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Media release: First half 2005

First half 2005: Orders received and sales clearly below comparable prior-year period. Disappointing course of business in Semiconductor Equipment segment leads to negative operating result of CHF -112 million. New management team adopts measures for profitable development of Unaxis.

Pfäffikon SZ, August 18, 2005 − Unaxis recorded first-half 2005 sales of CHF 702 million, a 30 percent decline over the comparable prior-year period (H1 2004: CHF 1,007 million). The total orders received by the company fell in comparison to the first six months of 2004 by 35 percent to CHF 714 million (H1 2004: CHF 1,090 million). Compared to the previous quarter, orders received rose by 16 percent to CHF 384 million. The Semiconductor Equipment and Data Storage Solutions segments were particularly impacted by the cyclically related weakness in demand and correspondingly severe price pressures.

On a consolidated basis, that resulted in a negative first-half 2005 operating earnings (EBIT) of CHF −112 million (H1 2004: CHF 43 million). Due to the low level of turnover, Unaxis was unable to utilize its production capacity fully, which in turn led to a significant decline in the operating margin. At the Group level, this resulted in a first-half 2005 consolidated loss of CHF –117 million (H1 2004: CHF 26 million).

This consolidated loss for the first half of 2005 had an impact on shareholders’ equity, which declined to CHF 1’179 million. Due to the simultaneously reduced balance sheet, however, the shareholders’ equity ratio increased to 53 percent. Net liquidity on June 30, 2005, amounted to CHF 513 million. In comparison to year-end 2004, that corresponds to a reduction of CHF 112 million. The Semiconductor Equipment segment in particular required substantial financial resources to finance its ongoing business activities as well as to rectify current projects underway at Display Technology.

Coating Services (Balzers): Intense competition pressures margins

Coating Services (Balzers) saw its first-half 2005 sales increase by 5 percent to CHF 191 million (H1 2004: CHF 182 million). This rise is mainly attributable to the higher volume of contract coating in the emerging markets of South America, Eastern Europe, and Asia. In these regions, growth rates of 30 to 40 percent were achieved. However, the restrained economic environment in the segment’s traditional markets and intense competition in the contract coating market had a negative impact on the first half of 2005 and led to a significant decline in operating earnings, which totaled CHF 21 million for the period (H1 2004: CHF 31 million). Balzers continued to pursue its growth strategy during the first six months of 2005 and opened five new coating centers in the USA, Argentina, and Canada, as well as an in-house center for a customer in Brazil. Consequently, Balzers’ global network of locations grew to a total of 66. In parallel, Balzers strengthened its product portfolio by launching new multifunction coatings for sophisticated materials.

Vacuum Solutions (Leybold Vacuum): Expansion into Asia continues

Vacuum Solutions (Leybold Vacuum) received orders during the first half of 2005 in the amount of CHF 191 million, slightly higher than the CHF 186 million recorded in the comparable prior-year. Sales remained unchanged at CHF 185 million (H1 2004: CHF 185 million). The operating result (EBIT), however, declined to CHF −3 million. (H1 2004: CHF 1 million). The market segments Analytics and Processing Industry showed a favorable course of business and counterbalanced the decline in the areas of Information Technology and Data Storage Media. In the Research and Development segment, Leybold Vacuum received two significant orders from China and Italy. As a part of its growth strategy in Asia, Leybold Vacuum opened a new subsidiary in India during the first half and expanded yet again its production capacity at the Tianjin facility in China. In order to increase Leybold Vacuum’s long-term profitability on a sustainable basis, a far-reaching restructuring program was developed and its implementation is now underway.

Data Storage Solutions: Excellently positioned with new formats

Data Storage Solutions recorded a total of CHF 79 million in orders received during the first half of 2005 (H1 2004: CHF 124 million) and sales in the amount of CHF 61 million (H1 2004: CHF 143 million). Due to the cyclically related weakness in demand and overcapacity in the market, these first-half results stood clearly below the levels achieved in the comparable prior-year period. Accordingly, the first half of 2005 resulted in negative operating earnings (EBIT) of CHF –14 million for the segment (H1 2004: CHF 18 million). However, the course of business improved in comparison to the second half of 2004, particularly in the new market segment Recordable Lines (DVD R). Moreover, the programs introduced in 2004 for improving the segment’s flexibility and cost structure showed initial favorable results. During the first half of 2005, Data Storage Solutions also intensified its cooperation with leading companies in the data storage industry and thereby achieved early developmental successes in future formats such as High Definition DVD and Blu Ray.

Components and Special Systems: Results clearly below prior-year levels

Components and Special Systems recorded during the first half of 2005 a significantly lower amount of orders received, with CHF 111 million versus the CHF 208 million booked in the comparable prior-year period. Sales declined to CHF 97 million (H1 2004: CHF 139 million), and the segment’s operating result (EBIT) fell to CHF 3 million (H1 2004: CHF 13 million).

Optics, following an extended period of high growth rates, experienced a marked decline in orders received and total sales for the first half of 2005. The greatest impact was felt in the division’s most important Projection Displays area, which suffered the effects of a general decline in the market as well as falling prices for front and rearprojection equipment. In addition, InFocus, a major customer, decided to reassess its rear-projection strategy and allow its assembly contract with Optics to lapse. However, the division received larger orders for components of the latest Sony LCOS TVs and was chosen by Texas Instruments to be a partner in the area of DLP chips. The BioChip area enjoyed a further gratifying pace of growth and managed to record a significant increase in orders received.

