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                               PRESIDENT'S REPORT

                                 Annual Meeting
                                 April 29, 1999

Thank you Dean and good morning,  ladies and gentlemen.  Before I start, I would
like to recognize  some of our former  officers  who are with us today.  I think
this is a record  turnout:  First  Dr.  Tom  Purl,  who was my  mentor  for many
years--it's good to see him; Carl Avelar;  Bruce Bleecker;  Don Schaefer;  Peter
Pao; Keith Gilbert,  who left as part of the  divestiture  that became  Stellex;
Carol  Roosen;  and Rick Bell.  Hopefully I haven't  missed any one,  but I have
never had this many former officers at a meeting. It is nice to see all of you.

It is a pleasure to address all of you at this meeting of Watkins-Johnson.  It's
our 41st,  but this is a much  different  speech than the past  annual  meetings
since this year on March 1 we  announced a milestone  decision.  On that day, we
announced our decision to pursue the sale of Watkins-Johnson Company.

As I'm sure you can imagine, this was not an easy decision.  Watkins-Johnson has
been in  business  for 41 years  and has a  wonderfully  dedicated  and  skilled
workforce--many   of  whom  have  worked  at  no  other  company   during  their
professional  career.  We are proud of our  history of  excellent  products  and
service  in   sophisticated   technical   industries.   However,   in  light  of
profitability  problems  in the  past  few  years,  we  realized  we had to make
significant changes to maximize shareowner value.

After exploring every alternative with our financial  advisors (CIBC Oppenheimer
Corporation--we  have two representatives  here with us today), the board became
convinced  that  the  sale  of the  company,  in  its  entirety  or as  separate
businesses,  is the best course to maximize  shareowner  value. We have embarked
upon that process.  We recognize  that selling only  particular  segments of the
company will not maximize the shareowner value.

Today, I'm pleased to report to you our progress in implementing that strategy.

o    As  we  have  announced,   we  sold  our  semiconductor  equipment  group's
     high-density-plasma  chemical vapor  deposition  intellectual  property and
     associated  hardware  to Applied  Materials.  This will  result in a second
     quarter pre-tax gain of $9 million.

o    We entered  into a  non-binding  letter of intent with the  Silicon  Valley
     Group regarding the sale of the Semiconductor  Equipment Group. This letter
     of  intent  gave  them a period of  exclusivity.  We are still in  detailed
     negotiations  with them.  The  negotiations  are moving forward and we will
     keep you aware of any material developments in this situation.

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o    The activity  seeking  potential  buyers for the wireless  segment has just
     started.  As I will discuss later in the first quarter  results,  I believe
     the strength of our wireless activities will become apparent.

We're also working on two separate real estate transactions.

o    The marketing of the balance of our property in San Jose, an  approximately
     190,000 square foot vacant  building on nearly 14 acres, is moving forward.
     This  complements  the sale we announced  last year of 15 acres of adjacent
     undeveloped land. This sale generated  approximately $15 million of pre-tax
     gain.

o    The second real  estate  piece is the Palo Alto  facility  in the  Stanford
     Research  Park.  It is  held  under  two  long-term  leases  from  Stanford
     University.  One of these  leases was  obtained  in 1957 for 99 years;  the
     other was obtained in 1974 for 55 years. This property could be redeveloped
     and leased at much higher rates today.  An example of this  possibility  is
     the property that we returned to Stanford in December of 1997; the building
     that they built for TIBCO on that land looks like it has roughly  twice the
     square  footage that WJ had. This process on the two leases in Palo Alto is
     also just starting and it is difficult at present to predict its timing.

I would  now like to turn to the  results  of our  strong  first  quarter.  I am
pleased to say that each group is now profitable with a growing backlog.

o    Mal Caraballo  directs the Wireless  Products Group,  headquartered in Palo
     Alto with a facility  in  Milpitas.  This unit has  doubled its sales every
     year for the past three, and they became profitable last year. We expect to
     see 30 to 50 percent revenue growth and continued  profitability  from them
     in 1999.  Their  first  quarter  sales of nearly $24  million and roughly a
     one-to-one book to bill ratio show them on track.  Their pre-tax  operating
     profit margin this quarter was over our target of five percent.

     We are proud of their ability to satisfy their  customers.  Last  November,
     for the second  year  running  they  received a major  supplier  award from
     Lucent   Technologies.   In  1998,   they   were  one  of  only  two  "WOW"
     vendors--that's  W-O-W,  Lucent's highest vendor award.  This year they are
     successfully  broadening  the  customer  base as they  capture  new orders.
     Unfortunately,  non-disclosure  agreements and  competitive  considerations
     prevent me from disclosing more about these new customers at this time.

o    I  am  pleased  to  report   that  the   Telecommunications   Group   (TG),
     headquartered  in  Gaithersburg  under the  direction  of Bob  Hiller,  has
     stabilized its business.  They are now operating  profitably and have solid
     prospects of  continuing  to grow on a quarterly  basis after  reaching the
     bottom of their  decline in the third  quarter of 1998.  Their sales of $11
     million for the first quarter of 1999 were at the planned operating profit.
     TG's first  quarter  orders of $17 million  were their best since the first
     quarter of 1997,  two years ago.  And, I am also happy to report  that this
     week a major $8 million 

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     order for the limited rate  production  quantities  on the COBLU system has
     been received from Lockheed  Sanders.  This is a system that we expect will
     generate follow-on business for several years.

o    The Semiconductor Equipment Group (SEG), headquartered in Scotts Valley and
     directed  by Pat  Brady,  is also off to a very  good  start.  Their  first
     quarter's  sales of $30 million were above our earlier  expectations;  they
     have returned to the profit column. In fact, the quarterly operating profit
     of $1.1 million was their best in over two years.  First  quarter  bookings
     were very strong with a book-to-bill  ratio of 1.4 to 1. Several  customers
     have  purchased  the  new  WJ-1500.  This  tool  is  aimed  at the  0.15 to
     0.18-micron  geometry integrated  circuits.  All customers continue to talk
     strongly with our sales force about purchases,  and right now we expect the
     group to exceed the  expectations  we  announced  earlier this year when we
     said SEG would have  profitable  sales  between  $100 and $110  million for
     1999.

On behalf of the  Board,  I would  like to take this time to thank the entire WJ
team for their  dedicated  service  through these tough times and the unsettling
period of the business sale.

In turning back to the process of seeking buyers,  we plan to keep you informed,
as appropriate,  of any other agreements relating to the sale of the company. Of
course,  we cannot  guarantee you that this activity will be successful,  but we
intend to put our best efforts into implementing this strategy.

Your  Board of  Directors  is very  committed  to  maximizing  the value of your
investment in  Watkins-Johnson.  We have taken  decisive  action to fulfill that
commitment, and will continue to do so.

Dean, I will turn the meeting back over to you.

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