the six months ended June 30, 2008 consists of $2.6 million in lease-related costs associated with the consolidation and relocation of our Corporate headquarters into our Plainview, New York facility, and $0.3 million of personnel severance costs.

Other expense, net for the six months ended June 30, 2009 includes a foreign currency exchange loss of $1.3 million.

Interest Expense, Net

Net interest expense in the second quarter of 2009 was $3.4 million, comprised of $2.0 million in cash net interest expense and $1.4 million in non-cash interest expense related to the implementation of FSP APB 14-1. Net interest expense in the second quarter of 2008 was $3.3 million, comprised of $1.9 million in cash net interest expense and $1.4 million in non-cash interest expense that is presented pursuant to the retroactive presentation requirements of FSP APB 14-1. See "Recent Accounting Pronouncements" for a further discussion of the implementation of FSP APB 14-1. The slight increase in net interest expense is due to lower interest income resulting from lower interest rates and lower average cash balances invested during the current period compared to the comparable 2008 period, partially offset by decreases in interest expense resulting from the extinguishment of $25.2 million of the convertible subordinated notes in December 2008, and the repurchase of $12.2 million of our 4.125% convertible subordinated notes due April 2012 during the fourth quarter of 2008.

. . .