AG Associates Reports Second Quarter Results for Fiscal 1998.

SAN JOSE, Calif.--(BUSINESS WIRE)--April 22, 1998--AG Associates (NASDAQ:AGAI), the pioneer and a leading supplier of advanced, single-wafer rapid thermal processing (RTP) equipment used in the manufacture of integrated circuits (ICs), today reported results for the second quarter of fiscal 1998 ended March 31, 1998.

Net sales for the quarter were $12.6 million, a 13 percent increase over the $11.1 million in net sales reported during the second quarter of fiscal 1997, and a 24 percent decline from the $16.4 million in net sales reported for the prior quarter. Net loss for the second quarter was $ 2.2 million, or ($0.36) per share, compared to net loss of $2.2 million, or ($0.37) per share, for the same period last year, and a net income of $9,000, or ($0.00) per share, reported for the previous quarter. For the second quarter of fiscal 1998, the net loss was adversely impacted by the company's inability to record a credit for income taxes, which was a result of certain changes to the tax law.

For the quarter, R&D spending remained below $4.0 million as the company shipped its first 200 mm and 300 mm Starfire beta units to leading chipmakers in Japan for 0.18 micron RTP applications. The company has also received a commitment for a credit facility of up to $15 million for working capital purposes.

Commenting on the results, AG Associates' Chairman and Chief Executive Officer Dr. Arnon Gat noted, "Our financial performance was the result of the overall softness in the semiconductor capital equipment market. We continue to tightly manage our overhead and operating expenses, while still aggressively investing in the development of our new RTP products and technologies that will allow us to remain competitive in today's marketplace. Multiple beta shipments of our new Starfire systems to leading chipmakers this quarter are testament to our successful R&D efforts."

During the quarter, AG Associates announced that it had received several multimillion-dollar follow-on orders from a leading Japanese chipmaker for its Heatpulse 8800 RTP systems. "All competitive wins over another leading RTP supplier, these orders are indicative of this chipmaker's confidence in AG Associates as a supplier of leading-edge, low cost RTP solutions in this climate of price pressure on IC manufaturers. Our success with this customer can also be attributed to our Japanese distributor, Canon Sales Co., Inc., which continues to maintain our greater than 50 percent market share in this region," said Gat.

Gat continued, "During the quarter, we also filed amended counter claims against Applied Materials, Inc. (Santa Clara, Calif.) for the infringement of three additional patents held by AG Associates -- bringing the total number of patents infringed by Applied Materials to four. As a result, we are taking the necessary steps to protect the investment we have made in our core business technology and intellectual properties over the last 17 years."

Looking forward, Gat noted that despite a slight increase in the company's book-to-bill ratio, AG Associates does not expect the subsequent quarters to improve until the semiconductor market begins to turn around. "We believe we have the right technology and global infrastructure in place to capitalize on the RTP market once the industry's condition improves. In fact, this past quarter we brought on board two seasoned industry veterans to help lead the way. In January, we added Dr. Randhir Thakur as vice president of technology and R&D and recently appointed Joseph Savarese to our board of directors. Their extensive industry experience and strategic guidance will prove to be valuable assets as we position AG Associates for the next wave of industry growth."

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 degree to which orders and shipments are affected by the economic instability in Asia, the timely development and acceptance of new products, pricing, competition, the uncertainties of ongoing negotiations, unpredictability of litigation and other risks detailed from time to time in the company's SEC reports. In particular, see the "Factors That May Affect Future Results" sections in the company's Form 10-K for the year ending September 30, 1997, and the company's Form 10Q for the three months ending December 31, 1997. The company assumes no obligation to update the forward-looking information in this release.

AG Associates is a leading supplier of rapid thermal processing (RTP) equipment to the worldwide semiconductor industry. Founded in 1981, AG Associates is headquartered in San Jose, Calif., 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. For more information on the company, visit AG Associates at: http://www.agassociates.com on the World Wide Web. -0-

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

                          Three Months Ended      Six Months Ended
                                March 31              March 31
                         (unaudited)(unaudited) (unaudited)(unaudited)
                             1998       1997        1998       1997

Net sales                  $12,569    $11,140     $29,002     $20,273

Costs and expenses
  Cost of sales              8,889      9,329      19,074      15,063
  Research and development   3,787      2,850       7,735       6,027
  Selling, general and
   administrative            2,145      1,994       4,506       4,084
Total costs and expenses    14,821     14,173      31,315      25,174
Loss from operations        (2,252)    (3,033)     (2,313)     (4,901)
Other income, net               44        110         120         250
Loss before income taxes    (2,208)    (2,923)     (2,193)     (4,651)
Provision (credit) for
 income taxes                    0       (731)          6      (1,163)
Net loss                   ($2,208)   ($2,192)    ($2,199)    ($3,488)

Basic net loss per share    ($0.36)    ($0.37)     ($0.36)     ($0.59)
Diluted net loss per share  ($0.36)    ($0.37)     ($0.36)     ($0.59)

Shares used in basic
 per share calculation       6,074      5,953       6,069       5,957
Shares used in diluted
 per share calculation       6,074      5,953       6,069       5,957


                          AG ASSOCIATES, INC.
                      CONSOLIDATED BALANCE SHEETS
                            (in thousands)

                             March 31, 1998     September 30, 1997
                               (unaudited)

Assets

 Cash, equivalents and
  short-term investments         $ 1,098               $4,157
 Accounts receivable, net         10,618               13,415
 Inventories                      13,880               11,676
 Income taxes refundable             155                1,652
 Deferred income tax               2,215                2,221
 Prepaid expenses and
  other current assets             1,256                  896
Total current assets              29,222               34,017

 Property and equipment, net       9,507                8,493
 Deferred income tax                 437                  437
Total assets                     $39,166              $42,947

Liabilities and Shareholders'
 Equity

Accounts payable                  $5,618               $6,272
Accrued liabilities                2,378                2,997
Warranty reserve                   1,255                1,687
Current portion of long-term
 obligations                         184                  194

Total current liabilities          9,435               11,150
  Capital lease obligations          193                  275
  Shareholders' equity            29,538               31,522
Total liabilities and
 shareholders' equity            $39,166              $42,947

CONTACT: AG Associates

Kirk Johnson, 408/935-2004 (VP of Finance, CFO)

or

MCA, Inc.

Marie Labrie, 650/968-8900 (Account Manager)