AG Associates Posts Fiscal 1996 Third Quarter Results.

SAN JOSE, Calif.--(BUSINESS WIRE)--July 31, 1996--AG Associates (NASDAQ:AGAI), the world's leading supplier of advanced, single-wafer rapid thermal processing (RTP) equipment used in the manufacture of integrated circuits (ICs), today reported results for the three and nine month periods ended June 30, 1996.

Consistent with street expectations, net sales for the third quarter of fiscal 1996 reached $17.2 million, up from the $16.8 million posted in the third quarter of fiscal 1995. Net income was $39,000 ($0.01 per share), down from the $3.7 million reported last year ($0.32 per share excluding a one-time tax benefit of $0.43 per share).

For the nine months ended June 30, 1996, revenues rose 45 percent over the same period last year-reaching $62.3 million. Net income, however, decreased to $4.65 million ($0.76 per share), compared to the $6.9 million ($0.90 per share excluding the one-time tax benefit of $0.74 per share) posted last year.

Commenting on the results, AG Associates' Chairman and Chief Executive Officer Dr. Arnon Gat noted that the industry's current market conditions have clearly impacted the company's second half of fiscal 1996. "As we reported last quarter, the pushouts of both new fabs and fab expansions have led to reduced order rates for our RTP product line," said Gat. Another major factor affecting results was the heavy R&D investment associated with the company's new RTP system, Heatpulser 8800-introduced earlier this month at the SEMICON/West '96 exposition in San Francisco.

According to company officials, Heatpulse 8800 addresses a majority of 0.25-micron process requirements, while enhancing existing 0.35-micron RTP applications. This new, advanced 200mm RTP tool, which is based on AG Associates' production-proven Heatpulse platform, incorporates a number of proprietary design features that dramatically improve temperature uniformity and repeatability, while significantly boosting throughput.

Gat added that Heatpulse 8800 incorporates a new feature that permits emissivity-independent temperature control throughout the processing cycle-a significant requirement in allowing chipmakers to achieve superior process repeatability and increase yield.

"When coupled with other new design features, Heatpulse 8800 enables chipmakers to achieve significantly better results in both process performance and cost of ownership for today's most advanced IC production requirements. Specifically, Heatpulse 8800 offers results comparable to the most advanced tool on the market today, yet is available at one-third the price," said Gat.

Despite the strong reception the tool received at the show and its future potential in the market, AG Associates remains very cautious given the lengthening industry slowdown. Due to current market conditions, AG Associates anticipates that the slowdown in demand for the company's products will continue for the foreseeable future.

To bring expenses in line with expected revenue during the challenging period ahead, AG Associates reports that it has initiated aggressive expense control measures, including a reduction in work force that affected 69 out of 295 employees -- primarily in the manufacturing, administrative and selected development areas. The company also noted that it is reorganizing and closely managing operating expenses to further control costs.

At the same time, the company announced that it will maintain all of its customer support programs to meet the needs of its customers worldwide, as well as continue to invest heavily in the core competencies critical to success in this market. These include temperature uniformity, repeatability, throughput and other emerging next-generation RTP process requirements.

As part of this effort, AG Associates is continuing to develop its 0.18-micron-capable RTP system, which is slated for market announcement in the first quarter of calendar year 1997, with production shipments beginning in the second half of 1997.

Except for historical information, the matters discussed in this news release are forward-looking statements that are subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected, including the timely development and acceptance of new products, pricing competition and other risks detailed from time to time in the Company's SEC reports. The Company assumes no obligation to update the information in this release.

AG Associates is the leading supplier of rapid thermal processing equipment to the worldwide semiconductor industry. Founded in 1981, AG Associates is headquartered in San Jose, and maintains customer service and support centers in the United States, Europe and Far East to support its global customer base. The company's common stock trades on the Nasdaq Stock Market under the symbol "AGAI." -0- Tables To Follow

                          AG ASSOCIATES INC.
                  CONSOLIDATED STATEMENTS OF INCOME
                (in thousands, except per share data)
                             (Unaudited)

                              Three Months Ended   Nine Months Ended
                                   June 30,            June 30,
                                1996      1995      1996       1995

Net sales                    $17,196   $16,780   $ 62,256   $ 42,994

Costs and expenses:
 Cost of sales                 9,961     8,827     33,337     23,314
 Research and development      4,322     2,373     12,075      5,909
 Selling, general
  and administrative           2,539     3,135      8,415      7,685
Total costs and expenses      16,822    14,335     53,827     36,908
Income from operations           374     2,445      8,429      6,086
Other income (expense), net      192        56        604       (202)
Equity interest-unconsolidated
 subsidiary                     (500)      (57)    (1,152)       (57)
Income before income taxes        66     2,444      7,881      5,827
Provision (credit) for
 income taxes                     27    (1,225)     3,231     (1,052)
Net income                       $39    $3,669     $4,650     $6,879
Net income per share           $0.01     $0.75      $0.76      $1.64
Shares used in per share
 computations                  6,027     4,898      6,142      4,208

                          AG ASSOCIATES INC.
                     CONSOLIDATED BALANCE SHEETS
                           (in thousands)

                                         June 30,     Sept. 30,
                                           1996          1995
                                        (Unaudited)
Assets
 Cash and equivalents and short-term
  investments                            $12,400       $18,858
 Accounts receivable, net                 14,506        13,508
 Inventories                              11,402         8,394
 Deferred tax assets                       4,336         3,665
 Prepaid expenses and other current
  assets                                     454           556

  Total current assets                    43,098        44,981

 Property and equipment, net               7,623         3,453
 Deferred tax assets                         239           239
 Other assets                                 --           152

  Total assets                           $50,960       $48,825

Liabilities and shareholders' equity
 Accounts payable                        $ 4,382       $ 7,041
 Accrued liabilities                       4,228         4,519
 Warranty reserve                          3,286         2,651
 Current portion of long-term
  obligations                                260           321
 Income tax payable                          977           650
 Customer advances and deferred revenue      410         1,150

  Total current liabilities               13,543        16,332

 Long-term obligations                        38           193
 Shareholders' equity                     37,379        32,300

  Total liabilities and shareholders'
    equity                               $50,960       $48,825

CONTACT: AG Associates

Arnon Gat, 408/935-2000