Space Technology (Contraves Space) was able to register a slight increase in both sales and orders received as compared to the first half of 2004. In January 2005, the European space probe Huygens, for which Contraves Space developed the separation mechanisms, landed successfully on Saturn’s moon, Titan. A further key event was the start of the Ariane 5 ECA, the new launch vehicle designed to carry heavy cargoes for which Contraves Space supplies the payload fairings.

Semiconductor Equipment: Substantial value adjustments burden results

Orders received by the Semiconductor Equipment segment during the first half of 2005 stood at CHF 142 million, clearly below the amount recorded in the comparable prioryear period (H1 2004: CHF 391 million). Sales fell markedly to CHF 167 million (H1 2004: CHF 359 million). Semiconductor Equipment recorded an EBIT loss of CHF –127 million (H1 2004: CHF −24 million).

Wafer Processing managed to defy the general weakness in the semiconductor equipment market by maintaining its volume of orders received at the level recorded in the comparable prior-year period. However, sales declined significantly, mainly as the result of lower demand for photomask etching equipment as well as certain delivery delays. Given the persistent market weakness, Wafer Processing has adapted its cost structures and increased its competitiveness. Initial orders were received for the new VERSALINE and CLUSTERLINE systems, but because key customers have postponed their planned innovation activities, Wafer Processing halted its LEPP and I-PVD projects.

Assembly & Packaging (ESEC) was confronted during the first half of 2005 with the anticipated sharp decline in the market for back-end equipment, a cyclical market development caused by overcapacity and continuing price pressures. Orders received and total sales, therefore, both stood clearly below the levels recorded for the first six months of 2004. In the die bonding area, the introduction of ESEC’s new, enhancedperformance Die Bonder took center stage in the first half of the year. In an effort to gain the necessary proximity to its customers, ESEC strengthened its organizational structure and continued to expand its worldwide divisional locations. Not least of all due to its increased presence in Asia, ESEC made further progress in introducing the Wire Bonder 3100 at key customer facilities.

Display Technology: Targeted withdrawal from the flat panel display business

As a result of the massive losses recorded by this division in the 2004 financial year as well as the poor profit outlook for the current year, Unaxis has decided to withdraw from the flat panel display business. This resolution is now being implemented in a targeted manner. During the first half of 2005, Display Technology focused on developing its solar-related business, as well as attending to current projects and maintaining the installed base of equipment in the flat panel display area. The solar energy market continues to develop favorably. In the first half of 2005, Unaxis signed a cooperation agreement with a manufacturer of high-grade solar cells.

Outlook: Sustainable growth as the goal

For the future of Unaxis, the Board of Directors and Executive Board have set a clearcut, ambitious goal: Unaxis is to become a world-renowned multibusiness high-tech company. The company will be rapidly stabilized and returned to the black. To that end, an incisive Group-wide cost-cutting program has been introduced and has the goal of achieving a significant increase in profitability. Moreover, management of the various segments is to be tied more closely to the Group level than has been the case in the past. In this regard, control instruments within the company are to be expanded, particularly in terms of financial reporting, risk management and the management of human resources. Unaxis expects the related measures to exert a positive influence on the company’s financial results as of the 2006 financial year. The second half of 2005 and the 2006 financial year represent a period of transition for Unaxis. Initial signs allow the conclusion to be drawn that the second half will witness a pick-up in demand at Data Storage Solutions and Optics, whereas no such signs are currently to be seen in the semiconductor-related market. The restructuring efforts already underway at Semiconductor Equipment and Vacuum Solutions will be accelerated further in the second half of 2005. The company’s semiconductor-related business, which is conducted by the Wafer Processing and Assembly & Packaging (ESEC) divisions of the Semiconductor Equipment segment, is to be turned around and subsequently developed further according to the options at its disposal. Parallel to its market expansion, Coating Services will be implementing measures to increase its profitability. Against this backdrop, Unaxis expects that full-year revenues for 2005 will come in below the level recorded in the previous year, and that the second half will make a positive EBIT contribution which nevertheless will be unable to compensate for the losses suffered in the first six months of 2005.

Note for media representatives and analysts:

Media conference today, Thursday, August 18, 2005, 10:30 am CET,
Widder Hotel, Zurich
: Within the framework of a media conference, CEO Thomas P. Limberger will discuss the company’s first-half results and be available for questions. The conference will be conducted in German.

Analysts’ conference today, Thursday, August 18, 2005, 2:00 pm CET, 
Widder Hotel, Zurich
: At a conference for securities analysts, CEO Thomas P. Limberger will discuss the company’s first-half results and be available for questions. The conference will be conducted in English.

Attachment: Key figures tables

This media release is based on information currently available to management. The forward-looking statements contained herein could be substantially impacted by risks and influences that are not foreseeable at present, so that actual results may vary materially from those anticipated, expected, or projected.

For further information, please contact:

Thomas Schmidt

Head of Group Communications

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